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Coronavirus crisis becomes fire test for Brazilian fintechs


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The widespread crisis caused by the coronavirus pandemic also marks a fierce test for fintechs. The uncertainty about the extent and duration of this scenario makes the situation even more complicated for the sector, in Brazil and abroad.

International projections are not encouraging. The ILO (International Labor Organization), linked to the United Nations, estimates that the pandemic is expected to eliminate around 25 million jobs worldwide – the equivalent of Australia's population.

For comparison, the UN agency recalls that the global crisis of 2008-2009 ended with 22 million jobs.

Domino effect

Non-essential establishments close their doors in an effort to stem the spread of the virus. However, they have the side effect of stepping on the brake on economic activity – less money in circulation, less jobs, lower wages, higher risk of default, among other consequences.

This domino effect also affects fintechs of all types, especially credit. The blow is enhanced by the dynamics of consolidation of the fintechs, with lean structures and the need for investments and partnerships to obtain scale in their business.

Projections estimate around 500 the number of fintechs in Brazil.

A survey released in January by the consultancy PwC and ABFintechs (Brazilian Association of Fintechs) points out that more than half (58%) of the fintechs heard did not reach the break-even point – the so-called “breakeven” – and still cause losses. A level that would be reached in a space between three and five years.

Due to this dynamic, the expectation for new born fintechs or those with little time in the market is not the most optimistic.

“There are fintechs that have just been born in the midst of this context. That will be enough to not work. Whoever managed to raise investment before will be able to hold on to the ends, ”observes Bruno Diniz, professor of fintechs at FGV (Fundação Getulio Vargas) and author of the book“ O Fenômeno Fintech ”(ed. Alta Books).

“We are obviously going to see a start-up breakdown movement, not only in the fintech sector. And there will be a downsizing of operations ”, adds the specialist.

Survival strategy

Companies in the sector with greater structure and more time in the market will also suffer, but they are better able to face the current uncertainty. Mechanisms for managing and reallocating funds initially raised to scale businesses can help with this task, at least for some time.

“Those that have already captured investments will try to insure, retain customers. It is a war plan: enter the bunker and hold on, strengthen your position ”, exemplifies Diniz.

The management tip from Diniz coincides with the guidance of ABFintechs to its approximately 360 affiliates – according to the entity, this number represents 80% of the companies in the segment in the country.

“The guideline is that the entrepreneurs who lead the associated companies make a conscious management of their company's expenses and try to preserve their cash as much as possible. And do not disregard the possibility that this scenario will last longer than imagined ”, says Diego Perez, director of ABFintechs.

Opportunity in the crisis?

Fintech and bank advisor Luiz Gustavo Nugnes believes that the current crisis may open a window of opportunity for startups – including fintechs – that are able to identify a problem and come up with a way out.

"They can pivot, reinvent themselves, but fintechs are able to reinvent themselves in the midst of this crisis and find solutions where there are problems".

Nugnes also agrees that early-stage fintechs are likely to perish, especially given the scarcity of investment sources to scale the business.

“It is a time when all investments are gone. Those little fintechs that they're trying to get now are probably not going to make it.

Perez also believes in the fintechs' ability to reinvent themselves to deal with crisis scenarios, finding opportunities.

“There is a huge space for fintechs to develop new business models to solve these problems. The question is: will the resolution of these problems come in the short or medium term? ”

Diniz already considers that, in the current economic situation, this characteristic of reinvention is not a guarantee of success.

“Today's times subvert any fundamental logic under which the company was conceived. This is a pessimistic ‘plus' scenario.

‘Limbo’ and government nods

Until the beginning of the crisis, fintechs were considered by BC to be important pieces to raise competition and reduce the cost of credit. However, a report in the Folha de S. Paulo newspaper last Thursday (26) noted that the fintechs had been left out of plans to increase credit in the economy.

Only from BC, for example, came an injection of R $ 1.2 trillion to expand credit lines (to individuals and companies), facilitate debt renegotiation and grant subsidies to certain sectors, among other objectives. An amount accessible, basically, by large banks.

In a first nod to the sector, the National Monetary Council (CMN) also authorized last Thursday that credit fintechs with a license to operate as Direct Credit Companies (SCD) can issue credit cards.

The idea is that the fintechs that fit this format become a channel for carrying out public policies, through the capillarity that electronic platforms have.

Enough first step?

CMN's announcement aimed at credit fintechs is considered positive by Perez. However, he points out that the measure has little effect on the current emergency plan.

"Measures aimed exclusively at fintechs could be an alternative for the emergency resource not to be held back in large banks that have slower and bureaucratic processes at the time of releasing the resource to those who need it", defends the director of ABFintechs.

Diniz praises the economic measures announced so far, but calls on the fintech sector itself to take a more incisive stance in its defense.

“There is apprehension, everyone is tense. But what is not enough is for the fintech business class to sit idly by. If a situation like this continues for more than 3 months, the scenario will be very bleak ”.

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