The overview

Brazilian Fintech's market is changing fast. Here are some things that we will probably see in 2018.

Brazil just have its first unicorn. With the purchase of brazilian ride-hailing startup, 99taxis by the chinese Didi Chuxing, 99 just reached the valuation of $1billion. But that’s probably not the only company who will reach a $1billion valuation at this year, and yes, the other one is a fintech!

The IPO of an old acquaintance

UOL PagSeguro is heading to his IPO at NYSE at the first quarter of 2018 expecting to raise up to US$1.8billion. The huge company responsible for “Moderninha” — an EMV solution for small merchants and micro-entrepreneurs — had a great success while Brazil was facing one the worst political crisis of his history, followed by huge unemployment rates.

While online market grows with crisis (people tend to search more and do better business), we’ve seen an increase of self-employment, caused by political and financial problems within the country. PagSeguro have had amazing results even dealing with the creation of his own Acquiring System that will probably increase a lot of their margins in near future.

Creating a new market

The creation of Moderninha helped PagSeguro in many ways. At first, the new fintechs entering at online payments since 2013 have created a much more competitive scenario with lot of more technology than PagSeguro, so it couldn’t respond with the necessary speed. While the big companies were changing from sub acquiring systems to payment gateways and acquires, medium companies also have seen a light of performance increase with new technology companies like Pagar.me, MundiPagg and Moip. So, traditional sub acquires faced a problem of FRAUD dealing with small business without the big companies to balance.

While on the internet we have a huge fear of fraud what makes payments systems bring their conversion rates low, on the offline market it’s harder to happen. With the EMV Chip & Pin, we can almost assure that the credit-card is been used with (or with authorization) of the card owner. So when we take a company dealing with small business on the internet (which is risky) and take that to the real world you have a win-win strategy.

The rush for the small accounts

Small accounts had never been focus for most of the Fintechs. The risk of dealing with fraud and hard legislations by card brands and BACEN (Brazilian Central Bank) made then almost exclusive for sub acquirers, who tries to win by the volume and higher margins. In the last years, we’ve seen more professional attempts with bigger companies trying to go offline for that public. That’s probably because of the acceptance of Moderninha strategy (selling the POS and not renting it) and also the economic behavior. For example: In 2016, São Paulo taxi-drivers were obligated to accept cards. That law made a rush to sell for almost 38.000 taxi-drivers who were poorly attended in the past. Even the two biggest payments companies in Brazil: Cielo (Banco do Brasil, Bradesco and Caixa) and Rede (ITAÚ); made their way to the rush with new liquidation rules, trying to adapt for a public who usually don’t do great with finance. That’s not only true for taxi-drivers, but for almost all self-employed freelancers like hairdressers, ambulant-sellers and first-time entrepreneurs. Moderninha sells, even with a not so mature product it will do its job, so Acquires are trying harder not to lose their market-share with this new competitor. Here are some initiatives that will keep going on 2018:

• OpenSource POS for creating customized services for niche ex: Cielo LIO (an open source POS), Cloudwalk (an open source operating system for POS), Hashlab (a company dedicated to create customized payments systems even on POS), Verifone (POSs with android systems)etc.
• Sell, not rent: Companies are decreasing risk, while selling lower quality devices (POSs, mPOSs) to small merchants
• More liquidations bundles — For micro-entrepreneurs, know exactly when and how much he will receive his money is a must. So Fintechs take advantage to create bundles and earn more money on the go.

Bitcoin acceptance

Everybody is talking about bitcoin, so it’s not hard to expect that traditional companies will do their efforts to the acceptance of bitcoin. Mundipagg, one of the biggest payment-gateways in Brazil, made its effort to accept bitcoin in partnership with Reserva and Reserva Mini, being the first relevant brazilian ecommerce to accept cryptocoins. Probably, other companies will try to follow its path, however I don’t expect to see a relevant amount of transaction using bitcoin here in 2018, being just a branding effort for both sides (Merchant and provider).

While fintechs are trying to upgrade its technology for the acceptance of cryptocoin, banks already revealed that bitcoin can be a opportunity but also a threat. Financials institution needs to keep upgraded to the new technologies and currencies to prevent them to what happened to Blockbuster after Netflix, and Kodak after digital photography.

Payments go local and credit for all.

Brazilian market is passing through a huge change. Back in 2010 we have had a market closed to only two companies: VisaNet(Cielo) and Redecard(Rede), holded by the biggest banks. Since its opening we’ve seen business like Stone and GetNet coming to the market, taking market share, creating more competition that consequently brings more advantageous for the entrepreneur. Cielo and Rede also need to run with its technology, create initiatives and upgrade it’s customer services

But while we have giants fighting over here we have some local initiatives, with strong segmented campaign. It’s time to talk about Vero.

Going south in Brazil, we have Vero, which is an acquirer launched by BanriSul Bank in 2014. Banrisul is one the largest banks in south Brazil and have its card brand BanriCompras and BanriCard (vouchers). Most of the companies and syndicates gives Voucher to their employers and BanriCards also offers vantages like 60 days pre-dated credit. Even BACEN is working hard to make every brand to be accepted by every acquirer, Banrisul have had a great initiative creating his own brand. That strategy was pretty similar with Cielo banks, but while creating the brand ELO, they tried to force their account holders to use it instead of the regular Visa and Master cards and, in talk with some friends I captured to be a great inconvenience and disappointment for them.

But local initiatives aren’t happening only with big companies. I’ve seen plenty cases of companies being their own emissor, or creating sub acquirers and even both with closed-loops. That’s the case with MaxisCard in Paraná. Maxis was created to help companies and syndicates to control payroll deduction. Companies like maxis are using niche to create innovation combining payments and management.

