- PicPay’s user base growth was driven in part by the fact that it was used to help distribute the financial emergency aid from the Brazilian federal government during the coronavirus pandemic;
- Different from other neobanks in Brazil, Original is expected to become self-sufficient in 2021.
The Brazilian neobank Banco Original is diversifying its credit lines for individuals and betting heavily on its PicPay digital wallet to return to profitability in 2021, as high investments in its digital arm gain strength, said the company’s CEO, Alexandre Abreu in an interview with Reuters.
The institution’s consumer credit portfolio reached BRL 1 billion in August, up 73% in 12 months, driven by its Direct Consumer Credit (CDC, in the acronym in Portuguese) and credit card lines. This partly offset the retraction in loans to large companies, which caused the total stock to shrink from BRL 7.2 billion to BRL 7 billion in 2020.
The most recent increase in retail financing at Original occurred while the social isolation measures taken to contain the COVID-19 pandemic in Brazil took a turn in demand for digital banking and fintech services.
PicPay, Banco Original’s digital wallet, more than doubled its customer base in 2020, reaching 31 million users until August, driven in part by the fact that it was used to help distribute the financial emergency aid from the Brazilian federal government during the coronavirus pandemic.
“We are starting to offer credit to PicPay customers,” Abreu told Reuters.
This recent increase in credit helped Original to increase its financial margin in this year’s first half by 40%, compared to the same period in 2019, to BRL 345 million. The bank’s forecast is that this amount will reach BRL 398 million in the second half of 2020.
The plan is to expand the range of credit lines in 2021, entering more heavily into payroll loans and secured loans, as part of the plan to return to profitability.
Original does not follow the path of other neobanks in Brazil
Unlike most of the so-called neobanks, which have multiplied in Brazil in recent years, supported by fee exemptions as a way to attract customers among other differences from traditional banks, Original rejects the policy of free fees.
That also means that the neobank has been growing at a slower rate than some of its rivals. In August, it reached 3.74 million individual accounts and microentrepreneurs, up 71% in 12 months.
Technology initiatives are expected to flourish within a favorable regulatory agenda, including open banking rules and PIX (Brazil’s instant payments system set to debut in November). The neobank hired 360 people this year just for the technology area.
In the first half of the year, although there was an evolution in operating results reflecting initiatives to profit from the customer base, a series of factors including losses with foreign exchange hedge, asset depreciation, and investments in technology, led the bank to a loss of BRL 220 million compared to a profit of BRL 3.6 million a year earlier.
In addition, the provision for expected losses with defaults rose 23.5% since the end of 2019, to BRL 334.7 million, in line with the increase in credit and the expectation of worsening default rates, in the wake of the crisis caused by the pandemic, “but with greater revenue to compensate,” said Abreu.
According to Abreu, there are no plans by the bank at the moment for a possible IPO.
Translated by Fabiane Ziolla Menezes