Central Bank bureaucracy limits expansion of fintechs in Brazil

There are more than 500 financial services startups, all to offer something that traditional financial institutions lack.

The Brazilian Real is the nineteenth currency with most exchanges in the world, according to the volume of its transfers. However, for Fintech Transferwise, the currency of Brazil is the fifth most popular in the exchanges they realize.

In 2011, Taavet Hinrikus and Kristo Käärmann created the startup Transferwise. This company currently facilitates the exchange of 49 currencies around the world. In its platform, more than 5 million customers are registered who process $ 5 billion monthly.

The founders of the company pointed to Brazil for about three years, although they have not yet been able to offer all the services they have in other countries.

A healthy fintech market in Brazil

Transferwise is part of an effervescent Brazilian fintech market. There are more than 500 financial services startups, all to offer something that traditional financial institutions lack. Some have achieved multi-million dollar market valuations such as PagSeguro, Stone, and Nubank. As they have already shown, addressing the high rates of Brazilian banking can be a good business, and Transferwise has always tried to join the movement. However, Central Bank regulations have so far prevented it entirely.

Since 2017, the Transferwise business model is profitable. The company estimates that its customers save more than $ 1 billion a year in bank transfers with their service. Reducing the cost of bank transfers is part of the company’s value proposition. According to a survey conducted by this fintech and the content marketing company Rock Content, 94.6% of remittance recipients say they understand how much they pay for an international transfer. However, only 8.7% knew that they paid not only a fixed rate, but also the difference between the purchase and sale rate of the exchange rate. Only 11.2% of respondents consider themselves very satisfied with the fees charged by banks.

According to Transferwise, banks charge an average of 5% differential. “People have become hostage to exchange rates and rates. We want to change that,” says Heloísa Sirotá, general manager of Transferwise in Brazil.

Transferwise also estimates that Brazilians would have saved 200 million reais in 2018 with their solution. Brazil sent more than two billion dollars in remittances abroad that same year, according to the Central Bank.

The Transferwise exchange rate is commercial. Such a decision, according to Sirota, allows the differentials that are charged to be smaller than those seen in traditional banks. The company proposes an alternative international transfer solution to conventional banks and services such as PayPal. And if the Central Bank of Brazil allows it, this company intends to extend its facilities in the Brazilian market.

Transferwise aims to offer its services to individuals and companies in Brazil, who will be able to manage accounts and cards with multiple currencies at a lower price than that provided in traditional banks. The functionalities would help the growth of the Brazilian movements, which are already 15 billion reais.

How does Transferwise work?

Transferwise users only need to register their bank account to use the platform and view the price of transfers with the included rates. To complete the transaction, you must enter your full name, date of birth, telephone and address, and the beneficiary’s bank details.

Then, the user must make the payment in a time of 48 hours. About 24 hours after payment, the money will be available to the beneficiary in his bank account in the currency of his preference.

To achieve better prices in currency exchange, Transferwise shortens the path of transfers. The fintech startup has established partnerships with local banks to be able to send money in local currency to the beneficiaries. In Brazil, Transferwise is associated with Banco Rendimiento. The bank must send transaction reports to the Central Bank of Brazil.

Even with intermediaries, the fintech company claims that shipping is three times cheaper than direct cross-border transfers in traditional banks. In a $ 1,000 transfer simulation, the average difference between Transferwise and the banks is “more than $ 200”.

New services and obstacles in Brazil

This Estonian Fintech arrived in Brazil in 2016. Their main clients are Brazilian parents who send money to their children abroad; Brazilians who emigrated and send remittances to their family; or Brazilians who emigrated and take their retirement money to another country.

The most prominent destinations for Brazilians who use Transferwise are the United States, Portugal, Canada, the United Kingdom, and Australia. The average Transferwise customer is 39 years old and middle class and older. The average transaction ticket is $ 1,000, approximately $ 3,975.

In Brazil, the average Transferwise rate is higher than in other countries. While its average rate is 0.67%, in the South American country it charges 1.5%, due to the inclusion of taxes charged in the country for bank transfers, which are 0.38% when it is from one account to another of another name and 1.1% when it is from one account to another account with the same name.

Since operating in Brazil, Transferwise has allowed the movement of 15 billion reais. “Our volume is growing, mainly through word of mouth. We have space to grow among people and, in the future, to dialogue with companies,” says Sirota.

As part of its plans, Transferwise seeks to extend in Brazil a series of services that so far only offer abroad. For example, allow international transfers between business accounts. This service would allow a Brazilian father to send tuition money to an American university directly, for example, or to serve small and medium-sized businesses that make small exports.

Another service that they hope to incorporate for companies and individuals is the possibility of using an account with multiple currencies, where people can have money in reals, dollars, euros and any other currency at the same time.

The resource could serve to leave money in dollars betting on its future appreciation and then turn it into reais ones, for example.

Abroad, Transferwise already has a card associated with a multi-currency account that issues the most efficient currency exchange transactions. “It’s like having the life of a place in any country,” summarizes Sirota.

Currently, fintech is seeking a license from the Central Bank to operate the new financial services. Transferwise only works for those who transfer to their account or other residents. Travelers and international purchases do not enter the public that is served today, for example.

The talks with the Central Bank began two years ago and are supposed to be in the final stages. The licenses would allow not only new services but also the independence of local partners. Transferwise would gain more agility in the process and could reduce its rates.