The past decade has seen to major leaps made in financial services in the emerging markets – largely thanks to mobile penetration. Be it M-Pesa in Africa, or more recently Tencent and Alibaba in China, the transformation on the ground depended after usage of mobile phones became mainstream. However, there is one part of the world, that is stealthily moving towards one such leap frog moments – Latin America.
Latin America has the third highest penetration of smart phones globally, after North America and Europe. In 2017, smart phone penetration in Latin America was 61% and about 50% of smartphone users accessed the internet through their mobile phones. Smartphone penetration in the region is expected to grow to 76% by 2025.
A platform for growth is well set and the impact when growth occurs is going to be big too. That is because, 70% of the population in the region is unbanked. This is due to the processes involved in opening a bank account. The documentation required to open a bank account involves, proof of citizenship, employment and financials.
Nubank was the first Neobank of Latin America, and they are fast expanding within Brazil and Mexico. Both these markets are pretty large and hot for mobile based financial services. As per a PwC Fintech report, in 2018, there were 224 Fintech startups in Brazil, 94% of them based out of the southern part of the country.
Nubank is hailed as the “Most Valuable Startup” of Latin America. There was recent press about them doing a $1 Billion fund raise from investors like Softbank group, at a massive $10 Billion valuation. The round is not closed yet, however, I wouldn’t be surprised if it goes through, due to the traction Nubank have achieved in a massive market. They have 8.5 Million customers already and are the largest digital bank outside of Asia.
With a huge base in Sao Paolo that has a 21 Million population, Nubank has captured the urban mobile-first customer base with an average age of 32 years. While the Nubank app provides basic banking services out of the box, the Fintech ecosystem in Brazil could allow for better opportunities.
Several Fintech players offering loans, wealth management services, mortgages and insurance can plug their apps onto Nubank’s platform. The API based integration could trigger a bundling up of financial services to form a Fintech Super-App.
One of the closest competitor to Nubank is a food delivery business – iFood. Brazilians are getting on lifestyle apps before they embrace fintech services provided by these lifestyle apps. It is interesting to see that in LATAM, a proper Fintech app (Nubank) has taken the lead, followed by lifestyle businesses (iFood). Whereas, elsewhere in China, lifestyle businesses started offering Financial services.
Brazil has certainly got ahead with Neobanking. But the other LATAM economies are catching up too. Albo in Mexico offers a digital banking experience, and provides a Mastercard that customers can use across the world – free of charge. Uala in Argentina is yet another Neobank app, that managed to acquire close to 500,000 customers in its first year.
With investors like Softbank and several Silicon Valley bigwigs getting into the act, LATAM could soon be the global hub of Neobanking. A case study where we see Neobanks leading a mass financial inclusion drive is waiting to happen. Definitely a space to watch.
Arunkumar Krishnakumar is a Venture Capital investor at Green Shores Capital focusing on Inclusion and a podcast host.
I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.
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