Brazil is one of the world’s fastest growing mobile markets, with 90 million smartphones in circulation among a population of about 200 million, and today a fin-tech company that has focused on catering to that growing group of users has raised a significant round of funding.
Nubank, which has developed a platinum Master Card credit service that you apply for and manage using only your mobile phone, has picked up $30 million. The Series B round was led by new investor Tiger Global Management, with existing backers Sequoia Capital, Kaszek Ventures and QED Investors also participating. The company is not disclosing its valuation in this round.
Since launching its service in September last year, at the same time that the company also announced its $14.3 million Series A round, Nubank has picked up more than 200,000 applications from interested users, with 100,000 of them still on its wait list. Those using cards have made more than 750,000 purchases so far. (The company has now raised $46.3 million to date.)
Founder and CEO David Vélez — who himself used to work for Sequoia helping it scout opportunities to invest in Latin America — says that growth has been completely by word of mouth and by intentionally creating a waitlist while it continues to optimise its algorithms. Part of the funding will be used to speed up that process as well as start to extend into a wider base of users beyond the relatively restricted pool of well-off millennials that it has picked up so far as its earliest users.
Nubank has been working to fill a fairly specific hole in the market in Brazil, capitalizing on some of the inefficiencies of traditional financial services providers as well as innovations in technology.
Typically in Brazil, to get a credit card, a customer has to physically go to a bank to apply for it, and then she or he receives statements through the mail and has to go through lengthy phone-based processes when querying charges or making changes to their services. Banks, in turn, charge users fees for things like going over your agreed limit, and charge interest rates of between 10 percent and 12 percent per month for unpaid totals.
Nubank, being a mobile-only operation with none of the same overheads as a bank, charges no fees and has a lower interest rate, 7.75 percent. Vélez says that in fact that rate could end up going even lower over time as the company gets more efficient and takes on more users. Nubank makes its fee from the interchange for each transaction, which is close to 2 percent. “We are so efficient that this is enough for us,” he says.
The other area where Nubank has been particularly strong has been in developing a database and system for how it approves customers. Banks usually use around 10 variables when assessing a customer, while Nubank taps into between 2,000 and 3,000, Vélez says.
This is important for a few reasons. The first is that it shows the power of how much more data can be crunched in the digital only platform adoped by Nubank; the second is that it makes for a more accurate picture of the would-be customer; and the third is that it lays the groundwork for what Nubank might try to tackle for future products.
“We are eager to continue supporting the Nubank team in building a Brazilian leader in a big market,” said Doug Leone, partner, Sequoia, in a statement. “The potential for companies that are truly customer-centric and also compete with better data and technology is just massive, especially in industries that have seen little real innovation in decades such as banking.”
While Nubank will be expanding to covering more customers and in more places with its MasterCard platinum card service, Vélez also says that this is just the beginning for what the company hopes to bring to Brazil and other countries on the continent.
“We see an opportunity to provide great customer experience and lower fees across all financial products,” he says.”We are looking at more savings and credit products.” He adds that Brazil is not just a big smartphone market but one full of people who are engaged and looking for more ways of using their phones. “They want to shut down their bank accounts and bring all their banking needs to Nubank,” Vélez says.
While countries like the U.S. are full of competing services that are all bringing varying degrees of tech innovation to the table, the same does not apply to Brazil. “There is a fear about entering the financial services market in a country like Brazil, which has a lot of complicated regulations,” Vélez says. That presents an opportunity for Nubank to come in and make a mark.
Along with the funding, Nigel Morris, managing partner at QED Investors and co-founder of Capital One, and Gene Lockhart, former global CEO of MasterCard, have both joined Nubank’s board of directors. “Brazil is a vibrant financial services market full with opportunities,” said Morris in a statement. “The large young population that is increasingly using digital channels to solve all of their day-to-day needs opens a big opportunity for innovative companies such as Nubank to lead the nascent wave of the Latin American digital finance space. We are excited to work with the Nubank team to build the future of this industry in the region.”