Brazilian fintech has taken quantum leaps over the last couple of years. But to win in this ecosystem demands sufficient amounts of patience and local network to guide you through regulations and market uncertainty – according to local fintech veteran.

In Brazil, an ecosystem consisting of binary numbers is growing out of the undergrowth of the financial sector, and today São Paulo is one of the most interesting fintech-ecosystems in a global context.

Goldman Sachs predicts that the financial technology will bring in 24 billion dollars over the next ten years for the nation with the rhythmic mastery. An optimistic outlook that is shared by Guga Stocco, who is the co-founder of the venture capital firm, Domo Invest.

“Brazil is experiencing an extremely successful time. There are more than 600 fintechs, whereas four years ago there were only five. Growing from five to 600 shows us it is a considerable market. The Brazilian fintech market is very strong,” says Guga Stocco, who has more than 20 years of experience from both digital and finance businesses.

In the eye of the hurricane is São Paulo. Brazil’s most populous city has become the fintech capital of Latin America.

“There is a great concentration of companies in São Paulo. One way or the other, you have access to everyone. You would have to travel at least 50 times across Latin America to accomplish what you can achieve regarding business in the neighbourhoods where the companies are concentrated in São Paulo,” says Guga Stocco.

The road to El Dorado

Fintechs are still rigidly regulated, which makes partnerships between startups and more traditional institutions a prerequisite when a new business venture is formed.

“It is possible to start, for instance, a payment company. You will have the means to achieve that, but you always need to partner with a bank, you must have a payment license. There is a lot of bureaucracy and in some instances legal insecurity. It is not possible to open a company overnight. There are lots of things here that are wild. It is important that you learn how to deal with them, but if you do you will also be getting access to the El Dorado,” says Guga Stocco

An El Dorado that is home to more than 208 million Brazilians, who are digitised according to Guga Stocco.

“There are more cell phones than inhabitants. We are talking about one of the top ten economies of the world, where the financial market is extraordinarily profitable, whereas in other places in the world they are not,” says Guga Stocco.

The land of opportunity – for the patient

One of the growing pains of the ecosystem has been to sufficiently fuel its growth with enough capital.

“There are several good companies that do not have access to investment because the Brazilian investment market is not very good, so, there is the opportunity for investors to take advantage of this and make good investments while this is still a young market that has been growing increasingly fast,” says Guga Stocco.

Remedying a lack of capital is not the only opportunity for foreign fintechs to enter the market. Another is a banking sector with “fat margins”. Fees have gone up more than 15 percent the last year, and in general, the traditional banks are running is a profitable business. But this also leaves room for foreign players.

“Because our interest rates are very high and other factors, there are lots of opportunities. When you bring a foreign company that has impressive technology, usability, and service design, they come here and succeed getting a slice of this huge market because Brazilians are tired of the bureaucracy and high prices,” says Guga Stocco.

Cooperation is the new black

Many new banks have evolved from the ecosystem. Not regarding open banking concept but regular small banks operating like the major financial players and starting from scratch. The best example is Nubank and Banco Neon and targeting millennials and a new generation of Brazilians.

Two of the largest banks in Latin America regarding the value of assets, Itaú of Bradesco, is in São Paulo. And while the new fintech companies rely on partnerships with the larger institutions, the big banks also capitalise on the relationship.

An example of just that is Cubo that houses roughly 56 fintechs. The shared office space is a joint venture between Itaú and the American venture capitalist firm Red Point Ventures.

“Cubo is a place that connects, entrepreneurs, investors, universities and large companies. Itaú is taking part in this project because they wanted to be exposed to startups and learn from their different way of thinking and their alternative and new business models. The other reason is that they wanted an insight into the startup space, with regards to acquisitions,” says Flavio Pripas, Managing Director at CUBO.

The right relationship

But Guga Stocco, the fintech veteran, warns interested parties are suffering from FOMO that to win in Brazil you need local partners and a sufficient amount of patience. An approach that Dutch pay tech startup, Adyen, already employed with great success.

“It is necessary to team up with some local partners to make sure new entrants will overcome bureaucracy and other issues, and, consequently, establish the startup properly. But once they get it, they will excel. There are many European companies here that have started small, like Adyen, and now it is growing amazingly.  It takes longer than it would in Europe and the USA because the market is bureaucratic – but it is worth it,” says Guga Stocco.