As Brazilian fintech Nubank readies itself for one of the largest IPOs of 2021, the implications of the technology on Latin America’s unbanked communities can’t be overstated. Data suggests that for the 16.3 million Brazilian citizens who don’t have a bank account, and the further 17.7 who haven’t used their bank accounts in over a month, access to digital financial services could represent a lifeline. 

Beyond Brazil, a lack of financial infrastructure impacts the daily lives of countless populations across Latin America. While access to bank accounts can be restricted through stringent identity checks and red tape across traditional banking institutions, Nubank’s technology simply requires users to have a form of ID and a smartphone. 

(Image: Medium)

As the chart above shows, 65% of Latin America remains unbanked today. However, Nubank’s upcoming IPO is set to raise funds to deliver tangible growth across the region - helping to pave the way for the delivery of digital financial services in a way that the company’s more traditional institutional counterparts would struggle to compete with. 

Founded in 2013, Nubank has amassed an astonishing 48.1 million customers in the space of eight years. With some 47 million retail customers opting to use the service and a further 1.1 million small and medium-sized businesses choosing to be Nubank customers, fintech has undergone some significant growth. 

“If you think back a little bit to the history of the company, the founders wanted to build a bank without any of the restrictions imposed by traditional banks,” explained Maxim Manturov, head of investment research at Freedom Finance Europe. “The big banks, which occupy more than half of the market, started setting high-interest rates, which was beneficial for the banks themselves, but not for the development of the market.”

“Nubank became successful because of its customer focus, which allowed it to attract customers who had not previously used banking services. The bank's main objective in founding it was to offer services to as many people as possible, as there is a huge wealth gap in Latin America. The company is also continuing its development, offering new products to customers and investing in its technology and development.”

Building a Platform for Remittances

The necessity of the digital banking infrastructure that Nubank is looking to create across Latin America can’t be underestimated. 

Using digital banking technology to send money across borders can help to cut the cost of remittances being sent from overseas, corresponding to around 1.5% of GDP in Latin America and the Caribbean and as much as 15% of GDP in remittances in Central American nations like El Salvador, Haiti, Honduras and Jamaica. 

Although there’s a relatively high share of global remittances across Latin America, the use of mobile banking to send and receive remittances is still low, with high-cost traditional banks and money transfer operators still leading the market. Traditional banks typically charge around 6% to send remittance payments, compared to the 3% that’s paid by mobile remittance users in sub-Saharan Africa, for instance. 

However, this is likely to be good news for Nubank. Following a period of exponential growth, the company is set to seek out a valuation of over $50 billion when the company debuts on the New York Stock Exchange in the coming days. Although such lofty valuations could be a source of concern for investors, the signs appear to suggest that there’s a wider market to be tapped across the region which is likely to deliver further growth for the company. 

Exploring Nubank’s IPO

According to Nubank’s regulatory filing with the US Securities and Exchange Commission, the Brazilian fintech company is looking to raise over $3 billion from stock market investors in a move that would make the company’s IPO the third-largest US listing in 2021. 

The target share price range of $10 to $11 would give Nubank a market capitalization of between $46 billion and $50.6 billion - making the challenger bank larger than Brazil’s biggest traditional lender, Itaú Unibanco.

Significantly, Nubank can include Wall Street stalwart Warren Buffett as one of the company’s esteemed backers. Buffett’s firm, Berkshire Hathaway, recently invested some $500m in a funding round to give Nubank a valuation of $30 billion. 

Notably, the company’s SEC filing showed that Nubank’s revenues doubled to $1.06 billion across the first nine months of 2021, though the company’s net losses expanded to $99.1 million over the same period - representing a significant rise on the $64.4 million from a year before. Nubank also confirmed that the company had turned a profit over the first half of 2021 in Brazil. 

With a $50 billion valuation on the line, Nubank’s floatation will be a big moment for the fintech landscape when the IPO lands over the coming days - but the wider implications for a region that’s found itself deprived of sufficient banking services could be far greater than the loftiest of market caps. Nubank may debut as a blockbuster company to drive financial inclusivity across Latin America.