Fintechs, a look at new perspectives on the credit Market

Abstract

Credit restriction and the no accept of people which not offer guarantees to the conventional
financial system are problems that affect millions of Brazilians. In order to resolve these, the
cooperatives with the function of credits have been created and, more recently, “Fintechs”,
which are the technological start-ups. Considering that this is a pertinent theme, this study
aimed analyzing two different companies: the credit cooperative and a Fintech, this one
represented by Nubank. In order to check some relationship and innovation possibilities
between them. And also, in order to indicate some possibilities and new ideas to these
Cooperative. For this, the data collections of the cooperative and Nubank were performed.
The results showed that the services of credit unions and fintechs are not mutually exclusive,
on the contrary, there is much field of contribution between the two of them, the rapport of
one and the technology of the other.

Key words: : credit markets; fintechs; credit cooperatives.

1. Introduction

Brazil has an economically active population of 163 million people (IBGE, 2016).
Directly or indirectly, all of these citizens relate to the banking financial system both for
carrying out routine activities, such as payments or deposits, as well as for more refined
activities, such as investments or credit taking. In the reality of Brazilians, unfortunately,
these so-called more refined activities do not have the coverage expected.
Credit restriction, for example, is something that directly affects millions of people
due to the lack of guarantees that the conventional financial network imposes. França Filho et
al., (2012) state that not only the lack of guarantees, but also the bureaucratic difficulties, lack
of support in the elaboration of projects, as well as high interest rates end up significantly
marginalizing these citizens.
The creation of a more humanized and supportive financial system was an arduous
and time-consuming process for Brazilian citizens, so that problems such as the difficulty of
inserting a significant portion of the population in the financial system and the inability to
access financing were minimized. The result was what was called solidarity finance.

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 The National Secretariat for Solidarity Economy (Secretaria Nacional de Economia
Solidária - SENAES) (2013) described that solidarity finance has divergences from the
conventional financial system, given that these one has a much more community bias, to
promote local development by boosting consumption and whose main focus is not on rentism
or in profit, but in the promotion of social well-being, through the consumption of goods and
services of the community itself.
To put all these operations into practice, Singer (2003) indicates the use of three
pillars: credit unions, community banks and solidarity funds. Among them, credit
cooperatives have stood out for their expressive strength, having become the sixth largest
financial entity in the country, handling 3.57% of all Brazilian banking assets, 6.84% of
deposits and, 3.42% credit operations. Overlapping large banks, such as Safra, Citibank and
Banrisul. It is in 16th place in the world cooperativism, with more than five thousand units
across the country and more than seven million members (Portal Cooperativismo de Crédito,
2017).
It is possible to verify that credit cooperatives have total conditions to show a path
with greater participation in the Brazilian scenario. Its contribution can be great since it can
promote inclusion and more humane conditions to the financial circuit and provide returns to
its members.
Recently, in an attempt to combat the hegemonic logic of the conventional system of
access to credit, which tends to be often perverse and exclusive, credit cooperatives have
relied on the help of new elements that are appreciably changing the relationship of how
cooperatives deal with their final contacts, the “Fintechs” (technological financial start ups).
Defined by Confebras (2017) as companies that intend to democratize banking tasks at fair
rates and with attributes that meet the expectations of a high tech audience. With the potential
for operational facilitation for organizations, fintechs have brought new features to the
solidarity finance system.
Portal Cooperativismo de crédito (2018) brings the paradigm that more and more
cooperatives develop new strategies so as not to lose space such as high investments in the
experience of their users, with migration to a very virtual reality, to the detriment, even, of the
good -being and exclusive satisfaction of the member. Experiences that provide time
improvements in relations with users and self-service, have been primarily the investment of
some cooperatives. This represents, in a way, a change in the form of service and in the way

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cooperatives relate to their members. It is a way of trying to be more attractive to young
audiences.
In view of the pertinence of the theme, the objective of this study was to analyze the
relationship between fintechs, represented by Nubank, and credit unions, represented by
Sicredi, a cooperative financial institution, located in the city of Campo Verde, in the State of
Mato Grosso, Brazil. This study also had the purpose of suggesting some changes and
improvements for this mutual cooperation, aiming at improving banking activities in general.

2. Credit Unions and the Brazilian scenario

Credit unions are defined by the Brazilian Central Bank (2018) as being a financial
institution formed by the association of people to provide financial services exclusively to its
members. Its constitution is given by members, whose membership is free. These are, at the
same time, owners and users of the cooperative, participating in its management and enjoying
its products and services. Its main services are checking account, financial investments, credit
card, loans and financing. In addition to the benefit that the members can have equal voting
power regardless of their participation in the cooperative's share capital.
In Brazil, it was a Swiss priest, Theodor Amstad, who brought this culture, even at
the end of the 19th century. Pinho (2004) reports that he was the major driver of the
cooperative movement in Rio Grande do Sul, founding from farmers' associations to reaching
the credit branch.
It is stated in the Organization of Brazilian Cooperatives (OCB) (2017) that Amstad's
ideas and willpower were the driving forces for them to expand in other Brazilian states, the
cooperatives. Currently, the oldest cooperative in Brazil and still in operation is Sicredi
Pioneira, located in Nova Petrópolis (Rio Grande do Sul), dated 1902.
The portal also reports that there is a predominance in the South Region of
cooperatives, being of paramount importance, as in many cases, it is the only financial entity
in some cities. It is possible to verify that credit unions have ample conditions to show a path
with greater participation in the Brazilian scenario.

