FinMango Spring 2023 Final Deliverable�Brazil’s Financial Ecosystem

SEED CONSULTING TEAM

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Sunny

Singh

�ANALYST

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JP

Meyer

�PROJECT LEADER

Srimaan Suribhotla

�ANALYST

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EXECUTIVE SUMMARY

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Background Information

Project Overview, Brazilian Financial Background

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PROJECT OVERVIEW

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This semester we built on our previous semester's work of constructing a financial health measurement toolkit. We further researched the financial ecosystem in Brazil focusing on six integrated sectors.

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Our main objective was to better understand the financial frameworks of countries like Brazil so that FinMango can use that knowledge to develop a structured plan to implement their financial health goals globally.

FINANCIAL LANDSCAPE

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The Brazilian financial ecosystem is experiencing notable trends, including digitalization and innovation driven by fintech companies. Efforts to promote financial inclusion are expanding access to banking services for underserved populations. Regulatory frameworks are evolving to ensure transparency and prevent financial crimes.

Brazil’s Financial Ecosystem

Overview of Banking, Fintech, Government Orgs., Financial Education

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Overview

BANKING SYSTEM

Major Players

Challenges

Credit Card Theft

• Types of financial institutions: commercial banks, development banks, investment banks, credit unions

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• Modernization of regulatory framework: promoting competition, increasing efficiency, improving access

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• Adoption of technology: enhancing customer experience, expanding reach, promoting financial inclusion

• Major players in Brazilian banking: Central Bank, Itaú Unibanco, Banco do Brasil, Bradesco, Caixa Econômica Federal, Santander

• Central Bank's role: supervision, monetary policy, autonomy

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• Key characteristics of major banks: assets, services, government ownership

• High interest rates: promote competition, support fintechs

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• Lack of financial education: collaborate for programs, improve transparency

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• Cybersecurity threats: invest in infrastructure, provide education

• Credit card theft avenues: insecure databases, ATM/POS installations, phishing

• Government response: secure card technologies, stricter punishments

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• Investigation into unsolicited credit cards: potential corruption in financial institutions

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GOVERNMENT ORGANIZATIONS

Overview

Major Players

Challenges

Policy Implementation/Reform

• National Monetary Council (NMC): Responsible for developing and implementing policies related to monetary, credit, and foreign exchange matters

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• Securities and Exchange Commission of Brazil (CVM): Regulates securities markets, oversees investment funds

• Key Roles: Oversee financial activities, protect consumers, and promote financial stability

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• Setting the foundation: Overcoming low financial inclusion and high levels of debt

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• Statistics: 60% of Brazilian adults have a bank account and the Brazilian debt is ~90% of GDP

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• High levels of public debt: Driven by fiscal debt (govt. Spendings > Earnings)
• Inefficient taxation: Unevenly distributed fragmented tax system
• Corruption: Mismanagement of public funds and political instability
• High income inequality: Due to lack of effective social policies and inadequate investment in education and healthcare

• Collaborate with local governments for tax reform (streamlining the tax system)

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• Participate in efforts to combat corruption and improve public trust in government institutions

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• Work on social policies aimed at reducing income inequality and promoting social mobility

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FINANCIAL EDUCATION

Overview

Major Players

Challenges

Improve Program Quality

• IDEC: Provides financial education resources and advocacy for consumer rights

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• UFRGS: Offers a course in financial education as part of its undergraduate program in Business Administration

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• Instituto Akatu: Focuses on promoting sustainable consumption and financial behaviors

• National Financial Education Strategy (ENEF): Significant improvements in financial literacy and inclusion

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• Increase in access to financial services: 30% increase in 6 years

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• Lack of access to resources: financial literacy gaps

• Low participation: gender discrimination, lack of access

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• Limited awareness of financial education programs 

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• Low Quality of financial education programs

• Collaborate with local organizations to create a better curriculum 

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• Create marketing campaign to spread awareness

