FINANCIAL SERVICES ADVISOR a PUBLICATION of the DIALOGUE June 17-30, 2021

LATIN AMERICA ADVISOR FINANCIAL SERVICES ADVISOR A PUBLICATION OF THE DIALOGUE www.thedialogue.org June 17-30, 2021

BOARD OF ADVISORS FEATURED Q&A TOP NEWS Ernesto Armenteros Vice Chairman of the Board, BANKING Banco de Ahorro y Crédito Unión What Is Driving Brazilian Pablo Barahona President & COO, Exporters Allege Global Retail Markets West, Liberty Mutual Group Investment in Manipulation Felipe Carvallo Some of Brazil’s largest exporters Vice President - Analyst are demanding 19 billion reais Latin America Banking Brazilian Fintech? Moody’s Investors Service ($3.77 billion) in a lawsuit against several domestic and foreign Richard Child banks. CEO, Mattrix Group Page 2 Michael Diaz Jr. Partner, CREDIT CARDS Diaz, Reus & Targ Ernesto Fernández Holmann Mastercard, Chairman of the Board, LATAM Airlines Ayucus Rich Fogarty Sign Partnership Managing Director, Agreement Alvarez and Marsal The companies plan to introduce Desiree Green Several Brazilian financial technology companies have announced new funding and growth new credit cards and benefits for Vice President, plans in recent weeks. // File Photo: Christiann Koepke via Unsplash. International Government Affairs, frequent travelers. Prudential Financial Page 2 Laura Güemes Cambras In recent weeks, several Brazilian financial technology com- Transactions Attorney, panies have announced growth plans. They include unicorn DIGITAL CURRENCIES Holland & Knight Ebanx, which began preparations for a potential initial public Earl Jarrett Crypto Assets Chief Executive Officer, Q offering in the United States, and Nubank, which announced The Jamaica National Group Not Legal Tender: $750 million in funding, including $500 million in investment from U.S. Mexican Financial Thomas Morante billionaire Warren Buffett’s Berkshire Hathaway. What forces are driving Attorney Authorities Carlton Fields IPOs in Brazilian fintech and spurring investment in the sector? To what Mexican financial authorities Manuel Orozco extent will IPOs and investment rounds in Brazilian fintech accelerate Senior Fellow, issued a joint statement saying Inter-American Dialogue this year? How will the growth of Brazil’s fintech sector translate into cryptocurrencies are not legal Adalberto Palma-Gomez benefits for consumers? tender in Mexico. The statement Senior Partner, followed remarks by billionaire Proxy, Gobernanza Corporativa Ricardo Salinas Pliego, who said Rodolfo Pittaluga Helen Harris, senior research associate at McLarty Asso- his Banco Azteca could start Adjunct Professor, ciates: “The recent announcement of IPOs and investment using Bitcoin. Florida International University Page 2 College of Law rounds in Brazilian fintechs reflects the industry’s growth Fabian Saide potential. The Brazilian fintech market is one of the fast- Founder, CEO and President, A est-growing industries in the region, receiving $1.9 billion in investments Paykii in 2020, a 72 percent increase from 2019. Brazil’s vast population, wide- Roberto Teixeira da Costa Founder & Board Member Emeritus spread use of mobile devices and limited access to traditional banking CEBRI services make for an appealing market. These factors, combined with Mario Trujillo CEO, the push toward digitalization caused by the pandemic, favors fintechs. DolEx Dollar Express The boom in Brazil’s fintech sector has benefited consumers, providing a means for the 34 million unbanked Brazilians to access financial services in a competitive fashion. Through fintechs, they gain access to credit, savings and a vast array of financial services, allowing them to become incorporated into the formal economy and contribute to economic growth. The Brazilian government has supported this development, approving Salinas // File Photo; facebook Page of Ricardo Salinas Pliego. Continued on page 3

