Fintechs explore Brazil’s small towns in search of unbanked customers

RIO DE JANEIRO, BRAZIL – Letícia Carolina Ribeiro Santos lives in the Aldeia de Xandó, a Pataxó Indian reservation in Caraíva. Located 740 kilometers from Salvador, the capital of Bahia, the village survives on tourism, fishing and selling indigenous handicrafts.

The village has no bank branch, and internet is only available through radio. In spite of this, at age 19, Letícia celebrates the opening of her first digital checking account – in less than a day, without having to visit a bank, she opened the account and began using it.

“Before it was a hassle. My salary was deposited in my mother’s account, and I had to travel to Porto Seguro to get the money,” says the indigenous woman, who works as a bartender’s assistant. Nowadays, she does it all through her cell phone app. Many of the payments are made through Pix, says Letícia, who learned about C6 digital bank through her brother Paulo Ribeiro dos Santos, who also holds a digital account.

Like the Pataxó siblings, residents of small towns are joining digital banks to enter the banking market. With the advantage of zero fees and ease in opening accounts, these institutions are developing new strategies to win over this public, which has long been on the sidelines of the banking system.

Currently, 44% of Brazil’s 5,570 municipalities do not have a bank branch. This number may increase with the big banks’ recent tendency to close branches. According to data from the São Paulo Bankers Association, 5,265 branches have been closed in the country since December 2014. More closures are expected, especially after the pandemic and the population’s greater awareness of the online world.

With an estimated average of more than one smartphone per inhabitant in Brazil today, there are approximately 16 million people without a bank account. Another 17.7 million have only precarious access to the banking system, according to the Locomotiva Institute. Together, they circulate about R$347 (US$66) billion a year – a market now targeted by digital banks.

“There are business opportunities where people struggle to access financial services,” says Bruno Magrani, CEO of Zetta, a digital financial services company association. He said that fintechs are capable of serving the low-income population because they don’t charge fees. “For a portion of the population, paying R$20 or R$30 per month in maintenance fees, and R$10 to R$15 for transfers, is expensive.”

Strategy

To reach this population, each fintech has adopted a different strategy. “But no digital bank is born without some basic points,” says PwC Brazil partner Eduardo Alves. These points are the exemption of fees, cashback, loyalty program, financial education, and simplicity, Alves says.

Student Selena Freitas, 22, was attracted to Neon digital bank by the “perks” offered when reaching some goals.

“They have some challenges. Whoever makes the most deposits and gets in the top ten gets a gift, like a T-shirt, a calendar, a pen, and stickers,” said Selena, who until now had no account. Her boyfriend recommended the bank and was rewarded a cashback of R$20 for the introduction.

Selena lives in Cachoeira Dourada (GO), an 8,000 inhabitants town with a Bradesco bank branch. She says she knows several people in town who are choosing fintechs because of their low cost. At home, she managed to convince her parents to become digital clients. “My father kept a traditional account, but my mother opened one for the first time and also likes to join the challenges.”

According to Sergio Costantini, general director of Mambu in Brazil – a German fintech that provides solutions for the banking sector – the digital banks’ advance in small towns will not only contribute to the financial but also digital inclusion of this population. Thus, internet access must be improved and coverage in the country must be expanded.

Pataxó Paulo Ribeiro Santos agrees. Served by a radio connection in Caraíva, he says that the internet is good during good weather. Nevertheless, he is happy with his digital account and has already recommended the option to several people.

According to Costantini, if in the past opening branches was synonymous to growth in the banking system, nowadays it is about having more technology. In other words, a bank’s reach used to be achieved by branches spread throughout the country. From now on, this will be achieved through innovation.

For Zetta’s Magrani, in addition to the internet, the cultural issue is also another obstacle to digital banking. “There are still people with the habit of going to a bank branch to resolve their financial affairs. We need to continue investing in communication to show that many services can now be performed digitally.”

Samira Mansur, a resident of Barão de Juparanã in Rio, understood these advantages and, although she keeps an account with a traditional bank, she uses a digital bank for most of her transactions.

“I use the old account for receiving money and also because of checks. Here in the city many people still use this form of payment,” she says, highlighting that she pays a R$40 monthly fee. In the 5,000-inhabitants town there is no bank or post office. An accountant and seller of costume jewelry, she uses her digital account to issue invoices and for Pix. “The best part: I don’t pay anything.”