Market inefficiency in Brazilian fintech?

Happy New Year!

“Your margin is my opportunity”: Brazilian fintechs are rapidly taking market share away from entrenched Brazilian banks and payment processors. But it’s not a zero-sum game; this activity is expanding economic activity in Brazil. It’s a greenfield situation. Tailwind is policy makers that are dovish to fintechs.

I’ve been on a quest to find a category of company that is not as well understood by Mr. Market, is “knowable”, is accessible/liquid AND contains multiple, specific companies that meet this board’s investment criteria.

I think I’ve found one: Brazilian fintechs listed on NASDAQ/NYSE:

  1. Liquid, because they are listed on prominent exchanges and have decent trading volume
  2. Less understood, at least by most American retail investors
  3. “Knowable” in that information necessary to form an investment thesis is reasonably available
  4. And: there are several Brazilian fintechs that I think are putting up numbers that are potentially compelling to this board

If enough investors are under-informed about Brazilian fintech, then we might have ourselves an exploitable inefficiency in the market!

The purpose of this post is to provide evidence that there are compelling opportunities in Brazilian fintech that justify the time necessary to learn about them. To that end it is
necessary to provide some background information on the history of, current state of and future of Brazilian fintech. At the end of this post I briefly discuss some specific companies.

So here we go!

During the decades leading up to 2010, the Brazilian economy was artificially constrained by oligopolistic and duopolistic strangleholds on banking, payments services and related financial services.

The situation motivated the Brazilian government to implement regulations which have alleviated bottlenecks (…at least, partially), FACILITATED fintech innovation and BOOSTED economic activity.

Specifically: In 2010 the Brazilian government initiated a successful and still-ongoing series of aggressive law/policy/regulations changes that

  1. Opened the Brazilian banking and payments markets to innovation and competition
  2. Achieved remarkable and sustainable economic benefits (…beyond just banking and payments) for new fintech companies, their customers and for the overall Brazilian economy
  3. Spawned a still-expanding gold rush of fintech innovation in Brazil that extends far past banking and electronic payments

A ton of quality background information can be had with a Google search on “Brazilian policy fintech”, but here is some condensed information:


  1. Oligopoly in banking consisting of FIVE banks that had a stranglehold on the majority of banking assets and activity
  2. Duopoloy in credit card acquirers: one bank owned Visa, the other owned Mastercard. Merchants thus were forced to maintain TWO POS systems.
  3. 66% of credit card transactions (…and 77% of debit card) concentrated in only FOUR banks
  4. LOTS of follow-on ramifications of 1) and 2) above. Too many evils to detail here, but they include banks having an exclusive lock on customer data, lack of competition for customer debt, usury spreads between what banks paid for money and the rate they lent it out, clunky, expensive and inconvenient payment methods (“Boleto”, expensive wire payments), half the population was unbanked because the banks only serviced rich people, credit card rates at 160%, it goes on and on.

Partial list of innovative and/or proactive and/or aggressive regulatory changes implemented by the Brazilian government:

