Nubank CEO David Velez on stage
Nubank CEO David Velez on stage

LatAm fintechs blaze a trail among Mexico’s underbanked

Nubank, Latin America’s largest fintech, is growing fast in Mexico.

This week, the largest digital bank in the region announced it had expanded its customer base sixfold in the country over the past year, reaching a total of 2.7 million customers from 0.4 million in the same period of 2021.

At less than 3% of adults, the number is a fraction of Latin America s second-largest economy, but it still represents a swift growth pace in little less than two years. It also marks a commitment to a  growth strategy in the face of a risk-averse market where investors demand profitability.

The bank added 5.7 new customers in the quarter, reaching 65.3 million Latin American clients by the end of the three months. More than 95% of them are based in Brazil, adding up to more than a third of the adult population in the country.

Outside of its home country, the bank launched two years ago its international strategy, looking to unlock further growth opportunities and attain a regional scale. The bank is also operative in Colombia, although the number of customers is lower at 0.3 million.

Targeting underbanked

Through friendlier user experience and lower fixed costs, the bank is targeting the underbanked in Mexico, where less than 50% of adults have access to a bank account, according to a recent financial inclusion survey. Conditions in Mexico are far worse than in Brazil in terms of inclusion, making the opportunity, analysts say, attractive for fintech players.

In Mexico, barely only 11% of the population over 18 years of age has a credit card, according to data provided by Mexico s fintech association. “This means a huge opportunity in the Mexican market to serve segments of the population that have remained outside the financial sector,” said Ernesto Calero, its general manager.

David Valez headshot
David Valez

Nubank’s primary audience is typically young, below 35 years old, middle to low income, and often financially excluded from the traditional banking system.

Earlier this year, the fintech took a $650 million loan to expand international activities. Nubank is a publicly traded firm backed by Warren Buffett’s Berkshire Hathaway and Softbank.

“We are going from a mono-country platform to a multi-country platform,” David Velez, Nubank CEO, said in a recent call to discuss quarterly results. “Mexico and Colombia are already moving the needle for us, and we are confident they will be as relevant to us as Brazil has become.”

Ualá bought ABC Capital

But it is not the only Latin American company with stakes in the Mexican market.

Last year, Argentine-based unicorn firm Ualá bought ABC Capital, a small-sized financial institution in Mexico through which it obtained a banking license. The company sees Mexico as one of its most significant growth opportunities as it seeks to expand beyond its home country.

“We have a particular interest in growing in the Mexican market, where we plan to allocate an investment of more than $100 million in the next 18 months,” Andrés Rodríguez Ledermann, Wealth Management Vicepresident at Ualá México, told Fintech Nexus.

The online lender officially launched in September 2020 and offers a physical and online card co-branded with ABC Capital. It also provides collection capabilities for small businesses in Mexico.

In August, the company raised $350 million in a Series-D round led by SoftBank and Tencent. “This important investment allows us to have enough funds to grow without raising capital in the coming months,” Ledermann said.

Concentrated market

The banking market in Mexico is the second largest in Latin America. As in many other places in the region, its loans and deposits are highly concentrated among a handful of banks.

Several fintechs have grown in size over the past few years to challenge the incumbents, leveraging digital channels to offer financial services through lower fixed costs without needing branches.

The opportunity to cater services to the underbanked in Mexico has also drawn global players. UK-based bank Revolut has also announced intentions to operate in the country. The digital lender, one of the largest worldwide in terms of clients, is also looking to launch in Brazil before the end of the year, its local CEO told Fintech Nexus.

For more companies to get to the Mexican fintech market, Calero argues that adjustments are needed to the current regulation. In particular, fintech experts voice for a more expedited process in granting licenses.

The country was a pioneer in 2018 when it passed the fintech law but has since then only granted 34 fintech licenses. Calero argues this “has become a barrier to entry for companies evaluating starting operations in Mexico.”

  • David Feliba

    David is a Latin American journalist. He reports regularly on the region for global news organizations such as The Washington Post, The New York Times, The Financial Times, and Americas Quarterly.

    He has worked for S&P Global Market Intelligence as a LatAm financial reporter and has built expertise on fintech and market trends in the region.

    He lives in Buenos Aires.