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Report: Despite Banco Neon failure, Brazilian fintechs still raising cash

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Report: Despite Banco Neon failure, Brazilian fintechs still raising cash

The liquidation of Banco Neon SA has not hampered Brazil's financial technology sector's success in drawing new investment, an unnamed industry executive told Valor Econômico.

On May 4, Banco Central do Brasil ordered the liquidation of Banco Neon citing regulatory breaches and impairment of the bank's "economic and financial situation." Neon Pagamentos SA, a financial technology startup that had leveraged Banco Neon to process checking accounts, was not part of the liquidation but was forced to temporarily halt operations.

According to the report, Banco Neon's business model more closely resembled a traditional bank than a fintech company, and as result its failure didn't directly hit the fintech space. What's more, Neon Pagamentos' ability to quickly form a partnership with Banco Votorantim SA has helped to calm the market, the executive reportedly said.

Meanwhile, Brazilian fintechs with expanding credit portfolios are increasingly seeking financing on the capital market, Valor reported separately, due to favorable rates and a demand from investment funds and wealth managers for credit assets.

XP Investimentos SA is reportedly working with four fintech operations which aim to raise around 600 million Brazilian reais in the third quarter of this year, according to the publication.

Several fintech startups are raising funds with so-called FIDCs, or credit rights investment funds, including the company Lendico which distributes personal loans. It is reportedly seeking 100 million reais from such a fund which diversifies both funding and revenue. The startup sells receivables from credit agreements to the fund, which are then distributed to investors, Valor Econômico reported.

As of May 31, US$1 was equivalent to 3.73 Brazilian reais.