POST TIME: 4 September, 2018 00:00 00 AM
Creating start-ups against the odds in Brazil

Creating start-ups against the odds in Brazil

Brazilian bank branches have significant security checks for customers, which adds to costs. Photo Courtesy: BBC

Colombian entrepreneur David Velez co-founded a digital bank in Brazil in 2013 around the same time similar ideas started to crop up in the US and the UK, reports BBC.

He was strongly advised by his friends to give up on the idea.

Brazil’s financial industry is dominated by five national banks that control almost 90per cent  of loans. In the recent past, international giants like HSBC, Citibank and ABN Amro have all left the country unable to compete with local players.

But today with four million clients, David Velez’s Nubank is worth more than $1bn and is the biggest digital bank in the world outside Asia.

Velez is one of a handful of people who took on the challenge of creating a successful and profitable start-up in Brazil - which is amongst the world’s least innovative places.

Latin America’s biggest economy ranks 176 in a World Bank list of 190 countries where it is easiest to start a business. It is also one of the world’s most closed economies and a hard place for foreign players to thrive in.

Brazil only has two unicorns - tech businesses worth over a billion dollars - while in the United States there were 132 unicorns last year.

Both Brazilian firms reached that status only this year, which shows how slow it is even for successful start-ups to find their footing.

The first was 99taxi, a company that received major investment from Chinese group Didi Chuxing. The second, was Nubank.

In your day-to-day in emerging markets, you find frustration in every single corner. A lot of those frustration issues - such as transportation, banking, cell phones, paying the bills - are business opportunities for technology companies.”

Image copyright Getty Images Image caption Brazilian bank branches have significant security checks for customers, which adds to costs

Nubank’s disruption in the market was to create low-cost credit cards by getting rid of physical branches, that require renting or buying a place and staffing it fully.

Because of the high numbers of bank robberies, branches are a nightmare experience for consumers and have security checks similar to those in airports - where clients are required to store their laptops in lockers outside the branches.

With no branches, Nubank was able to offer lower interest rates to consumers - in a country where some banks charge over 400per cent  in overdraft or credit card rates.

So far its growth is still limited to millennials and tech-savvy clients, but Nubank has been able to push Brazil’s top five banks into investing more in their digital operations.

Entrepreneurs who are persistent enough, can reap huge rewards as first entrants in a domestic market of over 200 million people.

Image caption Serial disruptor: Tallis Gomes founded cab-hailing app EasyTaxi, and now the beauty salon app Singu

In developed economies like the US or Europe, competitors quickly replicate good ideas. But in emerging markets those who enter first often go unchallenged for years.

One of Brazil’s best-known disruptors is Tallis Gomes who founded cab-hailing app EasyTaxi back in 2011, when Uber was still a novelty.

“In those days I had to go to cab stands and convince taxi drivers that they should buy a smartphone, so that they could use my app and get more clients. Most of them didn’t even own smartphones back then,” he says.

For some years, before Uber and Didi Chixung arrived in Brazil, EasyTaxi dominated the market and became a multi-million dollar tech business, in 400 cities across 35 countries.

Image caption Brazil has the world’s second biggest beauty market after the US, says Singu

In 2014, Mr Gomes sold his share for an undisclosed amount and is now intent on disrupting Brazil’s beauty services market.