Nubank is not a bank, despite its name — and that’s a problem

Identity Crisis Surrounding Nubank

Nubank, despite the implications of its name, doesn’t hold the status of an official bank in Brazil. This situation has led to an identity crisis for the company, forcing it to consider acquiring a licensed banking institution. The largest fintech company in the country, Nubank, is dealing with new regulations that prohibit the use of the term “bank” in a brand unless the company holds a legitimate banking license, which Nubank currently does not. source

Seeking a Solution

In an attempt to comply with the new regulations, Nubank is reportedly seeking to acquire a small, licensed bank within Brazil. This strategic move would allow the company to circumvent the costly and time-consuming process of obtaining its own banking license. There’s an added benefit if the acquired bank has accumulated losses, as this would provide tax advantages. Some potential candidates for acquisition have already been evaluated, although no final decision has been made. source

The Central Bank’s Decision

The decision by the central bank to enforce this regulation was primarily to avoid confusion among customers. The aim was to ensure that customers do not mistakenly believe they are depositing their money into a licensed bank. This decision directly affects Nubank, which boasts a staggering customer base of 110 million in Brazil alone. Interestingly, with a market cap exceeding $80 billion, Nubank outvalues all existing traditional banks in the country. source

Nubank’s Growth and Regulatory Challenges

Since its inception in 2013, Nubank has flourished under a regulatory framework that was favorable to innovation. The company was able to offer credit cards and accounts, which became the main drivers of its growth. However, the central bank recently moved to tighten regulatory gaps by increasing the minimum capital requirements for fintech companies. This change doesn’t impact larger fintech companies like Nubank but it does increase the scrutiny on the company, with oversight now matching that of midsize banks in the country. source

Looking Ahead

The CEO of Nubank, David Vélez, remains optimistic despite the regulatory challenges. He believes that the process of obtaining a banking license should not pose a significant burden from a regulatory perspective. As Nubank navigates these complex regulatory waters, the company’s next steps will undoubtedly shape the future of fintech in Brazil. source