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Photo: Inter/Courtesy

Inter's COO: "We are navigating the best of both worlds, the intersection between fintech and bank"

In the first quarter of 2021, Inter hit BRL 20.8 million of net income, reversing a loss of BRL 8.4 million from a year earlier. With over 10 million customers, Brazilian digital banks' "big brother" seeks to go beyond the financial world and be a super app. LABS interviewed Ray Chalub

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Inter was born in 1994 as Intermedium, a finance company founded by the Menin family, owners of MRV (biggest Brazilian homebuilder and real estate firm), to work with real estate credit. In 2008, the Brazilian Central Bank gave Inter the green light to become a multiple bank. Seven years later, still as Intermedium, it launched its first digital account – the new brand would be launched only in 2017. A kind of a “big brother” of Brazilian digital banks, Inter no longer wants to be one (not even in its name), but rather a super app. 

With 10.2 million customers in this first quarter, twice as much as it had in March 2020, Inter sees 30 thousand new accounts opening every business day, and from January to March, it reached 1.8 million new accounts, according to information shared by the company this Wednesday at its first-quarter earnings call.

“We believe we are navigating the best of worlds at the intersection of a multi-purpose bank and a fintech“, explains Ray Chalub, COO at Inter, in an exclusive interview with LABS. According to him, five operations make up Inter’s strategy: banking, credit, investments, insurance and e-commerce. 

Ray Chalub, Chief Operating Officer at Inter. Photo: Inter/Courtesy

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The company’s marketplace, Inter Shop, launched in November 2019, reached 1.7 million active customers in the first quarter of 2021 and was recently opened to Inter’s non-account holders: later this month, the platform will also be available in the mobile version. It was also the marketplace that kicked off the company’s international expansion, being launched in the US in March this year – the product will reach Argentina, Colombia and Chile throughout 2021.

From bank to platform, which also offers travel, education and even food delivery (a pilot that kicked off this Wednesday in the metropolitan region of Belo Horizonte, in partnership with the startup Delivery Center), Inter reported BRL 1.4 billion in total revenues in 2020, a 33.2% growth over the previous year.

From January to March this year, total revenues reached BRL 541.8 million, driven by service revenues, which increased 113%, particularly supported by the Inter Shop and Inter Seguros units. As for net income, the company recorded BRL 20.8 million in the period, reversing the BRL 8.4 million loss of a year earlier, with strong growth in total revenue and in the customer base.

READ ALSO:, Brazil’s new fintech challenger raises $5.5 million to tear down incumbents high-interest rates

Neither banks nor fintechs. The future, according to Chalub, is made up of banks and fintechs. For him, the latest topic on the Central Bank’s innovation agenda – open banking – will only bear out this thesis, taking several players to convergence between quality and customer experience and setting an arena full of opportunities.

But in the arena where players, through the open banking implementation, will compete for 60 million customers according to a Roland Berger‘s forecast, Inter’s competitive edge lies in diversification, a path that the company began to follow back in 2015 when it decided to become a services ecosystem. 

The super app strategy, a model that offers the widest possible range of services with a focus on user retention, seems to be paying off. With just over a year since its launch, the Inter Shop operation alone has already reached 67% of recurrence, meaning that more than half of the customers who purchased on Inter’s e-commerce platform during this first quarter of the year had already used the service previously. 

LABS talked to the executive about how Inter fits into this revolution going on in the Brazilian financial system. Here are highlights from the interview:

LABS – At this point, it is clear that open banking is very beneficial for the consumer and perhaps not so much for large banks. But what about digital banks, how can they benefit? How will Inter fit in this context?

Chalub – About new companies or fintechs benefiting from open banking in a more relevant way compared to other players, we don’t see it that way. We understand at Inter that open banking is beneficial for customers, for fintechs and for traditional banks. So what we see now is a convergence around service quality and customer experience. This applies to everyone, whether they are payment institutions, fintechs, small, medium-sized banks or the big traditional banks. When you have an infrastructure like open banking that is going to improve the quality of service and the customer experience, everybody wins, everybody has the same chances.

There are traditional banks with many legacy systems that amaze us with so many things they manage to do regarding the value proposition for clients in the app. And there are other traditional banks that are not able to translate [their systems] in the same way. The Central Bank’s goal is clear, to generate more competitiveness for the system. To do that, it is putting in place a level playing field where fintechs, payment companies, traditional banks, small and medium banks, have the same possibility to provide quality services and a good experience.