BANKING NEWS FINANCIAL TECHNOLOGY NEWS NEWS BRIEFS

Brazilian Exporters Mexican Start-Up Mexican Financial Authorities Say Crypto Allege Manipulation Credijusto Buys Assets Not Legal Tender in Suit Against Banks Banco Finterra Mexican financial authorities said June 28 that cryptocurrency assets are not legal tender Some of Brazil’s largest exporters are demand- Credijusto, a Mexico-based small-business in Mexico and that financial institutions that ing 19 billion reais ($3.77 billion) in a lawsuit lender, has bought local bank Banco Finterra in operate with them could face sanctions, against several domestic and foreign banks, al- what Credijusto said was the first acquisition Reuters reported. The joint statement, issued leging that they manipulated foreign exchange of a bank by a Mexican financial technology by Mexico’s central bank, the country’s finance rates, Reuters reported June 16, citing court start-up, Reuters reported June 15. The acqui- ministry and its banking regulator, followed a documents. The AEB exporters association sition, which was underway for a year and a statement by billionaire Ricardo Salinas Pliego, originally filed the lawsuit in 2018 but did not half, recently closed. The deal was worth less who said his financial unit, Banco Azteca, could specify the amount it was demanding from than $50 million, but the combined assets of start using Bitcoin. Such a move would make the banks. The association now alleges that the companies are worth approximately $300 Banco Azteca the first in Mexico to use the Brazil-based exporters suffered losses of 107.4 million, Credijusto’s co-chief executive, David digital currency. Earlier in June, El Salvador’s billion reais due to the banks’ purported ma- Poritz, told Reuters in an interview. Through the Legislative Assembly approved a measure tout- nipulation of currencies in 2010 and 2011. Bra- deal, Credijusto is planning to increase its ser- ed by President Nayib Bukele to make Bitcoin zilian banks face a “real threat” of losses due vices for Mexican companies that sell goods legal tender in the country. to the lawsuit, XP Investimentos told clients to the United States, he said. The fintech also in a note, The Rio Times reported. AEB, which is seeking to serve U.S.-based companies that represents 50 companies, calculated that it have trade with Mexico and other countries represents 20 percent of exporters in the South in Latin America, Poritz added. “There are tre- Venezuela Asks Local American country, Reuters reported. Banks that mendous financing needs for small businesses Banks to Pay for Vaccines are named in the lawsuit include Itaú Unibanco, exporting into the United States, and vice Venezuela, whose access to the global Banco Santander Brasil, Citigroup and BNP versa,” he said, adding that Credijusto is hoping financial system is restricted due to sanctions, Paribas, Reuters reported. Citigroup told the to grow its portfolio into the billions of dollars has asked some private local banks to pay for wire service that it follows the rules, Bradesco across the region in coming years. Combined, Covid-19 vaccines on the government’s behalf, declined to comment, Santander said it had Credijusto and Banco Finterra have loaned in Reuters reported June 21, citing two unnamed not been informed of the suit, and Itaú said excess of $2 billion to small and medium-sized sources familiar with the matter. The banks it would contest the allegations. Other banks businesses, Poritz added. In the next couple of reportedly used foreign currency to pay the named in the lawsuit, which local newspaper years, Credijusto might consider a bank acqui- Covax initiative for the vaccines. Valor Econômico reported on June 15, did not sition in the United States, Poritz added. “It’s a respond to requests for comment by the wire very logical evolution,” he told Reuters. [Editor’s service. AEB believes that a cartel of banks note: See Q&A on private-sector lending in manipulated exchange rates from 2008 to Mexico in the May 6-19 issue of the Financial Mastercard, LATAM 2012, but the organization has not yet been Services Advisor.] Airlines Sign Seven-Year able to calculate the extent of alleged damages Partnership Agreement during that entire time, said AEB attorney Bruno Maggi. In a separate lawsuit filed in April, Brazil’s Nubank Mastercard and Chile-based LATAM Air- Brazilian state oil company Petrobras made Seeking Investment lines Group on June 23 signed a seven-year similar allegations. Brazil’s antitrust agency, partnership agreement in which they will Cade, is also investigating banks’ potential Banks for IPO: Report introduce new credit cards and benefits for manipulation of currencies, Reuters reported. A frequent travelers, the companies said in a global foreign exchange scandal has resulted Brazilian digital bank Nubank, which was joint statement. The first phase of the deal in banks being penalized billions of dollars recently backed by U.S. business magnate War- will expand the benefits of LATAM Pass credit worldwide. Alleged widespread manipulation in ren Buffett’s Berkshire Hathaway, is reportedly cards in Chile, Argentina, Brazil and Ecuador. the spot foreign exchange market first came to looking for investment banks to help manage The second phase, which will start later this light in 2013. an upcoming initial public offering in the United year, will expand to other markets in the region, the companies said.

