As the continent’s largest economy, it’s no surprise that Brazil is South America’s biggest market for buy now, pay later (BNPL).
Brazilian regulations, led by the central bank, have unleashed competitive forces that are wresting the financial ecosystem from incumbents.
There were around 550 fintechs in Brazil in 2019. Today, there are over 1,200 providing an array of services for customers.
And although card adoption is low – but growing – there are cultural and historical factors that make the world’s sixth most populous country one of the great epicentres of this explosion in short-term financing.
The practice of BNPL in Brazil actually goes all the way back to the 1950s. Paper payment slips were introduced by retail companies which allowed customers to pay for products in monthly instalments, a movement which quickly became a part of Brazilian consumer culture.
As the world has gradually shifted from analogue to digital, new fintechs have sprung up in Brazil, leveraging trends and technology to extend and modernise the practice.
RecargaPay is one such example. Headquartered in São Paulo, it has 10 million wallets in use providing an ecosystem of payments for millions of customers.
The firm’s CEO Rodrigo Teijeiro cites research that shows 39% of Brazilians — 83 million people — have made a BNPL purchase, with 80% of credit card holders intending to buy something in instalments.
As we’ve seen in Europe and the US, the broader digitisation of the economy thanks to the pandemic will only accelerate this shift.
In Brazil, the ‘mobile cash’ macro trend has also accelerated over the last 18 months, with the number of unbanked decreasing from 45 million to approximately 16 million people, Teijeiro says.
This convergence of established and emerging trends provides great opportunities for fintechs who want to provide BNPL services in Brazil.
“The country is almost 60 years ahead of other countries when it comes to this segment,” Teijeiro believes.
RecargaPay is attempting to capitalise on the adoption of BNPL across the country by connecting small loans to BNPL practices, providing the option to pay energy and water bills in three to twelve monthly instalments.
“The adoption of BNPL is already widely spread across the continent and Brazil leads the way in terms of volume,” Teijeiro says.
Credit card? You got it
Credit card adoption is considered key to the growth of BNPL and is at the centre of several services that RecargaPay provides.
The company was the first to offer credit card payment options for topping up mobile phones, for example.
To help boost uptake, many credit cards receive free financing and free credit, Teijeiro says. The strategy seems to be working: the number of credit card payments grew 53% in the last year.
There are other ways to integrate credit cards into Brazil’s fintech ecosystem. The introduction of instant payment platform PIX by the Central Bank of Brazil in November 2020 has opened up a wealth of options for fintechs.
For example, RecargaPay allows customers to make an instant payment via PIX with their credit card and pay that amount in instalments.
But despite the positive steps towards financial inclusion, BNPL is not without risk.
The most obvious is defaulting on the loan, which should obviously be considered by institutions that are offering the service.
Another risk is a lack of education about exactly what BNPL entails. Well-informed consumers make better decisions regarding their finances and the commitments they can take on.
RecargaPay says it takes education very seriously, explaining the risks and ramifications of short-term financing to consumers up front.
Follow the data
Open banking is still nascent in Brazil, so the number of data points BNPL fintechs can lean on to assess credit worthiness are not as numerous as in Europe and North America.
But when the framework has matured, data exchange between entities will have a huge impact on the way companies analyse customer data and utilise their BNPL offerings.
When deciding whether to lend, RecargaPay says it utilises its own proprietary scoring system, data analysis, and external sources from partners.
Teijeiro notes this system has led to broader financial inclusion, providing accessibility for many people who are not able to borrow money elsewhere.
Open banking frameworks will allow more data sharing which means less risk for those looking to use BNPL as a payment option.
Across South America, the situation is similar. Digital payments and the broader push for financial digitisation thanks to the COVID-19 pandemic are leading to greater calls for open banking frameworks, which should make it easier for citizens to access financial services, of which BNPL will be an important plank.
For example, during the pandemic, the Brazilian government disbursed emergency financial aid through digital platforms, which decreased the number of unbanked substantially.
These macro trends combined with a fintech environment in Brazil that has worked over the past few years to simplify a very complex ecosystem will continue to lead to greater financial inclusion across the country.
“The major challenge is supporting the population’s financial inclusion and financial education — that takes a whole industry’s work to move forward,” Teijeiro says.
“This is not a ‘winner takes all’ market.”