Launched 2012 in Sao Paulo Brazil, providing entrepreneurs with the technology to increase their sales and productivity with various specialized modes of technology.
Founders: Andre Street and Eduardo Pontes
The company was the brainchild of Mr. Street and Mr. Pontes after both had worked in electronic payment and payment processing fields for the larger part of a decade through their online payment technology firm, Braspag. They decided to shut down operations at Braspag despite the company’s success and created Stoneco from the bottom up. The approach differs from their previous company in that they have become more “customer centered” or people oriented versus catering to corporations. The founders of Stoneco saw an opening in an underdeveloped sector. Small business owners were often ignored in Brazil because their consumers functioned via cash transactions. With the rise of Fintech in Brazil and Latin America, those consumers were now given the ability to use fintech to their advantage. Brazil began seeing an increase in cashless transactions. Stoneco capitalized on this by creating a way for these small businesses to capture these transactions where they were mostly only done by larger businesses.
Their initial firm Braspag was purchased by Cielo, a Brazilian credit card terminal provider, in 2011 for an undisclosed amount. They used the profits from this sale to initially set up Stoneco back in 2012. After Stoneco launched its IPO, Warren Buffett’s company Berkshire Hathaway purchased 14 million shares at the IPO price of $23 dollars a share, giving them 8% ownership. They also drew other big investors such as China’s Alibaba.
The majority of countries in South America are cash societies due to the lack of bank accounts by the majority of consumers, therefore most merchants do not accept electronic payments, eliminating the need for plastic currency. This is no different in Brazil where 85% of their market is cash. Many Fintech companies have attempted to solve this issue but ultimately the price of credit card terminals and internet service has hindered efforts to allow smaller businesses to become part of this movement leaving only larger businesses able to join. Due to this large disparity in credit card acceptance, most consumers forego credit cards and even bank accounts all together as ATMs and bank branches are difficult to find and inconvenient for everyday purchases. Currently there are 751 fintech startups in Latin america. Some of those have allowed consumers to sign up for prepaid cards allowing them to make payments domestically and internationally. After 10 years in Braspag, the founders of Stoneco saw an opening in the market that could be capitalized on: small and medium sized businesses. Businesses that the majority of latin american consumers frequently use. With a growth of consumers now having access to some form of banking, Stoneco gave these mom and pop shops a chance to compete with larger wealthier businesses. As of 2018, Stoneco stated they had captured 5.5% of Brazil’s market share, raising that to 9% in 2019. They entered the market offering lower fees than any of the existing providers. They are able to offer smaller fees because they do not have an association or partnership with any bank like many other electronic payment providers. Therefore, allowing them to cut costs to target business owners that can’t afford the large fees that other electronic payment providers charge. Another way they set themselves apart is through their billing plans. Stoneco has a fixed monthly rate depending on the number of services you add to your plan and there are deductions to these set fees depending on the volume of your billing. The higher the billing, the lower the rates. When a new business begins the process of onboarding at Stoneco, they are assigned a representative that facilitates the onboard and technology training process. The representative also analyzes the business and determines their needs depending on different factors such as size, type of business, size of their market, e.t.c. They market their credit card readers as small, easy to use, and have 2G, 3G and wifi connectivity thus making their use as easy as handling a smartphone. It also allows many businesses that do not have access to an internet connection to be able to use their product without having to sign up with another company, therefore making them a one stop shop. Stoneco has developed the Stone portal, which allows their client to track their receivables, place orders, and perform financial analysis from the ease of a computer or even a mobile phone. Another piece of technology Stoneco has developed is their online sales platform called Pagar.me. Any business with a website or mobile application can use Pagar.me to run payments online. Pagar.me connects with stone portal to provide a seamless connection between a physical location and an online shop.
The electronic payment and payment processing sector has come a long way since Western Union developed its electronic fund transfer in the 1870s. In the past 5-10 years we have seen developments and new technologies such as paypal, venmo, and the rise of online banking. The new innovations have made way for consumers to have a more seamless, stress free access to their money. Consumers are able to have better control of their finances therefore having a better grasp and control of their financial future. Before these innovations, consumers had to rely on a middle man to perform tasks that can now be done with a swipe of a finger, they are able to have data at their fingertips to make self-informed decisions.
Since the inception of Stoneco and companies like them in Brazil, there has been a yearly growth of about 12% in the amount of cashless transactions. In a country where cash transactions accounted for 85% of all transactions. Stoneco measures success through the number of new merchants signing up, which currently is about 63,000 new merchants per quarter. Thanks to this, their high profits margin and low operating costs, their profits are going through the roof making them one the most successful startups in Brazil. As a result of their success, their competitors have made attempts to compete with Stoneco. In 2019, Itau Unibanco Holding S.A’s payment processing unit cut interest rates for small and medium size businesses. This caused a 22% immediate drop in stock price and it is estimated that it had a 32% net profit impact on Stoneco. After Itau cut its rates, Stoneco’s business model became the industry standard leveling the playing field in financial processing.
Some recommendations that I would say could expand Stoneco would be if they offered consumers micro-loans. If they merged their technology with that of a company such as Affirm, which allows consumers to purchase items now and pay back later in small amounts at a time. This would allow for business owners to increase their sales while Stoneco can charge an added fee to business owners for signing up for this program and a small minimal finance charge to customers. In countries, where most consumers are low-income, this can be a way to promote purchases without breaking the bank. This in itself can become problematic if too much is borrowed, therefore making it more difficult for the loan to be paid back. The solution to this is just like Affirm, consumer’s financial background can be quickly investigated in a matter of minutes and setting a limit on the purchase depending on their ability to pay back that loan. This would require the addition of lending technologies, data management such as credit scores, and lending.