States, Reuters reported June 21, citing people FEATURED Q&A / Continued from page 1 familiar with the matter. The sources said the Brazilian lender had invited investment banks regulations such as open banking and financial services at a low cost in order to to pitch for roles in the underwriting, which implementing the central bank’s digital pay- compete with traditional banks. For IDEC, suggest preparations for the IPO are more ad- ment system (PIX). These measures foster the strengthening of fintechs in the financial vanced than previously known, according to the competitiveness in financial services while market will stimulate competition, reduce report. David Vélez, Nubank’s founder and chief promoting financial inclusion. Additionally, the cost of credit and banking services, and executive officer, has said an IPO is likely to earlier this month, President Bolsonaro promote financial inclusion. But it presents happen eventually but that it is not in the com- sanctioned the Legal Framework for Start- challenges when it comes to consumer pro- pany’s short-term plans. One of the sources ups, recognizing start-ups as a mechanism tection. Solutions are quick and often arrive told Reuters that the stock market debut could for driving economic growth and social before regulation, such as service channels, value Nubank at more than $40 billion, with two development. All these elements, when use and processing of personal data, rules of the sources saying the offering could hap- combined, make Brazil’s fintech environment for granting credit and advertising. Finally, pen by year-end or in early 2022. That would suitable for further investment. This trend there is a need for greater attention from mark one of the largest-ever stock market de- is expected to continue, with the likelihood fintechs and alignment with the consumer buts for a South American firm and would put of additional IPOs and investment rounds defense code to ensure transparency in it on par with other expected high-profile IPOs occurring throughout 2021 and 2022.” consumer relations.” such as that of online brokerage Robinhood Markets, Reuters reported. The digital bank ear- Ione Amorim, economist at the Marina Gil, payment practice lier this month said it had raised $750 million Brazilian Institute of Consumer Brazilian affiliate at Ameri- in its latest investment round, led by Berkshire Defense (IDEC): “Last year, cas Market Intelligence: “The Hathaway, which invested $500 million, Folha A Brazil reached a volume of more A Brazilian market is proving to de S.Paulo reported. In total, the bank’s eighth than 500 fintechs offering different types of be a big opportunity for fintechs and new fundraising round reached $1.15 billion, the financial services. This movement is the re- players. Besides the market size, which largest-ever raised by a technology company in sult of regulation initiated in 2013 promoting obviously is attractive, we can highlight Latin America, Forbes reported. the expansion of technology and innovation two other reasons for fintechs’ interest and and encouraging entrepreneurship in order to reduce the cost of banking services and ANTI-MONEY LAUNDERING NEWS increase financial inclusion. Currently, the The Brazilian market regulation of the open banking system, is proving to be a which is yet to come into operation, is driv- big opportunity Bitcoin Could Bring ing competition in the banking sector. Other for fintechs and Risks to Salvadoran technological solutions in progress con- new players.” tributed to this, including the central bank’s — Marina Gil Banks: Fitch instant transfer system (PIX) and greater demand for digital solutions and electronic El Salvador’s embrace of Bitcoin as legal tender commerce amid the pandemic. With the investments in Brazil. The first is market po- could mean higher risks for banks, including implementation of the open banking system, tential. Brazil’s population already showed a violations of anti-money laundering rules and traditional banks will have to open their readiness and willingness to try more digital terrorism financing, ratings agency Fitch said customer databases to fintechs. However, as and innovative solutions—the fast adoption in a report published June 25. Bitcoin is set to consumers must give consent for access to of PIX is an example of that. Second, the become El Salvador’s second official currency their personal data, the fintechs’ challenge central bank and regulators are playing a alongside the U.S. dollar on Sept. 7, if a recent is investing heavily in innovation of digital fundamental role to incentivize and promote appeal on the legislation’s unconstitutionality Continued on page 6 does not modify its implementation. After of money laundering if regulations do not fully money laundering and terrorist financing,” it that date, all businesses will be required to comply with Financial Action Task Force (FATF) added. President Nayib Bukele pushed for the accept Bitcoin unless they lack access to the standards,” the ratings agency said. “Corre- legislation to formalize Bitcoin, claiming the technology needed to process the transactions, spondent banks could require more detailed move will promote financial inclusion, facilitate though regulators have not yet announced due diligence and checks on El Salvador’s remittances and attract investment to the coun- detailed implementation guidance. “Bitcoin’s financial institutions if regulations and controls try, Julia Yansura, program manager for Latin lack of transparency could increase the risk are not robust enough to avoid tax evasion, America and the Caribbean at Global Financial

