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Fraud Combat And The State Of Banking Technologies In Brazil

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Brazil is the largest online market in Latin America. It is also one of the most promising online retail industries in the world, generating more than BRL 50 million in annual e-commerce sales. The country’s e-commerce market is a captivating opportunity for merchants that understand that global expansion is the answer to long-term healthy growth.

However, one natural concern for anyone selling online is banking fraud and financial malware. Like in any other country, the Brazilian online market has its share of fraudsters, deceiving customers and ill-intentioned people trying to take advantage of security breaches. But that shouldn’t come in the way of merchants looking to expand their business to the country or of customers who want to safely purchase on the web, since institutions have mechanisms and tools to prevent themselves from that.

There are several reasons why Brazil represents such a large share of the world’s economy, especially when it comes to e-commerce. In order for Brazilian customers to buy online so much it’s because they are hyperconnected, dispose of a wide smartphone penetration, have access to top-notch technology, and to easy payment methods they trust. It’s elementary for local institutions – and also of their interest – to keep the system in good functioning. After all, their core business is money and trust.

So let’s take a look at how Brazilian consumers are managing their money online and what Brazilian financial institutions are doing in order to protect the online environment.

Consumers in Brazil are more engaged than ever with mobile banking

Brazilians are very much living in the future when it comes to online payment methods. According to the Brazilian Federation of Banks (FERABAN), in 2017 alone, 25.6 billion transactions were made through mobile channels. That’s 37% more compared to the previous year. The share of mobile transactions grew a 3.5-fold since 2011, becoming the preferred medium of access by Brazilians.

While internet banking also grew during this period, the growth wasn’t nearly as impressive as in the mobile platform. Consumer acceptance of mobile banking solutions is especially high among millennials (for this research, were all users aged between 18 and 34), as stated by a Deloitte’s report quoted by FEBRABAN. Nearly two-thirds of them have at least one app in their phones. Among users aged from 35 to 44-years-old, the share is of 52%.

Institutions are aware of the changes in consumer habits. In order to evolve and embrace new concepts in a progressively digital daily life, they are adapting to the new ways their customers are prefering to handle money. Banks are developing more and more electronic operations, for example, and focusing on business and customer relationships. It all comes down to electronic forms of payments.

Expenses with banking technologies are growing in the country

The year of 2017 was a year in which Brazilian banks showed they were ready to overcome the difficulties of the crisis that hit the country in the past years and peaked in 2015. As FEBRABAN’s report shows, the amount destined by Brazilian banks in investment and expenses in technology grew 5% compared to the previous year, totaling BRL 19.5 billion (around USD 4.6 billion).

Considering investments alone, the growth was of 13% in 2017, reaching BRL 6 billion (around USD 1.4 billion) – the highest amount since 2014, when the crisis first started. The market is surely showing recovery signs and in the banking system, they are also being reflected in technology and security.

The main focuses of bank’s investmentment and expenses were softwares, as a way of supporting the development of solutions and services, and bringing a better quality service to consumers. Expenses with softwares in 2017 grew 17%, totaling BRL 9.8 billion (around USD 2.3 billion).

Banks in Brazil are also looking into the development of more innovations. They are in the field of data handling, services, customer experience and security. The majority of institutions – 80% – invested in artificial intelligence and cognitive computing – a technology that simulates human thought processes through self-learning algorithms, by using data mining, pattern recognition and natural language processing. The same share of 80% invested in analytics in order to apply statistical practices to organize, represent, describe, evaluate and interpret data.

Here are a few other leading technologies banks in Brazil have adopted in 2017:

Blockchain

According to the research conducted by FEBRABAN, 75% of Brazilian banks invested in blockchain in 2017. The digital community is finding other potential uses for it, so it’s only logical that financial institutions are investing in it too. Blockchain is the buzzword right now.

Internet of Things

Among banks in Brazil, 45% have invested in the Internet of Things (IoT), which is a technology that connects everyday objects to the internet, such as vehicles and home appliances, enabling them to send and receive data. It is possible that these investments will bring future changes in consumer habits and how they relate to their financial institutions. In banking, IoT is developing towards wearable devices, such as smartwatches and smart glasses. They can be used by organizations to observe consumer behavior and fraud prevention in ATMs. The possibilities are endless.

Near Field Communication (NFC)

When it comes to Near Field Communication (NFC), 55% of Brazilian institutions invested in it. NFC works enabling two electronic devices, usually a smartphone or another portable device, to establish communication within 4 cm (1.6 in) of each other. It allows contactless payment, for example. NFC is still in the works in Brazil, but it’s already very big in several other countries.

Fraud risk management in Brazil

Like in any serious and promising economy, Brazil is making sure its market is protected against harmful practices that may come in the way of a healthy growth.

Banco Central do Brasil (Central Bank of Brazil) is the main monetary institution in the country. One of its roles is to guarantee the smooth functioning of the financial system in order to offer financial stability and to safeguard the monetary policy transmission channels in the country. The organisation is taking action in order to oversee fintechs and other digital financial services, since they are now a part of everyday life in Brazil.

Banco Central do Brasil has recently published a press note manifesting its support to the Committee on Payments and Market Infrastructures (CPMI/BIS) regarding payment frauds.

In a document called “Strategy for reducing the risk of wholesale payments fraud related to endpoint security“, CPMI/BIS shares a seven-points plan of action designated to combat payment fraud. It proposes a strategy to reduce the risk of fraud in these systems, addressed to all stakeholders. These stakeholders include the operators of those systems and providers of the messaging infrastructure that supports them, its participants, and their regulators and supervisors.

The seven elements of the strategy comprise all relevant areas to prevent, detect, respond to and report fraud affecting such systems and infrastructures. They are:

  • Identify and understand the range of risks
  • Establish endpoint security requirements
  • Promote adherence
  • Provide and use information and tools to improve prevention and detection
  • Respond in a timely way to potential fraud
  • Support ongoing education, awareness and information-sharing
  • Learn, evolve and coordinate

Breaking down these seven points, we can understand the importance of financial networks working as an ecosystem. Each stakeholder has a distinct role and responsibility, but in fraud prevention they must all work together. It’s quite clear that fraud risk management is a collective and collaborative work. Financial networks are interconnected by definition, so the efforts of a single party may not achieve the expected benefits or outcomes unless all parties work together.

That’s exactly what Banco Central do Brasil states in its press release. According to the text, as a system operator and supervisor, the institution will take the leading role in the implementing process of this strategy in Brazil. In this sense, Banco Central will “promote the use of this strategy by regulated institutions, as well as in the monitoring and evaluation of the security, integrity and reliability of the clearing and settlement systems of the Brazilian Payment System and corresponding messaging infrastructure”.

For those looking at the Brazilian market as a business prospect, this is good news. It means that the country is engaged in the good functioning of its economic environment.

Summing up

Brazilian consumers are not shying away from the latest technologies when it comes to online payments. Brazil has a huge consumer market and its buyers are online, mostly through their mobile devices – which is also what they use to pay for their purchases.

Brazilian financial institutions are investing in state of the art technology in order to keep up with the latest market tendencies, increase customer satisfaction and protect transactions on all ends.

The main financial authority in the country, Banco Central do Brasil, is willing to supervise stakeholders who want to guarantee the good functioning of wholesale payments.

What are your thoughts on the state of banking technologies in Brazil? Are you ready to expand your business to the biggest economy in Latin America?

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