The process of regulating sports betting in Brazil has also affected the financial and payments system. According to Valor, with the definition that financial transactions will need to go through institutions regulated by the Central Bank (BC), there are banks organizing themselves to offer services to betting companies and unregulated institutions filing requests for authorization with the BC.
The betting sector is going through a paradigm shift in the country, says André Santa Ritta, lawyer at Pinheiro Neto. While, until now, movements followed an essentially cross-border logic, with the definition that gaming operators must be based in Brazil, there is also a nationalization of financial movements.
“This industry has existed for a few years here, but until now the money was, in general, collected in Brazil through payment facilitators and sent abroad. These companies, in most cases, were not regulated by the BC,” he says.
Due to several concerns, such as traceability of resources and identification of who is participating in the bets, the new rules for the sector, which are being instituted via law and ordinances, began to require this industry to become domestic.
And, in this context, the Ministry of Finance also decided to establish that only regulated institutions will be able to provide financial services to the segment. Contributions and withdrawals of financial resources by bettors, as well as the payment of prizes by agents operating the “bets”, must be carried out exclusively through accounts, on both sides, registered with financial or payment institutions authorized by the BC.
In other words, only those who are regulated touch the money. Payment by credit card, cash, bank slip or crypto was prohibited, but debit and prepaid cards, TEDs and Pix were maintained, which accounts for a large part of transactions, according to industry participants.
This scenario opens up great opportunities for banks and payment institutions to operate in a previously little explored market. This applies to both traditional and digital institutions. “These institutions are entering this market heavily,” says Santa Ritta.
“As it is a market that is still being regulated, we have seen a movement of less conservative banks, which tend to take more risks, to enter into operations like this. But for the large traditional incumbents, I think it is a scenario yet to be explored, discovered,” comments another lawyer.
When contacted, the Brazilian Federation of Banks (Febraban) simply stated, in a note, that the online sports betting market will receive the same treatment from the banking sector as normal activities, “that is, all the usual and necessary practices for prevention and repression to financial illicit acts will be taken, not giving rise to additional measures to serve this sector.”
For Fernando Borges, from the board of directors of the Brazilian Foreign Exchange Association (Abracam), the regulations are positive and will contribute to the health of the financial system. “There may even be a negative impact on transaction volume, but it will be positive for market consolidation. Since 2018 there has been a great deal of legal uncertainty.”
According to him, if there are some softer rules for payment institutions in terms of capital, for security standards this differentiation does not exist. “In the context of preventing fraud and money laundering, there is no competition. The regulation is the same for everyone.”
Diego Perez, president of the Brazilian Association of Fintechs (ABFintechs), ensures that IPs comply with security standards and are prepared for regulation. He says that this “bets” market flourished in Brazil due to characteristics of the local market, such as instant payments, high digitalization and banking and even more recent innovations, such as open banking and the exchange rate mark.
“Open banking, for example, introduced the payment transaction initiator (ITP), which increases the speed of placing bets.”
Pinheiro Neto's lawyer reports that there are already unregulated companies filing requests for authorization from the BC to operate in this universe. Another movement observed is that of unauthorized institutions seeking partnerships with regulated ones, in a “banking as a service” (BaaS) model.
One of these companies is Nuvei, a global online payments platform, which filed a request for authorization with the BC to act as a payment institution as an acquirer and issuer of electronic currency in the country. Focused on cross-border payments for various sectors, the company already works with sports betting operators in other countries, where this market is regulated. Now, the company sees this as one of the main avenues of growth in Brazil.
“The important thing for us is to ensure that we are ready for our customers to operate in Brazil as soon as this market is regulated,” says Rafael Lopes, director of global expansion for Latin America at Nuvei. “We can do this in other ways, such as through partnerships, but the priority is our own license.” Today, the company operates in the country as a sub-accreditor.
WePayments is already working with “bets”. The fintech's CEO, Fernanda Zago, states that she has always been concerned about carrying out the processing correctly, so as not to violate any local rules.
“With regulation, only authorized IPs, like us, will be able to process these payments, and I think we are very well positioned for that. Are we going to lose part of the revenue from currency conversion? Yes. But the margins in this segment were already flattening. And these companies will continue to have to make shipments to their headquarters.”
She says that, with regulation, new “players” may try to enter this niche, but, subsequently, the “bets” would tend to return to those who specialize in this type of operation. “There are people who can offer a cheaper price for Pix, but will they guarantee the convertibility that the bets require?”
For Santa Ritta, from Pinheiro Neto, non-regulated companies that already operate in the market even have a competitive advantage initially because they already have contact with betting operators, but this should be lost in a short time, as banks and betting institutions larger payments are able to offer attractive proposals, with lower costs.
Claudia Bortoletto, president of Ebury in Brazil - which inherited the betting operations when buying the Bexs bank - says that she has been talking to customers to find out how they are adapting.
“Even if they are forced to have an operation here, some type of exchange will continue to happen. It’s a very relevant vertical for us and I think the segment will now be a combination of foreign exchange with local payment solutions.”
Experts also see an opportunity for unauthorized companies to provide services to operators. In terms of payments, the regulations refer to a “virtual account”, for example, made available in the betting system only for the user to manage their bets and financial resources internally. For this modality, there is no requirement to connect with an institution regulated by the BC.
There are also other technology services being provided to betting companies, such as those linked to identity verification and facial recognition requirements. “The same services that we already offer to banks can be offered to betting operators,” says Danilo Barsotti, technology director at Idwall.
Caixa can also benefit from the betting market by becoming a “bet” itself. With experience in lotteries, at the end of last year, the bank was one of 134 companies that expressed interest to the Ministry of Finance in obtaining an operator's license. The bank's president, Carlos Vieira, even said that he hopes to raise R$18 billion (US$ 3.45bn) in two years with this operation.
The Treasury gave until the end of 2024 for electronic betting companies already in operation to regularize themselves. There are still new ordinances to be published, including the requirement to offer financial education materials to customers, to avoid gambling addiction and over-indebtedness.
Source: Valor
