Banking Apps Spread In Brazil As Critics Note Potential For Shakeout

With a bewildering number of choices, banking apps fueled by Tencent Holdings Ltd, SoftBank Group Corp, and other players are spreading in Brazil, as some critics note a shakeout is looking more probable. Customers buy products, get loans and open checking accounts that are no-fee by tapping into digital wallets from merchants like Lojas Americanas, the Avai football team, or the MercadoLibre shopping platform, Reuters reported.

The flurry of startups is, in part, the result of regulatory changes at the central bank designed to heighten competition in the banking space. A shot of new rivalry may also aid in getting financial services to the almost one-third of Brazilians who do not have bank accounts. The apps challenge the reign of a first wave of online banks such as Nubank and Banco Inter SA as they aim to take a slice of the country’s $2.24 trillion in banking assets.

Magazine Luiza, another Brazilian merchant, recently said that it looks to roll out a wallet based on an app in January, teaming with Banco do Brasil SA for withdrawals of cash. The news came after the TIM Participacoes SA announcement that it plans to roll out a similar variety of offerings. Banco Original Director of Technology Raul Moreira said, according to the report, “Few have a convincing reply to the question of how they’re going to make the business profitable.”

The rise in payment accounts from nonbanks challenges online banks to learn risk management from the beginning. As it stands, nonbank businesses have a tendency to bring more complex offerings such as loans with the help of traditional lenders.

In separate news, Nubank reported a 25 percent increase in the number of clients since August per reports in October. At the Brazil Investment Forum in Sao Paulo, the digital bank said that it has 15 million clients, according to founder and CEO David Vélez. Vélez said that 10 million out of the 15 million clients are holders of the credit card of the bank.