This FinTech pioneer, an early mover in Latin America’s largest market offering fee-free credit cards and digital payment accounts, has recently obtained clearance from Brazilian Central Bank to offer loans to its customers. With a total of $330 million raised since it was founded in 2013 by Sequoia Capital ex-partner David Vélez, Nubank is one of the best-funded start-ups in Brazil. In 2016 despite the political and economic problems in Brazil, Goldman Sachs invested in Nubank by providing them a loan of 200 million reais ($50 million) using a receivables securitization structure.

To date, [1] Nubank has issued 5 million credit cards and served over 8.5 million customers. Its business model rests on providing a streamlined, transparent service to customers wish to avoid the bureaucratic and heavily administrative practices of established banks. The neobank’s systems, mainly rooted online and in a mobile application, allow users to make transfers, pay bills and earn interest on deposits.

Nubank’s impressive expansion has opened the rally to an ever growing landscape in the Brazilian financial technology market, with 188 ventures being launched in the past eighteen months. This includes independent competitors in the neobank category such as Banco Original, SDBank, LabsBank, beBank etc. and initiatives launched by incumbents. An example is Digio, that was launched by Banco do Brasil and Bradesco in 2016 to compete directly with Nubank’s fee-free business model.

It is the inefficiencies that plague the Brazilian financial system that makes the case for neobanks, and FinTechs in general. According to research, 30% of the population does not have access to traditional banking services. This represents 50 million individuals and a potential market of roughly $170 billion that FinTech ventures and neobanks can tap into. [3] In addition, the portion of the population that does have access to traditional banking services, are most likely to be clients of one of Brazil’s top five banks, that hold 84% of total loans and are characteristically more expensive than their neobank counterparts. Not only that, but Brazilian incumbent banks have proven to be delivering a poor service, with over 10’000 complaints over financial institutions registered by the central bank in the first quarter of 2018 alone. [4] As a result of these events, the Brazilian Central Bank has put forward new regulations to encourage competition in the financial sector, notably: Resolution no. 4.656/2.018 which passed on the 26th of April of this year and opens the gates to the aforementioned, strongly consolidated, credit market by the creation of two, new, regulated, financial bodies that FinTechs and Neobanks can apply for.

On a wider scale, the implications that have been observed in the Brazilian market permeate across borders and speak for the whole continent. Indeed, according to the World Bank, 50% of the Latin American population remains unbanked. [5] Brazil’s neighbouring economies have concentrated banking systems with sluggish initiatives and slow developments towards innovation. The most stimulating factor in favour of FinTechs and neobanks is surely the changes and new regulations that these governments are putting in place to increase competition in their financial systems. A case in point is Mexico, second runner up in the Latin American FinTech league, that put in place a FinTech law in March of this year, covering cryptocurrencies, crowdfunding and open banking to stimulate financial stability and prevent money laundering across the nation.

With both an inherent structural need for disruption as well as positive regulatory developments in the favour of neobanks and FinTechs to enter the Brazilian and Latin American financial markets overall, the future is bright for these companies, amongst which Nubank has managed to attract major international attention and investment. Through its investment, Tencent increased Nubank’s capital by $90 million and repurchasing the equivalent amount from Nubank’s existing shareholders, pushing the neobank’s valuation up to $4 Billion. Just a few months earlier, in May 2018, Oscar Williams-Grut in RANKED: The 27 fintech unicorns from around the worldlisted Nubank as number №13 with a $1-$2billion valuation and 3million customers!

According to Reuters, Tencent President Martin Lau explained that the investment will help Nubank “build a full-service personal finance platform.” [6] The Chinese conglomerate is no stranger to these transactions, with major shareholdings in other FinTechs and Neobanks around the world such as Italian online bank WeBank, and Chinese online insurer ZhongAn Online P&C Insurance Co Lt.

According to CEO David Velez, the investment is for Nubank a great strategic standpoint to gain insight on- and learn from the Chinese financial market. For Tencent, this is a means of expansion of their existing portfolio of challenger banks and technology-based financial services ventures as well as a robust point of entry to the booming Brazilian FinTech Market.

In early May, Nubank publicly announced its expansion in Mexico and Argentina. These are massive markets. Stay tuned.