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Nubank hunts cut-price startups as fintech valuations fall

The news: Brazilian neobank Nubank reportedly plans to capitalize on the sliding valuations of Latin American fintechs by making acquisitions at a discounted price, according to the Financial Times.

Bargain hunter: Nubank CEO and founder David Vélez told the FT that he thought there would “probably be some consolidation” of fintechs in the region which would provide opportunities for acquisitive growth.

  • Vélez said that some of the acquisitions Nubank considered one year ago are “coming back at a 70% discount” and that the bank was “looking to do more M&A.”
  • Wider economic uncertainty has impacted funding in the region. VC investment into Latin American fintechs reached $1.2 billion in Q1, falling 27% from Q4, per the Association for Private Capital Investment in Latin America.
  • And valuations of fintechs are dropping: Shares of Nubank are down 66% from when the company's stock began trading back in December.

Growth over profits: Neobanks have long been dogged by problems in turning a profit, with less than 5% of them breaking even, per a Simon-Kucher & Partners report.

Nubank is no different and is still loss-making. However Vélez has said the digital bank could be “profitable tomorrow,” but was putting growth first. It will likely achieve this through three courses of action:

  1. Acquisitions will help build out its product suite while bringing in new tech and customers. Last year, Nubank bought payment gateway Spin Pay to strengthen its foothold in the payments market and California-based financial planning startup Olivia.
  2. Geographic expansion will grow Nubank’s presence in new markets as it looks to capitalize on demand for access to financial services in Latin America, where just 55% of adults have an account at a financial institution, per the World Bank. In April, Nubank received a $650 million credit line to fund growth in Mexico and Colombia.
  3. New products can spread risk and bring in new revenue streams. The bank has already expanded into offering investments, insurance, and cryptocurrency trading, and can introduce its wider product suite to new markets as it grows.

The big takeaway: As the climate for fintechs in Latin America gets harsher, startups in the region face cooling capital funding and sliding valuations. Neobanks need to balance their bottom-line performance with growth and consider the long-term implications of prioritizing one over the other.

Nubank has the size and customer base to support a degree of risk-taking and it can benefit from picking up startups at a discount in a consolidating market where smaller firms may struggle to survive. But going forward, LATAM-based fintechs can’t afford to take short-sighted punts and need to plan for sustainable growth and monetization in an increasingly unforgiving market.