Not many people in the US are familiar with Nubank, a digital bank that has become the most valuable startup in Latin America by extending credit cards to the unbanked and challenging the financial system of one of the world’s biggest markets, Brazil.
But Nubank is trying to become one of the most valuable financial technology startups in the world — aiming for a valuation of between $8 billion and $10 billion as it prepares to expand beyond Brazil to all of Latin America, Recode has learned.
One possible suitor: The company has been in talks to secure a round of financing led by a new Latin American fund controlled by SoftBank Group, the conglomerate that has transformed the world of Silicon Valley investing in recent years. Nubank could collect as much as $1 billion from investors, which might include multiple SoftBank entities. The deal is not final for now, and there’s always a chance it could fall apart or its terms could change.
The company is also considering a second offer not from SoftBank, according to a person familiar with the matter.
“We are always assessing opportunities for new fundings,” a Nubank spokesperson said, declining to comment on specific figures. SoftBank declined to comment.
If the deal does go through, Nubank will become the second-highest-valued fintech startup in the world, trailing only the payments provider Stripe, which was most recently valued at north of $20 billion. That sort of valuation speaks to just how much Brazil’s startup ecosystem has grown, and how rapacious tech investors with loads of money to spend must now head to emerging markets to find undervalued startups where they can park their cash.
Global investors are increasingly flocking to South America, which some investing experts say saw a turning point in 2018 despite the political instability in countries like Venezuela. The continent saw more venture capital money in 2018 than in any other year prior.
Brazil is a particular opportunity: 55 million people there don’t have access to a bank, primarily in the country’s poorest households. Even Brazil’s own government has criticized the country’s banks for gouging locals for “excessive” profits, with the country’s economic chief saying this week that insufficient competition had led to a “cartelized” economy. The top five banks in Brazil, led by Itaú Unibanco, control about 82 percent of assets that are banked.
With 8.5 million customers, Nubank is the largest online bank outside of Asia. The company has found a receptive audience in a country with some of the most expensive borrowing rates in the world, and where people seeking banking services are normally expected to proceed through ultra-secure doors to find horrible customer service in Latin America’s largest economy.
“I remember getting locked in those bulletproof doors a couple of times because I had my cell phone in my pocket and guards looking at me with guns,” Nubank’s founder, David Vélez, told one interviewer.
So Vélez founded Nubank in 2013 and began rolling out various products to customers — credit cards, debit cards, rewards programs — all without much of the bureaucracy and paperwork often found in poorer countries like Brazil. And although many Brazilians aren’t yet banked, they have reliable phone service in one of the world’s fastest-growing markets for mobile; plus, people can use Nubank’s no-fee credit cards with just their smartphone.
Critics of this potential deal would point to the price tag — a common lament for an investment led by SoftBank, which is widely known for its friendly valuations — and concerns that Brazil’s economy may not prove to be as promising a bet as once imagined.
Like other “fintech” startups in the United States, Nubank is exploring other financial services products, such as loans. But the reason this is a company to watch is because it is beginning to make moves toward aggressive international expansion, which could position the company as one of the most ascendant startups in the developing world. Other digital banks, like Paytm, have found similar success in developing countries like India.
Nubank announced last month that it was expanding to Mexico, where it plans to launch credit cards later this year. The company envisions serving millennial customers all across Latin America and possibly could represent a way for younger, internet-connected customers to avoid the bureaucracy found commonly in their home countries.
And that’s why it would make sense to draw in SoftBank, which — in addition to its massive $100 billion juggernaut — just launched a $5 billion vehicle to help Latin America’s most promising startups grow more quickly. Other backers of Nubank include the Chinese gaming giant Tencent, Sequoia Capital, and DST Global, the venture capital firm led by Russian-American billionaire Yuri Milner.
Recode and Vox have joined forces to uncover and explain how our digital world is changing — and changing us. Subscribe to Recode podcasts to hear Kara Swisher and Peter Kafka lead the tough conversations the technology industry needs today.