Photographer: George Frey/Bloomberg

Goldman Boosts Funding to Brazilian Credit-Card Startup Nubank

  • Fortress also participates in $144 million financing round
  • CEO Velez says smartphone surge helped digital startup

Goldman Sachs Group Inc. increased its credit line to Brazil’s Nubank, a four-year-old credit-card company that charges no fees and is growing as much as 10 percent a month.

Nubank can now borrow as much as 455 million reais ($144 million) for about two years to finance its revolving credit portfolio, up from 375 million reais, David Velez, the Sao Paulo-based company’s chief executive officer and co-founder, said in an interview. Fortress Investment Group LLC is also participating in the financing, Velez said, adding that the terms of the credit line were renegotiated, with lower costs and a simpler structure.

“We got more confident in our growth potential and in the partnership with Goldman, so we both agreed to expand the funding,” said Gabriel Silva, Nubank’s chief financial officer.

Since its founding, Nubank has raised about $178 million in equity funding from 10 investors, including venture-capital firms Tiger Global Management, Sequoia Capital, Kaszek Ventures, QED Investors, DST Global and Founders Fund. It first obtained the credit line from Goldman Sachs in April 2016, for 200 million reais.

The Nubank deal was handled by Goldman Sachs’s special-situations business, which provides principal investing and lending to mid-size companies.

Brazilians spent around 1.1 trillion reais on purchases using credit and debit cards last year, accounting for more than 30 percent of private consumption, according to central bank data. Most of it’s handled by the nation’s banking giants. Itau Unibanco Holding SA, Latin America largest lender by market share, was responsible for about 350 billion reais of the total last year, according to its earnings report.

Smartphone Impact

“Many people told us that entrepreneurship was impossible in the Brazilian financial system -- that the banks would crush us, the regulators would crush us,” said Colombia-born Velez, a former senior associate at private-equity firm General Atlantic LLC. That changed as more Brazilians started getting smartphones, “making it possible for a startup to use digital channels to face the big banks without needing 2 million reais to open banking branches,” he said.

Nubank is now the nation’s sixth largest credit-card issuer among financial companies, with more cardholders than Citibank Inc.’s Brazil unit or Banco Safra SA, according to Velez. The company doesn’t provide exact card issuance figures, but says 8 million people have asked for a Nubank card. Revenue and the firm’s client base is growing at a rate of about 8 percent to 10 percent monthly, according to the company.

Nubank offers credit cards with no annual fee, regardless of the borrower’s purchase history, an uncommon strategy for Brazil. It also promises a zero-paperwork relationship, with all interactions handled through a mobile app. The average client is 31 years old with about 4,000 reais in monthly income.

Banco Bradesco SA and Banco do Brasil SA, two of the nation’s biggest banks, started a credit card last September with a similar approach, called Digio, which also charges no fees. Unlike Nubank, it doesn’t offer revolving credit lines to customers.

Standing Apart

"Part of what differentiates us from the rest of the industry is the no-fee policy, but the other part is the way we treat our clients, including the app, the relationship, all of it,” Velez said.

Nubank’s interest rates have gotten much closer to its peers since the company was founded. The startup charges revolving rates ranging from 2.75 percent to 14 percent a month depending on the client. When it started, the company charged as much as 7.75 percent. The industry average was 9.6 percent in June, according to Brazil’s card-industry association, Abecs.

Fintech startups have boomed in Brazil, as digital newcomers target big banks. A May report from Goldman Sachs estimated there are 210 different such companies in Brazil, the most in Latin America, up from 54 at the beginning of 2015. The companies are fighting banks for a revenue pool Goldman Sachs estimated at about $75 billion in 10 years, across banking and insurance markets.

Retail Deposits

Nubank is expanding beyond credit cards, starting a rewards program last week that charges fees. Nubank also has a request with regulators to become a different type of financial institution that would allow it to capture retail funding.

Velez founded Nubank with two partners: Brazilian Cristina Junqueira, a credit-card veteran at Itau, and American Edward Wible, who began his career at Boston Consulting Group. The company has around 500 employees, and plans to get to 550 by the end of the year, all housed in a modern, graffiti-painted building near a bohemian neighborhood in Sao Paulo.

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