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When Brazilian banks downscale: what does it mean for financial inclusion?

April 1, 2014
Brazil in figures

Key figures on Brazil (source: Bader, Savoia 2013)

A book recently published on financial inclusion in Brazil caught our attention (Marcos Bader and Jose Savoia, Inclusao Financeira, Sao Paulo: Saint Paul Editora, 2013). Interestingly, both authors have ample experience in the local banking sector and defend the idea that new technologies, and in particular the use of the internet via cell phones, represent a unique opportunity to bancarize the population and drive growth.


Low bancarization levels. Brazil is a country of contrast, with 80 million internet users, but also with 50 million people who are not bancarized. Brazil still largely relies on cash for payments. According to the authors, 55 million people still receive their salaries in cash, suggesting a large presence of informality and room for growth for banking channels. Brazilians use their plastic card for just 26% of their purchases (debit and credit), versus more than 40% for US or European consumers. Some sectors of the payment industry are less dependent on cash: government to people payments (G2P) have already largely migrated to electronic payments. Just 1% of G2P payments in Brazil is made in cash, the vast majority is electronic, while in Mexico cash payments still represent two thirds of G2P.

The potential of new technologies for large banks. While Brazil has been a pioneer in the development of banking correspondents in the 1970’s, it is still trying to figure out the best solution for mobile banking. Importantly, the fragmentation of the cell phone industry can potentially slow down new developments in this market. Alongside traditional brick-and-mortar branches, cell phones add a powerful channel for banks, lead to more financial inclusion, while allowing banks to be more cost efficient. Banks have perceived the potential benefits and are the largest investor in technology: in 2010, large Brazilian banks invested close to US$10bn in IT.

What is next? The use of new technologies in banking is not new: the internet channel has been used successfully for more than 15 years in Brazil but still has a lot of room for growth. In particular, the use of smart phones is limited. Only 17% of cell phone in Brazil offer internet access, and it could take some time to migrate the rest of the base. Importantly, a new technology, such as using cell phones for payments and transfers, needs to combine four characteristics to be adopted by consumers. It need to be simple, cheap, safe and interconnected (all mobile companies have to be able to send, receive and settle transactions with one another). With the rise of new payment modes, banks will have to share client loyalty with other players of the payment chain: cell phone companies in particular.

With its strong potential to increase financial inclusion, new technologies and payment systems will undoubtedly become a key focus of banks focused on financial inclusion and of microfinance players in the coming years.

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