Revolut, one of the largest digital banks in the world, has announced plans to expand its business to Latin America’s largest markets to provide digital banking services to a population that continues to be significantly underserved.
Interest from foreign digital banks in the regional ecosystem has spiked recently, primarily driven by the swift success of local players such as Nubank in Brazil, Mercado Pago in Argentina, and Clip and Konfio in Mexico.
All of them have expanded sizably over the past few years, reporting massive growth in customer base on the heels of accelerated digitization in the years of the pandemic.
At the last valuation of $33 billion, the London-based privately owned company has frequently contested with Nubank the title of the world’s largest digital bank. The latter floated its shares on the New York Stock Exchange last year and has signed up north of 50 million customers –mainly from Brazil-proving the case that citizens are all up for financial services to be served digitally.
Perfect time for global to look local
Glauber Mota, CEO of Revolut Brasil, considers now the perfect time for global players to step into the local market. The convenience of the payment system PIX, which has grown by leaps and bounds in Brazil, has inspired many in terms of product design. It has also encouraged disruptors across the globe, who now see the fertile ground in the country for innovative products.
Revolut plans to launch its first set of products by the end of this year. The schedule is by no means a coincidence.
During the World Cup this year, the neobank identifies a huge opportunity to launch its core product –a global account for clients paying for goods and services abroad.
The event is hosted between November and December in Qatar. Many Brazilian fans are expected to fly to the Middle East to witness the country’s attempt at a sixth world title.
The neobank is in the process of obtaining a license from the regulator, which at a later stage would allow it to offer a more comprehensive array of services.
However, credit is not expected to be a core of its offering but rather a complement of what Revolut envisions as a financial service super app. The company is looking to offer everything ranging from cross-border payments and remittances to credit, insurance, and investments.
One-on-one interview
In an interview with Fintech Nexus, the executive, a former partner at investment bank BTG Pactual, discussed Revolut’s plans in Latin America’s largest economy.
Why did you choose the global account as your initial launch product?
Many people do so many things in financial services in Brazil. It is a crowded market here. But there are a group of niches that are still muchly underserved. For instance, people that travel abroad. Some initiatives aim to provide those services but are still very much spread out in different apps and are quite costly. So because of this and the fact that a global account is one of Revolut’s strengths, we started this way.
How does the product work?
Global accounts are actually offshore accounts for nonresidents in jurisdictions with multicurrency capabilities [likely to be in Singapur]. Essentially, it is a remittance from Brazil to another place, becoming a broader payment solution.
Why did Revolut think now is the best time to launch in Brazil?
Brazil is one of the markets that have the greatest potential. It is the place where fintechs have been doing well, it has a large population, and its economy accounts for 50% of the regional market. Brazil could not be out of scope to become a global bank with local services. But back in 2015, when Revolut started, regulation in Brazil had not evolved yet for this type of business, and digital acceptance for financial services was also in an earlier state. The pandemics moved the needle a lot, altogether adding up to a different playing field for Revolut to arrive now and leverage its strengths.
What is the value proposition that you want to bring to Brazil?
On average, Brazilians have 3.6 different apps that they use to solve different financial needs. They have one for daily banking activities, another to pay for very specific government taxes, one for foreign exchange operations to travel or buy foreign services, and finally, one for investments. For all of that, we have a proposition to deliver all-in-one in a better, convenient experience with a real tangible benefit in terms of time and pricing. Instead of focusing on gaining money on the spread, we make our gain from having the client within Revolut and not on these other banks or apps. Then we can gain on cross-sell. The beauty about the super app is clients look for what they need.
What will Revolut’s next steps in Brazil look like?
We have an ongoing application for a special type of license called SCD, a version of a light bank. The difference between this and a traditional bank is that (there is a) lower regulatory burden because we do not leverage on our clients. Still, it’s going to be company capital. When you have the licensing, we can put a local account on top of our global account, together with a local credit card operation and everything that comes later, such as investments in the local market.
How significant will credit be to your long-term strategy?
It’s not precisely about credit but about including it as one of the pieces that complete the broader offering. Credit is not going to be the core business. Lending is one of the most profitable [products], but it also comes with many challenges. And even though credit has evolved a lot in Brazil, it’s still very concentrated. If you look for the offering for SMEs, for example, it’s still a real challenge to provide credit to them.
Why is it that many fintechs have shied away from offering credit in Brazil?
It is one of the areas that require a lot of experience. It’s very specific and involves proper knowledge of assessing clients, managing the life cycle of a credit operation, and doing the appropriate collection. It’s a really complex operation. That’s why so many fintechs have tried not to [offer] it, and a lot of the successful cases are more of a fee-based business where the downside is limited. There are hairy cases in more profitable big-margin businesses where more specialization is required. The concentration of the whole bank of credit is still in the incumbent banks. And we don’t need to be in credit to enter the market because our strengths are many other things. There is a famous quote from Warren Buffet that says, ‘How do you beat Bobby Fischer, the famous chess champion? You do it by beating him on just about everything else.’
