Fintechs cannot offer benefits forever – APK Games

Digital account. Credit card with no annual fee. Free TED. Fintechs have spent years providing services and benefits that traditional banks were not used to offering. At least not for everyone. Naturally, these advantages caught the public’s attention.

Fintechs cannot offer benefits forever (Image: Vitor Pádua / APK Games)

Furthermore, the technological advantage seemed to be on the side of fintechs. Solving financial issues by app, without having to go to a bank branch, was certainly a desire of many. Suddenly, banks seemed even more bureaucratic and old-fashioned.

These are some of the ingredients of fintech success. A survey last year recorded 250 million accounts in such institutions. A larger number than the Brazilian population. There was talk with excitement about digital banks, about how they shook the market. How would Itaú, Santander and the like be able to compete with such dynamic players?

However, 2022 brought surprises. Euphoria with fintechs has given way to caution. And the banks, in turn, showed that they had much more firewood to burn.

User volume does not mean revenue

Operating as startups, fintechs and digital banks prioritize user acquisition and product optimization. The idea is to move fast and capture as much market share as possible; this done, the profit will arrive. In theory.

But the company has costs. If there is no profit, where does this money come from? Foreign investment, basically. Startups receive money from venture capital funds, which they hope, up front, to reap the good fruits of the startup’s growth. Losses are expected, but as long as there is optimism, it can be expected that new rounds of investment will hold their ground.

Problems begin when optimism is shaken. And the current economic moment leads venture capital funds to rethink their priorities. When inflation runs rampant and interest rates rise, putting money in a company with potential of being profitable at some point in the future may not be the best of ideas.

Startups all over the world are dealing with this problem. Investment sources are flowing less than before. Measures need to be taken, therefore, to deal with the inevitable losses. Hence the various news about mass layoffs carried out by unicorns throughout the year. With less access to capital, these companies – some valued at billions of dollars – do what it takes to insure themselves.

All that is good eventually ends

In this context, the situation for fintechs is beyond complicated, as they are among the startups that receive the most contributions. Thus, it becomes necessary to make adjustments to continue operating. Among them, cutting out some of the benefits that used to attract users so much.

Recently, C6 announced that its previously free toll and parking tag will be paid. Already some users of the Black card of Banco Inter will no longer be able to use unlimited VIP lounges. Nubank, which debuted on the New York Stock Exchange last year, changed Nuconta’s rules; if before the yield was daily, with 100% of the CDI, now it is necessary to wait 30 days.

The reasons are obvious: costs keep rising, and these benefits consume cash. In addition, the worsening economic situation causes an increase in the default. In other words: fintechs receive less from investment funds and from their own clients. Thus, some of the advantages offered before need to be eliminated.

It is worth noting that Brazil has more than a thousand fintechs. After the boom of excitement in recent years, we may be reaching a time of consolidation, where only the fittest are left standing. And that will probably mean those who are more rational when offering their services, remembering that you can’t act like a startup forever.

Banks have the last laugh?

The rise in inflation and interest rates and the slowdown in investments bring discomfort to fintechs, as they themselves, in the near past, brought to banks. In this sense, fintechs are witnessing some of the problems common to banks.

Default is one of them. But when it comes to an institution with decades of history, and plenty of experience accumulated from other recessions and economic crises, who is likely to be better able to deal with this problem? Who has the most cash to resist if the situation worsens?

In addition to greater robustness, the banks learned some lessons from their competitors, also starting to offer digital accounts and cards with no annual fee. They also improved on the technology side: for many things, the app replaced the agency.

And there was another event along the way that ended up contributing to “weakening” the advantages offered by fintechs: the PIX. If before free TED was a great differential, now it becomes obsolete. Any bank supports free transfers.

More time on the road; accumulated expertise to deal with delinquency, collection and granting of credit; resources to invest in technology; In retrospect, it is perhaps a little obvious that banks today are not so defensive about fintechs. As well as the Instagram copied resources from Snapchat and maintained its lead, the oldest and most consolidated financial institutions also exert all their might.

Is the fintech spree coming to an end?

At the Tecnocast 260, we discussed the current moment for fintechs and digital banks, presenting the main problems they face and the bank’s weapons to maintain supremacy. Don’t stop listening.

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