As discussed above LatAm countries have some of the lowest levels of banking penetration in the world, which comes at odds vs metrics like smartphone adoption or GDP per capita.
More products and features will be added once people get used to the non-cash payment mechanism. Pierpaolo says :. You need to make it super easy, but it turns out you can teach people how to use a MasterCard because everybody wants Netflix, and everybody wants to have the ability to have Spotify. So the digital payment mechanism allows for a few new things: spending online, not needing the branches and cash withdrawals, saving money on converting cash to digital transactions.
Building out that payment history then allows for credit decisions. Once they have savings they can start investing. However, Pierpaolo says the main competitor is cash. Consumer product was enriched with additions of investments management, insurance, lending - basically a fully scoped banking proposition. Pierpaolo says:. If they are working on giving cards to customers, they also set out to build ways and paths where those cards could be used to buy things.
Business segment is also going strong with features including payment acceptance online and offline, expense management, set up with an online store-front ala Shopify. The biggest chunk is interchange, it is perhaps currently comprises a majority of revenue, but its share will be sliding as new features are built in.
With network economies and scale, this side of the business can grow the fastest - Square makes half of revenue on merchant fees, and on a marginal basis - these fees are more profitable that anything else in the business. Interest on credit - they have been cautious, and in Latin America with a rich history of crisis, recessions and devaluation, this is prudent.
Argentina is a large market, but it is also a more developed one, with better regulation instant payments between banks , and a more affluent population. It was a sandbox to see if the product would pick up.
Some of the exciting companies that are worth checking out include Albo , Stori and Klar. We are going to see more multibillion fintech companies spinning out of the region pretty soon.
Valuations, revenues, growth is all great, but the real upside here is the potential change in lives of hundreds of millions of people. Click the link we sent to , or click here to log in.
About Archive Help Sign in. Share this post. Aika Ussenova. Source - great presentation by Atlantico. Source: Statista and Crunchbase. Source: Financial statements , using fixed FX. Customer and employee numbers from Google search.
Nubank financial statements, using fixed FX as of Dec, and translating based on what google told me. Caixa is a Spanish headquartered and listed bank, so Brazil specific numbers might be inflated except for number of customers. Create your profile.
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Bank Warehouse You can use the personal bank by John who is in the business district of the Leikenshaen. From this bank, you can see the number of coins stored in the bank. It also shows the cells used and the total cells of the bank. Nevertheless there is a massive upside to having a banking license, which includes customer trust in protected banks, cheap funding for loans, not needing to share revenue with partner banks, freedom in strategic and product choices. In the US, Varo Bank became the first neo-bank to receive a national charter.
SoFi , a consumer lender, received a conditional charter in October. Square, a payments company behind consumer app Cash App has a limited charter. Revolut is firmly on the path to get one soon. These companies already have long and established lending businesses and becoming a bank for them is about closing the funding supply chain loop.
Growing lending is their key driver. They view lending as just an extension of the overall package which is primarily about customer experience. Bottom-up banks have a customer base with high retention, and as such are already monetising them better. Becoming a bank for them is primarily about revenue optimisation by cutting the fees they have to share with providers of liquidity.
These banks will remain niche with customers drawn to them primarily for credit. They actually want to disrupt incumbents:. They are focused on a wholesome customer experience, scale and broad based customer acquisition. As a result, there is more venture appetite for these banks, and they command higher valuations, despite lower revenues per customer.
That notion is re-adjusting post WeWork, but number of loss making but successful IPOs is a proof that investors prefer scale rather than deep wallets. There has been only one path to profitability for neo-banks so far - lending, and bottom-up banks are ahead at it as are few other fintechs who do lending, e. ClearScore and Iwoca in the UK. Zopa was profitable even before it became a bank. Starling, the first top-down neo-bank to break even last month did so on the back of lending out covid relief loans.
So why is lending a profit driver? No other service can monetise customers the way profitable lending does. So it is right to assume that when a top-down challenger bank applies for a banking license, it is on a path to start lending. But lending is a tough business to scale. Basic banking business model is to take deposits and lend them at a fee to customers. This sounds simple enough. But in reality, because there are many unknowns including mismatch in maturity between deposits and loans, credit-worthiness of borrowers, unknown future events like global pandemic, banks really are in the business of managing risk.
Bottom up banks, having built their lending business prior to becoming a bank, mastered one part of the risk: pricing and credit decisioning. Top-down banks have to learn that from scratch. Imposed by financial and regulatory standards, these risks are managed by two concepts: capital requirement and provisions. Folks outside of financial services find it hard to conceptualise these concepts because none of them are typical cash costs of running a business.
As banks start lending, they need to hold a proportion of their lending business in capital reserves to protect some of the equity in the event of collapse. This is also often portrayed as a charge - e. By extension, the more the lending business scales, the higher is the capital requirement. This often means that banks need large outside investments to prop up their equity.
Interest revenue from growing and maturing book would eventually offset that impact, but it will take months, or even years before lending becomes self-sustained. Unlike other startups that can use all of venture capital to burn through on costs until profitability, startup banks have to allocate a significant part of fundraising to grow the lending book.
The second concept is provisions. Before giving out a loan, the bank needs to estimate the likelihood of that loan going bad. The higher is the probability, the more of the provision charge is deducted from the revenues and more capital requirement will be needed. These probabilities are fully priced into the interest rate, so that the net revenue is always attractive.
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