The digital revolution has changed the banking sector and more change is to come with fintech startups. Big shifts are currently taking place everywhere, but Brazil and the UK are preparing to be disrupted big time. Many experts believe the banking sector in these countries won’t be the same soon.
Brazil’s banking might go through the biggest change
According to Goldman Sachs report Fintech Brazil’s Moment, the traditional banking sector in the country might go through the biggest shift thanks to fintech. The report believes fintech’s disruptive nature will be most felt in the South American country because of the highly concentrated nature of Brazil’s banks. In Brazil, the top five biggest banks hold 84% of the country’s total loans. In the US, the figure would only be just about 30%.
As fintech startups begin entering the market, the disruption will be more impactful than somewhere where the sector is already dispersed. Furthermore, the country has already witnessed a fintech revolution with the number of startups in the sector tripling in the past two years. According to the Goldman Sachs report, the fintech sector will generate around $24 billion over the next decade.
One of the success stories is Nubank. The startup is Brazil’s first digital and branchless bank, operating mainly through its mobile app. Nubank also introduced its own Nubank Card, which is a zero fee and low interest rate credit card. The card already has over 3 million customers in the country, with around 13 million credit applications. Nubank has even attracted investor attention from big names such as DST Global and Peter Thiel’s Founders Fund.
The South American country offers plenty of fruitful breeding ground for fintech startups. Customer thirst for something different is growing – Brazilians pay an average of 190% in interest for credit cards, consumer loans and unsecured overdrafts each year. If this can be challenged and changed, the happy consumers are bound to follow and reject traditional banks.
Change is also coming to the UK
But Brazil isn’t the only country currently facing a fintech revolution. The UK will be introducing a new Open Banking directive in January 2018. The directive is part of the second European Payment Services Directive (PSD2) and it will require banks to provide third parties access to data.
To see what this kind of access will look like in practice, UK banks are offering a £5 million prize for a startup in the Open Up Challenge. Fintech startups will be competing with different apps and tools to show what access to banks’ data will look like. It can give big banks an opportunity to see what kind of challenges they will be faced with – many are bound to seek partnerships to ensure they won’t be losing out when the directive comes into force in January 2018.
Banks around the world will have to adjust to these shifts. New legislation will probably continue to boost entrepreneurialism and innovation in the sector. However, it’s also the new generation of consumers, which continues to drive the change – customers are looking for convenience and fair deals.