N26 finally lands licence to operate in Brazil

Written by Ruby Hinchliffe
7th January 2021

N26 has finally landed its Brazilian licence to initiate operations out of São Paulo, following plans to launch in the region nearly two years ago.

The country’s central bank has granted it a Sociedade de Crédito Direto (SCD) licence, according to Brazillian news outlet Valor.

Brazil has been fertile ground for new digital entrants, in particular home-grown Nubank

It translates to “direct credit company”, and is one of two fintech licences issued by Banco Central do Brasil.

An SCD licence allows N26 to grant loans and financings and to purchase receivables through its platforms – as long as it uses its own capital.

An SCD licensed firm can, however, still sell receivables from their loans to financial institutions. They can also fund their loans through lines of credit from the National Economic and Social Development Bank (BNDES).

Delayed launch

N26 originally planned to launch in Brazil as the end of 2020, but according to Finance Forward, the date was pushed back.

Back in December, founder and CEO Valentin Stalf told Reuters the challenger was focusing on its core markets. Namely: Germany, France, Spain and Italy.

As of January 2020, the fintech claims to five million global customers. It has not updated this figure since.

The German start-up does not intend to announce its Brazil launch plans until the end of the first quarter, according to a spokesperson cited by Finance Forward.

Eduardo Del Guerra Prota has headed up Brazillian expansion plans for N26 since February 2019, according to his LinkedIn.

Prota is an ex-Santander analyst, but more recently worked at Cielo, Brazil’s largest credit and debit card operator.

Initially, Prota says N26 plans to offer a simple digital banking account. But over time, the challenger intends to use its licence more fully to offer credit solutions, as well as investment options.

Success of Nubank

Brazil, home to 210 million people, has a large population of unbanked. Its major digital challenger, Nubank, has taken the early advantage of this.

The Brazillian fintech sailed past the 25 million customer mark in June, more than doubling its user base in a year.

In the first quarter of 2020, Nubank claims it was acquiring 42,000 users each day on average.

Across Brazil and Mexico, where it expanded in March last year, the challenger bank holds at least a 7.4% market share of all consumers.

By September, Nubank was the second biggest credit card issuer in Brazil, followed Itau Unibanco Holding. That’s according to UBS analysts.

Whilst the challenger isn’t turning a profit, it did manage to reduce its losses by 32% in the first six months of 2020 – which bodes well for eventual profitability.

Nubank’s default rate on loans was around 5.8% between January and June 2020, above the national average. According to macroeconomic data analyst CEIC, Brazil’s non-performing loans ratio stood at a much lower 2.7 % in July 2020.

If N26 does begin to offer credit products in Brazil, it will need to asses the implications of such high default rates on its bottom line.

A tough year for expansion

It was a rocky year in 2020 for N26’s expansion outside of “key” markets. In February, the fintech decided to pull its operations out of the UK.

When N26 launched in the UK back in October 2018, it drove a big marketing push – the price tag for which has not been revealed.

But by December 2019, N26 ranked just 19th on the UK challenger bank list for most active users, according to App Annie figures. It sat behind My Argos Card and cryptocurrency exchange app Coinbase.

According to the BBC, the challenger had just 200,000 UK users upon exit.

In May, N26 fired ten of its 90-person New York-based workforce. It marked the first instance of job losses for the fintech.

Then in August, N26 said it had “nearly” hit the half a million-customer mark in the US. Almost double the numbers the fintech reported back in January 2020.