NUBANK: THE
CAPITEC OF BRAZIL?

A NEW KIND OF BANK

Traditional banks are often seen as slow and burdened by high fees, interest rates, poor customer experience and complex services. Certain banks are also viewed as serving only a subset of the population.

In contrast, Nubank has been founded on a technology-driven, branchless banking model that uses mobile platforms and data analytics to offer tailored financial products. The bank’s digital-first approach enables it to bypass the traditional cost structures associated with physical branches, thereby reducing operating expenses and enhancing scalability.

This operational efficiency, coupled with a customer-centric design, has resonated with a growing segment of tech-savvy consumers seeking convenience, transparency and lower fees in their banking interactions. The bank’s product portfolio spans digital payment solutions, personal loans and credit card services designed specifically to address the needs of an underserved and traditionally marginalised market in Latin America.

COMPELLING INVESTMENT OPPORTUNITY

There are several reasons why Nubank stands out as a long-term investment opportunity:

• Sizable untapped market: Offering accessible and affordable banking solutions to currently underserved segments of the population presents a significant growth opportunity as more people gain access to digital banking. Nubank services 114 million customers in three countries: Brazil, Mexico and Colombia. While Brazil remains its main market, the business continues to expand into Mexico and Colombia – there is a possibility of Nubank reaching 150 million customers over the next five years.
• Digital efficiency: The use of cutting-edge technology and data-driven tools not only enhances the customer experience but also helps the bank manage risks more effectively. With a focus on automation and intelligent analytics, the company can offer personalised services while keeping costs low – a combination that bodes well for long-term financial stability.
• Scalability: Nubank’s digital-first platform allows it to expand rapidly without the heavy investments typically required for physical infrastructure. This scalability is a critical factor for investors, as it suggests that the company can grow its customer base and increase its revenues significantly over time.
• Products: The business’s original focus was on providing better access to credit for the underbanked. Another potential revenue stream is non-interest revenue, which is how banks make money through scale by cross-selling other value-added services. This is a new focus for the company as it begins to monetise its vast network of customers through its Money platform, which houses a Marketplace (shopping platform), Nu Travel (travel planning and multi-currency card) and NuCel (partnership with mobile operator Claro).

LESSONS FROM CAPITEC

The early success of Capitec in South Africa offers a useful comparative framework for evaluating Nubank. Capitec emerged in the early 2000s with a clear mission: to simplify banking by offering transparent, low-cost financial services. At a time when traditional banks were imposing complex fee structures and cumbersome processes, Capitec’s streamlined approach enabled it to democratise access to financial services and rapidly gain market share.

Capitec and Nubank share strategic similarities. Each institution has identified and exploited gaps in the traditional banking model. They have simplified product offerings and fee structures – by leveraging technology, Nubank has eliminated the need for physical branches. This parallel is indicative of a broader trend where disruptive digital models are increasingly replacing conventional banking practices, especially in markets characterised by high customer price-sensitivity and a demand for transparency.

Both banks focus on financial inclusion. Capitec’s early strategy targeted previously neglected segments of the population in South Africa, while Nubank is similarly focused on reaching Latin America’s vast underbanked demographic. This focus on inclusion not only broadens the customer base but also aligns with socio-economic development goals, which can be particularly appealing to investors looking to support sustainable and inclusive growth.

POTENTIAL RISKS

No investment comes without risks, which for Nubank include:

• Regulatory changes: The regulatory environment in Latin America is evolving, especially for fintech businesses, and can be unpredictable. Changes in government policies or stricter oversight impact how Nubank operates and its ability to grow.
• Increased competition: The digital banking space is rapidly evolving, with both traditional banks and other fintech startups striving to capture market share. This intensifying competition could pose challenges to Nubank’s rapid expansion plans – although it does have the first-mover advantage as well as brand value.
• Economic instability: Emerging markets often face economic fluctuations and political risks that can affect consumer behaviour, currency fluctuations and overall market conditions.

Nubank’s agile business model and commitment to digital innovation offer a buffer against these risks. The company has a long-term time horizon, which will help to keep the focus on the potential future story rather than the distraction of short-term developments. In South Africa, Capitec has also seen its fair share of volatility, but reflecting on the past 15 years, it has proven to be a great success story, delivering exceptional shareholder value.

SUSTAINED GROWTH

The lessons from the Capitec investment case reaffirm that truly disruptive businesses – in terms of innovation, operational efficiency and a redefined customer proposition – can command premium valuations and achieve sustained growth beyond conventional expectations.

In the case of Nubank, it is more than just a digital bank – it is a pioneering force in the evolution of financial services in Latin America. Its modern, mobile-first approach, combined with a commitment to financial inclusion, has enabled it to build a strong foundation in a market ripe with opportunity. Investing in Nubank means taking a long-term view on a future where banking is more accessible, transparent and efficient – an evolution that promises to benefit both customers and shareholders.