The expression “every company will be a fintech” has been widely used in Brazil in recent time, predicting that companies doing business in the country, whether retailers, wholesalers, manufacturers and services will have to include financial and banking products in their portfolio to compete.
Offering financial and banking products can be done in Brazil in 2 ways: (i) using third parties, in the white lable format of “bank as a service”, which must compute the cost of the service, or (ii) setting up a financial institution, which is authorized to lender money, pre- and post-paid cards, insurance, among others.
For organizations that want to verticalize and own a fintech of financial and banking products, the Brazilian Central Bank (Bacen) created the vehicle called Direct Credit Company (“Sociedade de Crédito Direto (SCD)”). Currently there are over 60 of this type operating.
See below 5 points of SCDs as a fintech option offer banking products in Brazil:
1. What is a Direct Credit Company (“Sociedade de Crédito Direto (SCD)”): It is a type of fintech created by Bacen in 2018, classified as a financial institution. As required by its regulation (Resolution 4.656), the SCD must operate through an electronic platform.
2. What Services and Products an SCD May Offer: As a financial institution, SCDs may (i) grant loans, financing and acquire receivable, (ii) issue electronic money and postpaid payment instrument (credit card), (iii) offer insurance representation, (iv) analyse and collect third-party claims, among others.
Unlike banks, SCDs cannot open a deposit or checking accounts and take deposits from the general public. This type of fintech must finance its operations with its own capital.
3. Does SCD Require Licensing? SCD is a type of fintech that requires prior authorization from Bacen to operate. It is incorporated as a corporation (S/A) and requires a minimum capital of BR$1 million.
4. Regulatory Requirements After Authorization Is Granted by Bacen: The SCD must periodically report to Bacen, through the Credit Information System (SCR), certain information including (i) credit risk data and (ii) aggregate credit statistics.
5. How is the Taxation of SCDs: SCDs calculate the income tax (IRPJ) and social contribution (CSLL) as financial institutions, that is, based on the real profit accounting (lucro real). They are also subject to other tax such as PIS, COFINS, ISS and IOF (on credit operations).
If “every company will be a fintech”, SCD should be the main format to be used by retailers, wholesalers, manufactorers and services to offer financial and banking products in Brazil.
