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Moody's: Brazil central bank's ATM proposal a credit positive for new entrants

A Banco Central do Brasil proposal that would broaden access of existing ATMs to customers of financial technology startups, digital banks, and small and midsize banks is credit positive for newcomers, Moody's said.

The measure is credit positive for new and small lenders that provide online and innovative payment services without a distribution platform to cater to customer needs, especially in terms of cash-in and cash-out operations.

The rating agency pointed out that "by facilitating payment arrangements and establishing equal pricing and functionality terms, including technological requirements for incumbents, small banks and startups, the proposed rules will allow fintechs to use the existing ATMs to serve growing numbers of customers seeking lower-cost banking services in a market that predominantly uses cash."

Moody's also noted that the key challenge faced by new online banks and financial technology firms is distribution due to the traditional cash payments in Brazil.

Despite customer requirements for more digital solutions, the number of cash withdrawals will remain high in the country given the informal economy and low financial inclusion, the rating agency added. However, the use of cards and newer payment services, such as QR codes and digital wallets, is expanding speedily.