Fintechs | 3 of the Most Used Legal Formats For Fintechs in Brazil

The number of Fintechs authorized by Brazilian Central Bank (Bacen) has grown approx. 100% in the last 12 months and are revolutionizing the way companies and individuals in Brazil take credit, transfer money, exchange currency and contract insurance.

The Bacen defines them as financial or non-financial institutions whose business model is based on (i) innovative technology, and (ii) relationship with customers through electronic channels.

There is great interest from entrepreneurs, business groups, funds and financial institutions to operate fintechs, although there are many doubts about what they are and how to set them up.

See below 3 of the main types of fintechs operating in Brazil:

1. Direct Credit Company (Sociedade de Crédito Direto or SCD): SCD is a form of fintech created by Bacen to carry out loan, financing and acquisition of receivables exclusively through an electronic platform.

Regulated by Bacen Resolution 4,656 / 2018, SCD can also provide third-party credit analysis and collection services, insurance representative, issuance of electronic money and post-paid payment instrument.

SCDs are subject to Bacen’s authorization and must have a minimum equity of BR$ 1 million, and investment funds are allowed to participate in the control group as long as they are bounded by a shareholders agreement.

The funding for operation must come from its own capital, and SCD is prohibited from raising funds from the public (eg receiving and maintaining deposits in an account). SCDs can assign receivables to other financial institutions, securitization companies and credit rights investment funds (FIDCs).

2. Company of Direct Loan Between Individuals (Sociedade de Empréstimo Entre Pessoas or SEP): Another fintech format created by Bacen, SEP is an electronic platform for the mediation of direct loan operations between people – peer-to-peer lending (P2P).

As the credit contract is signed between the investor/lender and the borrower directly, the P2P model does not require SEP to maintain its own resources. SEPs enable credit operations from one investor to one borrower, as well as syndicated investors to a single borrower.

Regulated by Resolution 4,656 / 2018, SEP can also provide credit analysis and collection, insurance representative and electronic currency issuing services.

They must have a minimum capital of BR$ 1 million, and investment funds are allowed to participate in the control group as long as they are linked by partner agreement.

The regulation establishes that the exposure of a creditor of a loan or financing operation in the same SEP, per debtor, must be a maximum of BR$ 15,000, except for qualified investors, and the stipulation of other limits is also allowed.

3. Payment Institution (Instituição de Pagamento or IP): Fintechs can take the form of a Payment Institution (IP), which is the legal entity that provides purchase and sale services and the transfer of funds within the scope of a payment arrangement (ex. PIX).

IPs are not financial institutions and they are not allowed to grant loans and financing to their customers. Subject to Bacen’s authorization for those constituted as of March 1, 2021, they enable individuals and companies to make payments regardless of relationships with banks and other financial institutions.

There is an increasing number of fintechs currently in operation and in the process of being set up in Brazil and which will have a relevant impact on the traditional model of credit, payment arrangements and insurance.


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