Torq Ventures says Brazil’s innovative central bank is spurring rapid fintech growth

Torq Ventures — which only became a full corporate investment unit three years ago — racked up a big exit success in Brazil this summer, when it sold its shares in Celcoin, the banking-as-a-service company, as part of the startup’s series C funding round.

Torq Ventures had backed the fintech startup in an early round in 2021. The fast turnaround of this investment, says Thiago Iglesias, head of Torq Ventures, is testament to the speed at which Brazil’s fintech sector is growing. This, he says, is largely due to the willingness of Brazil’s central bank to allow experimentation by the financial services industry.

“Right now we have a central bank here in Brazil that is constantly awarded as one of the most innovative central banks in the world,” Iglesias told the CVC Unplugged podcast recently. Torq Ventures – the corporate VC arm of payments technology company Evertec, is one of the beneficiaries of this approach.  

Banco Central do Brasil (BCB) goes further than other central banks in the region to promote growth in its fintech ecosystem. It runs initiatives like its LIFT Labs accelerator and works closely with Fenesbac, an organisation that encourages fintech development. The bank allows companies to submit papers and research on potential new technologies in finance, which it can then evaluate and potentially invest in. Those investments can then be followed by others who want to build applications on top of them.

For example, BCB created Pix – Brazil’s ultra-popular instant payment platform. Pix has seen phenomenal success while similar instant payment initiatives in countries like Mexico and Colombia have faltered in the absence of support from their regulator, says Iglesias.

“It’s hard to bring the regulator, the large companies that sometimes control some aspects of the market, the new ones that want to enter. It’s hard to get everything orchestrated so that we can all go on one path,” says Iglesias.

Currently, Evertec is working with BCB to explore use cases for Drex, a new digital currency to be used alongside the Brazilian Real. Having the regulator involved in the design process itself means that companies looking to develop Drex-related applications may be more comfortable taking the risk.

“You’re going to have your real wallet in your Drex wallet. It’s something that is going to be used, but there’s a lot of thinking of where will we apply it, how it’s going to work in our financial system. A lot of things might have to be rethought and restructured, in an aspect of infrastructure for the companies as well. I think a lot of companies are afraid of a red light. If there’s like a green or yellow light, you can develop,” he says.

Regional expansion

Success in Brazil is setting up Torq to expand more broadly in Latin America, says Iglesias.

Torq Ventures started life as a consultancy, and went on to become the investment arm for Sinqia, a Brazilian company providing software for the financial industry. Last year, when Evertec bought Sinqia, it also took over Torq.

With the backing of a much bigger company, Torq is now looking to spread its focus beyond Brazil.

“We expanding right now, starting with Chile, but then also already with a plan for other countries in the region, looking at corporate venture capital, corporate venture building, venture clienting as well, and open innovation strategy, as a whole,” he says.

“With Torq, we have much more of a focus on collaborating with open innovation, not only corporate venture, from external sources like government and universities – we do have partnerships with universities here in Brazil. Now in Chile as well because of the expansion that we’re doing.”

Chile, with its solid financial system, growing startup ecosystem and bustling development, is a natural choice. Torq now has partnerships with universities in Chile and is carrying out one of its Torq challenges there, as well as being on the hunt for someone to lead operations, to carry out venture investing, venture building and other open innovation activities.

The next most attractive markets on the list are Colombia and Mexico, but Torq eventually wants to branch out even further, to locations where Evertec already has a strong presence, which translates to just about anywhere in Latin America and the Caribbean.