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What is Inter’s bet in terms of innovation to benefit from the open banking implementation? 

At first, we consider working on our customers experience focused on transaction initiation. We will allow our customers to initiate transactions with other players through our ecosystem. Of course, with consent and login in the ecosystems of the other participants. This is how we are going to bet on open banking in the first moment.

Could we say that Inter went the opposite way from fintechs? It started as a bank and then added fintech services, becoming a platform? 

I wouldn’t say the opposite way. What Inter has always been, since 2008, is a company with a multiple bank license. This license allows us to act as a bank and we have always used this license cleverly (…). We believe that we navigate in the best of both worlds at the intersection of a multi-purpose bank and a fintech. So the best statement would be that one (…) We currently position ourselves as a platform that has a banking license, but we are also a platform with several business units, such as investments, shopping, telecom, banking. The insurance segment is a big area of expertise, and, as a bank, so is our credit area. The way we see ourselves the most is this: we are a company that has the possibility, the gift of being able to navigate through the best of both worlds.

READ ALSO: The promises of Brazilian open banking: customer empowerment and market opening

What prompted Inter to expand its range of services, aiming to become a platform?

When our proposal is born focused on [customer] experience, we have a thesis that our CAC [customer acquisition cost] tends to be very low, because the referral, the word-of-mouth, is very high and we were able to engage customers with our platform with a very low CAC compared to other market players. Additionally, we were born as a cloud platform too, so if we have a low CAC, a cloud platform and a light organizational structure, our cost to serve these customers is very low. (…) At Inter, we were born with an efficiency mindset because we were born without charging fees; we never had a fee revenue to accommodate some inefficiency. This thesis of low CAC, low cost of service that also decreases as we add more customers, made us understand that we could put millions of customers on our platform for free and make a very complete product offer.

If we are able to serve tens of millions of banking customers, we can serve this customer even without them having an account. That is why we have the vision to expand our ecosystem to customers without a bank account and beyond that: we don’t need to offer our services only to Brazilians. With this structure, it makes perfect sense to expand this service offering to other countries.

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In addition to Inter Shop, are you betting strongly on any other vertical? Do you intend to launch any new operations this year?

We are betting strongly on all verticals. We bet on the Inter Shop vertical because we believe that Brazilian consumer finance can be reinvented (…). But our bet on banking, for instance, is very strong. Back when we created Inter’s business model, we didn’t believe that a cash transfer could cost tens of cents and banks would be passing this cost on to the client to the tune of units of [Brazilian] reais. Our business model made a bet that solutions like PIX [Brazil’s instant payment system] would come overwhelmingly. We even developed a PIX for Inter customers in 2017. It already worked 24/7 through QR codes. We have always believed that this payment arrangement needed to be interoperable. The Central Bank came and placed PIX as that interoperable payment arrangement through SPI [Instant Payment System, in the Portuguese acronym]. 

A third vertical that we are betting on is investments. With the drop in the Selic rate [Brazilian federal funds rate], Brazilians had to diversify their investments, and this diversification brought a larger audience to the stock market. We currently already have over 10% of the Brazilian stock market share, of clients who access the stock market. We promote this financial inclusion by allowing clients to invest, literally, BRL 1 in super qualified funds. 

In insurance, our digital insurance vertical is currently the most complete in the country. No player has the insurance journey that Inter offers on a digital platform. We also believe very strongly in providing the best debt [financing] service in Brazil; we are talking about providing financing with fair rates and terms. 

We also have (…) competitive rates on these products and services for legal entities. Today, Brazil has 26 million active CNPJs [id number issued to Brazilian companies]. From these, 16 million are MEIs (individual microentrepreneurs, in the Portuguese acronym). We have a free checking account product for MEIs, because we believe that separating the financial life of the MEI, or small business, from that of the partner contributes a lot to reduce the mortality rate of young companies in Brazil. Today we serve almost 1 million companies (…).

We also have an initiative called Intercel, to provide telecom services. We launched an MVP last year and after some learnings from this pilot [with Vivo, a subsidiary of Telefónica], we are improving the product and will have a very interesting telecom product this year.