The Next Step for the Foreign Currency Market in Brazil

Understanding the evolution of exchange-based solutions and their future prospects

* This is the english version of an article I published at my monthly column at FEBRABAN TECH . Click here to read the original version.

Brazil has a complex history when it comes to the movement of money, products, and services with other countries. After decades of a closed economy, we saw a greater opening to the international market starting in the 1990s, when the Collor government established policies to encourage exports and reduced import tariffs. Even with this initial movement, we are still one of the most closed democratic countries when it comes to the fluidity of the entry and exit of resources and values, ranking 28th in the global foreign trade list, despite being the 9th largest economy in the world.

Because of all this – and having one of the most complex exchange regulations in the world, so far – a large part of Brazilians could not access the various financial solutions available in foreign currency, in addition to having difficulties in purchasing products sold on international marketplaces.

Over time, thanks to the evolution of the market and the emergence of Fx-as-a-Service players – which provide solutions that simplify this access – we are witnessing a new phase in the Brazilian exchange market, with the simplification of payments for products and services offered by foreign providers, the emergence of global accounts by banks and fintechs, and solutions that facilitate access to the international investment market.

This movement is connecting more and more Brazilians with the rest of the world, bringing prosperity and stimulus to the local economy. Many citizens are even discovering the current conveniences (as well as the low costs) of moving money internationally and receiving funds – such as payments for services provided to foreign companies, for example – to expand their professional horizons through remote work, being able to enjoy geographical freedom and global mobility.

A lot is being done from the individual's perspective, but a great revolution is still to happen in the world of legal entities in the coming years. Next, I will detail some of the insights on this topic, which were deeply explored in an interview I conducted with Luiz Henrique Didier Jr. , Director of the British fintech Ebury Bank in Brazil, on the Fintech Talks Podcast I host.

The challenges overcome over time

Considering the history of recent advancements, we can say that the first era of transformation of the exchange market by fintechs occurred in the context of digital marketplaces, especially Chinese ones. Around 2010, these sites became very popular worldwide – and Brazil was no exception. Despite the growing access by Brazilians, frequent problems occurred in purchase transactions, leading the Chinese to think that here, we must have a major problem related to fraud due to the large number of uncompleted operations – and, on the Brazilian side, the feeling was that such sites were bad and unreliable – but the problem was different.

At that time, there was essentially a payment method problem, since 90% of credit cards could only make local transactions and on these marketplaces transactions could only be concluded using an international card – and this was not clear to the consumer. According to Luiz Didier Jr., who at that time led Bexs Banco (a licensed foreign exchange bank that was recently acquired by the British fintech Ebury), the idea arose to create an embedded exchange experience that abstracted all the complexity involved in the operation.

The idea was to offer these marketplaces the possibility of integrating their sites with a series of local payment methods via APIs – maintaining their user experience, in a fluid way. Thus, the marketplaces could sell products in Brazilian Real (BRL), offering local alternatives for payment – such as credit card, debit card, or bank slip – and a currency exchange lock was performed simultaneous to the transaction, ensuring they received the amount equivalent to what was listed at the time of purchase in the currency they wanted.

This practice evolved into a series of FX-as-a-Service solutions that Bexs and other players began to offer, being basically technological infrastructure and regulatory capacity to simplify embedded experiences involving payments and exchange of foreign currencies, jointly. This allowed, among other things, that large international companies (like major streaming services, for example) facilitate the charging for their services here in Brazil.

Moving a bit further, we enter the second era of fintechs focused on this market, when the fintech Avenue was launched in the country, in 2019. Enabled at the time by the FX-as-a-Service solutions from Bexs Banco, this was the first fintech to provide an international account in Brazil and the possibility for Brazilians to invest abroad in simple way. From there, we saw the emergence of competitors (such as Nomad), the incorporation of these solutions by several traditional banks and neobanks (such as BB, Bradesco, Inter, C6 Bank, among others) and the arrival of international players to compete in this arena (with Revolut and Wise being the main examples).

A clear indication that this market is growing, and will continue to be strategic in the coming years, was the acquisition of part of Avenue by Itaú, in 2022. Added to all this context, we have the impulse of the new exchange framework, coming into effect also in 2022, which aims to update the outdated regulation we had previously – simplifying the operational part of these movements and boosting the development of solutions in this niche.

The B2B Opportunity

With the “individuals” thesis already well underway, resulting in a series of players in this segment and in the popularization of products in foreign currency for Brazilian citizens, the market now turns its eyes to the next frontier – the B2B world.

Here there is a huge potential to insert a very relevant slice of the economy (linked to productive activity) into the global scene, moving even larger figures and impacting society on a large scale – making it simple for companies to sell to the world and buy from the world.

On the other hand, there are also relevant challenges, which are different from those found in the “individuals” reality, starting with the multiplicity of existing incorporation contracts for companies (in opposition to the objective and individual nature of individuals with their CPFs, the main document in Brazil), which generates more friction in the onboarding process, among other bureaucratic and regulatory variables that make this a hard nut to crack – and it is precisely here that great opportunities lie.

In this context, the British fintech Ebury (which has Santander as a shareholder abroad and which bought Bexs Banco to accelerate its expansion here) bets strongly on this thesis, offering a frictionless experience for foreign trade operations – with uniform usability for its clients in the different countries where it operates – simplifying operations and the flow of resources. According to Didier, who directs the FX-as-a-Service arm of the Brazilian entity Ebury Bank, the market can grow four times its size (which today revolves around US$ 1.7 trillion in volume in entries and exits of resources) with the evolution we are seeing in the sector and the advancement of the B2B vertical.

The speed of this advancement depends, according to him, on how quickly we see improvements in exchange regulations, in the complexity of the tax structure (both to support Brazilian companies looking for the market abroad and for the foreigners who want to come here), and in the logistical infrastructure.

More possibilities ahead, in a wider world

After this dive into the (new) exchange market, it becomes evident that we are facing one of the largest opportunities existing in the financial environment today, something that can boost the country and create bridges with global markets. The direction is clear, but the way this will happen may change along the way.

There are other variables that should impact the sector, such as the transformation of the global financial infrastructure towards a context of adoption of blockchain technology and DLTs (Distributed Ledger Technologies). Around the world, there are discussions regarding the development of CBDCs (Central Bank Digital Currencies) that should streamline the exchange processes and add programmability to this reality. Remembering that here in Brazil we have the Drex, which will soon be launched in the market and that should have integrations with initiatives from other countries in the near future.

It is also necessary to consider the existing crypto reality today and stablecoins – which are already being used by the market in cross-border operations and that have become a subject of discussion by regulators in different parts of the world, including Brazil, aiming to accommodate them appropriately in the current context.

The world is already more connected since the internet, especially from the informational point of view. Soon, we will see an even broader and globalized scenario, also reducing distances from the financial point of view.