Fintechs, an unexplored weapon in COVID-19 fight

Fintechs in Brazil could be key in mitigating the economic impact of the crisis triggered by COVID-19, either through their own funds or as a channel for distributing public resources, but so far have been largely unexplored by the public sector.

That could now change. 

According to local media reports, development bank BNDES is mulling investing in funds created by fintechs to lend to SMEs during the crisis.

BNDES is said to be considering participating with 100mn reais (US$19.1mn) in credit rights investment funds (FIDCs), daily Valor Econômico reported. BNDES' participation would be limited to an 80% share, according to the report.

Among other actions the bank could be considering are direct loans to fintechs and the use of these companies as resource lenders.

The bank’s total aid package via fintechs for smaller businesses could reach 5bn reais, said Valor.

FINTECHS TO THE RESCUE

With respect to the second aspect, that of being distribution channels, the Brazilian fintechs association is calling on the government to let its member companies participate in the distribution of a monthly 600-real federal emergency payment, dubbed coronavoucher, for economically vulnerable families and informal workers.

The government estimates that the temporary emergency aid will reach 54mn people and require 44bn reais over three months.

One of the difficulties, however, is getting that money into the hands of people, many of whom are outside the financial system. 

According to state lender Caixa Econômica Federal, which will be responsible for operating the payments, about 85% of the target population does not have a bank account.

In an open letter to the federal government, ABFintechs said that payments via fintechs and card machines (POS) is a priority, as 60% of the unbanked population have access to cell phones and the internet.

BNamericas previously reported that MercadoPago is in talks with the government for payments to be made via its platforms.

According to ABFintechs, about 25% of fintechs in Brazil operate in the electronic payment segment, while another 21% offer loans, financing and debt renegotiation.

"Both modalities can be used as a distribution tool so this aid reaches those who need it," the association wrote.

A bill authorizing fintechs to be the payment channel was approved in the senate and is pending a lower house vote. The bill was not an initiative of the government.