As CEO of Goldman Sachs-backed B2B financial automation start-up iugu, Renato Ribeiro has rare insight into how Brazil’s economy is changing – from being dominated by big banks to being more welcoming to competition. In this interview with WARC’s Cathy Taylor, he explains how Brazil continues to move forward.
This article is part of the September 2022 Spotlight Brazil series, "How consumers are responding to volatile times.” Read more
- Historically, the Brazilian financial system used to be almost entirely in the hands of the Central Bank and a handful of big banks, which, in turn, mainly did business with other big companies – and this hindered competition.
- iugu is part of the new era of start-up companies, and is squarely targeted at smaller companies that haven’t had access to the big banking relationships and services that help companies succeed.
- Brazil is also opening up in terms of what’s possible financially for consumers. New consumer banking players are allowing consumers with weak or non-existent banking relationships to receive payment accounts or bank accounts that are tailored to their needs, allowing them to move away from antiquated bill-paying procedures.
From your position at iugu, what are your observations about the financial market in Brazil?
The financial market here is still evolving quite fast. We've got a Central Bank that is really pro-business and pro-competition. It was not like that for quite a long time. It's Brazil, so you need to really make sure you get the financial system to be very solid. We come from historically very, very high inflation. The financial market itself was really well developed during the hyperinflation times, but only big banks had the money to really invest in the technology necessary to really have that very efficient financial and payment system.
Then, starting '94 – that's when the Real currency (BRL) actually came to be and inflation got curbed and the market, as we know it currently, started to take place. Then you had basically, the very large banks, taking care of the whole financial system, and the Central Bank, really still quite afraid of letting go and bringing in additional competition.
But then, I'd say five years ago, that's when the Central Bank really started looking into bringing in additional competition. iugu is nine years old, and when we started it, there was no payment institution license. That came to be three years after we got founded, and this is when the Central Bank started looking at different business models and they licensed these companies that are not banks, like iugu, which do not present systemic risk to the whole system.
Introducing more competition to the market has been really good for consumers. The underbanked or not banked at all are basically starting to receive payment accounts or bank accounts that are tailored to their needs. They are cheaper than what they would otherwise have in the big banks, so the bringing in of additional competition has really significantly improved lives.
But it also helped businesses. It’s really expensive to operate your business, especially if you're small. If you're a big company, you already have relationships with the big banks, probably more than one, so you're able to reduce prices. For small companies it was really hard. But with more and more competition in the market, I think the lives of these companies and people are getting much better.
Are there certain categories of these smaller companies that are helped more by additional financial competition, or does it really run across the board?
It really depends on what type of service you're talking about. In Brazil we have boletos. [A boleto, or boleto bancário is a voucher-based payment system regulated by the Central Bank]. It’s a way of – to transfer money or pay bills – bank-to-bank. It's a piece of paper with a barcode, representing a bank transfer. Back in the day, you would actually receive the bank slips in the mail. You would take them and walk into a bank, go to the teller and say, “I want to pay these bills.”
I know people would also go into stores to pay for things in installments. How does that work?
It's just like, what people call “Buy now, pay later” today. It was actually invented in Brazil, 50 years ago, we used to call it “crediário.”
So, you have the retailers, and they would have a lot of people walking into the stores that wouldn't have cash or credit cards. “How do I sell to someone that doesn't have cash or a credit card? Let's have them pay in 12 installments.” Customers would come back every month to pay, and retailers could also use that occasion to sell even more, because you had to pay the bill by going into the store.
But if you think about newer companies – startups, highly scalable companies, telcos, for example, they need to invoice ten thousand, or hundreds of thousands of people, all at once in one month. Those are the companies that can really benefit from these new payment services, like iugu. And by doing that, we’re really bringing additional efficiency. We bring automation to the CFO’s office and help them become more efficient, reduce costs, etc.
If you're more digital, or digital-first, you would benefit from these newer technologies, but you can also benefit if you're a brick-and-mortar, more traditional business.
It’s an interesting insight about the boleto and how that has all played into Brazilian shopping habits.
Trust me – people in Brazil – they buy everything in installments. Everything – the smallest to the largest things.
How are retailers adapting to the fact that everything is happening in a virtual world instead?
Sometimes [retailers] forget that now they don't have all these people walking across the entrance of their store that start browsing and then buy from impulse. They didn’t need to invest, other than for rent. But now they need to take a little bit more and invest in marketing, because otherwise they won't have traffic to their website.
They're also trying to do other things to build loyalty, so maybe instead of just having customers walk into the store to pay the boleto, they're giving some cash back that allows customers to buy something else at a discounted price.
How do you market iugu to all these relatively underserved businesses?
