Key Alliance between Telcos and Fintechs in Brazil

Brazilian telcos are looking for a partnership with fintechs. They want a share of the growing market for financial services. For operators, the deals are a chance to diversify revenues. Meanwhile, fintechs can scale quickly by gaining access to bases with millions of active customers.

In Brazil, this alliance has been a trend for some time. However, the coronavirus pandemic and the launch of the Pix electronic payment system boosted this process, according to Brazilian media Epoca Negocios.

Digital Financial Services for Everyone

Caixa Econômica Federal has aided to almost 60 million Brazilians with a payment of emergency. The government institution has created a website and apps to distribute the payments. Since then, a new audience is using digital financial services.

For the Brazilian fintechs, it’s not a secret that the traditional banking system leaves many people out. Now the size of the income distribution program also showed that. At this point, the strengths of telcos and financial startups come in.

In his assessment, the movement will facilitate the use of operators’ platforms for the distribution of digital content, especially financial ones. “Teles are returning to their role in distributing services.” The expectation is based on the fact that there are about 45 million people in the country without a bank account. Of this contingent, however, 60% have cell phones with internet access. In other words: at least 27 million would be able to open a low-cost digital account.

Telcos and Fintechs: a mandatory partnership

Amid this context, Oi and fintech Conta Zap are entering into a partnership for the development of digital account service. The company designed it to serve the lower-income public. The agreement started with a pilot project, with social actions to distribute donations to people affected by the crisis. The commercial launch of the product should occur in the short term, according to Takayanagi. TIM’s vice president of strategy and transformation, Renato Chiuchini, says that the pandemic leaves the introduction of Brazilians to digital accounts as a legacy.

“The emergency aid accelerated the digitalization of the base of the population pyramid at a rapid and unexpected speed. These people, when realizing that digital accounts have fewer costs and red tape, will stay. It will be positive for the sectors.” Before the pandemic, TIM closed an agreement with the digital bank C6. Through this contract, the telecom may reach a stake of up to 15% in fintech. This percentage will evolve as TIM directs customers to C6. On the platform, they can make prepaid recharge operations, pay a postpaid invoice, or open an account. Since July, more than 200 thousand new accounts have been opened at the bank. Another point that animates teles and fintechs is the arrival of Pix.

PIX digitalizes finances in Brazil

What is Pix? Know the details of Brazilian digital payment system.

The instant digital payments tool has everything to be the bait for offering more services, such as financial, distance education, and teleconsultations, for example. “We are working to seek partnerships and offer various financial services, such as mobile payments, credit, investments, insurance, banking correspondents. Let’s see how users will join Pix, “says Claro’s director of financial services, Maurício Santos.

Telcos and fintechs in Brazil are already doing plans.

“We are going to offer our brand, connectivity, sales channels, and customer service and knowledge. The fintechs enter into the financial operation.” Claro has already launched SmartCred, a personal credit service with installments in up to three years, in partnership with the Bank Inbursa, owned by Claro, Carlos Slim. According to Santos, the new agreements may be concluded with any agent, without exclusivity with Banco Inbursa.

In the same vein, Vivo has the goal of offering more financial services in partnership with fintechs and sees the arrival of Pix as a window of opportunity. “We will have the brand and the responsibility to capture the customer. The operation is with the financial institution”, says the director of digital services and Innovation, Rodrigo Gruner. Vivo Money, of personal credit, is the company’s first step in the business. The company offered the pilot service from August 2019 until April 2020, but only for customers of control or postpaid plans. They are preparing their launch for this year.

How is Pix helping to Brazilian digital payments?

A month before the arrival of Pix – a tool that promises to revolutionize the financial system, with money transfers at the same time to another account, available 24 hours a day – telecommunications operators are already preparing for the adoption of the novelty. The beginning of the registration of Pix keys by users (such as cell phone number, e-mail, CPF, CNPJ) will be on October 5, and the launch on November 16. TIM, Vivo, Claro, and Oi envision using Pix to reduce costs in collecting invoices and prepaid refills. The idea is that phone, internet, and pay-TV bills come with QR-Code, through which the customer can use Pix for instant payment.

The novelty should start to become reality later this year. Telcos and fintechs in Brazil are already talking about that. TIM’s vice president of strategy and transformation, Renato Chiuchini, says that, together, the operators disburse approximately R $ 1 billion per year. The number is added to the expenses with the collection of bills and commissions for partners (banks, lotteries, markets, bakeries, among others), in which prepaid cell phone recharges are made. This is the maximum potential value for reducing expenses in the long run. “The cost of collecting each billet on the market, on average, is R $ 2. If you switch this to Pix, the expectation is for a relevant cost reduction” says Chiuchini.

How much will this service cost?

The Central Bank will charge R $ 0.01 for the settlement of every ten instant payments on the Pix platform. It remains to be seen what amount will be charged by each of the commercial banks. Everything indicates that there will be a significant drop in service compared to boletos, even more so in a scenario of growing competition among financial institutions. “This entire collection and collection chain has a high cost for any telco. We expect cost reduction, yes. We still cannot say how much, as it depends on the final price of the transactions, but it will be significant “, says Rodrigo Gruner, director of digital services and innovation at Vivo.

Telcos also say that the system of instant payments will reduce the complications of the process of reactivating services for those who paid their bills late and had their signal turned off. “When reactivating services today, we assume a risk based on the payment promise”, says Claro’s director, Maurício Santos.

Telcos and fintechs in Brazil will be key in the reactivation of the economy.