Nubank has revolutionized digital banking, attracting millions of clients online and expanding its financial services across Latin America through virtual platforms. Yet, in Mexico’s vast economy, valued at 1.3 trillion, it faces its biggest rival: cash.
The Mexican economy, characterized by notable levels of underbanking compared to other Latin American countries, heavily relies on physical currency, with substantial informal sectors preferring traditional channels over online platforms and formal payment systems.
This represents a challenge for fintechs like Nubank, which has recently launched virtual accounts in Mexico.
Just last month, the digital lender announced a partnership with Mastercard’s Arcus, facilitating cash deposits for its customers at 700 Soriana outlets, a popular department store chain in Mexico. This partnership will allow Nu clients to deposit up to $5,000 Mexican pesos per transaction using a custom code generated within the Nu app, bypassing the necessity for physical cards or account details.
In a press release, the firm said this partnership will allow consumers to familiarize themselves and have increasing access to digital financial products, while also incorporating the use of cash into the digital payments ecosystem.
Nubank hikes annual yields on deposits to almost 15% in Mexico
Nubank reached nearly 94 million customers in 2023, the bulk of which are in Brazil. Despite its stronghold in the Brazilian market, the company has been actively pursuing international expansion efforts, particularly in Colombia and Mexico, as part of its strategic growth initiatives.
The company has signalled that ramping up the expansion in Mexico is at the top of the list. “Scaling Mexico is our first priority for 2024,” said David Velez, CEO and co-founder. “We plan to launch a number of new products and features (in 2024), reinforcing cash-in and cash-out solutions, along with ramp-up in primary banking customers,” he said.
The firm has recently acquired a banking license in the country, marking a significant milestone in introducing more appealing products in a market of 130 million people. As of the fourth quarter, it reported 5.2 million customers, although the digital offerings remain relatively limited.
“This underscores the success of our Q3 decision to increase deposit yield in Mexico, which has accelerated our company-wide flywheel in the country,” Velez said.
To attract customers, fintech firms in Latin America increasingly offer high-yield deposit accounts as an incentive for banked individuals to transition from traditional banks to their digital platforms. Nubank recently raised its deposit rates in Mexico, offering a yield of 14.75% effective April 16.
According to the firm, this makes it one of the most competitive rates in the Mexican market, potentially providing a significant boost for the company to expand its customer base substantially. While fintechs like Nubank have thrived in their home country, acquiring millions of clients, they frequently encounter numerous regulatory hurdles when attempting to replicate that success overseas.
Business accounts growing
While Nubank primarily focuses on individual accounts, the company has also successfully built a business customer base. This quarter, the digital bank announced it had exceeded 4 million business accounts, marking a 50% increase from the previous year. Nubank’s strategy in this segment includes offering new tailored products like working capital loans to help businesses meet their operational needs.
“One of the main challenges for entrepreneurs is accessing credit to finance their businesses or even dealing with unexpected situations and emergencies, leading many to resort to personal loans,” Livia Chanes, Nubank CEO in Brazil, said. “Based on this, and after the success of our first credit (card) product for this audience, we are expanding the offering with the launch of Working Capital.”
Last year marked a positive performance for Nubank, as the digital bank moved significantly beyond break-even and reported over $1 billion in net profits. Following its landmark IPO in U.S. markets at the end of 2021, the company’s shares have steadily risen over the past few quarters, surpassing its IPO price for the first time since a significant drop in 2022.
