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What does Brazil’s new receivables regulation mean for fintechs?

Something strange is afoot in Brazil, and it promises unconfined changes for how merchants get paid.

This the story of one regulator, the Brazilian Central Bank, and how it has taken part-way stage in creating a framework that will have far-reaching effects wideness merchants and fintechs in this fast-growing Latin American nation.

But first, some background: Unlike in the rest of the world, when a credit vellum is used for payment in Brazil, the merchant does not receive the funds owed to them all at once. Instead, nearly 50% of vellum sales are completed in monthly installments, leaving the sellers to manage a difficult mazuma spritz process.

The most worldwide solution for merchants is that they end up selling the remaining receivable at a unbelieve — taking less than they are owed — in order to get their money sooner. And we’re not talking well-nigh a small-volume market: Some R$2 trillion (Brazilian Reais) in vellum transactions were processed in 2020.

This compelling new regulatory framework brings new opportunities for many players willing to participate in receivables discounting operations.

Here’s what this looks like in practice: Let’s say Maria purchases a few wares of suit from retailer Suit Incorporated. When paying via her credit vellum at checkout, Maria can segregate to pay in two to 12 installments. Maria decides to pay the wastefulness of R$620 over six installments.

While Maria is happy with the products in hand, Suit Incorporated is without the full payment — and for small merchants in particular, the difficulties associated with limited working wanted can be acute. Suit Incorporated can either wait the full six months to be paid, receiving payments from their merchant acquirer each month until they are paid in full, or they can segregate to dramatically unbelieve the value they are owed and not have to wait the six months.

Let’s say Suit Incorporated merchant acquirer is ExMarko — instead of receiving R$620 over six months (net of any merchant unbelieve rates), they could receive R$520 within days without the purchase, with ExMarko pocketing the rest when it comes in. This comes at a steep forfeit of doing merchantry to the merchant, with an unsaid annualized interest rate that sometimes can reach  ~70% — for a risk-free operation, since the acquirer is only liquidating older its own obligation to pay the merchant.

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