Banco Maré: transforming lives with paytech

While the digital world of payment products might sit closer to luxury than to actual necessity,  Blockchain-based payment tech can also address very physical problems in the real world – that of poverty and violence as blockades to financial freedom.

Banco Maré uses paytech to transform the lives of forgotten communities in the favelas of Brazil by granting the most impoverished in Brazilian society with access to the financial opportunities that most take for granted.

“Violence is the worst problem you can have in a society,” said Vitor Kneipp, corporate lawyer and co-owner of Banco Maré. “It disrupts trust, which is a vital element of capitalism.”

Vitor believes that a lack of trust has held the favelas back from the country’s financial system. “Banks cannot set up outlets in these areas, as the heightened risk of violent crime means they are unable to secure insurance.”

“So residents must travel many miles to pay their bills. The journey can involve crossing territories of different criminal factions, which can be dangerous, not to mention costly in both time and money.”

Vitor’s fellow co-owner Alexander Albuquerque spotted a potential solution to the problem.

“He brought his laptop into favelas, routed it through his mobile, and started paying peoples bills for them,” said Vitor. “In the first month, this amounted to about £15. Fourteen months later, we are processing £160,000 a month for 6,000 customers who are either using our app, or visiting one of our four agencies in the favelas.”

Banco Maré’s potential to disrupt the banking industry has not gone unnoticed: they were recently listed among the top 15 most disruptive FinTech organisations in Brazil by Caixa, the country’s largest state bank.

I spoke to Vitor Kneipp about Banco Maré, the potential of fintech to affect real positive change, and the future of community-focused, Blockchain-based payment technology.

The human element is demonstrably still important in this payments. Do you think this will always be the case?

Yes, particularly to customers which were excluded from the latest mobile banking wave. Formal institutions don’t fully function for most of our customers. By institutions I mean public utilities, citizenship, quality education but also access to the financial and banking systems. They simply are not there. Thus, it’s unintuitive to trust in those. Technology will only be successfully introduced with the help of people who are credible in the community. And the more detached from the remaining society those communities are, the more credibility from within will be necessary to bring them forward.

Banco Maré seems to fit in with one of the major recent trends in fintech:  democratization – using technology to level the playing field when it comes to people’s financial lives. Why is this, and how is fintech positioned to affect this kind of change?

The system of incentives we grew up in was one of winners and losers, and the metrics was ‘how much wealth you accumulate’. This resulted in excluding the wider population from basic services. This is changing.

Technology reduces barriers to entry. In fintech, not to mention Blockchain, face recognition and voice control allow you to access and intuitively manage your financials; algorithms suggest best investments for you; data mining and analytics provide credit ratings, and so forth. We rediscovered that societies living in divided communities are bad for everyone, and that businesses can sustainably target lower ends of the economic spectrum. A self-enforcing cycle is in place, and fintech has a role to play in facilitating that cycle.

There are limitations to traditional systems of payment and banking. Does the size of banks mean they are redundant when it comes to affecting change? As a follow-on question, is it possible that the ‘bank’ on location as we know it now could become a thing of the past?

No, large sizes don’t necessary make them redundant. Retail banks distribute governmental policy at scale, as it is the case for forms of social aid, subsidized loans and grants. The effective execution of public policy can be a powerful change lever in society. Plus, pooling risk is more efficient when the banking operations are reasonably large. There’s no societal justification for them to be that big though. I am unsure whether too many consolidations in the sector will lead to better living on Earth for customers.

The relationship with banks must change. People don’t like banks. They are slow and bureaucratic. I had a client who used to say, “banks rob a lot”: this is what you got for long, unclear pricing charts, full of disclaimers and cross references.

Ninety-nine percent of the time we mention ‘the world’ we really mean ‘the human population’. It is quite a narrow view, from a business strategy perspective. Conversely, we sometimes forget there’s no business without people. For the time that banking serves flesh-and-blood customers, there will be brick-and-mortar agencies. But they will take care of unexpected issues, premium services, or a be touch point for a coffee. I like the touch point idea, because it is more democratising than keeping agencies for premium clients, and because businesses which build communities around them gather customer loyalty.

How can fintech, and specifically paytech, change and improve the financial lives of the next generation?

It’s about clarifying consequences of each decision, and showing alternative examples. In the communities we operate, some young individuals never had a conversation about spending and saving money with their parents. This is a gap that fintech/paytech can fulfill relatively easily with easy-to-read mobile reports and notification, for instance. I refer to the examples of fintech/paytech technologies and functionalities that have benefited customers.

One of our early employees came in one day asking yet another time to forward him future salaries so he could take his girlfriend on a trip. Lucas was nineteen back then, working since fourteen, when he bought his first motorcycle. He had no savings whatsoever, and the little money we could afford to pay him he used to buy golden chains (which he wore around the neck), branded clothes and gasoline.

When I refused and explained to him how I was saving to study abroad and kept savings of 6-month worth of monthly costs, he was shocked: “No one has ever told me we have to save for the future. I always saw my mom spending, not a dime spared” As a start-up, the risk to close the business was real and I was afraid that he got fired and had no income to sustain his family. We dismissed him a couple of months later for frequently arriving late, overloading team members and keeping clients waiting.

Tell me about the importance of Blockchain in Banco Maré’s operations

In short, Blockchain will make the business manageable at scale. It will allow us to ensure security and scalability to investors; transparency and compliance to the government; and convenience and reliability to the customer. Whereas large institutions would have to migrate their database and operations to Blockchain, we grow lean with a strong word-of-mouth across communities. That is where Blockchain becomes strategic as well.

In addition to the positive change effected by fintechs like Banco Mare, positive change is also being affected elsewhere. In the UK, PSD2 and Open Banking aim to better the financial lives of consumers.

What do you think is the next step for fintech and payment technology as a means for positive change generally?

I like to think about fintech’s positive impact twofold. First, it reduces operational cost, meaning it boosts the scalability of operations and consequently potential market share. Second, it allows people better control of their biases when making financial decisions.

A fintech with Blockchain is like a chess player with super power pieces: it moves faster, with larger reach, and it’s harder to beat. Ideally, if technology is widespread in finance, a highly competitive market will arise, with huge economic benefit to customers. Better quality to more people at more places and less expensive price. This is democratising.

Humans are not fully rational and most of our decisions are impulsive or based on biases and heuristics, regardless of level of education. The fully rational decision making is a flawed assumption in traditional economics. We are heavily targeted by propaganda to buy this and invest there, and often are caught unarmed. That means we need discipline and self-awareness to take care of our money to our own interest, and fintech is well-positioned to help us monitor our spending, detect our excesses, recommend amendments, etc. Some companies gamify the saving experience, others provide easy-to-read reports.

The financial democratising and rationalising trends led by fintech show no sign of ending soon.

What’s the next step for Banco Maré? How do you see it developing?

The next step is to grow our customers’ base and revenue. We do that by listening carefully to what customer’s say about us and their unmet needs. This has allowed us to improve our portfolio of services and test different revenue models. Clients of Banco Maré pay bills and invoices, transfer and deposit cash, consult their current credit rating, recharge their pay-as-you-go mobile plans, and issue credit cards. Commercial clients may also hire debit/credit card (POS) machines at lower-than-market rates.

Whereas the long-term sustainability of the bank relies on building win-win relationships with customers, we have recently achieved the mark of 100% payments online whereas agencies became touch points. This is an inexpensive way to create local presence and scale at the attendant level. Attendants are bright, young locals who are rapidly becoming some sort of account manager, taking care of the financials of thousands of families in a long-term, quasi-personal relationship.

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