As Brazil Cards Charge 500%, Nubank Seems Like a Deal

  • Startup's rates are about a third what Brazil banks charge
  • Lack of competition in Brazil leads to `broken market'

For Brazilians facing almost 500 percent interest rates on their credit cards, there may be hope.

So says David Velez, founder of Sao Paulo-based Nubank, an Internet startup backed by venture capital firms Tiger Global Management and Sequoia Capital.

Velez’s company is trying to gain a foothold in Latin America’s largest economy by offering monthly rates of 7.75 percent. That’s still 145 percent on an annual basis -- no bargain by developed-market standards -- but it’s about a third the rate offered by banking-industry leaders like Itau Unibanco Holding SA and Banco Bradesco SA. The average fixed rate on a U.S. credit card is 13.4 percent, according to the most recent data from

Velez, a former senior associate at private-equity firm General Atlantic LLC, says it’s the lack of competition that’s to blame for the eye-gouging rates. If that’s true, the issue is set to worsen after Bradesco bought HSBC Plc’s Brazil operations this year, leaving four players in charge of about 80 percent of the industry’s assets.

‘Broken’ Market

“Something is really, really broken here,” Velez, 33, said in an interview at his Sao Paulo office. “In a competitive market, you wouldn’t see those interest rates.”

Nubank’s rates aren’t tracked because the central bank follows only banking institutions. Payment companies like Nubank operate under a different kind of license. It has no branches, just a smart-phone application, and plans to keep its headcount at a fraction of its bigger rivals. The company offers users a Platinum Mastercard, which they track and pay by phone -- a product that’s geared toward younger clients. The average user is 28 years old, Velez said.

It’s a model that’s won some fans among venture capital firms, with Sequoia partner Doug Leone calling it an “attractive value proposition.” Sequoia and Tiger injected $30 million this year, Velez said, while declining to disclose the stake the investors got in return.

Going forward, Nubank is planning to raise cash through what are known as FIDCs, a type of securitized loan popular in Brazil.

Range of Rates

Velez said 150,000 accounts have already been opened, and users have been growing by about 60 percent a month. At that rate, it could reach its goal of 1 million customers -- or 1 percent of the market -- by next year. Velez didn’t provide a specific prediction.

Of course, there’s a caveat: Banks in Brazil may charge close to 500 percent a year, but that doesn’t mean borrowers are paying that. Many credit-card users zero their balances monthly, even at Nubank’s relative bargain rates, Velez said. The banks themselves say they provide a range of rates.

“Itau Unibanco offers products in its portfolio that adhere to the lifestyle, consumer needs and economic profile of each of its clients,” the bank said in an e-mailed response to a request for comment. “This diversity in our products is reflected in the interest rates, which are set for each product and client profile and start at 3.41 percent a month.”

Bradesco said in an e-mailed response that its interest rates go from 2.14 percent to 15 percent.

Nubank makes about 1 percent per transaction from merchants, which Velez said is enough to help it generate positive earnings before interest, taxes, depreciation and amortization in the coming year or two.

Tech startups are “disrupting” markets from retail to media and transport, Velez said. “There’s no reason why technology companies shouldn’t be able to disrupt traditional banks.”