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The digital platforms of fintech entrants, large tech companies and incumbent financial institutions are transforming the financial services industry globally, especially in Latin America’s largest market, Brazil. Businesses and consumers benefit from the changing structure of the market through significantly reduced costs, more competition and choice, and expanded financial inclusion. The COVID-19 pandemic has accelerated this trend as these platforms can provide financial services remotely and meet the growing demand for online payments, credit, savings and investment, and insurance without contact risk. physical.
In February 2022, Nasdaq hosted a Trade Talks Spotlight on Latin America featuring leading Brazilian startups that are driving prosperity by providing broader access to capital markets both in the region and abroad. abroad through increased access to international market data and investable products.
Increase access to more investors
While Brazil is Latin America’s largest market, only a small percentage of the population of 212.6 million people invest in stocks. Historically, barriers to entry, including high investment minimums and brokerage fees, have automatically excluded a large pool of potential investors. Additionally, potential investors were limited in their scope of information without the ability to view or trade on international market data. Instead, they typically place funds in low-interest or zero-interest deposit accounts that are ultimately affected by inflation. However, several digital platforms are lowering the barriers to access with new retail products, real-time data on latest sales and quotes, and intuitive platforms.
Among the more established players is BTG Pactual, which offers investment banking, wealth management, corporate lending, asset management, research and third-party distribution services. The company is one of the largest independent asset managers in Latin America with offices in Brazil, Chile, Colombia, Mexico, Argentina and Peru. It also has offices in the United States, United Kingdom and Portugal. In 2021, it had 553 billion reais in assets under management (AUM) and assets under notice (AUA). Through a partnership with Nasdaq, BTG Pactual has launched a semiconductor fund that tracks the PHLX Semiconductor Sector Index™ (SOX™) as well as a biotech fund that tracks the Nasdaq Biotechnology Index™ (NBI™). Additionally, it recently launched a digital bank, BTG+. Customers can enjoy a customizable card, transfers and payments, a digital wallet and premium plans with no minimum balance.
Another established Brazilian player, XP, provides specialist investment advice, access to a range of products including fixed income, equities, investment funds, life insurance and private pensions. Over the past two decades, the platform has acquired over 3 million active customers. In May 2021, it launched the Trend ETF Nasdaq 100 Index Investment Fund™ (NASD11), which allows Brazilian investors to invest in the companies that make up the Nasdaq-100® index.
“There are many opportunities for startups and technology companies to come up with products to solve these problems. [barriers to access] issues we have,” said XP Equity Strategist Jennie Li.
Warren Brazil CEO Tito Gusmao agrees. His company offers an app that allows retail investors to trade stocks, ETFs as well as Treasuries and other securities. It charges a one-time fee on investments and refunds any commissions it earns on third-party funds. Customers can use the platform to pay their bills and they can withdraw money at any time free of charge. Warren creates and manages its own funds and also provides access to investment funds from other managers.
“We started last year with $3 billion in assets under management and ended the year with nearly $20 billion,” Gusmao said. “But this year we need to grow even faster. Our goal is to have $40 billion under management by the end of the year.
Nelogica is a software developer that provides mobile and desktop applications and data, including Nasdaq Basic, and tools to institutional and retail investors. CEO Marcos Boschetti believes the growth potential of his company is enormous. Nelogica has already seen substantial growth every year since its founding in 2007. The company has more than 700 employees – half of whom work in tech-related jobs – but it expects headcount to grow by 50% next year as it expands to new geographies globally.
“People are realizing that we don’t have to be limited to certain geographic areas,” Boschetti said. “So we’re going to help people connect to cash elsewhere.”
Provide market diversification
Interestingly, Brazil has been progressive in its acceptance of cryptocurrencies. In April 2021, Brazil was among the first countries to launch a cryptocurrency ETF, the Hashdex Nasdaq Crypto Index Fund, which seeks to track the Nasdaq Crypto Index™ (NCI™), on Brazil’s B3 exchange. According to Bruno Sousa, head of global expansion at Hashdex Asset Management, the product is now the second largest ETF in Brazil after the one that tracks the S&P 500. Hashdex also offers the Victory Hashdex Nasdaq Crypto Index Fund™ to US accredited investors. Four months after the launch of the Hashdex Nasdaq Crypto Index Fund in Brazil, in August 2021, they launched ETFs tracking the Nasdaq Bitcoin and Ethereum indices, allowing Brazilian investors to invest in Bitcoin or Ethereum.
Foreign investors have sought to diversify their portfolios by investing in emerging markets, including Brazil. At the same time, Brazilian companies have increasingly raised capital in their own markets rather than abroad. Nowadays, Brazilian investors also want to diversify by investing in foreign markets. This has led to increased interest in access to quality market data and investable products from US companies such as Nasdaq.
“With some of the political volatility we’ve seen in Brazil and the reaction of the currency, I would see greater investor interest in looking for alternatives outside of Brazil,” said Will Landers, head of equities at BTG Pactual. “We will continue to expand our options for investors to access not only the Brazilian market, but also the foreign market.”
BTG Pactual is not alone in this mission. Aaron Polhamus, CEO of Vest, an Austin, Texas-based broker who co-founded Vest with Miguel Arroyo and Jaime Rodas, explained that his company’s mission is to empower Latin American retail investors to build a better financial future. He described Vest’s app as beautiful and intuitive to use while reducing friction in accessing US dollar capital markets. There is no commission for trading and no minimum to open an account. Vest currently wants to reduce barriers to accessing US capital markets, but in the future Polhamus believes there is an opportunity to allow US investors to seek out attractive opportunities in Brazil, Mexico and Colombia through the platform. .
These fintechs and others are breaking down barriers to access, including high investment minimums and brokerage fees that have automatically shut out a huge pool of potential investors in Brazil. We expect to see these companies accelerate in the future and create great opportunities for financial inclusion.
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