The world is going global. The increasing interactions and transactions with people around the globe, driven in part by advances in communication and information technology, is pervasive and ongoing. While national politics and world events affect the timeline, the interconnectedness of all of us is undeniable; we live on one planet, and more international business creates more prosperity for everyone.
As Richard Fontaine, chief executive officer of the Center for a New American Security, states, “many of the key drivers of globalization — shipping, data, and capital flows, our understanding of comparative advantage, and economies of scale — will not go away.”
Expanding to new markets, leveraging existing technologies and expertise, is a relatively low-risk, high-reward endeavor, especially for companies that are offering digital services. After all, scaling technology is a well-known process and much more cost effective than building a new service from the ground up.
However, doing business internationally is quite different than operating locally. There are cultural and potential language differences, business operation considerations, requirements for new marketing channels and support, new compliance and legal regulations and a whole host of factors that determine success in a specific international market. How does a business go global? What factors and processes should a business consider when deciding to do business in a new country?
To offer some insights, Trulioo is creating a series of posts — Going Global — to help businesses understand different markets, with a focus on identity factors. We hope we can inform your organization as it explores various market opportunities, and we look forward to hearing from you on what you’re looking for and how we can help.
Doing business in Brazil
Brazil has a large population and all the elements for a strong digital economy, including significant internet and smartphone penetration. In fact, it has the second-highest number of Facebook, Twitter and YouTube users (only the U.S. has more), and it has more mobile devices than people.
The population is youthful, with a median age of 32, and 86 percent of the people live in urban areas. In terms of entrepreneurship, according to Forbes, Brazil is “one of the most entrepreneurial countries in the world,” although that was in 2012 and the country has gone through a serious recession since then. Fortunately, that recession is receding and the country has put in place many of the regulatory and organizational frameworks necessary to create a successful digital economy.
Population: 212 million
Median age: 32
GDP: $1.868 trillion
GDP growth: 1.8%
Income per capita: $12,300
Internet access: 70.2%
Numbers from multiple sources including the OECD and Internet World Stats.
One financial indicator is the number of fintech firms; according to a 2019 Finnivista report, there were 380 fintech companies operating in Brazil. One of them, Nubank, reported opening 1.5 million digital savings accounts during the first six months of the product’s release in early 2018. Already, 64 percent of Brazilians have adopted some aspect of fintech. Introducing an open banking law should add fuel to the growth.
In 2020, the estimated total transaction value for digital payments will be over $54 billion, which ranks it at number 10 worldwide. With an annual growth rate of 11.8 percent, that value will rise to over $75 billion in 2023.
The country is launching a national instant payments platform, Pix, in November 2020. According to the Central Bank, “PIX will encourage digitization of payments and enhance financial inclusion, while reducing operational risk and the difficulties related to the use of cash.”
With a significant use of smartphones and a young, tech-savvy population, the opportunities for growth in mCommerce are massive. There are a number of initiatives between mobile network operators (MNOs), banks and credit card companies to stimulate this sector, but to date the number of transactions remains low.
One issue is the high rate of cybercrime; 76 percent of Brazilians report that they have been personally affected by cybercrime, the highest in any country by far. The country has a history of black-hat hackers; one report from 2014 had it as the second-leading worldwide source of attacks and third-most affected target.
One article in Crunchbase states that online fraud and identity theft cost the country about $15 billion a year.
AML/KYC in Brazil
Brazil is a member of the FATF and has had Anti-Money Laundering (AML) laws since 1998. However, the FATF had “deep concerns” about deficiencies identified in its June 2010 mutual evaluation report. While Brazil did enact changes, as of October 2019 “the FATF expresses its serious concerns regarding Brazil’s ability to comply with international standards and combat money laundering and terrorist financing.”
According to Transparency International, “corruption remains one of the biggest impediments to economic development in Brazil.” On the Corruption Perceptions Index 2019, Brazil scored 35/100, ranking it 106 of 180 countries.
In terms of regulators, there are three main regulatory bodies in charge of AML and Know Your Customer (KYC) laws: the Central Bank, CVM (Brazilian Securities and Exchange Commission) and Financial Activities Control Council (COAF).
In general, the regulators are open to RegTech innovations to streamline compliance requirements. Initiatives such as exploring using machine learning, AI and regulatory sandboxes are in progress, and regulations for P2P lending were enacted in 2018.
The Brazilian General Data Protection Law (LGPD) was passed in August 2018. According to global law firm DLA Piper, “the LGPD is Brazil’s first comprehensive data protection regulation and it is largely aligned to the EU General Data Protection Act (GDPR).” More information about privacy in Brazil is available at Privacy International.
In one 2018 study, 69 percent of Brazilians believe that having a unified identification record would improve the security of personal data.
Identity requirements and systems
|No ID||ID but no digital footprint||ID and digital footprint|
|14 million (7%)||66 million (31%)||131 million (62%)|
For organizations covered under AML laws, identity verification is a KYC requirement.
Brazil has two identity systems. The Registro Geral (RG) is the official national identity document, containing a person’s name, DOB, parents’ names, signature, thumbprint and unique number. As of 2017, RG cards are machine-readable.
The Cadastro de Pessoas Físicas (CPF) is a federal taxpayer number for Brazilians and resident aliens. The government recently issued an e-CPF, an electronic document that can be used as a publicly provided cryptographed signature key across Brazil.
Brazil was preparing to launch a more advanced digital ID program in November 2019. The National Identification Document (DNI) connects to a national database of biometric information collected from 100 million Brazilians to date. Future plans include the integration of social security numbers, birth and marriage certificates, and public healthcare registration data.
However, the plan to start issuing a national digital ID was put on hold due to an inter-agency dispute; according to José Antonio Ziebarth, the economy ministry’s program director, “if we do not ink this partnership with the electoral authority to use biometric data, we will not be able to implement the digital identity.”
Since 2016, regulations were in place that allowed account opening using electronic channels. To streamline the creation of simplified KYC accounts and for better information sharing, the Central Bank has created an Open Data Portal, allowing customers with an authenticated digital identity to quickly open an account.
Unfortunately, an estimated 45 million Brazilians still don’t have a bank account. Some of the problems of not having financial inclusion are demonstrated by the government’s difficulty in issuing these people needed funds during the COVID-19 crisis. On the positive side, 9.8 million citizens did open up new digital bank accounts to receive funds within the first 24 hours of the program. This might be the largest and fastest financial inclusion program ever.
Opportunities in Brazil
As everywhere else in the world, the digital economy in Brazil holds promise of quicker, more seamless transactions, more financial inclusion and new ways to create value and growth. However, deep concerns about fraud and corruption are holding back the potential of the country.
We featured Brazil first in the Going Global series for a reason: the country is well on its way to creating an effective digital national ID program, there is a forward-thinking entrepreneurial and tech-friendly approach in many sectors, and there are many regulatory frameworks already in place that can help speed deployment.
According to a McKinsey report, Digital identification: A key to inclusive growth, digital ID could unlock economic value equivalent of 13 percent of GDP in Brazil by 2030. Using the 2018 GDP number for Brazil of $1.868 trillion, that equates to a growth of $242 billion due to digital ID.
Businesses that want to go global should strongly consider Brazil. There’s a massive economic opportunity for improving digital channels to lower the fraud rate, increase financial inclusion and help Brazilians better their lives. Doing business in Brazil might well be the best opportunity of the decade.