Lack of funds, poor business model and stronger competitors are among the reasons for bankruptcy.
The success of fintechs is already a reality in Brazil and in the world, the digitalization of the finance market is irreversible. But turning a startup into a Nubank, Pic Pay or Pag Seguro is not for everyone.
Second survey made by the portal Fincatch and obtained exclusively by Fintechs Brasil, more than 50 fintechs broke between 2016 and 2021. Victor Barboza, one of Fincatch’s partners, warns, however, that the survey is preliminary and is constantly being updated.
“The data is not public, it is necessary to mine, check and recheck”, he says. According to the study, the year that most had fintech closing its doors was 2017. This year, so far, the survey identified three: Bela Payments, Smart MEI and Brazilex, shows a report from Fintechs Brazill, Blocknews partner site.
The reasons
Lack of funds, bad business model, stronger competitors, lack of insight into consumer pain, legal challenges, poor product, lack of focus, failure to pivot the business and poor management: misunderstanding between partners these are the main causes why the fintechs break. And, of course, some also commit fraud.
In the world, the situation is not very different. The website Failory recently identified 13 cases of fintechs that went bankrupt – 10 in the United States, one in Indonesia, one in the Netherlands and one in India.
“The number of fintechs that it opens is enormous, and of those that survive is very small, the mortality rate is gigantic”, says Boanerges Ramos Freire, from Boanerges & Cia, a consultancy focused on payments, credit and loyalty. In addition to those that break, there are still those that disappear from the map, swallowed up by competitors.
“It is not simple to make a business viable. Entrepreneurs often focus on just one of the components, technology, which is important, the basis for digital transformation, but that’s not all. The technology itself does not guarantee the success of a business’, he says.
“It’s not because you have a different technology that you know how to manage a business, bring people, integrate them, set goals, sell, serve the client, design and implement this strategy, make the business financially viable”, he adds. And he adds that although there are resources to invest at the moment, the capital is selective. “More than looking for a good deal, investors are looking for people, leaders with vision and competence to turn that vision into reality. And the reality is hard”.
“There are many things to consider when building a new startup – where to get funding, how to validate your idea and what resources to offer. One of the challenges is to find a market that is willing to pay for your solution, even without knowing what it is”, says Nicolás Cerdeira, from the site Failory. “That’s why 90% of startups fail”.
Suspected cases
Among the bankruptcy cases, there are many caused by the use of unorthodox practices. One of them is Bela Payments. After disagreements with Stone, Bela, a financial sector startup headquartered in Gramado (RS), was declared bankrupt in February this year. As it did not have the approval of the Central Bank to process the transactions with the card brands, Bela was a sub-accredited of Stone; consumers paid on Bela’s machine and Stone processed the transactions.
Initially, it was thought that there was a problem in the system, but later Bela’s customers began to suspect that the startup was asking Stone for advances of resources that would be transferred to hotels, restaurants and commerce, but the amounts did not reach the final recipients . Two years ago, the loss amounted to BRL 8 million.
At the time, Stone said in a note that, although it was carrying out the transfers to commercial and service establishments, the debt was the responsibility of the Gramada company. It also claims that it transferred to the startup the amounts that would be for the establishments and that, after Bela alleges liquidity problems, evidence of fraud and payment uncertainty were identified. Therefore, the company decided to terminate the contract.
competitors win
The disappearance of some is the joy of other competitors. The end of CobreBemX, a digital solution for issuing bank slips, is one such case. The Zuum app, a partnership between Vivo and Mastercard, even left an “heir”: Social Bank.
Vivo ended the activities of its payment platform – which had the purpose of managing digital accounts – at the end of 2018. Zuum offered the opportunity to transfer up to R$1,000 using a device linked to an account, equipped with the chip of Vivo. A year earlier, the app company had close to 1 million customers and aimed to double that base in one year. At the time, Vivo sent a press release explaining that the decision had been taken due to the reorganization of its strategies in this sector. “Zuum’s customers were duly informed about the changes and had the option of continuing to enjoy a similar service through Social Bank, a company specializing in mobile payments.”
Founded in 1995, CobreBemX was purchased in 2014 by WorldPay, which turned it into a fintech – six years later, in December of last year, the fintech business was closed. After the acquisition, CobreBemX underwent a retroactive adjustment in value of its licenses, as the company did not change its value for a few years. This caused the cost of the license to increase considerably, making it unfeasible for some companies that were already using the service. Tecnospeed and Freenfe were some of the competitors that started to compete for CobreBem customers.
Source: Failory
fairplace, the firstO
In 2010, Fairplace, the first Brazilian website for loans between people, had its operations interrupted due to an investigation by the Federal Police, following a communication between the BC and the Federal Public Ministry. At the time, the justification is that the company would be doing “online loan sharking”.
Five years after that incident, the Central Bank regulated credit fintechs. This change was fundamental to give greater freedom to the market – now, financial market startups can grant credit without bank intermediation.
In other words: today, what Fairplace was doing – also called peer to peer landing – is one of the verticals of fintechs.