Fintechs and Traditional Banks: Regulation, Competition, and Cooperation in Brazil

Abstract This article aims to analyze the characteristics, limitations and contradictions involving financial technology companies (fintechs) and traditional banks in Brazil. The paper describes the two new categories aimed at regulating fintechs in Brazil: the so-called Direct Credit Company (Sociedade de Crédito Direto) and the Personal Loan Company (Sociedade de Empréstimo entre Pessoas). The paper challenges the idea that financial technology inevitably introduces competition into the financial market, as it describes relevant mechanisms of cooperation between financial technology companies and traditional banks, with potentially high gains for both of them. Finally, using the data provided by the Central Bank, we compare interest rates charged by a local fintech and by its major shareholders, which are traditional banks. Although our analysis is still exploratory, it shows that the fintech controlled by large traditional banks charges higher interest rates than their controllers, suggesting a fruitful research agenda to investigate whether this occurs systematically or not.