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• Engage in pilot programs for compliance testing and feedback

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FINANCIAL TECHNOLOGY

Overview

Major Players

Challenges

Streamlined Licensing Process

• Explosive fintech growth: government policies, investment, demand

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• Serving the unbanked population: leveraging mobile and online technologies

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• Government support and favorable policies: open banking, data sharing

• Nubank: Transparent and user-friendly digital banking experience

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• Creditas: Lower interest rates and flexible repayment terms for secured loans

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• StoneCo: Complete suite of financial services for merchants, including payments, loans, and investments

• Regulatory complexity: Multiple licenses, unclear framework, and hindrance to investment.

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• Cybersecurity and data privacy: Vulnerability to cyber-attacks, data protection concerns, and customer trust.

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• Limited access to capital: Funding concentration, hesitancy from traditional institutions, and economic climate.

• Collaborate with regulatory authorities for streamlined licensing process

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• Advocate for clearer regulatory frameworks specific to fintech operations

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• Engage in regulatory sandboxes and pilot programs for compliance testing and feedback

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INSURANCE COMPANIES

Overview

Major Players

Challenges

Target Low Penetration

•  Largest insurance market in Latin America, yet has a low penetration rate: 4.3% versus 7.2% global average

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•  The insurance industry is driven by three main segments: life, health, and property & casualty insurance

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•  Top insurance companies invest in digital transformation, customer-centric products, and innovative risk management solutions

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•  Banco Bradesco Seguros: offers a wide range of insurance products such as life, health, and auto insurance. Have seen strong growth due to great network paired with ideal risk management practices and a customer-centric approach

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•  SulAmérica: offers health, life, auto, and property insurance and has also seen high growth due to innovation-backed focus, their extensive product portfolio, and strategic partnerships

•  Regulatory constraints from the government to provide greater transparency industry wide

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•  Low penetration rate compared to global standards in insurance

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•  Competition: the insurance industry in Brazil is controlled by 5 firms taking 72.3% of the market share, yet the rest of the market faces high competition for smaller firms

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•  Work with agencies and the Brazilian population to increase awareness and education about insurance

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•  Develop more accessible insurance products through the sectors top insurance firms are investing in

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•  Create an overall improvement towards access of financial services for the population

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NON-PROFIT ORGANIZATIONS

Overview

Major Players

Challenges

Work Directly With Financial Health NPOs

•  Over 820,000 NPOs in areas such as education, healthcare, social development, and environmental conservation

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•  Address challenges of inequality and inadequate access to essential services to foster social and economic growth

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•  Significant job creator, especially for Women

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•  Funded through government grants, private donations, and corporate partnerships

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•  Instituto Ayrton Senna: mission of promoting quality education while supporting the development and Brazilian youth. Partnered closely with public schools and focus on teacher training and educational management

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•  Fundação Abrinq: mission centered around protecting and promoting children's rights. Focus on the four primary areas of intervention: education, health, child protection, and social development

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•  Resource constraints: issues such as limited funding, a lack of human resources, and limited infrastructure describe the resource constraints faced by NPOs

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•  Legal constraints: NPOs are required to comply with a complex regulatory framework which can often lead to organization wide burdens

•  Provide Brazilian financial health NPOs with the resources we have gathered

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•  Potential to return to financial literacy by pairing with NPOs who are educating on personal finance

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•  There is great potential for this action item to be done in the next semester of SEED and FinMango's collaboration

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Conclusion

Major Takeaways, Moving Forward

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OUR EXPERIENCE

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What Went Well

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• Great contact with Bain consultant Elizabeth Gersch and with Scott

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• Able to build well on our previous semester's work

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• Notable conversations with individuals working directly in Brazil's financial sectors

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Where We Struggled

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• Struggled to get in contact with big players in the Brazilian financial ecosystem

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• Unable to expand as much due to limited team members

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LOOKING FORWARD

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THANK YOU!

Any questions?

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