In October last year, the Brazilian Central Bank sent a bill to the Lower House of Congress that changes rules in force since 1920 in the country, expanding the range of companies that are allowed to have deposit accounts held in foreign currencies inside the country. The proposal also gives this possibility for individuals, according to some criteria yet to be defined.
Between November and December of last year some Brazilian fintechs, such as C6 Bank and BS2, started offering the so-called multi-currency accounts to their customers–something that the UK-based fintech Transferwise already does abroad.
The proximity between one thing and another ended up confusing part of the local press, giving the impression that fintechs were getting ahead of the new legislation. But the truth is that the upcoming rules and the new service offered by the banking startups are two different things.
Currently, only certain types of companies and organizations can maintain accounts in other currencies in the country, such as, for example, foreign exchange and tourist service operators, credit card issuers, insurance companies, embassies with representation in Brazil and oil companies. With the BC’s bill, importers and exporters, in addition to investors, for example, may also be released to have US dollar-denominated accounts in the country.
Today, any remittance made from a Brazilian bank to a foreigner one requires information such as the data of the non-resident who will receive the money, as well as the purpose of the operation. In addition to the bureaucracy itself, both the bank that sends the remittance and the bank that receives the money tax the operation, which still takes up to three days to be completed. Therefore, the possibility of having foreign currency accounts in the country would be an advantage.
In the case of import and export companies, for example, the change will eliminate the revenue restrictions that these companies need to maintain in accounts abroad, and, consequently, its operating costs.
Another change proposed by the bill is to allow fintechs to operate foreign exchange independently, that is, without being linked to a bank or a foreign exchange broker. Still, the release of accounts in foreign currencies for individuals will be quite restricted, according to BC, and is far from being a regulatory priority.
This is where the creativity of the fintechs that are offering the so-called multi-currency accounts comes in. This is possible through the connection between a Brazilian and a foreign account, linked to a bank abroad in a location that already allows the operation of multi-currencies accounts.
This is the case with C6 Bank, which has a bank license in the Cayman Islands. According to the head of products at the Brazilian neobank, Maxnaun Gutierrez, C6’s international account can be opened by the customer directly in the app, in one click and without the need to provide any additional information in relation to those already requested for the Brazilian account. “The transfer of the Brazilian account to the international account is done in milliseconds, this is almost in real time. And because it is, in practice, a remittance, the transaction has an IOF (the tax on financial transactions existing in Brazil) of 1.1%, much lower than the 6.38% charged in credit card transactions,” explains Gutierrez.
Along with the international account linked to the Brazilian one, C6 offers a debit card, which uses the commercial dollar rate in its transactions. The spread charged on the global account is 2%, and on the global debit card, 4%–lower than the average 5% normally applied by banks in this type of operation and which forms the so-called tourism exchange.
Compared to services offered by traditional banks or even other fintechs, however, C6’s customer cannot make a remittance via international account to pay for a university abroad, for example. “But you can pay the bill with your debit card if there is enough balance for that,” ponders Gutierrez. The customer can also use the international account to make withdrawals in the currency of the country where he is, but the amount will be converted first to dollar and then to the desired currency. Each withdrawal costs $5.
The BS2 product follows the same logic, and is offered to its entire customer base–so far, 50,000 international accounts have been opened by the fintech customers.
Gutierrez does not reveal how many of C6’s 1 million customers are using the service, but he says that the user profile is not restrict to travelers. “Even customers with lower incomes are using the service for occasional international purchases,” says Gutierrez.
He explains that the debit card is only the first service to be offered within the new international platform of C6 Bank. “Later this year, we should connect the international account to the brokerage we have in New York, allowing Brazilian investors to use our services there in a easier way.”
BC’s bill is stalled in Brasilia
The BC bill still awaits the start of the work of a special commission in the House of Representatives. Only after being approved by the House and the Senate the proposal will be regulated by the Central Bank and the National Monetary Council, which can take up to two years.