Brazil’s open finance model helps fintechs like PicPay compete

For PicPay, one of Brazil’s largest digital banks by number of customers, expansion means staying put for now—geographically, at least.

Founded in 2012, PicPay is known for its digital wallet that allows users to send and receive money, pay bills, and connect multiple accounts, like checking, savings, or credit cards, from other banks, within its app.

The company has grown into one of the largest digital banks in Brazil, with over 70 million registered users, including about 45 million active accounts. PicPay also has about 52 million credit cards from multiple issuers on file. This means the fintech has lots of data about its customers that will help it grow its credit business, according to CFO André Cazotto.

“We are larger than Apple Pay in Brazil,” Cazotto, who was named PicPay’s CFO in August, told CFO Brew.

The fintech also has credit products, including loans (personal as well as public and private payroll loans) and a buy now, pay later option. PicPay had roughly 52.2 billion reals ($9.7 billion) in total assets as of June 30.

J&F Investimentos, the industrial conglomerate owned by the Batista family, acquired PicPay in 2015. J&F also controls Banco Original, a mid-sized bank in Brazil. In January, PicPay went public, one of the first major Brazilian IPOs since rival Nu Holdings listed in 2021.

PicPay’s focus for now is on “scaling its banking franchise” in Brazil, Cazotto said. If it ever did expand, PicPay would target the rest of Latin America, possibly Mexico, Colombia, or Argentina, he said. The US market has “too much competition, too much distraction.”

“The US is not even part of our discussions at this point. But again, we don’t see the company going beyond Brazil for at least the next two to three years,” Cazotto said.

PicPay is still “scratching the surface” on its Brazil banking strategy, he said. PicPay, for example, captures just 5% to 6% of its customers’ credit share of wallet, which refers to products like personal loans, BNPL, credit cards, and private payroll loans, Cazotto said. He thinks PicPay’s credit share of wallet could rise to 10% to 12% over the next four to five years.

Cazotto is counting on credit to drive PicPay’s top line. “Credit represents a particularly significant opportunity because our penetration within our own customer base is still relatively low. We already have the customers, the engagement, and the transactional data; the opportunity now is to deepen those relationships by offering the right credit products to the right customers,” he said.

Meanwhile, PicPay’s plans come as Nu Holdings, the largest digital bank in Latin America, has launched operations in the US. Nu received conditional approval from the Office of the Comptroller of the Currency (OCC) to form a de novo national bank, NuBank, in January.

Brazil’s open banking framework, which it began rolling out in 2021, allows licensed financial institutions to share their financial information, including accounts, loans, and investments. In 2022, investments, insurance, and pensions were included, spurring a rebrand to “Open Finance.” Pix, Brazil’s instant payment system, is a rail that consumers and businesses use to complete transactions. Nearly 178 million people in Brazil have used Pix.

Brazil’s open finance framework has helped fintechs like PicPay and Nu compete against the biggest traditional banks in Brazil, which include Itaú Unibanco, Banco do Brasil, Banco Bradesco, Caixa Econômica Federal, and Santander Brasil. The top five banks in Brazil control 60% of banking assets in that country.

Banks in Brazil often don’t charge for a basic account, Cazotto said. “The switching cost is really low. That’s the reason why Brazilians, they have like three to four different accounts.”

PicPay’s customers skew younger, with an average age of 37, and most are lower-middle or lower income. PicPay’s cost to serve—which refers to the total expenses a fintech incurs to provide a service—is on “average $1 per month per active user,” Cazotto said.

PicPay employs 4,629 people and doesn’t have any physical branches. “Basically, the cost to serve allows us to operate with this lower income bracket of Brazilian society. That’s how we compete directly with those banks,” Cazotto said.