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

Latin America’s biggest digital lender Nubank is planning to take advantage of an impending shakeout in the region’s booming financial technology sector by scooping up acquisitions at bargain prices, according to its chief executive.

The São Paulo-headquartered group, which has attracted billions of dollars from foreign investors and given millions of poorer citizens their first bank account, is eyeing opportunities despite its own stock price plummeting during a sell-off in the tech sector. Its shares have slumped by two-thirds this year, taking its market capitalisation to about $15bn.

But as rising interest rates and tighter credit restrict flows of venture capital globally, there are warnings that some of the region’s start-ups may struggle, creating attractive targets.

“There’s going to be a rationalisation of some of the fintechs that are in the market, there will probably be some consolidation,” Nubank’s chief executive 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 homeland and Latin America’s largest economy. “It probably was too much. Consumers will not have 20 different payment apps in their smartphones. It’s just too complex. You might have three or four, not 20.”

Vélez predicted “a number of acquisitions” in the sector. “Some of the M&A [mergers and acquisitions] conversations we had 12 months ago are coming back at a 70 per cent discount . . . We’ll be looking to do more M&A.”

Nubank has been at the forefront of a fintech explosion in Latin America. An initial public offering in New York last December valued the group above $40bn, briefly making it the most valuable financial institution on the continent.

Founded in 2013, the app-based provider of credit cards, current accounts and loans has nearly 60mn customers today.

Unlike some of its digital peers, Nubank started out in credit rather than payments. It has since built a sizeable pool of retail deposits in Brazil, where the market is highly profitable and heavily concentrated among behemoths such as Itaú Unibanco, Bradesco and Santander.

Vélez believes this broader focus will stand Nubank in good stead amid the market turmoil and a fightback by incumbent banks. VC investments into Latin American fintech totalled $1.2bn in the first quarter of 2022, according to trade association Lavca, 27 per cent lower than in the fourth quarter of 2021.

“The funding environment is certainly going to be a bit harder than what you saw the past few years,” said Vélez. But he insisted he was not worried.

In the past, he said, US investors had asked him: “You’ve grown very well in the good times, what’s going to happen in the bad times?”

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

Vélez also rejected suggestions by Brazil’s big incumbent banks that digital upstarts had benefited from being more lightly regulated. “Regulation is asymmetric — in favour of the [established] banks,” he said. “It took us four years to get a [financial institution] licence. We had to get a presidential decree.”

Nubank, which is also present in Mexico and Colombia, has already bought several start-ups over the past couple of years, and has expanded into offering insurance, investments and, just last month, cryptocurrency trading.

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

In addition, the chief executive said his company stood to gain from higher interest rates since it does not pay a yield on the deposits of small and medium-sized enterprise customers and has a large and profitable credit card operation.

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