Nubank, the fast-growing Brazilian neo bank, has announced that it plans to invest more than US$150 million in the next eight years in Bogotá, Colombia, as part of a new technology hub focusing on data science and design. The Colombian division will be called Nu Colombia.
“Colombia is a country which combines a good mix of basic educational level, and lower costs, in comparison with other Latin American countries,” says Jeroen de Bel, founder of Fincog, a fintech strategy consulting firm based in Amsterdam. “I suspect that the fact that Nubank’s co-founder and CEO, David Vélez, is Colombian, also played a role in selecting Colombia for expansion.”
Neo banks – smartphone-centric – and independent from major institutions, are changing the world of finance. Nubank already has 30 million customers in Brazil and Mexico. Consequently, its willingness to make such a significant financial investment in Colombia has grabbed the attention of political and economic leaders.
“The president of Colombia was at Nubank’s inauguration event in Colombia,” says de Bel. “It seems like the Colombian Government is supporting the goal of forming more software programmers, which are a fundamental resource for the growth of any tech company.”
Nubank brands itself as the “largest independent digital bank in the world.” This messaging aligns well with Colombia’s long-term strategy of supporting investment in information technology. It would seem, given the size of the investment, that Colombia may become a test market of sorts, with Nu Colombia learning how to adapt within a unique regulatory environment.
“Our investment will create a center of design, engineering and data,” said Ivanna Palmiero, Nubank’s PR Manager, International, in an email to Nearshore Americas. “We’ll be recruiting local talent that will create products for the Colombian market.”
Already, in Bogotá, Nu Colombia is looking to hire a Head of Legal and Public Policy, as well as a Compliance & AML Officer, along with engineering positions. Nubank needs these people if it plans to execute in Colombia in the same manner as in Brazil. In Brazil, Nubank has expanded from delivering no-fee credit card services via a mobile application, to include banking products such as loans, and even brokerage services.
“Nubank’s initial success has allowed them to poach talent from traditional players in the industry,” says Jeroen de Bel.
“Nubank was the first challenger in the Brazilian market providing lower-cost digital credit cards, and was able to reap the benefits while targeting the underbanked population,” says Eduardo Furlan, a Fincog consultant in Brazil. “In addition to having strong founders, Nubank has just started offering loans, and has recently completed the acquisition of Easynvest, the largest independent broker in Brazil.”
Poaching the Best
With operations in Brazil, Mexico and Colombia, Nubank has a valuation of over $10 billion. Inevitably, the company’s growth will hinge on attracting top talent.
“Nubank’s initial success has allowed them to poach talent from traditional players in the industry,” says de Bel. “This has been fundamental to support their growth as they expand into new areas and products – which is precisely what they’re doing.”
Along with David Vélez, Nubank’s co-founders include a Brazilian, Cristina Junqueira, and an American, Edward Wible. Strong management is critical to success in new markets, given that each country will present unique regulatory hurdles. Catalina Bretón, a former airline executive, will act as general manager of Nu Colombia.
Nubank’s investment will likely have a big impact on the tech and outsourcing community in Bogotá, as well as on the financial services industry throughout Colombia. Nubank deliberately projects a younger, hipper and more diverse image that other Latin American banks. In fact, when posting jobs, Nubank specifically asks for people in finance who are nonconformist, reminding them that new hires are offered equity in the company.
When David Meets Goliath
Since its inception, Nubank has raised an estimated $1 billion from an array of respected growth and technology investors, among them TCV, Sequoia Capital, Tiger Global Management, and Tencent. In early September, it landed another $300 million in funding. While this represents an impressive vote of confidence, it can’t last forever.
“As a weakness, Nubank still relies on its investors for cash,” says de Bel. “Despite a good and fast-growing revenue base, and having positive unit-economics, they’re investing heavily into new markets and products.”
Managing that growth can be a challenge. Certainly, Latin America is a priority – as can be seen by the heavy investment in Colombia, and an earlier plunge into the Mexican market – but Nubank has no intention of stopping there.
“Vélez has already stated that Nubank sees other emerging markets as possible targets for expansion in the long run, such as Nigeria, Indonesia, Vietnam and India,” says Furlan.
In Colombia itself, between 70% and 85% of transactions are in cash, yet more than half of the population has a smartphone. That represents significant opportunity. However, one difficulty might be to build trust from a younger, tech-centric demographic, and to turn it into loyalty that, over time, can translate into higher-value relationships.
“Nubank faces the challenge of trying to break an oligopoly formed by much larger and traditional players,” says de Bel. “Brand and reputation still count a lot when people have to decide where to leave their money.”
It helps that Nubank has partnered with Mastercard, gaining access to its network for card payments. By streamlining services within complex payment channels, and relying on technology, Nubank can afford to offer discount credit services. This, in turn, puts it in direct competition with the banks, who also act as card issuers.
Given the size of Nubank’s investment in Colombia, and its ambitious hiring plans, it seems clear that the company vision for Colombia is similar to Brazil’s. If so, the traditional banks had better get ready – Nubank will be sending some shockwaves their way.