Managing money through your smartphone
A version of this article by Airfox CFO Douglas Lopes was originally published in Istoé Dinheiro in Portuguese
Digital innovation has changed the reality of millions of Brazilians, improving their quality of life and providing access to information, products and services that once were considered unreachable. Today, a portable smartphone has types of opportunities: training and payment programs, books, articles, services, access to doctors and treatments and services as a help, compare the price of gas or a shared ride.
More recently, the world of mobile applications has been invaded by fintechs, companies that combine financial services with the intensive use of technology. They are digital banks, investment platforms and startups that offer low interest credit. Only between the years 2016 and 2018, investment in fintechs increased sevenfold. In a country like Brazil, where 60 million people, according to IBGE data, do not have a bank account, that’s great news.
The traditional financial system is based on an expensive infrastructure; it’s inefficient and inaccessible to Brazilians with low incomes who are often subjected to higher interest rates charged by big banks and illegal moneylenders. This causes a huge amount of people to avoid opening a bank account or make a scarce use of financial services.
The models used within the traditional system are based on static and low quality data. For this reason, traditional financial institutions tend to take a conservative stance in lending and offset the risk of default by selling credit at a high price.
The five largest banking institutions control more than 90% of the operations of the National Financial System (SFN). Bank concentration makes the bank spread — the difference between what banks pay investors to raise funds and what they charge borrowers — to be one of the highest in the world. According to the World Bank, Brazil had the second largest bank spread in 2017, behind only Madagascar in Africa.
But the paradigm shift in the financial sector is at our fingertips. And if this “unbanked” population could, with the help of a cell phone, pay bills and tickets, withdraw money and transfer without having to go to a bank branch, control their expenses, know if the salary will give to cover expenses until the end of the month, reload the transport ticket without having to queue up and have to go through the entire identification process? And all this at an infinitely lower cost than what large banks charge?
Technologies like blockchain and machine learning, coupled with the benefits that artificial intelligence can bring, offer the public high quality financial services while significantly reducing operating costs. These technologies perform a user profile analysis, based on information obtained in the smartphone, and make it possible to offer credits at lower interest rates. For a country like Brazil, with millions of entrepreneurs in the informal economy, this type of solution has a highly transformative potential.
And it’s not just this low-income population that benefits from this digital revolution. The whole financial ecosystem ends up winning, reducing fees charged, cheapening the product at the consumer’s end, that is, injecting money into the real economy, making money turn in the economy, and — why not? — enabling access to investment platforms for people who did not know what it was to invest.
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About the author
With more than 20 years of international experience in procurement, management, and operations, Lopes oversees the Airfox financial division and contribute to the company’s long-term growth objectives. Prior to joining Airfox, Lopes served as CFO and investment relations director at Biomm SA, a publicly listed biotech startup. Fluent in Portuguese and English, as well as conversant in Spanish and Italian, Lopes also worked as chief operations officer at Grupo Ibmec Educacional, a senior manager at management consultancy company Monitor Group, and a senior procurement specialist with General Motors. Additionally, Lopes earned an MBA from MIT Sloan School of Management.