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Fintechs Step on the Gas as Brazil Unveils Open Banking

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Fintechs Step on the Gas as Brazil Unveils Open Banking


- Fintechs and open banking have the potential to help reduce the credit cost and improve efficiency in Brazil's banking system.

- Brazil is the largest fintech hub in Latin America, and regulation is helping boost the business.

- Mishandling of data or fraud leading to financial and reputational issues currently pose substantial risks.

- We expect traditional banking entities to remain the core players in the Brazilian financial system, but will monitor the rising clout of digital entrants.

May. 08 2019 — The Brazilian central bank (BACEN) is moving forward with a number of initiatives to promote competition and push down the cost of credit in the country, which has much higher spreads than peer emerging economies. In this sense, last year BACEN introduced regulation to allow fintech companies to broaden their product offerings by allowing them to extend credit directly to borrowers without the intermediation of banks. Moreover, upstart financial firms with narrow range of products and low complexity have lighter regulatory requirements than traditional banks, in line with the segmentation approach for prudential regulation implemented in January 2017. Now, with the opening banking initiative, BACEN is entrenching competition in the financial services industry. So far, fintechs in Brazil have been focusing on serving customers that banks have shied away from, or on products that previously were burdened with the perception of poor service quality or excessive fees, such as credit card processing services to small businesses, or offering credit cards without fees. S&P Global Ratings has also seen digital players growing significantly on the brokerage business, offering an investment platform. We believe fintechs will increasingly become a force to be reckoned with, and the impact will depend on how traditional banks respond to the new competition and the particular vulnerability of their business models. So far, Brazil's banking authorities are willing to implement the necessary measures to let this business expand. 

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