3. “Fintechs”: technology and a new Market perspective

In parallel with credit unions, a new force has been established in the financial
market, the so-called fintechs, and contributed significantly to what is already available.

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Miozzo (2018) defines that fintech is a term used for companies in the financial sector that are
considered disruptive because they have some non-ordinary technology.
Gerbelli and Laporta (2018) highlight the differences from the way they handle with
people, in their online platforms, to the way these companies interact with their customers,
whose results seem positive, even in services historically dominated by large corporations,
such as credit and financing, investment management, insurance and, now more recently,
digital currencies.
This movement towards differentiation through technology has been widely noticed,
including by credit unions. Sicoob (2018) described that in his system, some applications
have been developed focused on the digital opening of accounts, in addition to its
headquarters being serving as a tank (a center for reflection and discussion) to house more
than 40 fintechs in a space of acceleration. The network has bet that in a short time there will
be fully digital cooperatives incorporated into Sicoob.

4. Materials and methods

For the analysis of the relationship between Nubank and Sicredi, a categorization
was established in relation to the view of those involved, such as in relation to the services
and products offered by Sicredi, and the view of which services is offered by "Fintech".
Subsequently, the categorization of those involved was defined, identifying the
elements that define the common interest of these two agents. This characterization allowed
that a single theme - provision of financial services - could be analyzed from two different
angles, but of equal importance for its realization. This understanding was decisive for the
descriptive analysis that was performed for each of the elements indicated in the
categorization of the vision of each of the agents.
As a complementary analysis of this study and, in order to provide feedback on what
was proposed, a technical evaluation was carried out to, finally, suggest the new services or
even products offered by the credit union in order to solve the problems raised and evaluated.

5. Results and Discussion

According to the 2016 report by the World Confederation of Credit Unions
(WOCCU), the world has 68,882 credit unions that serve more than 235 million people, with
170 billion dollars in reserves, 1.7 trillion dollars in assets, $ 1.2 trillion in loans and $ 1.4

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trillion in savings. In Brazil, fintechs operations correspond to 32% of payments, 18% of
financial management, 13% of loans, 8% of investments, 7% of funding, 6% of insurance, 5%
through debt negotiation, 5% of cryptocurrencies, 4% exchange and 2% multiservices
(Bancoob, 2018).
This study was carried out at Sicredi Campo Verde, a city located in Mato Grosso
and, with a huge dependence on agriculture and livestock, having as main highlights activities
such as: poultry farming, corn production, cotton farming and the slaughter of pigs and cattle
(Campo Verde, 2018). The municipality has a history that mixes significantly with a credit
cooperative, Crediverde, currently Sicredi Campo Verde.
Initially founded only to meet the credit and banking demand of rural producers, the
cooperative started to occupy a prominent place in the municipality due to the absence of
other financial entities, given that the first private and public commercial banks were installed
after this cooperative.
However, it was only almost two decades after its foundation, in 2007, that the
cooperative grew exponentially in the number of members and in volume of loans, as it was in
that year that it became part of the Sicredi system, with free admission. The capillarity of its
services increased as it became more flexible and even facilitated the entry of new members.
Its services, which were only restricted to its microregion, currently have branches in
7 cities where the government's banking presence is totally non-existent, and the cooperative
is the only way to ensure the entry of these people to the Brazilian financial system, as in
Nova Brasilândia and São Pedro da Cipa, both in Mato Grosso.
They are also expanding to the State of Amazonas, where there is an evident need
for greater cooperative actions. There are 18 thousand members who use absolutely all types
of banking services, such as personal credit, insurance, checks, investment portfolios and even
their own card machine.
It is possible to draw a parallel between these services and those provided by
fintechs, represented in this one by Nubank, one of the most successful start ups in Brazil,
whose main action is with credit cards, which achieved an emblematic feat in March of this
year. year, reaching a market value of US $ 1 billion (Estadão, 2018).
The similarities of this fintech with credit unions lie in interest rates well below
those practiced by the market as a whole, focus on the customer, as well as a wide range of
services, which compete directly with the conventional banking system, with the peculiarity

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that it does not have bank branches, that is, all its services are performed in a totally virtual
manner.
At the present time, a higher request for online and on-demand services has been
demanded to Sicredi, mainly by the younger audience, since they are in an incipient phase.
The Sicredi network has a range of totally virtual services, called Woop, just as Sicoob has
Yoou. However, for Sicredi Campo Verde there are still few associates who have migrated
from face-to-face service and who use totally virtual services.
This is a point that deserves to be highlighted. The Yoou and Woop platforms have
their immediate adhesion through the analysis of Serasa Risk, or credit score, which is a
protective measure that helps enterprises to analyze the risks of trading with certain people in
view of their payment history and fiscal strength. With this score provided by Serasa, specific
lines of credit are automatically available to customers, the ones with better their payment
history.
Table 1 shows a list of all Sicredi Campo Verde associates, categorized into age
groups. In this it is possible to observe that the young public represents the majority. It is also
observed that up to the age group of 50 years there is great adherence to virtual services,
which would be, at least, 13 thousand of the almost 18 thousand associates with potential for
use and adhesion to these types of services.

