Brazilian banks have earned their reputation for outstanding performance during and resilience to financial crises because of capitalization levels that are higher than the international average, stricter controls and prudential regulation, particularly in the implementation of Basel guidelines.
These characteristics have been developed since the late 1990s through the process of banking consolidation that, among other things, has strongly decreased the number of financial institutions, modernized customer service and diversified products, services and methods of payment with the intensive use of technology as well as the consolidation of a nationally integrated payments system.
The professionalization of bank management has been accompanied by the institutional improvement of the sector, which currently seeks to adapt its business models to the guidelines for protecting and sharing customer data and for environmental, social and corporate governance (ESG).
This modernization process has taken place unequally, with some financial institutions taking the lead in these transformations relative to others that experienced a slower adaptation process. In particular, this was the case of Banco de Brasília (BRB), a public financial institution controlled by the Federal District1 that until 2018 presented a business model oriented to the financial management of the Federal District’s cash flow and almost exclusive service to its public servants and suppliers.
This new strategic plan was devised to advance the expansion of the business, diversify the customer base, expand digital relationships with customers, resume the institution’s capacity to contribute to the economic and social development of the region in addition to improving governance and internal controls, increasing operational efficiency, training staff and profoundly changing the organizational structure.
The impact of COVID-19
The advent of the COVID-19 global pandemic, which necessitated social isolation, restricted economic activity and spawned widespread fear, significantly impacted BRB’s strategic agenda. It required an effort to reorganize internal processes to enable the remote working of teams while providing customer service and offering products and services through digital channels, and at the same time, executing public policies to mitigate the economic and social impacts of the pandemic. Within weeks, the business model and organizational structure of the institution had to adapt to what may have been one of the most severe stress tests in the Brazilian banking sector.
Initially, it was necessary to reorganize work routines while identifying risk groups and essential activities. In all, 70 percent of the institution’s workforce was moved to home offices, with the remainder focused primarily on the branch network to serve, under new security protocols, those customers who needed face-to-face support. In addition, BRB was the first Brazilian financial institution to test all employees for the virus and implement a contingency action through the corporate health plan that allowed timely care of suspected cases.
In response to our customers’ growing demand, BRB has made more channels available for online services and launched a new mobile-banking app with features that remotely offer all the bank’s products. Digital service was also increased and offered to the total customer base through mobile and internet banking. In a few days, the digital-service userbase soared from 10,000 to more than 110,000 customers.
The pandemic suspended BRB’s physical expansion to other regions of Brazil due to social-isolation requirements, and the focus shifted to the expansion of its operations and diversification of its customer base in the digital market. To this end, it has established an innovative and historic partnership with Flamengo, the largest soccer team in Brazil with around 42 million supporters, and launched a new digital bank, Nation BRB FLA.
This partnership has made the BRB brand recognized throughout the country, offering banking, investment, insurance and cards as well as providing a digital marketplace as a novel way of selling products and services aimed at Flamengo fans. By the end of six months, the results of the partnership have shown promise; more than 100,000 accounts have been opened.
Economic and social response
During the COVID-19 pandemic, BRB implemented government policies from economic stimulus to consumption and investment in the Federal District. It has launched a special credit program called Overcome, Supera-DF in Portuguese, aimed at debt restructuring and offering working capital mainly to small businesses. An all-digital service, the program served 32,700 individual customers and 4,600 companies, moving about R$4.4 billion over seven months.
In addition, 150,000 families were served by Federal District Government income-transfer programs executed by BRB. The registrations of eligible families were processed through mobile applications and electronic transfers of resources to debit cards that could be used in registered establishments digitally.
The new normal
The pandemic accelerated trends that were already present in the Brazilian banking market. Financial-services customers are increasingly digitally inclined, particularly in their preference for using smartphones in transactions. The Brazilian Federation of Banks (FEBRABAN) has pointed out that since 2018, mobile banking (banking access via smartphone) has surpassed internet banking in account payments and transfers.
At the same time, competition is increasing in digital financial services with the provision of financial products and services by non-bank companies from the technology sector, the so-called fintechs (financial-technology firms). In addition, Brazil’s regulatory environment has sought to intensify competition between traditional financial institutions and fintechs with the enactment of Open Banking’s rules for data sharing. The expectation is that the new regulation will increase the bargaining power of those customers with better risk profiles by allowing them to make their data available to those institutions that have better relationship conditions.
Digital transformation was an ongoing process in the Brazilian banking sector even before the pandemic because of the need to improve financial institutions’ operational efficiency and change consumption patterns. It has now become necessary for survival in the market.
In this context, BRB launched, in the midst of the pandemic, its Open Innovation Program in partnership with Plug and Play, one of the largest platforms for accelerating global innovation. In addition to accelerating startups, this partnership will enable the integration of the bank with cutting-edge companies and the dissemination of the innovation culture among BRB employees. As a result of the partnership, an edict was launched to select 25 national and international companies—startups, fintechs, insurtechs (insurance techs) and govtechs (government techs)—to provide solutions to improve customer experience, operational efficiency, government services, insurance products and payment means.
On another front, BRB has been seeking partners for its investment, insurance and methods-of-payment business lines to enable the institution to complement its product portfolio, access new markets and expand its competitive capacity.
In the coming years, the Brazilian financial system will intensify the process of digital transformation, and BRB’s response to the challenges imposed by the pandemic has assured its capability to better adapt to the new market conditions. Unlike past times when the market had BRB in tow, it is possible to affirm that the bank is currently among the Brazilian banking sector’s innovative leaders. The objective is to consolidate the institution as a complete financial-services platform, recognized by its superior customer experience and positive impacts on Brazil’s economic, social and human development.
1The Federal District is one of the 27 federative units in Brazil, located in the country’s Midwest Region. In its territory is located the federal capital of Brazil, Brasilia, which is also the government office of the Federal District.