Nubank, a financial services startup based in Brazil, is today opening for business with two key pieces of news. It is launching its first product: a MasterCard Platinum credit card that you can manage through an Android or iOS app. And it is revealing some of the details of its own finances so that the world knows Nubank means business: the company has raised $14.3 million led by Sequoia Capital — the storied Silicon Valley VC’s first investment in a Brazil startup.
Others participating in the round include Kaszek Ventures and the entrepreneur Nicolas Berggruen.
Although Sequoia has been making more efforts, generally speaking, to expand its geographic net ever wider, the connection between Sequoia and Nubank in Brazil is not exactly serendipitous.
David Vélez, founder and CEO of Nubank, used to work for Sequoia, specifically to help scout out investment opportunities in South America. In fact, he started the VC’s Latin America practice.
It was this work that brought him to thinking about working on his own startup in Brazil, Vélez tells me.
“After spending more than two years looking at technology opportunities with Sequoia in Latin America, we got convinced that there were a ton of high quality opportunities for starting tech companies in this country, but not in the sectors that most tech companies/entrepreneurs were pursuing,” he says. “I decided to strike on my own because I had always wanted to be an entrepreneur, and as a venture investor I saw more interesting opportunities on the entrepreneur’s side of the table, than in the investor’s side of the table.”
Those sentiments are echoed by Vélez’s former colleague, and now investor:
“In Brazil, we see a youthful country, with lots of people who want to innovate and a mass market to receive that,” Doug Leone, a partner at Sequoia, tells me. Leone has been instrumental in Sequoia’s expansion into the BRIC market — specifically in India and China.
Interestingly, Sequoia sounds like it is both eschewing but also slightly embracing a little of the mantra that Rocket Internet has shown in the region. “We have seen other businesses in Brazil, and we have seen a lot of lookalike models to the U.S., perhaps more than in other geographies. Some of those were interesting but nowhere near as interesting as Nubank,” Leone says.
Financial services is Brazil’s single largest market, but five of the top ten public companies are big banks, Vélez points out. (Read: ripe for disruption.)
“At the same time, when you talk to any Brazilian, you realize that there is a significant amount of customer pain and frustration in this industry, particularly among the 100 million Brazilians that are under the age of 29 and want a differentiated banking experience that is friendly, simple, and transparent, and skips the significant layers of bureaucracy.”
There are also some more macroeconomic advances that Nubank is tapping into. The country, the “B” of the famed BRIC bloc of emerging market leviathans, has been seeing a boom in broadband penetration, headed largely through smartphone growth.
Today, there are 90 million smartphones in use among its population of 200 million and growth is not slowing down. “At the same time, Brazilians have one of the highest engagement with technology and social media of any country in the world,” he notes.
Brazil, the economic and population juggernaut of Latin America, has long been eyed up for its potential in the area of financial services. The opportunity for launching financial technology for the country’s rapidly growing middle class has not been lost on others.
GuiaBolso, a Mint-style financial management app that has seen some viral popularity in the country, was co-founded by a former exec from Groupon Brazil and a McKinsey alum who had been working with the Brazilian banking industry.
Rocket Internet — the soon-to-go-public “startup factory” that has been closely linked with Groupon in Europe — has also been making a lot of inroads into the country, including launching its Square-style payments platform, Payleven, in the country.
Nubank is not trying to be the “first” here, just the best, Vélez says.
“Our story is not about underpenetration of banking. It is about offering credit products to already banked customers that are currently completely overpaying in terms of fees and expenses, and getting a very poor experience in return,” he says. “Since we don’t have to pay for expensive [physical bank] branches or other costly infrastructure, we can pass those savings to our customers in terms of no fees products, lower interest rates, and excellent customer service. Our customers also don’t want to pay for that expensive infrastructure by the way.”
Today getting a credit card in Brazil can take weeks, lots of paperwork, and many visits to a physical bank: Nubank wants to swipe all of that away.
While credit cards are Nubank’s first product, the company is careful to call itself a “financial services” company, and as such has bigger ambitions.
“We see a significant opportunity in credit cards and will be focused in this single product for a while, but we think that our focus on customer experience and technology for the young, tech-savvy consumer is applicable to broader financial services products,” Vélez says. “At the end of the day, the opportunity we see is to create an alternative in a market that currently doesn’t offer consumers many places to run when they get one more disappointment in their interaction with their ‘branch manager.’”
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