Brazil & Southern Cone - August 2024

When David Vélez founded neobank Nubank in Brazil just over a decade ago, he was ridiculed for trying to break into a banking sector dominated by a handful of juggernauts, the oldest of which has been around for over 200 years. He repeatedly heard singer Tom Jobim’s emblematic phrase “Brazil is not for beginners” – particularly true for a foreigner trying to navigate the country’s labyrinth of bureaucracy and taxes. Yet today Nubank has surpassed all its competitors to become Brazil’s largest bank by market worth, propelling Colombian-born Vélez to join the top 10 wealthiest people in Latin America.

Even on a global scale the São Paulo-based fintech boasts superlatives. With 100m clients (including those in Colombia and Mexico, where it began operating in 2020), it is the biggest digital-only bank in the world. It went public in 2021 with an IPO valuation of US$41.5bn, and not for the first time in May overtook regional giant Itaú Unibanco as the most valuable financial institution in Latin America as strong Q1 earnings fuelled a rally, pushing its market value to US$58.2bn, just ahead of Itaú’s US$56bn.

Key to success

When Vélez disembarked on Avenida Faria Lima, São Paulo’s banking district, the Stanford-trained entrepreneur was struck by the high cost, red tape, and poor service banks offered as he opened an account for himself. So, he decided to circumvent much of that by betting on an all-digital bank that offered fee-free services, a revolutionary concept at the time.

At the start he offered only credit cards because of the constitutional hurdle that bans foreigners from opening a bank in Brazil. The prospect of a free card with all relevant services, from payments to claims, available on a phone caught on quickly. By contrast the big banks often would charge not only annual fees but hidden extras that added up. According to one estimate, fees accounted for up to 40% of bank revenues as late as 2019.

Big names have dominated Brazil’s banking sector for decades: the two colossal state-owned banks, Banco do Brasil and Caixa Econômica Federal, alongside three private sector banks – Itaú Unibanco, Bradesco, and Santander.

Nubank still trails its rivals in terms of assets and profitability, but judging by its rising share price investors think it is well on its way to challenge them on that front too. Some of its top investors include the likes of Warren Buffett, JP Morgan, and Blackrock.

Already brick-and-mortar financials are responding to pressure from digital banks like Nubank by pushing for more efficiency and lower costs. Itaú, the country’s largest bank by assets, has been overhauling its operations but “we need to further adjust to remain competitive, mainly in relation to digital banks, which are gaining market share in Brazil,” Alfredo Setubal, the bank’s CEO, told reporters earlier this year.

One of Vélez’s next big objectives is to help tackle the region’s gross socio-economic inequalities. In 2023 he sold shares worth nearly US$200m to finance education and leadership initiatives and has pledged to donate the majority of his wealth in life to charity.