How Brazil’s Nubank has become a $ 30 billion fintech

With the support of legendary investor Warren Buffett, Newbank is growing, with more than 40 million customers and Brazil’s biggest pop star on its board.

After valuing 30 billion in a fund round earlier this year, the Latin American start-up applied to the United States on Wednesday for an initial public offering that could seal its place among the world’s most popular financial technology companies.

Founded in 2013, the Sao Paulo-based group began offering a zero-fee credit card powered by a mobile app before moving to a free digital account.

Its way of doing business has come as a welcome change in Brazil. The country’s bureaucratic banking industry has traditionally set high interest rates and charges for basic services and excluded a portion of the population. But in a technology sector where the line between vision and hype is often blurred, Newbank needs to convince stock market investors that it justifies the buzz.

After expanding to Mexico and Colombia, the company claims to be the largest independent digital bank outside of Asia in terms of customer numbers.

Nubank executives declined to be interviewed. But the goal of embracing big banks and promoting financial inclusion was recently captured by LinkedIn CEO David Velez, where he posted: “First they ignore you, then they laugh at you, then they fight you, then you Won “.

A successful float would be another achievement for the booming start-up scene in Brazil, which has more than a dozen “unicorns” – privately owned companies valued at over $ 1 billion – according to data provider CB Insights.

The number of shares sold and the price range of the proposed IPO have not yet been determined, Nubank said, adding that it wants to trade Brazilian depository receipts in Sao Paulo Borse.

Estimated valuation bar chart (n bn) shows top VC-supported Challenger banks

Nubank was born out of the frustration of Colombian co-founder Velez while trying to open a bank account in Brazil while an executive at Sequoia Capital. Silicon Valley Venture Capital Firm – known for betting on Google, PayPal and ByteDance – will provide seed investments.

Co-founder Cristina Junquira now oversees operations in Brazil and the third founder, Edward Weibel, works in a technology role.

Several former employees, who declined to be named, spoke of focusing on customer service, data science and innovation. Yet they also describe a culture of perfectionism that has sometimes slowed product launches.

Joelson Sampaio, a professor of finance at the Getulio Vargas Institute, said Nubank had the biggest impact on bringing more competition to Brazilian banking.

“Fee removal, ease of communication with technical platforms, with more accessible and less remote communication between banks and customers – all these benefits and innovative services,” he said.

Nubank by number

Nubank logo outside the group's headquarters in Sao Paulo

The group is headquartered in Sao Paulo

$ 30 billion

Evaluation following the latest funding round

40m +

Number of Nubank customers

Since launching its unique purple card for the first time, Nubank has sought to become a full-service financial institution. Today, it has entered into investment products through personal loans, savings and business accounts, providing insurance and acquisitions.

An approval comes in June when Buffett invested ্ক 500 million in Berkshire Hathaway. It has joined a list of big-name shareholders, including US investor Tiger Global Management, Chinese tech group Tencent and Singapore’s Sovereign Wealth Fund GIC, bringing Nubank’s total fundraising to about $ 2 billion.

The company has a 5.4 percent share of the Brazilian retail credit card market, according to analysis by brokerage XP based on data from the central bank. Its ambitions have been underscored by an internal goal of reaching 100m “religious” clients.

However, glitches have come along the way. Users have complained of disrupted service at several events in 2021, reports of the app being down and some people being temporarily unable to pay or transfer bills. Nubank did not answer questions about the incident.

The company has also attracted attention this year by hiring the unconventional board of 28-year-old popular singer Anita.

As users rocketed from 3m at the end of 2017, so did the turnover Revenue rose 79 percent last year to R $ 5bn ($ 896m), with net losses down a quarter to R $ 230m. Customer deposits increased 2.6 times to R $ 29bn.

Debt rating agency S&P has upgraded Newbank to BRAA in three steps – following its latest capital increase and highlighting its “resilience in the face of the effects of the Covid-19 epidemic”.

S&P analyst Guilherme Machado said: “Our base case in 2021 is that they will break down and we expect profitability to move slowly.” “They are much more mature [credit] Now the portfolio, which should be able to easily turn into a positive bottom-line result. “

That’s already out of the game. Nubank recorded a net profit of R $ 76m (13.6m) in Brazil in the first half of 2021.

But not everyone is happy. Last month, the company – which despite having a name does not have a full banking license – dragged itself into a social media row among its established lenders with Brazilian fintech and fees and those who offer cheap loan rates.

Yet if Nubank has upset five of Brazil’s most influential banks, it has probably forced them to accelerate reforms. Many have closed branches to reduce costs.

At the same time, a swarm of rivals is snapping up at Upstart Nubank’s Hill. These include the C6, a unicorn that has been 40 percent owned by JPMorgan since June and valued at just $ 5 billion, according to CB Insights.

“Nubank is a trendsetter today and every product it launches will be copied soon and may be somewhat improved by some competitors,” said Andre Diniz Bezio, a former employee who worked on business development. “The market will always catch up with Nubank. If it becomes too confident, it can be a trap. “

Additional report by Carolina Police

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