In the past decade, neobanks in Brazil have emerged as key players in advancing financial inclusion, putting banks’ tight grip to the test. However, after the boom in recent years, Latin America’s main digital banking economy is showing signs of reaching a plateau.

According to a Bank of America survey, downloads of Brazilian online bank apps saw a 34% monthly decline in June. There were 12.4 million downloads, compared to almost 20 million at the peak of the neobank boom last year.

The pace had been showing a deceleration in previous months, a trend that, according to the U.S. investment bank, could point to a crowded market.” We continue to see evidence of consolidation and saturation in the industry,” the bank’s analysts wrote. “Now, it’s a matter of market share.”

Industry consolidation ahead

According to industry specialists, this trend could lead to market consolidation and weeding out smaller players that were perhaps too late to the game.

“The market is already saturated with financial services as they are offered today,” said Jihane Halabi, a fintech adviser and partner at Halabi Advogados. “They fulfilled one goal: the democratization of financial services. But now there is a yearning for sophistication.”

The situation is particularly complex for smaller neobanks, considering that the top players – Nubank, PicPay, C6 Bank, Banco Inter, and Mercado Pago – account for over 60% of the downloads. According to Brazilian media, this is up from 44% a year ago.

Nubank was the only neobank app that saw a mild acceleration. According to current Sensor Tower data, the neobank remains today as one of the most popular apps in the country. It ranks third in downloads for IoS devices and fourth for Android. No other fintech makes it to the top 25 Apple Store list, while PicPay ranks 18th in Google Play Store.

Brazil neobanks: a competitive ecosystem

Brazil stands out as the most extensive fintech ecosystem in Latin America. Between 2017 and 2021, the number of digital banks in Brazil surged from 6 to 22, showcasing a distinct upswing in neo-banking initiatives across the region.

According to a report by the Inter-American Development Bank, the vast majority of Latin American neobanks are focused on the underbanked consumer or SME. That has led to a range of services which quite often do not differ substantially from each other.

As many smaller-sized fintechs struggle, Halabi argues that the industry will consolidate. “This is not just a strategic move but also driven by necessity,” she told Fintech Nexus.

Tech startups of all kinds have felt the crisis’s impact, grappling with Brazil’s rapid interest rate increase last year. The scarcity of investment capital posed a significant obstacle for many fintechs, leading to substantial operational restructuring and workforce reductions.

Nubank, the flagship of Brazilian neobanks

With 80 million customers, Nubank leads the way in Latin America as the largest neobank. It has expanded to Mexico and Colombia since its massive disruption in the Brazilian market.

But even Nubank is showing some signs of deceleration in Brazil. The digital bank’s current strategy in its primary market is geared toward cross-sales and profitability rather than further customer growth.

Other digital-only initiatives, such as PagBank, Banco Inter or Mercado Pago, have also increased market share rapidly in previous years, signing up millions of customers.

But there might be a limit on how many digital banks can coexist. It is quite common for Brazilians to have accounts in many neobanks simultaneously. A recent study showed over 20% of card users had bank accounts at traditional and digital banks.

The battle is on for principality as fintechs and banks vie for market share.

In recent earning calls, Nubank executives have underscored the relevance of becoming the primary financial app. While users have many bank apps, there is usually one major banking relationship through which they conduct most of their finances.

“First, we want to build a strong relationship with our customers. Second, we want to work to gain principality and a lead position,” said Jag Duggal, Chief Product Officer at the bank. “And third, we monetize.”