Brazilian digital lender Nubank gears up for one of the biggest IPOs of 2021

When David Vélez tried to open an account at a Brazilian bank in 2012, it took him four months to get approval, which is not unusual in a country where high fees and bureaucracy are the norm in the banking sector. During his visit to the bank, he left his cell phone in a locker before going through bulletproof doors as armed guards scrutinized him.

“You go through all this experience and then pay interest rates of 15% per month and pay hundreds of fees,” he told a CB Insights conference in New York in 2018. “How is- it possible that you do that? ? “

The experience gave birth to an idea: there was room in Brazil, a country where five banks control almost the entire market, for a new type of bank. Nubank, the digital banking startup that the Colombian-born investor-turned-entrepreneur co-founded, is expected to start trading this week on the New York Stock Exchange in one of the biggest initial public offerings of the year.

Since its inception in 2013 offering credit card services, Nubank has grown to serve 48 million customers, up from six million in 2018. Total revenue has exceeded $ 1 billion, nearly double the $ 535 million from last year. Nubank had lost money until the first half of this year when it turned a profit.

The offer would be the fifth IPO of the year in the United States based on the amount raised, according to Nicholas Einhorn, vice president of research at Renaissance Capital. If its prices are in the high end, Nubank would raise around $ 2.6 billion and be valued at $ 41.5 billion, overtaking Brazil’s largest traditional bank, Itaú Unibanco. HER


David Vélez founded Nubank in 2013 after a stint at Sequoia Capital.


Amanda Perobelli / Reuters

This even after Nu Holdings Ltd., the parent company, lowered its predicted price range from $ 10 to $ 11 per share to $ 8 to $ 9, reducing nearly $ 10 billion valuation in a modified filing on the 30th. November with the Securities and Exchange Commission. Trading under the symbol NU, the company offers 289.2 million shares. Investors participating in the offering include SoftBank Group Corp. and Tiger Global Management LLC. The underwriters are Morgan Stanley, Goldman Sachs Group Inc. and Citigroup Inc.

Nubank, whose investors include Berkshire Hathaway Inc.

, said in his prospectus that he plans to use the product to fuel his growth in Brazil, Colombia and Mexico, where he launched in 2020. And he is considering other sectors he can disrupt , including healthcare and telecommunications, according to the prospectus.

The demand for alternatives in the banking sector was suppressed when Mr. V̩lez arrived in Brazil. At the same time, the use of smartphones was booming. Young Brazilians are increasingly attracted to online services. And there was Рand still is Рa significant underbanked population.

Tackling traditional banking is a challenge. As of December 2018, Brazil’s top five banks accounted for 84% of deposits, according to the country’s central bank, and the sector had one of the highest net interest margins in the world. Out of 582 listed companies in Latin America in the first half of 2020, the three most profitable were Brazilian banks, according to Brazilian consultancy firm Economatica.

In a country with a history of hyperinflation and economic turmoil, Brazilian banks had reason to be conservative. But Mr Vélez, who declined to speak to the Wall Street Journal before the IPO but spoke to the newspaper in the recent past, said the warning was out of date.

The 40-year-old Colombian, whose family moved from Medellín to Costa Rica during the reign of cocaine baron Pablo Escobar, was an unlikely disruptor. He studied engineering at Stanford University and was hired by Sequoia Capital to find investments in Brazil, before moving there in 2012.

After Sequoia quickly disconnected the Brazilian operation, Mr. Vélez chose to stay and found his own startup, even though he had never created a tech company. He teamed up with Cristina Junqueira, a Brazilian who had been an executive at Itaú Unibanco, and Edward Wible, an American computer scientist.

Cristina Junqueira co-founded Nubank with David Vélez, left, and American computer scientist Edward Wible.


Rodrigo Capote / Bloomberg News

Nubank’s initial product was an eye-catching purple credit card. It then expanded to add a savings account, investment platform, loans, and insurance. Last year, it acquired an investment platform, Easynvest.

During the pandemic, the company braced for a bank run. With a digital bank, it would be just a click away.

“The exact opposite has happened,” Vélez told the newspaper in May. “From April, we started to see an avalanche of deposits from the big banks towards Nubank.”

Yet Covid-19 weighs heavily in Brazil, a country that has recorded more than 600,000 deaths from the pandemic, just behind the United States. “The pandemic is definitely a concern because ultimately we need healthy customers, we need healthy countries, ”says Vélez.

The company faces other challenges, including increased competition from digital startups that also performed well during the pandemic, a phenomenon caused by Brazilians who had to open accounts to get government help.

Among those experiencing rapid growth are C6 Bank, in which JPMorgan Chase has a significant stake, and Banco Inter SA, which is backed by SoftBank. Mercado Pago, the payments arm of e-commerce giant MercadoLibre Inc., increasingly offers a range of financial services. XP Brokerage Company Inc.,

which helped spark a boom in retail investment in the country’s stock market and staged an IPO on the Nasdaq in 2019, extends beyond investment services.

And the big banks are not only dominating the credit space, but are rolling out their own digital products.

“Nubank will have to face a more difficult environment in the years to come than so far,” said Lauro Gonzalez, professor of finance at the Getúlio Vargas Foundation, a research university in São Paulo. Nonetheless, he believes the company will grow as it supplies products to the large underbanked sector, even though the average annual economic growth of the Brazilian economy over the full seven years since Nubank’s inception has been minus 0, 8%.

Traditional banks want these customers too, but Gonzalez said they are less prepared than digital banks.

“They are very, very slow to embrace new business models and new business products,” he said, “especially products that meet the needs of underserved and excluded people.”

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