OPINION. The bull market for fintechs focus on SMBs

A group of fintech companies operating at the intersection of payments, data and credit has gone largely unnoticed within Brazil’s financial sector in the recent exceptionally high-interest-rate environment. Structured as “payment institutions” under central bank terminology, increasingly built around PIX and focused on serving small and medium-sized enterprises, these firms have recently appeared unremarkable, marked by moderate growth, regulatory pressure and intense competition.

That reading is misleading. It reflects the recent period of very high rates rather than the underlying business model.

In Brazil, these companies display a non-linear relationship with the interest-rate cycle. When rates are extremely elevated, as they are now, their operating model appears constrained. But as monetary policy begins to show signs of turning — with markets today projecting a decline of almost three percentage points in the Selic rate during 2026 — their capacity to generate revenue can rise abruptly, prompting a meaningful repricing of valuations.

The mistake is to view them as simple payment processors. They are better understood as financial operating systems for small businesses — effectively technology-enabled professional service platforms designed to observe, organise and interpret cash flows. Their economic value can only be fully captured when credit once again becomes a viable engine of growth for their client base.

Unlike traditional acquirers reliant on transaction fees, consumer wallets driven by scale, or banks anchored in deposit spreads, these platforms operate largely behind the scenes of the real economy. Their clients are SMEs, either directly or via digital platforms and marketplaces.

Their core activities include payment collection via PIX and bank slips, payment and reconciliation APIs, receivables management and the integration of financial flows across systems. What matters most is not the fee charged per transaction, but the persistent, high-resolution visibility into recurring cash flows. That visibility is the asset.

PIX itself was never designed to be a profit centre. It is free or nearly free at its core, offers no scope for monopolistic rent extraction and is universal, interoperable and instantaneous. On its own, it generates limited direct revenue, despite margins and revenues improving with scale.

Its economic importance lies in converting payments into high-frequency, real-time and fully traceable data. For companies increasingly built around it, payments become structured economic information that can be used to assess risk, finance receivables, embed credit and provide additional financial and non-financial services.

In a country where interest rates have remained elevated, demand for credit among small businesses has been heavily suppressed. Under such conditions, even the best data cannot be monetised at scale.

As a result, these platforms tend to operate like quasi-utilities. They deliver essential services but grow linearly, with limited apparent upside. To investors, they appear useful but uninspiring. That perception, however, reflects Brazil’s recent monetary environment rather than the business model itself.

When rates begin to fall, the dynamics change rapidly and disproportionately. Small reductions in the policy rate can sharply improve the viability of working-capital financing for SMEs. At the same time, credit risk declines: cash-flow volatility eases, default rates fall and expected returns from this client segment rise.

Crucially, these platforms do not need to reinvent themselves to benefit from the shift. The data, transaction flows and infrastructure are already in place. What changes is the economic environment that finally allows this information flow to be activated.

The outcome is a revenue curve that tilts upward in a convex fashion. Once certain interest-rate thresholds are crossed, growth accelerates.

This produces a double effect. Revenues linked to credit and financial services can grow faster than the wider economy, while valuation multiples expand as future optionality becomes visible.

Companies previously seen merely as payment institutions come to be regarded as important financial platforms for small businesses. Their value rises not only because revenues grow, but because the business model is reinterpreted and enterprise value begins to increase faster than current revenues.

The strategic lesson for these fintechs is counterintuitive. In a hostile monetary environment, the optimal response is not aggressive expansion but patience: preserving relationships, maintaining transaction density and preparing credit products and new financial services for the turning point in the cycle.

Companies built on payments – particularly those anchored in the cash flows of Brazilian SMEs – are not traditional payments businesses but potential providers of a broader set of services, including financial ones. They stand to benefit disproportionately from monetary easing and from the revival of small-business credit in Brazil.

Winston Fritsch served as Secretary of Economic Policy at Brazil’s Finance Ministry during the Real Plan and is a board member of IUGU, a payment institution.

Winston Fritsch