LatAm22: Nubank makes inroads in Mexico’s highly concentrated banking market

MIAMI, Fla. — Two years after its launch in Latin America’s second-largest market, Nubank, the biggest digital bank in the region, is making progress in Mexico amid a highly concentrated banking industry.

“The industry in Mexico is not competitive,” Iván Canales, General Manager at Nubank México, said at Fintech Nexus Latam 2022 in Miami. “Five incumbents have 80% of the [loan] market.”

With a “your margin, my opportunity” mindset, the neobank, which reports over 70 million customers in Latin America, recently rolled out its second product in the North American country.

After its purple credit card was released, the bank launched “Nu Cuenta.” It is a virtual account that provides more convenient access to clients’ funds.

“I am sure some of the folks here have a savings account in Mexico and know of the inability to take out money over the weekends or after 4 p.m. any day”, Canales said. “That is an important pain point to be solved.”

Nu Cuenta, Nubank’s digital account

At the same time, he said, yields offered to account holders are “relatively low” in the traditional Mexican market. For that reason, the Nu account is also expected to provide a better return to depositors. He did not specify what that return would be.

Iván Canales, general manager at Nu México.
Iván Canales, general manager at Nu México.

Nu México’s efforts in the country are significant in an economy dominated by cash. Financial inclusion gaps still exist despite the fast-growing fintech segment in the past few years. According to World Bank data, Mexico is one of the least banked countries in the region regarding adults with bank accounts.

“Less than 15% of Mexicans have access to traditional bank credit cards,” Canales said at Fintech Nexus Latam 2022. However, he underscored the opportunity to serve the financially excluded, pointing out that 80% of them have access to smartphones and use social media regularly. He said this provides companies like Nubank with opportunities to grow digital banking. “It creates a bedrock for innovation,” he said.

According to company data, roughly 40% of their customers in the country did not have a credit card before.

Investing in Mexico

The company has recently announced a $330 million equity capitalization in Mexico as it moves forward with this commitment to grow outside of Brazil. The new investment into the North American country adds to a previous $1 billion. Canales said that made Nubank “one of the largest foreign investors” in Mexico. Also, one of the “most capitalized” financial institutions.

“We believe there is a lot of potential in Mexico, and this new investment fuels our market portfolio expansion,” he said.

Iván Canales, general manager at Nu México, at Fintech Nexus Latam 2022.
Iván Canales, general manager at Nu México, at Fintech Nexus Latam 2022. | John K. White, Fintech Nexus News

According to Canales, the credit card market was “significantly underpenetrated” in Mexico when the digital bank introduced the product back in 2020. The market offer at the time was not satisfying, he said. “Now, with the virtual account, some of the numbers in Mexico also tell a story that there is a lot to get done.”

Advancing education

For Nubank and other digital players to grow faster, Canales argued that more is needed on the educational front.

“One of the implications for the market being underpenetrated is that many people really don’t understand how to use financial products responsibly,” he said.

Nu Blog, where the company posts personal finance posts, received 7.5 million visits last month. “It speaks of a high demand for quality financial education,” he said. “There is a lot that we can do to advance this.”

In the last quarter, Nubank reported over 70 million clients in Latin America. More than 95% of Nubank’s clientele is located in Brazil. Still, Nubank has made inroads in other bigger-sized economies in the region. In Mexico, its customer base rose to 3 million. In Colombia, the neobank reports 439,000 customers.

  • 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.