August 02, 2016
It was recently announced that eGenius Founders intends to allocate R$15 million to leverage technology startups focused on the financial market by the end of 2016. Since its launch in December 2014, the group has invested and developed two service platforms (Easy Carros and Singu) and two focused financial marketplaces (BeeCâmbio and F(x)). Latam Founders caught up with Fábio Arruda, Co-Founder and Opperating Partner of eGenius to understand what the future of the fintech sector in Latin America looks like.
According to a recent study, 73% of millennials would rather handle their financial needs with a technology company rather than with their own bank. What are the new types of client experiences we can expect to see?
In a recent blog post, the super angel investor Fabrice Grinda, suggests that the best market opportunities to launch a new business are those industries with the lowest Net Promoter Score, meaning that customers usually would not recommend it to a friend. The inherent bureaucracy of financial services alongside their generic communication and customer relationship usually result in a poor experience for customers who demand such services. Millennials seek a better experience overall over heavy user interfaces. Less dependency on direct phone calls to take actions and solve issues, and lack of physical paperwork is also a plus. Fintech companies are making significant technological progress in important fields such as infrastructure, digital identity, security and privacy which are crucial to reduce the friction in financial services. Therefore, in the near future, you can expect fintechs to be as secure as established financial institutions, but with seamless and online processes and a completely tailored customer experience.
Today’s financial technology companies are changing the rules of the game with a whole new caliber of sophisticated products. Will traditional players be able to keep up with the rapid new pace of progress?
In fact many fintech startups are trying to change the rules of the game through disruptive technologies. One of my favorite examples is Ripple, whose mission is to drastically lower the cost of settlement by enabling banks to transact directly over a blockchain protocol. International money transfers that either are unfeasible due to high costs or can take several business days would now occur in seconds and cost only a few cents. Usually, traditional financial institutions don´t have the necessary agility, culture and cannot afford the risks of developing disruptive innovation across all services in their portfolio, but if they passively watch more sophisticated products taking their market they will vanish. It´s not really a question of choice, financial institutions own enormous customer bases and fintechs develop innovative and more effective ways to do things; therefore, they need to partner in some way and leverage their capabilities and increase competitiveness. In Brazil, notable examples of financial institutions trying to near the gap with innovative ideas are:
- Cubo, a coworking to shelter innovative companies, built by Itau in cooperation with Redpoint Ventures
- InovaBRA, a fintech innovation program designed by Bradesco
In a Global perspective is interesting to see Goldman Sachs reporting that it has more than 9,000 engineers and programmers working in important tech matters such as security and infrastructure to keep up competitive advantages.
Banks are the largest informational companies in the world, yet systems and processes are still antiquated. How can banks benefit from new technology solutions centered around connectivity, interactivity with customers, real-time decision making as well as automating and digitizing processes?
One of the fintech segments that we have direct contact with here at eGenius Founders is the Brazilian Forex market. This market hasn´t shown a significant technological progress in the last 20-30 years and that represents a great opportunity for us. We developed Remessa Online, a website where anyone can send money abroad in about 3 minutes, in one sitting in front of the computer or smartphone. All backoffice processes are completely automated, providing us a much lower operational costs and better organization of documents and information for compliance. As a currency exchange agent we utilize a traditional Forex bank to settle the transactions. We send only them the necessary and relevant information (exactly the way they need it) through their system’s API and they settle the transactions; therefore, a process that would take days through their normal operational process takes seconds though the combination. This is a good example of a partnership between a fintech and a tradional bank where both sides benefit, especially from connectivity (acquiring customers through new channels) and reduced compliance and other operational costs due to systems integration and backoffice automation.
In addition to your own companies, who do you feel are the most disruptive fintech companies in Latin America?
How do you reconcile emerging, disruptive financial services players with an environment of increased governance and regulatory oversight?
Financial systems are heavily bureaucratic and resistant to disruption because it is critical for regulators to avoid white-collar crimes. In some markets, regulators tend to favor incumbent players because of political lobby (a good example is the Brazilian banking and credit card industry). If governance and regulatory oversight had only the interest of improving market competition while increasing security and compliance I would be more optimistic about it, since fintechs are trying to find more efficient ways of providing financial services such as credit scoring, international money transfers, insurance, payments, and etc… and at the same time are developing tools that could help regulators. You can relate to what I’m saying when you consider blockchain technology, which if applied in the right way and in large scale could become a mainstream technology and would reduce transactional and registry costs and increase control and potential oversight for regulators. Although I believe the less governance interference and regulations, the better, in the end, regulators, fintechs and traditional financial institutions have to work together and find the right balance to build the next generation of financial systems and financial services.
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