Brazil digital broker plans expansion

ModalMais, the brokerage arm of small-sized Brazilian bank Banco Modal, seeks to expand its digital footprint as part of its plan to possibly hold an IPO in the near future, CEO Rodrigo Puga told BNamericas.

"We're expanding in various fronts, from the number of autonomous agents to serve clients to the number of financial products offered," said Puga, adding that the brokerage will launch a campaign promoting its digital banking operations once the FIFA World Cup is over next month.

ModalMais has 180,000 clients and is targeting 400,000 by end of year. "Our brokerage operation is already profitable. Last year, we posted a net profit of 3mn reais [US$795mn], and this year we will reach a profit of between 10mn and 15mn reais," said Pulga.

The executive stressed that the IPO plan will depend on capital market conditions. "Before deciding on an IPO we need to wait to see if we reach our expansion and also wait for the outcome of Brazil's election to see the reaction of capital markets, especially ahead of next year," he said.

Asked about competition with major banks in the highly concentrated Brazilian sector, Puga underscored how technology is working in favor of the smaller firms.

"Now customers access banks from their pockets through smartphones. This has reduced the entry barrier for new competitors," he said. "Of course, it's difficult to compete with famous banks, but technology gives small banks a better opportunity to reach potential clients."

The rapid surge of fintechs and digital banks in Brazil is forcing traditional banks to broaden their customer focus and accelerate digital transformation strategies. Meanwhile, the central bank is working to reduce bureaucracy for fintechs in order to increase the competition in the banking industry.