LatAm neobanks show promising signs, soaring profits in Q3

Times might be hard for global tech firms, but the largest neobanks in Latin America are not showing it. The region’s biggest fintechs have demonstrated remarkable resilience in the third quarter of the year, improving profits at a fast pace while acquiring millions of customers in the period.

Even as the region faces inflation and high interest rates, well-established neobanks have shown flexibility to adjust costs and keep growing. Smaller-sized fintechs, however, continue to face challenges, with some succumbing to financial pressures or being assimilated by larger institutions.

In a financial landscape marked by resilience, major fintech players soared with revenue and net income growth in the third quarter. As inflation receded across Latin American economies, regional central banks strategically eased off, initiating a decline in interest rates.

Bruno Diniz is a fintech specialist and book author in Brazil.

“The third quarter results for large Latin American fintechs are positive,” said Bruno Diniz, managing partner at Spiralem and a fintech book author in Brazil. “These results indicate an adaptation of these players to the current business context, with adjustments that led to greater efficiency in their operations, leading to robust growth.”

Latin America neobanks: a tale of two behemoths

Leading the charge, digital neobank Nubank, a beacon in the Latin American fintech landscape, recorded a record net profit of US$303 million, a remarkable ascent from the $7.8 million recorded in the same quarter of the previous year when the company first turned profitable. The $40 billion company sustained its client acquisition momentum, surpassing the region’s 90 million customer mark. The count of active clients, reflecting those producing revenue, grew to nearly 75 million during the period, reporting an impressive growth of over 16 million in the last year.

Notably, Nubank’s growth continues alongside its diversification of products and services. Remarkably, it raised its revenue per average customer from $8 to $10 in the past year while keeping costs the same.

The Amazon of Latin America, MercadoLibre, saw net income grow 178% yearly to $359 million, up from $129 million a year ago. Its fintech business, Mercado Pago, is an important driver for the group’s profits, which now boasts a market value of $80 billion.

Fintech revenue rose over 60% in the past year to $1.6 billion, while the neobank grew its number of active customers to almost 50 million, up 7.2 million from the year before.

Mid-sized digital players plough ahead

Nubank reported nearly 75 million active customers in Q3.

Several other large neobanks and virtual wallets have also shown interesting performance, though not reaching the same heights. Brazil’s PicPay, a digital wallet owned by a traditional bank, reported a net income of nearly $10 million in the first half of 2023. This achievement marks a significant recovery from over $100 million in losses during the same period in 2022.

Banco Inter, a digital bank in Brazil with a market cap of $2 billion, reported a net income of $30 million, reversing losses from the previous year. The bank continues to expand its client base, adding a million new clients each quarter to just below 30 million by October.

Creditas, a Brazilian lending unicorn, cut losses by 60% to nearly $25 million, showing progress even though it has not yet reached breakeven.

Small fintechs in trouble

While large and mid-sized neobanks in Latin America continue to thrive in this environment, smaller fintechs are feeling the brunt of the economic downturn. Numerous small-sized fintechs are grappling with limited investment capital and rising inflation, which erodes disposable income for households.

Looking ahead, experts predict a consolidation trend, posing a growing challenge for new entrants to contend with the scale and dominance of major players in key economies.

Even large international players, such as German neobank N26, have opted to exit the market due to heated competition and a sense that the market is becoming overcrowded. In a recent report, Bank of America said that the digital banking industry in Brazil showed signs of saturation.

“We see a process of consolidation of fintechs in the region,” noted Diniz. Recent months have seen strategic acquisitions, including QI Tech buying Singulare and Visa paying $1 billion for Brazil’s payment infrastructure startup Pismo at the end of June.

  • 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.