The Emergence of Nubank

Nubank is a Brazilian financial technology bank with a highly digital orientated business model, currently operating in Brazil, Mexico, and Colombia. Founded in 2013, it took just four years to reach a 1 billion USD valuation, becoming a unicorn start-up, and most recently in June 2021, it was valued at 30 billion USD in its latest funding round, an increase from 25 billion USD in January 2021 and 10 billion USD in 2019. Additionally, it has received investment from a variety of reputable investment funds and companies, including Chinese firm Tencent, Singapore’s sovereign wealth fund GIC and a recent 500 million USD investment in June from Berkshire Hathaway. They are planning to continue their expansion throughout Latin America and raise funding through an initial public offering on the New York Stock Exchange, which will value the firm at over 50 billion USD.

Nubank offers a variety of financial services to consumers, including insurance, savings accounts, and zero-fee credit cards. They operate as a retail bank, which could perhaps be likened to Revolut, which operates in the UK as an online bank and has a similar recent valuation of around 35 billion USD. The company has helped to provide financial services to those living in Latin America, in which only a small proportion of the population has a bank account compared to in more developed economies. Nubank has granted over 7 million people their first bank account or credit card. According to the World Bank, in 2020 around 58% of Brazilians had a bank account, compared to 90% in both the UK and the USA. This has contributed to their number of customers increasing at a tremendous pace, surpassing 48 million users overall at the end of September 2021, an increase of around 15 million since December 2020. Additionally, the company has built up a 5.4% share of Brazil’s retail credit card market, according to XP.

Despite the firm experiencing this rapid rate of growth, they had not been able to turn a profit until the first half of 2021, and that was only for their operations in Brazil, with the profit totalling 13.6 million USD. However, according to the bank, their revenue rose 79% throughout 2020 to 869 million USD, with their net loss falling 26% to 42 million USD. Furthermore, the bank states that they have decided to keep losing money to continue reinvesting into their teams, services and products to maintain the growth of their consumer base. This decision does appear to be working, with a 49% rise in the value of credit card transactions on their platform in 2020 compared to the previous year as well as customer deposits increasing by 2.6 times in the same period. This was an approach also taken by Amazon, with the company not making a profit until 9 years after it was founded and 7 years after it went public.

Similarly to Nubank, a fintech start-up called Ualá based in Argentina has been offering financial services to consumers online, such as bill payments and money transfers, and has received investment from Tencent as well as Softbank. This firm has experienced a similar rise recently to that of Nubank, quintupling bill payment volumes and sextupling the amount of money transferred into its accounts throughout Argentina during 2020, reaching a valuation of around 900 million USD. Again, similarly to Nubank, Ualá is expanding its operations throughout Latin America, starting to provide services in Mexico in 2020, and reaching 100,000 customers there is a third of the time it took in Argentina. This highlights how competitive the retail banking sector is throughout Latin America, with new fintech start-ups seeking to provide access to financial services, which have either low or no fees, to millions of people who are currently not able to access them or are customers of the more expensive and established banks.

With revenue already standing at 1.1 billion USD for the first 9 months of 2021, a year-on-year increase of 98.7% compared to the same period last year, it is clear that Nubank and the industry as a whole are heading in the right direction. Moreover, with millions of more potential customers throughout Latin America, in countries such as Peru and Chile, they could become a dominant company throughout the region. However, they will likely face great competition in these financial services from the more established Brazilian banks, in particular Itaú Unibanco, the largest financial institution in both Brazil and Latin America, who currently have a market capitalization of over 200 billion USD. They, alongside others such as Banco Bradesco, will likely try to stop losing any more market share in the retail banking sector to new fintech start-ups, which could impede their progress.

By Kristian Eklund

Sector Head: Gregor MacDonald

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