Prepaid cards.

Do you know what 99taxis, ELO, MaxisCard, Pagseguro and Banrisul have in common? Even some are just a payment-method (or even a payments company) they all have a card. That seem obvious, right? But it’s not.

Brazil still have a low penetration of Credit card. And when we are in a middle of a economical crisis the access to credit is even lower. We’re living an era that almost everything you buy, you buy with credit: Netflix, ordering food with an app, tickets for the cinema, etc. So what do you do when you don’t have a credit? You spend more, you lost the convenience or you just don’t buy.

Even with the efforts to make debit card online accepted, that’s not even close to be real for everyone. But there an emergent market doing it well: the pre-paid cards.

When you sell something using PagSeguro, you receive the money in you PagSeguro card. And since that time you have a prepaid credit card… It’s good for you, but for the payment-system is even better. Why?

Let’s work with the hypothesis that you will receive your money in 30 days for 3%. You can receive your money in 2 days, for 5%. When doing a -dumb- short math, if you have to receive R$97,00 in 30 days, and been able to receive R$95,00 in just two days you do prefer to receive R$95,00…”It’s only two bucks”. But, if you don’t use that credit, your money still with the payment system, which can also profit on it. So you pay more to receive the money first, to don’t actually, receive the money.

Prepaid card is happening a lot. It give access to credit, but it also can shorten things like bar-lines at a concert. And it’s not only with cards, it can be with NFC bands, watches, smartphones etc.

Organization and evolution of providers.

In the last years the brazilian payment market was really confusing. You had plenty of sub acquires working on other sub acquires because of the bureaucracy and technology effort to become one. Then you had sub acquires who don’t actually needed to be sub acquires, but they where because they couldn’t find a payment provider who solves their problem.
That was even unprofessional and risky for everyone in the chain: customers, anti-fraud, acquirers, brand, sub acquires… The lack of information about payments in Brazil and the short amount of solutions, made that happen a lot. However, now, for the first time, we have mature solutions and more technology. As I said previously Open source solutions are giving more opportunities to create customized solution when the “acquirer bundle” it’s not enough.

That’s the case with HasbLab. HashLab was created to help companies to built their own payments solutions. Instead of being a Gateway for an acquire, Hashlab is a software house and Gateway of any kind of payments solutions: Gateways, Sub acquires, Acquires, Prepaid cards, POS, mPOS etc. Differently of any other company which I know, Hashlab goes from strategy to implementation, with high-level technology and development.

New Version of providers

The changes that we’re seeing in Brazil, with better competition, better opportunities, better technology and better organization are creating a rush to be always up-to-date with technology. The same is happening with all providers in the market. Upgrades should be more constant with new and improved features.

Companies are pushing further with it’s PSPs

The term PSP (Payments-service-provider) can be used to any forms of payments-system, but here in Brazil it’s used on a different way. The term became popular with Pagar.me on 2015–2016 with their new solutions to the market and have been used a lot by Pagar.me and Adyen.

There’s a rush between Adyen and companies from Arpex Capital (Stone, Pagar.me and Mundipagg) and we’ve seen serious improvements on technology and customer services since then.

" — So Victor, what the heck are you saying, while talking about PSP?"

PSP it’s a way to tell people “we’re not only one thing”. So when Pagar.me started to use the term it was trying to communicate that Pagar.me wasn’t only a Gateway anymore, it was not only a sub acquirer and even have its own acquirer and anti-fraud systems. Adyen also started to use to communicate the same thing while launching their own acquiring and anti-fraud system.

But that’s not new stuff. Cielo group (EloPar) have many companies on the payment-business like Cielo (acquirer), ELO (card issuer), Brasgpag (Gateway), Stelo (Sub Acquirer) etc. But the way that those companies deals with each other does not upgrade experience and possibilities to the entrepreneur. Well, that’s a pity.

Stone make it’s effort the merge Arpex Group companies bringing Pagar.me and Mundipagg even closer. Now, the three companies can offer you solutions at the same time. The same is happening on Adyen ecosystem.

For example. That’s how transactions happen at the old way

Now, with PSPs you can have redundancy, more conversion and possibilities to upgrade your business with third-parts like the example below:

The Pagar.me Gateway can send transactions to it’s own acquirer, sub acquirer or third-party acquirer at the same time, the same is happening with Adyen ecosystem. That brings a lot of new possibilities for online and offline transactions, such as omnichannel transactions.

What I wanna see in 2018?

• I really want to see how bitcoin will succeed and if will actually become a “trade-coin”.
• I do have great expectations of debit-online but I will look forward to understand the methods of fraud prevention without crashing the customer experience.
• I didn’t saw significant improvement on fraud prevention on 2017 and I hope to see more on 2018 with neural system and machine learning. The emission of virtual cards was great but I don’t like the experience.
• Probably 2018 will be the real start of NFC payments with samsung and apple pay. I’ve seen efforts to make this work and since we already have a huge number of NFC POSs it’s easy to implement. However, I would like to see the efforts of samsung to put the feature in cheaper smartphones.
• Probably we will have 3 or 4 new famous B2C payments systems gaining force. Most of them coming from Ticket-emissors. I really like the Meep initiative and heard they are doing well on Minas Gerais and expanding their territory.
• I would like to see a merge or a huge IPO on the new acquires (Stone, Vero, Getnet, etc). That would intensify the competition

That text was based on my personal opinion, research and experience and should not be read as absolute truth

Thanks for the reading, if you have any additional comments, further information or correction please write me at dubugras.victor@gmail.com and I’ll be glad to review.