Brazil’s Nubank plans consolidation in Latin America’s booming fintech sector

Latin America’s largest digital lender Nubank plans to take advantage of an impending upheaval in the region’s booming financial technology sector by providing affordable acquisitions, according to the CEO.

The group headquartered in São Paulo, which has attracted billions of dollars from foreign investors and given millions of poor citizens their first bank account, is looking at opportunities despite its own share price plummeting during a sale in the technology sector. Shares have fallen by two-thirds this year, bringing the market value to around $ 15 billion.

However, as rising interest rates and tighter credit limit the flow of venture capital globally, there are warnings that some of the region’s start-ups may struggle to create attractive targets.

“There is going to be a rationalization of some of the fintechs that are in the market, there is likely to be some consolidation,” Nubank CEO and founder David Vélez told the Financial Times. “This will enable the survival of the fittest.”

The Colombian pointed to the proliferation of “about 40 different digital banks” in Brazil, Nubank’s home country and Latin America’s largest economy. “It was probably too much. Consumers do not want 20 different payment apps in their smartphones. It’s just too complex. You may have three or four, not 20.”

Vélez predicted “a number of acquisitions” in the sector. «Some of the M&A [mergers and acquisitions] Calls we had 12 months ago are coming back with a 70 percent discount. . . We will look to do more M&A. “

Nubank has been at the forefront of a fintech explosion in Latin America. A listing in New York in December last year valued the group at over $ 40 billion, which in short made it the most valuable financial institution on the continent.

The app-based provider of credit cards, checking accounts and loans was founded in 2013 and has almost 60 million customers today.

Unlike some of its digital counterparts, Nubank started with credit instead of payments. It has since built a significant pool of retail deposits in Brazil, where the market is very profitable and highly concentrated among greats such as Itaú Unibanco, Bradesco and Santander.

Vélez believes that this broader focus will benefit Nubank in the midst of market turmoil and setbacks from sitting banks. VC investments in Latin American fintech amounted to $ 1.2 billion in the first quarter of 2022, according to industry association Lavca, 27 percent lower than in the fourth quarter of 2021.

“The funding environment is definitely going to be a little bit more difficult than what you’ve seen in recent years,” Vélez said. But he insisted he was not worried.

Earlier, he said, American investors had asked him: “You have grown very well in the good times, what is going to happen in the bad times?”

“It’s the wrong question to ask,” said the entrepreneur. Referring to the country’s frequent battles with inflation and recession, he added: “Brazil has always had bad times.”

Vélez also rejected proposals from Brazil’s large established banks that digital newcomers had benefited from being more easily regulated. “Regulation is asymmetric – in favor of [established] banks, he said. “It took us four years to get one [financial institution] permission. We had to get a presidential decree. “

Nubank, which is also present in Mexico and Colombia, has already acquired several start-ups over the past few years, and has expanded to offer insurance, investments and, last month, cryptocurrency trading.

Vélez said that Nubank was “very close to break-even in Brazil”. He said the group could be “completely profitable tomorrow”, but put growth first. The group was in a strong financial position after raising around $ 2.8 billion in the IPO, and credit losses were lower than the market average, he added.

In addition, the CEO said that his company could profit from higher interest rates since it does not provide returns on deposits from small and medium-sized corporate customers and has a large and profitable credit card business.