Right now, it's very minimal. More often than not, these companies are finding us. They're growing, but they need a lot of manual labor to invoice their own clients. And they're feeling that pain, because they want to grow even more, but they're not able to. It’s content marketing that is important. And then events and recommendations. That's when we go after clients directly.
But the way we explain ourselves to them most of the time is we’re a financial operating system. It's a piece of software that goes hand-in-hand with ERPs [enterprise resource planning software] of these medium and larger companies. We basically bring the automation today to help future proof their operation. No matter what business model you use with our software you can set up the financial flow that goes along with it – so this is how we market ourselves.
So part of it is word-of-mouth, built by a great user experience.
Yes, absolutely. I'd say for 50% of new clients it's one way or another. But when you talk to them, they have talked to someone else who implemented iugu, and they really liked the experience. And then they come to us. They’re asking whether or not we can solve their hard problem. Sometimes we come up with an elegant solution. And sometimes it's not even elegant. It's just simple. Obviously, as we grow, it's harder and harder for that marketing approach alone to really cut it, but it’s just always going to be part of what we want to do.
We've been focusing at WARC on how startups grow. The pattern almost always starts with this early-adopter, user experience-based marketing model, and then there's an inflection point where start-ups need to advertise to build out beyond that.
I agree. It's just a different stage. In the beginning, it's just you and maybe a couple of founders, and they're the ones who are talking to these companies, so there is no advertising needed.
They (the founders) already have the contacts of thousands of companies – they go out with their friends etc. and they'll sell to those. And then those companies start benefiting from the solution. They talk, and then you go from 50 to 100. Once you start growing beyond that it's really hard for you to just do it simply by word-of-mouth.
Who do you consider your competition to be?
In everything we do, I don't think we have one competitor. Take boletos, for example. We definitely compete with the big banks. In credit card as a means of payment we compete with merchant acquirers, and sometimes other companies and payment gateways. We encapsulate everything in one product.
We offer this as a one solution, one-stop shop with these cash management products, all integrated and talking to each other – billing to invoicing that can carry more than one means of payment. No one else has a complete system like that, but you can use the individual features in the platform by themselves as well.
Does your offering connect into consumer-facing companies like NuBank?
Not directly. Most of the time, we're providing a better solution to the companies from which they buy from, thus reducing friction in the purchase. Sometimes that retailer wants to provide a wallet for that consumer because he wants to promote loyalty, etc. We are essentially the infrastructure for that.
Let me give you an example. There's this company called dog hero, which is a marketplace for dog walkers, dog hotels, etc. They open a payment account for whoever is needing the services of a dog walker, and they open a wallet for that dog walker himself and it allows the transactions to happen between the two wallets. And they use that as a smart escrow account in a way because only when they get notified that everything went okay with your dog, will they release the money.
What do you see right now about how the Brazilian economy is evolving?
I remember when The Economist had the two iconic covers. It was Christ the Redeemer basically taking off and the other one, [a few years later], Christ crashing into Rio de Janeiro.
Back then I was an investor with Temasek. Our team used to say to the guys in Singapore, “Don't get too excited. And don't get too nervous. Brazil was never that good and never that bad. Obviously, from the outside, it might look like that – so just bear with us. It's still a big economy. It's growing.”
I think we're in a much better place today than we were 20, 25 years ago. I've seen good things happen in in terms of opening up the economy ever since 1992 and it continues. We are in the process of joining the OECD (Organisation for Economic Co-operation and Development), which is a good thing because it basically forces our politicians to pass bills that open up the economy even more.
Talking about the short-term, medium-term, I think we're having to face inflation that is actually quite frankly, better than most countries. But I think we’re probably reaching a point of inflection in terms of high inflation and it’s back down, because we started raising interest rates earlier than most countries. I think the economy is going to continue growing, probably not around the number that I would like, but it's going to continue growing.
WARC has been covering inflation a lot – how marketers should deal with inflation, consumer attitudes towards it and so forth. For many people, in the US, inflation is really high anxiety because they’ve never really experienced an inflationary economy; for others, maybe less so.
People here are anxious as well, because some of them lived through hyperinflation. I remember it and I was a little kid back then. But I still remember how painful it was. You had a government coming in and saying, “No more price increases,” and they would dictate what price pasta would go for. But you can't freeze all the prices in the economy. It's just simply not doable, because there's a lot that you have to buy from the outside. And that itself is not frozen.
But now you're seeing gas prices come down, which is a significant portion of inflation and it basically trickles down to the whole economy.
Indications are that inflation is not necessarily going away. I think it's going to take probably one and a half, two years for Brazil to really get back to where it was. And it really depends on the sort of policies that this new government is going to put into place. But again, Brazil is never that bad – never that good. It’s just a normal place that is better than yesterday.