Table 1 – Division of members by age group

Age Range Quantity
18 – 30 4306
31 – 40 5093
41 – 50 3869
51 – 60 2506
61 – 70 1310
70 + 809
Total 17803
Source: Original Results

The concerns and criticisms drawn by more traditional cooperative groups that
virtual services would be contrary to the proximity that historically characterized
cooperativism, do not seem to have found an echo in reality and such arguments are even

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refutable, when considering the modus operanti of initial operation requiring a small deposit
as a share for membership, which will yield rights to members such as votes and receipt of
surpluses. In addition to some services being free, such as transfers between Sicredi accounts,
withdrawals (up to 4 per month) and debit card (Woop, 2018).
The marginal benefits go beyond just practicality. In an interview given to the
newspaper El País (2018), David Vélez, one of the founders of Nubank, replies that the non-
collection of fees and lower interest rates are only possible because all of their operations are
online, which makes them cost savings. In addition, online platforms increase the capillarity
of their services.
From the 4 million members of Nubank's services, 85% are under 35 years-old
(Forbes, 2018). This fact was also favored by the profile of its employees, who are mostly
young, with high ease of interaction with the digital environment and social networks. Figure
1 seems to corroborate the maximum of the potential to invest in this audience and, also, it
can be seen that the number of new accounts of people between 18 and 30 years old is rising.

900 12
32 6
800 61 -70
Number of members

40 10
139 98 51-60
700 19
600 121 41-50
247 270 31-40
500 166
400 18-30
300
200 426 398 407
100
0
2015 2016 2017
Year

Figure 1 - Composition of new members, by age group, evaluated from 2015 to

2017
Source: Original results

Figure 1 also shows that, despite variations in the absolute number of new members,
the age group between 18 and 30 years was more significant. It is also interesting to evaluate
in this Figure the fact that few people over 50 years old entered the services of the
cooperatives. Considering the expansions that Sicredi Campo Verde is making, including to
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other states, in locations where there is an almost total absence of public and private bank
agents, the numbers should be even more robust in the coming years.
However, although relevant, Table 2 demonstrates that there is still a lot of room to
act, of the 733 new accounts opened in 2017 at Sicredi Campo Verde, only 12 were with
Woop, against 16 accounts in 2016 and 8 in 2015.

Table 2 - New accounts opened annually at Sicredi Campo Verde

Year Virtual Presential % Virtual
2015 8 848 0,93
2016 16 796 1,97
2017 12 721 1,64
Source: Original Results

After what was demonstrated in this study, it is necessary to ask about the low
adherence to virtual platforms. Would it occur, for lack of disclosure or for lack of interest?
With this, suggesting that disclosure is perhaps the main obstacle to their greater success,
since actions routing towards this direction could greatly benefit this new banking core.
The observed results were fruitful, it was possible to draw a clear profile of the
associates when verifying that of the new entrants, the majority is young and is included in
the ranges between 18 to 30 years and, there is still a great potential for expansion,
considering the new branches in progress.
In view of all the content exposed, it was found that there is plenty of room for
changes and improvements in the provision of services by Sicredi Campo Verde. The surveys
revealed strong indications that there may be greater adherence to virtual platforms, to the
detriment of exclusively conventional face-to-face agencies.
It is important to emphasize that face-to-face agencies are not a problem, on the
contrary, they reaffirm what is most sensitive in cooperativism, which is proximity to
members, as well as promoting greater convenience to those not so enthusiastic about virtual
models. However, the practicality and capillarity that are printed through online platforms are
undeniable.
It cannot be said either the small adherence to the system, where there was a value of
no more than 2% of new accounts opened in a virtual way, is something strategic, in other

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words, that the union itself voluntarily chose not to join, or whether it was due to lack of
propaganda.
Regarding the range of services, it was evident that the unions have a series of
products that are much more extensive than Nubank, which may be due to the recent
authorization to operate as a financial institution, dating from January 2018. On the other
hand, union have a complete range with all financial services, including insurance,
investments, among others.

6. Final Considerations

It is concluded that fintechs and credit unions are not excluded services, on the
contrary, they are complementary services and the expertise of both parties is of great value to
each other, with enormous contributions. Indicating, at the end of this, a suggestion for future
works that assess whether there is an efficient dissemination of these systems. And, also that
they can evaluate the disclosure of these systems and, the verification if the percentage of
acceptance or even of users, would increase. It is understood that adherence due to lack of
knowledge can be a great loss for those who could benefit from them.

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