Brazilian credit market breaks records and explores new niches

In recent decades, the Brazilian credit market experienced periods of significant institutional advances, as well as moments in which direct interventions caused setbacks and fiscal costs. Currently, its volume is reaching figures never seen before.

The transformations brought about by Fourth industrial revolution there are many and understanding their manifestations in the credit sector seems essential to understand the new possibilities that signal the sector's own future.

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So far, the Brazilian reality includes Fintechs, digital banks and Open banking, all representing the profound transformations and disruptions under way in the country's credit market.

Evidence shows a causal relationship between credit market development and economic growth. In addition, factors related to the business environment - such as legal certainty, creditor rights, and brokerage costs - are central to a dynamic market.

In addition, a well-functioning credit market is fundamental to a healthy economy at any time, but even more so during a crisis such as the one we experienced during the pandemic. According to the survey Financing for Small Businesses in Brazil from SEBRAE, the demand for new loans by small businesses more than doubled between 2019 and 2020.

That said, let's see how enormous demand is driving this scenario.

New records in the Brazilian credit market

The behavior of the accumulated value of loans granted in Brazil highlights the growth of this industry:

From fintech microcredit to large loans granted by traditional banks, to individuals and legal entities, the impact was felt by several segments.

Numbers released by ABECIP, who had already highlighted an exceptional year for real estate loans in 2021, stress that a new record is coming in 2022.

Banks and credit institutions approved mortgages for 804.3 thousand properties in Brazil between January and November, representing an increase of 116.9% compared to the same period of the previous year.

In terms of value, homebuyers made loans totaling more than R$ 200 billion last year — an increase of 60% over the R$ 124 billion loaned in 2020.

Therefore, the outlook for this year is equally good, as property remains a solid investment.

“Despite higher interest rates and inflation, we expect 2022 to be a positive year as well.”

Cristiane Portella, president of ABECIP

“There are excellent opportunities in the market for both the economy and the high-income sector.”

Marcos Saceanu, president of the Rio de Janeiro Real Estate Entrepreneurs Association (ADEMI-RJ)

Regarding Brazilian payroll loans, according to data released by BACEN (Central Bank), it also exceeded expectations with R$ 442.8 billion contracted - an unprecedented milestone registered for this loan format, representing an increase of 14% compared to 2020.

It is also worth mentioning that payroll credit has been especially used by micro, small and medium-sized companies. If this topic interests you, be sure to read our content about What is payroll credit and what are its advantages for the entrepreneur!

Space to grow outside traditional lines

Even with the marks achieved, for many institutions the growing risk of default and the increase in interest rates and inflation lead to the need to explore new niches in this market.

In current assessments, pent-up demand is translating into strong corporate gains and accelerating a powerful global economic restart. The uneven nature of the global recovery will continue to create structural changes in many countries and specific sectors and a continued dispersion in credit markets.

By embracing complexity, thinking globally, and increasing selectivity, credit firms will be better positioned to avoid events and capitalize on more significant investment opportunities in the public and private credit markets.

According to Lindsay Lehr, market intelligence payments leader in the Americas, after the increase in real-time payments, credit will be the new growth engine of Fintechs. Regulatory innovations and other measures to support innovation strengthen this movement.

The fintech finance market is growing as startups promise to solve the pain faced by Brazilians seeking credit.

In a sector characterized by high interest rates and a level of bureaucracy often considered excessive by borrowers, fintechs are able, through the intelligent use of technology, to compete with traditional banks on special rates and conditions for offering credit, in addition to offering a better user experience.

This is because in research conducted by PwC Brazil and the Brazilian Digital Credit Association, 48% of the fintechs interviewed were able to analyze the risk of a credit proposal within one hour. And at 46%, credit approval can occur within 24 hours of applying for the loan.

With an eye on this market share, digital banks and even telecommunications operators are also preparing to compete in this segment. Open banking, from this perspective, can help provide valuable insights for the players involved in this dispute.

Perspectives that shape the future of credit

It is a fact that no one can predict the future, but there are forces acting to shape the credit sector and transform it into something different for consumers and companies. Let's look at some of them:

If credit is based on trust and fraud is the greatest risk to the success of this operation, the new features will help detect anomalies and prove the identity of the borrower, either via Blockchain database or even through biometrics.

Be that as it may, today, much of consumers' financial data - such as loan payment history - is held almost exclusively by banks and credit agencies. However, tomorrow points to a very different paradigm, since much of this information will be directly in the possession of consumers.

That said, if you want to digitize your processes and master the Industry 5.0, as the main companies in the Brazilian credit market do, in an applicable and legally valid manner, increasing the trust of your institution, don't waste time and discover our Plans and Pricing. Clicksign has the perfect solution for your business!