Digital bank Z1, one of Brazil’s few fintech focusing exclusively on teenagers, announced an investment round of 54 million reais, or close to $10.4 million. The funding will allow it to expand the lifetime of its young clients and possibly attract new ones.
Today, the fintech only takes underage clients. Founded in 2019, the neobank for underage Brazilians offers a virtual account and a prepaid debit card. In 2021, it secured $10 million in Series A funding in a round led by Kaszek Ventures. At the time, the funding allowed the company to gain scale in a niche usually less in the spotlight of larger digital banks.
The Gen Z neobank
Z1 claims it has now established itself as one of the leading alternatives for Generation Z. With the extra $10.4 million, the digital bank wants to accelerate the development of products for young adults, such as credit cards and loans.
“With these new funds, we will focus on serving our users beyond their teenage years into young adulthood and further consolidate our position as the Gen Z neobank in Brazil,” said João Pedro Thompson, co-founder, and Chief Executive Officer at Z1.
Catering to young adults is essential for Z1 as their clients grow older. Not being a robust offer for adults might mean losing them to the competition as they come of age.
Strong presence in TikTok
The fintech has a strong presence in TikTok, which is extensively used in Brazil. In that social media, it boasts almost 400,000 followers, more than twice as many as Nubank, the largest digital bank in Latin America.
Unlike other banks with accounts for the underage, Z1 aims its discourse at teenagers directly. Its site offers a step-by-step process on how to get legal approval.
Homebrew, Parade Ventures, and Kindred Ventures led the funding round. Existing investors Y Combinator, MAYA Capital, Clocktower, and Gaingels contributed, while new partners included Costanoa, Newtopia, SquareOne, and The Fund.
The investment comes in the context of decreased funding in the region, with the size of the rounds suffering a powerful contraction. In this challenging context for technological startups, small and medium-sized rounds have become the norm.
Growing with Pix
Paying through Pix with Z1 has been critical in driving usage. The virtual account allows users to pay through the instant-payment system through a prepaid Mastercard enabled for online purchases.
In late 2020, the central bank of Brazil rolled out its ambitious instant payment system. Since then, it has gone ubiquitous in Brazil. According to official data, there are now 140 million registered users in Pix and over 12 million companies. Younger users are increasingly drawn to the technology.
Generation Z is the largest age group using the payment system by the number of transactions. Central bank data shows the 20 to 29 years old group is the most prominent, accounting for 31% of all transactions. Those up to 19 years old make up 5% of all transactions.
Strategy was accelerated amid lower fees in Brazil
Z1’s primary source of income, however, comes from the interchange fee. The central bank slashed this recently to bring down the cost of financial services in the country.
“The central bank decision put more urgency on our plan to solve older customers,” Pedro Thomspon said in an interview with Brazilian news O Globo. He said, however, that the decision to cater to young adults too was always part of the plan for Z1.