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When it comes to ordering a ride, making a reservation, ordering food, listening to music or reading the news, you probably do it differently than you did a few years ago. All of this has become easier and literally at your fingertips. The digitalization phenomenon has also reached the credit and payment market. And it's here to stay.

The so-called “fintechs”, financial institutions that make intensive use of technology and offer their services through online platforms, are attracting an increasing number of users in Brazil and around the world, promising a better customer experience. But the social impact of financial innovation can go far beyond cutting red tape.

Digitalization also limits transaction costs, encourages competition and will be an important vector for the democratization of these services. This is what the evidence suggests. A publication by the Bank of International Settlements recently pointed out that the use of technology has contributed to increasing financial inclusion and access to credit around the world.

India stands out as one of the main success stories. With the second largest population in the world, the country has created a formidable infrastructure to digitize personal identification and data sharing. As a result, the percentage of “banked” people rose from 35% in 2011 to 80% in 2017, according to World Bank data. In China, transactions are experiencing a veritable digital revolution. The country's main payment platform has more than 1 billion users paying and transferring funds via cell phone.

Brazil is also making progress. As part of the Central Bank's Agenda BC#, the most recent achievement was the approval of PIX, a new instant payment system. With it, payments and transfers can be made 24 hours a day, seven days a week. The recipient, whether an individual or a company, will have the funds at their disposal in a few seconds, at no cost to individuals and at a much lower cost to companies. Data from Febraban shows that, in 2019, the number of mobile and internet banking transactions already accounted for almost 60% of total transactions. With PIX's facilities, this number should increase even further.

Brazil is also making progress. As part of the Central Bank's Agenda BC#, the most recent achievement was the approval of PIX, a new instant payment system. With it, payments and transfers can be made 24 hours a day, seven days a week. The recipient, whether an individual or a company, will have the funds at their disposal in a few seconds, at no cost to individuals and at a much lower cost to companies. According to Robson Dantas, BS2's executive director, the expectation is that, in five years' time, the PIX represents 15% of the bank's total electronic transactions.[AG1]

The pandemic has shown how important a developed payment system can be: beneficiaries of Emergency Aid have been able to access their funds via a virtual card, which has made access easier. According to Caixa Econômica Federal, more than 40 million digital accounts have been created for the deposit of aid. Social distancing also ended up stimulating digital education among the elderly and the less privileged population - groups that, in theory, have less access to innovations. This change will certainly be part of the “new normal”.

In the area of credit, peer-to-peer lending platforms are worth mentioning, as they allow individuals to lend funds to small businesses over the internet, thus capillarizing credit geographically. Following a trend in retail, the emergence of the credit marketplace also favors borrowers by stimulating competition in the financial system and enabling consumers to make more informed decisions, thanks to the comparison of different offers. Another highlight for companies that use advance receivables is the creation of the electronic duplicate, which should make this type of loan more agile and less susceptible to fraud, benefiting both the lender and the borrower.

Despite the innovations, the principles of credit remain the same, and just as important as before. For those who grant credit, the need for careful analysis remains the same, at the risk of increasing defaults; for those who borrow, decisions must, as always, be backed up by good financial education, a topic that, fortunately, is gaining a lot of notoriety.

When the first debtors' registers appeared, data was stored physically and checked manually. In the wake of technological and communications advances, this too has changed. Now, consultations are instantaneous and can be customized according to the needs of the consultants.

In line with the trend towards the digitalization of financial services, credit bureaus have started to make personal credit information available online, quickly for credit agents and free of charge for consumers. The measure provides a further incentive for consumers to monitor their situation.

Ten years ago, someone who could imagine all these new features would have been way ahead of their time. But all these advances will only make sense if they bring about sustainable, not artificial, credit growth. With a huge contingent of “unbanked” people and a credit balance close to 50% of GDP, there is plenty of room for credit to grow and appear in Brazil.

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By: Elias Sfeir President of ANBC & Member of the Climate Council of the City of São Paulo & Certified Advisor