Last year’s rise in interest rates led many fintechs to moderate growth prospects. A demand for profits emerged among investors.
But that is not stopping Nubank from expanding as it seeks to establish itself in the largest markets in Latin America.
The company announced a $150 million loan from World Bank’s International Finance Corporation this month. The digital bank said the funding would help strengthen its presence in Colombia, its third-largest and most recent market after Brazil and Mexico.
In a press release, Nubank said that the loan has a three-year maturity and was issued in local currency. “(It) will increase access to payment systems for Colombians, in addition to promoting greater competition in the industry in favor of consumers,” the fintech said.
Following a successful rollout in Brazil, with over 65 million clients over a lifetime of roughly a decade, the digital lender has begun an expansion into regional markets. Both Mexico and Colombia represent significant opportunities for Nubank outside of Brazil, with economies suffering from substantial gaps in access to financial services.
Financial inclusion in Colombia
“We are very proud that an institution like IFC has trusted us to continue generating a positive impact in Latin America,” David Vélez, CEO and founder of Nubank, wrote shortly after on social media. “This loan reflects (…) contributions we are bringing to Colombia’s financial inclusion, a country with low financial services penetration and high use of cash.”
In the third quarter of 2022, 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 reported 439,000 customers.
“Together, Mexico and Colombia can be bigger than Brazil, and we are growing in those markets faster than we grew in Brazil,” Velez said in the latest earnings call. ” We could not be more excited with the early success of our multi-country strategy. We think partly what’s happening is that there is actually a better product market fit in these countries. Financial services penetration is lower. “
The loan from the IFC to boost Colombian operations follows a recent $330 million capitalization from Nubank to grow further in Mexico, cementing its commitment to expand outside of Brazil.
Growth versus profitability, a balancing act
The digital bank has only recently reported a break-even in profits and has yet to produce higher profitability to soothe investors’ demands. The stock has suffered pressure lately, trading at barely a third of its record highs shortly after the IPO.
In the latest earnings quarter presentation, Velez said the fintech was trying to reap profits while growing simultaneously.
“The mix of growth and profitability shows we can balance appropriately the significant growth opportunity we have ahead while strengthening the earnings fundamentals of our business model.”
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“We will continue to manage the company for the long-term and pursue new business opportunities,” he said, adding that such a strategy might require Nubank to “make additional investments in the short-term, consequently postponing profitability ramp-up.”
“We believe this is how we optimize for the long-term value creation for our shareholders, given the number of profitable growth optionalities we have at hand,” he added.