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Brazil banks on digital consolidation

It took all of six days of the new year before the tone was set: XP Inc’s announcement of its acquisition of Banco Modal. The deal will need regulatory approval, but is being warmly endorsed by the target’s management and its minority shareholder, Credit Suisse.


Brazil’s digital banking industry is now into full-blown consolidation mode.

Make no mistake about the driver of this deal: it brings zero new functionality to XP and breaks no new ground in terms of products or services. It brings no innovative technology – the platforms will be run largely independently for the foreseeable future – or much-needed management or workforce expertise.

XP points to Modal’s leadership in mini-futures as added capability, but – even generously assuming this is true – such additionally would take a couple of weeks of organic development. It doesn’t warrant a R$3 billion acquisition.


No, XP’s strategy is purely defensive. It’s anticipating a potential source of competition and, with depressed share prices in Brazil’s digital banking sector – Modal’s share price had fallen from its R$20 at IPO to R$8.50 just before the acquisition was announced – XP struck.

The price of Modal’s stock may have driven the timing of the deal, but not its logic. XP has already been feeling the heat of being the market leader. The response from competitors has turned the tables on it. BTG Pactual, in particular, has been on a spree of buying minority stakes in large independent financial advisers (IFAs) as a means to tie them to its platform – a tactic XP is itself employing.


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