Fintech Unicorn Anticipates Improving Credit Market in Brazil with Lower Default Rates

Fernando Miranda, co-president of Brazil-based Neon, with 26 million customers, predicts a gradual decrease in default rates in Brazil as recent credit operations yield better results and defaults approach their peak

Fernando Miranda, co-president of Brazil-based Neon, with 26 million customers, predicts a gradual decrease in default rates in Brazil as recent credit operations yield better results and defaults approach their peak
September 26, 2023 | 11:44 AM

Bloomberg Línea — One of Brazil’s fintech unicorns, Neon, known for facilitating credit access for lower-income groups, now foresees a gradual reduction in default rates in the country. Fernando Miranda, co-president of the fintech, stated in an interview with Bloomberg Línea that the default rate has reached its peak and is destined to decrease, driven by the recent reduction in the benchmark interest rate in August.

“When interest rates drop, the effects take some time, a few months. But we have already seen that the new crops are performing better,” he said, attributing this improvement to macroeconomic factors and enhanced credit guarantee models. “I see a reduction more towards the fourth quarter, closely tied to the interest rate trend,” he stated in an interview with Bloomberg Línea.

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Neon joins other financial institutions that have spoken in recent months about a credit rebound following the peak in defaults in the country. In August, during the release of their financial results, major Brazilian banks indicated that the start of monetary easing by the Central Bank is likely to increase financing availability. BTG Pactual, Bradesco, and Itaú Unibanco are among the banks that anticipate their default rates in portfolios reaching their peak.

Fernando Miranda, copresidente do Neondfd

Neon’s Operations

Recently, Neon revealed that its customer base has grown to 26 million, and its portfolio has reached R$4 billion. Since assuming the co-president position in March, Fernando Miranda has focused on addressing daily challenges, while CEO and founder Pedro Conrade maintains his focus on long-term strategies.


Neon attributes its growth to aggressive expansion and the development of a diverse range of products. Over the past two years, the fintech has shifted its focus from offering just cards and accounts to expanding into products such as personal loans, insurance, and payroll loans. “We have a much richer value proposition now, and as a result, we’ve grown our credit portfolio,” said Miranda. “Consequently, our revenue has grown by over 82% in the past year.”

One highlight is Neon’s private payroll loan strategy. The company acquired firms to strengthen this offering as an opportunity to serve a portion of the Brazilian population composed of private-sector employees. Miranda highlighted that Neon has positioned itself as the largest fintech in this segment, following the major banks. A crucial differentiator in this scenario is that, by offering private payroll loans, Neon requires approval from the customer’s employer, which is a barrier. However, these loans offer more attractive profit margins, even with lower interest rates.

“We’ve expanded our credit portfolio to R$4 billion, comprising four main product lines: credit cards, the primary slice, followed by payroll loans,” noted Miranda. The fintech, which became a unicorn in 2022 after raising approximately R$1.6 billion (US$300 million) in a Series D investment led by the European bank BBVA, laid off the equivalent of 9% of its workforce, about 210 people, in February. The startup said it made the necessary adjustments to its workforce as a way to address the macroeconomic challenges of this year.


Regarding financing, Neon revealed that it now issues its own Certificates of Deposit (CDBs) and has been expanding in this area. This change not only strengthens its financial position but also allows the company to offer investment products to its customers.

“When it comes to financing, Neon now issues its own Certificates of Deposit, and we’ve been expanding in this area,” he said. This change not only strengthens our financial position but also enables us to offer investment products to our customers. “We have the credit card with CDB collateral, which is close to reaching 1 million customers. The fintech has 3 million customers investing in CDB. “This is a very cool value because many of these customers do not have access to a credit card because they have a higher risk, and with CDB, their money earns interest, and they have access. We launched it eight months ago, it’s still small, but the growth is substantial,” he said.

Another new product is personal loans, with flexibility in pricing limits and term rates. “This will be one of the main profitability drivers,” he said.

Aiming for Profitability

Achieving profitability is a top priority for Neon, and according to Miranda, the fintech has consistently reduced losses quarter after quarter while maintaining revenue growth of around 80%. He emphasized that Neon has lower operational costs than the market average, primarily due to its focus on the C and D classes, which, although generating modest individual revenues, offer scale opportunities.


“Part of our purpose is how to grant credit to the right people, how to bring innovation to be able to sometimes offer credit to someone who couldn’t get it?” he said, adding that Neon continues to grow its credit cautiously.

A large part of the fintech’s investments, according to Miranda, is in statistical modeling. “We’ve just launched a credit policy engine, heavily based on machine learning, which can serve a type of customer to offer.”

The change in the interchange fee for prepaid and debit cards, which took effect in April, “hardly affected” revenue, according to Miranda, as most of Neon’s revenue comes from credit cards.


The fintech said it has a very clear execution plan to achieve profitability, “one of the company’s top priorities,” he emphasized, noting that “it’s hard to pinpoint a date, but it’s not in the long term, it’s something we’re already working on.”


Neon operated as a payment institution and last year became a financial institution due to the acquisition of a consignment finance company. Since then, it has issued its own CDB, resulting in lower funding costs.

When asked if the company is considering new acquisitions, Miranda said that Neon considers opportunities, but the main focus is on the organic evolution of the company. “We are talking to the market. It’s a good time [for acquisitions]; there are many people, sometimes struggling with capital and liquidity. We are more opportunistic than having it as a goal or strategy.”

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