Integrity, told the Latin America Advisor in a Q&A published June 15. However, the “complex ADVISOR Q&A and volatile” cryptocurrency is “unlikely” to be a financial inclusion pathway for average Salva- dorans “who find existing options with banking, How Much Will the G7 Vaccine community credit unions or mobile money too complicated or costly,” Yansura added. Donation Help Latin America?

U.S. President Joe Biden and economic crisis in 200 years. The region POLITICAL NEWS G7 leaders recently committed urgently needs vaccines. Only 21 percent to donating more than one of its population has received at least one Q billion Covid-19 vaccine doses dose—half the level of OECD countries—and Brazil’s Lula Could for the world, including Latin American reports show that essential second doses Defeat Bolsonaro in and Caribbean countries, with more than are lagging. We must do more to speed up 500 million doses coming from the United vaccine distribution on an equitable basis. First Round: Poll States. How significant is the announced Helping countries to obtain and administer donation by the G7? To what extent has Lat- vaccines is part of Vision 2025, the IDB’s Former Brazilian President Luiz Inácio Lula da in America’s slow vaccine rollout been af- broader plan to help the region recover from Silva could defeat current President Jair Bol- fected by a limited supply of doses, and do the pandemic and usher in an era of sus- sonaro in the first round if the country’s pres- countries in the region have the necessary tainable growth. The IDB both appreciates idential election were held now, according to logistics and financial resources in place and supports the G7’s commitment, which a new opinion poll, Reuters reported June 25. to make sure the shots are administered? adds to our own vaccine work in the region. In the survey, 49 percent of respondents said As inoculation advances in the region, what Our vaccine support is part of a broader they would vote for Lula, versus 23 percent for is the most likely timetable for back-to- response; we approved a record $21.6 billion Bolsonaro. The poll, by Inteligência em Pesqui- normal protocols and the expected pace of in new financing across sectors and a $1 sa e Consultoria (IPEC), was published June economic recovery? billion program to help borrowing member 25 in daily newspaper O Estado de S. Paulo. In countries buy and distribute vaccines. We Mauricio Claver-Carone, are also helping countries with storage, president of the Inter-American transportation and logistical issues, as well Development Bank: “The G7’s as with vaccine communications campaigns. A commitment to donate vaccines We have helped 10 countries acquire and to poor countries, including in Latin America finance the purchase of vaccines. We are and the Caribbean, is a welcome and very also the first multilateral development bank important step toward the region’s recovery. to offer an indemnity guarantee instrument In recent weeks, the region has suffered to help governments negotiate vaccine from about 150,000 new daily Covid cases deals with pharmaceutical companies.

