Tencent’s investment in Nubank is set to give the fintech a boost in customer acquisition and analytics, and raises the stakes for Brazil’s banks, observers say.
In particular, know-how from Tencent could help Nubank develop a national payments network, accelerate its lending business and race ahead with big data analytics.
Nubank started offering payments based on QR codes last month, for example. The Tencent deal could drive rapid expansion of that capability, said Bruno Diniz, managing partner at fintech consultancy Spiralem in São Paulo.
“There’s the possibility to perhaps expand and turn that into a payments system just like what we see in China.”
One of China’s internet giants, Tencent offers social media, entertainment and payments services to its users. It has vast reach: over a billion people use its messaging platforms Weixin and WeChat, while some 800 million people use its payments services each month.
Established in 2013, Nubank has some four million credit card users, launched a current account service a year ago and is now reported to be looking at entering the lending market.
“This deal allows Nubank capital to execute on its consumer loans plans,” Mike Derham, partner at specialist China-LatAm consultancy Novam Portam, told iupana. “It’ll allow it to get traction in gaining market share. But there’s also a lot of opportunity from the data flow that comes from originating those loans. So Nubank will benefit from Tencent’s know-how not just in payments, but in how to crunch data.”
Brazilians have not turned away from traditional banks in favor of challengers like Nubank in large numbers, said Diniz. But if the fintech can expand its offering, that might change, he said.
“Many people like Nubank more than they like the banks. If Nubank provides more products in the future, then customers might switch.”
Synergies for Tencent
For Tencent, the $180 million dollar investment offers a diversification play which could help it recover from a slumping share price.
Despite registering CNY 280 billion (USD 40 billion) in revenues in the 12 months to the end of June, the Big Tech company’s share price has been falling. It peaked at just over $60 in January, and stood at $34 last week.
“If they are having difficulty in their core markets, they can use this to show shareholders that they are diversifying,” said Derham. He added that the country’s low level of financial penetration and high level of smartphone usage offered strong growth potential. “Brazil and Latin America as a whole is underbanked. So Nubank has lot of potential new customers it can reach out to.”
While Nubank offers entrance to just one market – without regional presence – the size of that market is attractive. Additionally, there are similarities between Brazil and China in terms of being a large emerging market with a single regulatory framework throughout, noted Diniz.
Chinese waver on LatAm
Tencent’s Nubank investment comes as China’s tech companies reassess the value in Latin America.
Alipay, part of Alibaba’s Ant Financial, struck a deal with Mexican payments company Open Pay earlier this year, and was said to be looking to invest in a company with pan-LatAm presence.
Since then, Alipay’s North America president Souheil Badran left the company. He has not been replaced, suggesting the region is less of a priority for the company. Meanwhile, another Chinese tech company, Baidu, closed its Brazilian operations earlier this year.