I have been captivated by the idea that businesses infused with technology at their core and espousing a culture of continuous learning can unleash Latin America’s productivity and true potential. The aim of my Latam Startup Series is to identify those companies in the region that are radically changing the competitive landscape of their respective industries by introducing fresh perspectives and new solutions to pressing problems. My ultimate hope is that by highlighting some of these innovative companies, we can break down the no se puede (“it can’t be done”) mindset so prevalent in Latin America – to me, the biggest roadblock to generating a cycle of positive change in the region.
Over the last three weeks, I went through the unfortunate experience of closing my bank accounts in Costa Rica (where I previously lived/worked for two years). Yes, you read that correctly – it took me three weeks to close my accounts. Bottlenecks included locked accounts (so I couldn’t pay off my credit card), filling out multiple forms (some could be handwritten, some needed to be typed), unanswered emails, dropped calls, more forms, more unanswered emails…you get the point.
This isn’t an isolated event: I had a similar experience with a different bank from another Latin American country last year. From a customer perspective, banks seriously suck in Latin America (including the multinational ones). They are incredibly bureaucratic built on top of legacy infrastructure that is slow and barely secure. Yet, despite their terrible services, they make tons of money.
That’s why I am excited about Nubank, a relatively new Brazilian financial services company. What’s unique about Nubank is that the company is completely digital – in other words, no physical bank branches. This translates into a significantly lower cost structure, thus allowing the company to provide customers with better services at much more competitive prices. Nubank currently offers a Platinum MasterCard credit card that customers can manage through an intuitive iPhone or Android app. With more than 200,000 people applying for the digital credit card, this Latam startup seems to be on a path to huge success.
Brazil, of course, has unique dynamics that make Nubank a compelling investment. First, Brazil is a huge market: the country boasts a population of 200M. Second, Internet penetration is abnormally high due to the +90M smartphones currently in use. Third, Brazil has really high interests rates: the benchmark (Selic) rate is about 14% compared to ~3% in Mexico and ~5% in Colombia. Lastly, despite a tepid macroeconomy, credit card transactions have been on a tear, growing over 13% from 2013 to 2014.
Add to this market opportunity a capable and visionary leader – founder and CEO David Velez – and it’s no wonder that Nubank represents Sequoia Capital‘s first venture investment in Latin America. In fact, Nubank raised a $30M Series B a few months ago to take on Brazil’s biggest banks.
Although replicating what Nubank is doing in other Latin American countries would be challenging due to different regulatory hurdles and market dynamics, I think Velez’s calculating approach – identifying and then tackling a broken industry by building a tech-savvy business – provides a powerful roadmap for other Latin American entrepreneurs.