A new law is improving financial inclusion in Brazil by making it easier for some of the poorest people in the country to open digital bank accounts. Resolution 4,480 has allowed four of the country’s smaller banks to create financial products for low-income workers, such as accounts that can be opened online or on mobile apps without visiting a branch. One bank saw its accounts jump from 10,000 to 80,000 in just 9 months.
Results & Impact
One of the banks, Intermedium, increased its account numbers from 10,000 in March 2016 to 80,000 in December 2016. More than 30% of its clients are making at least four transactions per month.
The Government of Brazil, Original, Intermedium, Neon, BTG Pactual
In March 2016, the Brazilian government approved Resolution 4,480, which makes it easier for low-income workers to open bank accounts. The law removed the need for physical IDs or proof of address, which makes opening an account easier for Brazilians who lack government-issued ID or an address history. Four banks have instituted digital account offerings, which allow people to open accounts online or on a mobile phone without physically going to a branch. Paid services, such as credit, mortgage and insurance, are expected to generate enough revenue to sustain operations. The fees charged by the banks also vary, starting at $8 monthly for a limited number of withdrawals and transfers.
Cost & Value
Original, one of the banks, has invested $176 million to set up a digital platform for customers.
Running since 2016
A huge increase in the number of digital consumers led to more questions from customers, requiring greater investment in customer service. Intermedium, for example, had to start using chatbots. The amount of customer service-related data the bank generated grew by 480% in 2016.
A new law in Brazil is bringing banking services to some of the poorest people in the country by making it easier for them to offer low-income people accounts and credit.
In March 2016, the Brazilian government took a major step towards institutionalising remote banking for the poor. The country’s National Monetary Council approved a law called Resolution 4,480, which allows financial institutions to open accounts for people with only digital documents.
The new law removed the need for physical IDs or proof of address, which makes opening an account easier for Brazilians who lack government-issued ID or an address history.
In Brazil, low-income workers can be reluctant to apply for bank accounts because they lack of financial knowledge. Additionally, many Brazilian banks previously did not offer niche products catering to low-income people.
Four banks have so far launched fully digital accounts, which can all be opened online or on mobile apps without going to a branch. The BTG Pactual platform offers term deposits and mutual funds, while other banks offer services that include card transactions and bank-to-bank transfers. The fees charged by the banks also vary, starting at $8 monthly for a limited number of withdrawals and transfers. Neon offers a limited number of transactions free of charge. Intermedium offers unlimited free transactions, which include deposits, withdrawals, bank-to-bank transfers and external payments.
All four banks were fully operational at the time of the regulation change (so no additional licensing was needed), and were integrated into Brazil’s existing payment infrastructure, from which they leapfrogged to some promising new business models.
One of the four banks, Intermedium, is using Boleto, a payment instrument that has been available in Brazil for more than 25 years. Boleto allows consumers to pay bills in cash at any bank and collect cash through any bank’s branch. Another system that has been available for 34 years, Banco24Horas, makes it possible to withdraw cash from digital accounts at more than 19,000 cash points. Intermedium, Neon and Original all offer Visa or Mastercard debit cards.
At zero cost for customers, Intermedium has seen its account numbers jump from 10,000 in March 2016 to around 80,000 in December 2016. More than 30% of its clients are making at least four transactions monthly. Paid services, such as credit, mortgage and insurance are expected to generate enough revenue to sustain operations.
The increased customer base has brought a number of challenges to the fore – namely, how to protect customer security and how to respond to the additional requests. The Intermedium customer service team had to start using chatbots to deal with the increasing numbers of digital consumers. The amount of data generated by the chats grew 480% last year.
Brazil has no shortage of financial institutions – in total, the country has around 2,000 banks and lenders. The financial sector is highly concentrated in a few hands, however. Around 78% of all deposits are made to five financial conglomerates. The five have more than 15 million clients each, and control more than 87% of the country’s bank branches. The business generated by the same companies also accounts for 81% of all payment transactions in the country. The concentration of so much financial power – and the lack of innovation associated with it – has historically made it harder for other competitors, especially smaller banks, to enter the market.
However, while Brazil’s banking industry is nearly monopolised, it was not antiquated. Both internet banking and digital payments have a long history of success in the country, even though they were offered by the same five institutions. In 2014, Brazil (population: 210 million) was ranked the third largest non-cash transaction market in the world, after the United States (population: 326 million), and the Eurozone (population: 340 million).
(Picture credit: Flickr/williamwilke)