Lula // File Photo: @LulaOficial via Twitter. and more than 4,000 daily deaths. South Getting people vaccinated is of paramount America has eight times the world’s death importance, not just to keep people healthy, order to Brazil’s presidential election in the first rate. These are some of the worst numbers but also to ensure that the region’s recov- round, a candidate would need more than 50 since the pandemic began, which is why ery begins as quickly and as equitably as percent of the valid votes. However, that figure the IDB has taken numerous initiatives to possible.” excludes blank or invalidated ballots, so the speed up equitable vaccine distribution. 10 percent of respondents who said in the poll More than a third of all new Covid cases that they would vote blank ballots suggest Lula are in our region, which accounts for 32 EDITOR’S NOTE: More commentary on this could win the presidency in the first round, Re- percent of worldwide deaths, even though it topic appears in the June 28 issue of the uters reported. Bolsonaro has lost a consider- represents 8 percent of the world’s popula- Latin America Advisor. able amount of support over his handling of the tion. This health crisis has led to the worst Covid-19 pandemic. Since the pandemic began, Brazil has recorded more than 18.4 million cas- to Johns Hopkins University. Brazil also has except the United States, which has recorded es of the disease, the third-highest in the world recorded more than 513,000 Covid-19 deaths, more than 603,000 deaths. In the IPEC poll, after the United States and India, according more than any other country in the world center-left former legislator Ciro Gomes had 7

NEWS BRIEFS percent support, while center-right São Paulo of Mexico United Against Delinquency, told the Governor João Doria had 5 percent and former daily Latin America Advisor in a Q&A published Biden Calls Duque Health Minister Luiz Henrique Mandetta had 3 Feb. 2. “It turns out that there are so many percent, Reuters reported. The poll, conducted rules that the resulting market will be small and to Express Support from June 17-21, had a margin of error of two expensive for patients,” she added. After Helicopter Attack percentage points. U.S. President Joe Biden and his Colombian counterpart, Iván Duque, on June 28 had a Mexico’s Supreme ECONOMIC NEWS phone call in which Biden expressed “U.S. support following the attack on the Colombian Court Strikes Down Ecuadorean Gov’t presidential helicopter,” the White House said in a statement. No one was injured or killed in Cannabis Prohibition Agrees to Rejoin the June 25 gunfire attack on the helicopter, which was carrying Duque and other high-level Mexico’s Supreme Court on June 28 overturned ICSID Tribunal officials. Biden also promised 2.5 million vac- laws prohibiting the use of recreational mari- cines to the Andean nation and voiced support juana, a move that will allow adults in Mexico Ecuador’s government said on June 21 that it for peaceful protesters in Colombia, the White to apply for permits to grow and consume had signed a deal to rejoin the World Bank’s House said. cannabis, The Guardian reported. In an 8-3 arbitration tribunal after more than 10 years, decision, the court ruled that sections of the as President Guillermo Lasso seeks to attract country’s general health law banning personal more investment to the Andean nation, Reuters Haitian Officials consumption and home cultivation of marijua- reported. Lasso, who took office last month, na were unconstitutional. The health secre- said rejoining the World Bank’s International Postpone Constitutional Center for Settlement of Investment Disputes, Referendum Until Sept. 26 or ICSID, will help reactivate the country’s econ- Haiti on June 28 postponed the country’s con- The Supreme Court made omy, which went into recession last year. “This important step will allow Ecuador to establish stitutional referendum until Sept. 26, the same the ruling an 8-3 vote. date that it plans presidential and legislative new trade partners, and to strengthen the elections, Reuters reported, citing an official relationships with those it already has,” Lasso’s election calendar. The referendum has already office said in a statement. “The agreement will been postponed twice because of the Covid-19 tariat will now be allowed to grant permits to help attract responsible investors committed pandemic. Political tensions have been high individuals wishing to recreationally consume to contribute to the country’s development,” in Haiti, with residents expressing fear about or grow the plant. Criminal penalties for pos- it added. One of the cornerstones of Lasso’s going to polling stations. session of more than five grams of marijuana, campaign, and among his priorities now that or selling marijuana, are still in place. Prior to he is in office, is boosting investment in the the court decision, adults could petition courts South American nation as it faces a widening for individual injunctions to grow and con- fiscal deficit and an economy reeling from the Costa Rica’s Attorney sume cannabis. Following a growing number Covid-19 pandemic. Part of that strategy is to General Resigns Amid of injunctions since 2015, the court declared strengthen the country’s credibility with inter- Sprawling Graft Probe jurisprudence on the issue and two years later national partners. According to the statement, ordered Congress to draft legislation to create countries with which Ecuador is evaluating po- Costa Rican Attorney General Emilia Navas a legal cannabis market. However, the highly tential free trade deals, including Mexico, have resigned on June 25 amid a sprawling cor- expected bill has dragged on in the legislature, conditioned any pact on Ecuador joining ICSID. ruption graft probe that has gained traction in with lawmakers asking the court for extensions “[Ecuador] needs to borrow in good financial recent days, Reuters reported. Navas said she three times. Mexico’s health secretariat in conditions, so it must regain credibility,” Ana was resigning to avoid perceived conflicts of January published rules to regulate the use of Lucía Armijos, a former finance minister who interest as her husband represents some of medical cannabis, allowing pharmaceutical is now working as a senior consultant at the the defendants in the case, which involves con- companies to begin doing medical research World Bank, told the daily Latin America Advi- struction companies allegedly paying bribes in on cannabis products. “Unfortunately, despite sor in a Q&A published June 7. “To that end, exchanging for securing government contracts. progress, the path to regulation has not been good relations with the international commu- Authorities have carried out dozens of raids, without its challenges, and many problems re- nity are needed to obtain the financing that with at least 30 people arrested in connection main unsolved,” Lisa Sánchez, general director allows, little by little, a recovery,” she added. with the probe.

