Brazilian fintech Nubank aims for the country's unbanked

One of Brazil's fastest-growing tech startups challenges the local financial services industry with a mobile-centric account that can be opened in minutes.
Written by Angelica Mari, Contributing Writer

Nubank founder David Vélez unveils the company's digital bank account. Credit: Nubank

São Paulo-based fintech Nubank has announced its plans to cater for Brazil's unbanked population with a digital bank account.

Approximately 60 million people in Brazil do not have a bank account due to excessive fees and bureaucracy, said Nubank chief executive David Vélez, who started the company three years ago as a credit card provider.

The new product, dubbed NuConta, is now being tested with a limited number of users and will then be rolled out to the company's existing base of 2,5 million credit card customers. The aim is to make the digital account available to anyone from the first quarter of 2018.

"We launched our credit card product as a response to the fact that the interest rates in Brazil are among the highest in the world and the level of service [of traditional banks] is also among the worst in the world," Nubank chief executive David Vélez told delegates at the launch event yesterday (24).

"We were certain that we could address those issues with a combination of technology, data science and human customer service into digital products - and NuConta is the evolution of that vision," he added.

Under the account, which has a roadmap for added functionality planned for the coming months, customers will be able to make payments and transfers between Nubank accounts at no cost.

Just as its credit card, Nubank's current account management is mobile-centric - according to Vélez, this was essential as Brazil has the largest mobile internet market and smartphone penetration in Latin America.

Some 13 million consumers applied for a Nubank credit card since its launch and the company has managed to cater for 2,5 million people so far. However, the bank account will be offered to anyone since it will not require credit checks beforehand.

"A revolution only makes sense if everyone can be a part of it and a true revolution in financial services starts today with any Brazilian being able to get access to a bank account," says Vélez.

Any amount deposited in the NuConta bank account will earn interest as monies will be immediately tied to government securities without the need for customers to acquire additional investment products. This, according to the bank, is a way to monetize the product since clients will not pay fees to maintain their accounts.

Initially, NuConta will not offer a debit card or cash withdrawals, but Vélez does not rule out the introduction of these features if customers ask for it.

"We think that money will be increasingly digital and soon people won't need to carry hard cash at all," Vélez said, adding that the same goes for checks.

Maintaining a physical branch is costly, Vélez points out, and these expenses are passed on to customers, who in turn are unable to afford monthly fees of 25 reais ($7,60) on average.

"It is too expensive for banks to cater for these [unbanked] customers," Vélez said, adding that the Nubank credit card has so far generated 1,5 billion reais ($461 million) in savings related to banking fees.

The company did not disclose its projections of how much it might generate in fee-related savings with the current account, but expects it will be a much bigger figure given that customers will be exempt of monthly fees and charges for other services like money transfers.

Founded in 2013, Nubank is one of the best-funded Brazilian tech startups. Its latest Series D funding round in December 2016 had backers DST Global, Sequoia Capital, Founders Fund, Tiger Global Management investing a total of $80 million in the company.

Nubank's own account is not in the red but so far the company isn't generating profit to its backers - and, according to Vélez, they are fine with it.

"In a fast-growing company like Nubank, you either generate returns to investors or you reinvest profits in growing the operation,"the executive said.

"We went for the latter approach, it was a conscious decision we made and we are fully supported in it by our investors," the concludes.

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