FEATURED Q&A / Continued from page 3 FINANCIAL SERVICES ADVISOR iis published biweekly by the Inter-American Dialogue ISSN 2163-7962 a competitive, open and regulated market, inhibited in favor of more compliance-ori- which is very favorable to fintechs (open ented developments. Venture capital as an Erik Brand Publisher banking is under the implementation phase). investment class performed much better [email protected] With all the investments being received, than private equity in Brazil, switching inves- Gene Kuleta fintechs will be able to develop and invest in tor preference and channeling large amounts Editor new products and services and reach out to [email protected] more Brazilians, even ones with no or limited The greatest impact Anastasia Chacón González access to financial services, meaning that Reporter & Associate Editor the final customer will be the big winner, with of Brazilian fintechs [email protected] access to a more complete offering, reduced is financial inclusion, fees and costs, and an improved customer followed by payment experience.” efficiencies.” — Maria Fernanda Teixeira Michael Shifter, President Maria Fernanda Teixeira, mem- Rebecca Bill Chavez, Nonresident Senior Fellow ber of the Inter-American Dia- Bruno Binetti, Nonresident Fellow logue’s board of directors and of capital to now-experienced venture capital Sergio Bitar, Nonresident Senior Fellow CEO of Integrow: “The greatest funds. The pandemic brought radical shifts Joan Caivano, Senior Advisor A Kevin Casas-Zamora, Nonresident Senior Fellow impact of Brazilian fintechs is financial inclu- toward digitally enabled financial services. sion, followed by payment efficiencies. The Also, nonbank players have the scale and Julia Dias Leite, Nonresident Senior Fellow IPOs result from an important investment growth models ready for incumbent financial Ariel Fiszbein, Director, Education Program wave beginning six or seven years ago, com- players by attracting public market capital. Sandra García Jaramillo, Nonresident Senior Fellow bined with a richness of tech talent, a large Liquidity has not been as high in the United Selina Ho, Nonresident Senior Fellow internal market and the world’s highest bank- States in years. High returns in Brazil’s Edison Lanza, Nonresident Senior Fellow ing return on equity. Brazil also has a high fintech sector are attractive and promising Nora Lustig, Nonresident Senior Fellow Margaret Myers, Director, Asia Program concentration of power in a few incumbents for a still-intense number of IPOs to be filled Manuel Orozco, Senior Fellow that left significant user-centric innovation before the year’s end.” Xiaoyu Pu, Nonresident Senior Fellow Jeffrey Puryear, Senior Fellow Tamar Solnik, Director, Finance & Administration Lisa Viscidi, Director, Energy Program JOB POSTINGS Denisse Yanovich, Director of Development

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