  1. 2004: “Banks for All” program launched: new bank locations extended into remote areas, increased “banked” population by double-digits
  2. 2010: Acquirer market opened to new players; Cielo and Rede no longer had exclusitivity on Visa and MC payments
  3. 2013: Brazilian Central Bank (“BCB”) empowered as a Regulator with the objective of rationalizing the interests of banks/acquirers vs. merchants/customers
  4. 2013: Banking license was “un-bundled” via a new regulatory framework to alter compliance rules for “Payments Institutions” such that more-narrowly-defined fintech licenses were created. Thus, businesses could provide subsets of financial services without having to get a full banking license (…which is practically unattainable in Brazil, or was at the time). This opened up new opportunities in “prepaid” electronic money issuers
    (…food vouchers for example), postpaid (…credit cards accounts) and payment acquirers
  5. 2016: a financial-services-reform-roadmap called “Agenda BC+” was published by the Central Bank of Brazil
  6. 2018: Two new fintech licenses were made available: a “Direct Credit Institution” license empowering a business to lend with their own capital, and a “Peer to Peer Institution” license empowering a business to act as an intermediary to connect investors and borrowers in P2P arrangements
  7. 2018: Presidential degree published recognizing the Brazilian Government’s interest in attracting foreign capital participation in Brazilian fintech companies
  8. 2020: framework extend to accommodate “payment initiators” e.g. businesses that enable users to initiate payment without leaving an electronically-defined “payment environment” e.g. WhatsApp Pay
  9. 2020: BCB launched “Open banking” policy with the objective of enabling new fintech entrants to price credit by alleviating the stranglehold big banks have on financial records. And making the data portable.
  10. November 2090: BCB launched “Pix”, a wildly successful instant-payment platform that is already ubiquitous in Brazil. It allows instant payment between individuals, compaies and Government (P2P, P2B, B2B, B2G)
  11. 2021: BCB launched “Open Finance” policy aimed at giving consumers better control over their own data, which previously was basically owned by the banking oligopoly
  12. 2021: creation of “Registration Entities” to level the playing field for negotiation of purchase of customer debt. It turns out that in Brazil, installment payments have long been a standard practice, and merchants often have to sell their customers’ payment
    obligations at a discount to get quick access to working capital. Until now, the payment acquirer had an exclusive lock on buying this debt. So regulations were introduced to open the purchase of this debt up to competitive buyers.
  13. 2022: eFX “electronic Foreign Exchange” created, and policy changes aimed at supporting international (“cross-border”) payment and transfer options and opening related business to fintech companies

Partial list of initiatives yet to be implemented:

  1. Expand scope of consumer data sharing protections and privileges to include foreign exchange, insurance “and more”
  2. Brazil is in the final stages of launching “Real Digital” which aspires to launch programmable money based on blockchain
  3. “Scheduled PIX” for scheduled payments, “International PIX” to enable transfer to/from foreign bank accounts, and other PIX add-ons


  1. Banks-for-all program successful at increasing bank deposits and bank credit, increasing the nunber of businesses and increasing demand for labor, and increasing wages
  2. Explosion of fintechs in Brazil is rapidly dis-intermediating the banking oligopoly, narrowing the interest rate spreads customers pay and expanding financial activity
  3. As of 2022 Brazilians’ access to financial services had increased from 57% to 86% e.g. 75 MILLION customers brought into the banking system
  4. As of 2021, 96% of adult Brazilians had access to a digital wallet, up from 55 percent in 2010
  5. Rapid fintech innovation is rapidly creating new business models with corresponding new benefits to merchants, businesses and customers


  1. By 2022, PIX accounted for 27% of all payment transactions and 11% of payment value in Brazil
  2. Fintech Nubank is now the largest neobank in the world, has 33 million customers
  3. Brazil is WhatsApp’s second biggest market, where 120 million users use it to text, shop and pay


  1. A lot of progress has been made, but centuries of a hostile banking dynanic take time to address, and Brazil is still in the beginning stages imo
  2. For instance: as of 2021, 70% of all payments were still made with cash! And Boleto is still in use despite its many disadvantages. For lots of Brazilians, the default is still to buy online, then pay IN CASH at a STORE!
  3. As of 2021 80 percent of Brazilian bank deposits are still with the banking oligopoly
  4. ROE of Brazilian banks in 2021 was still a way-too-high average of 18% (…twice that of American banks).

If “your margin is my opportunity”, then there is still a LOT of opportunity for Brazilian fintechs.

WHICH Brazilian fintechs are good investment candidates?

  1. Discussed on this board, and in my portfolio: $STNE (small position), $MELI (small position), $NU (micro position)
  2. Also in my portfolio: $PAGS (small position)
  3. Probably several others! At least! Please chime in!

I’ve already posted some thoughts about $STNE; I started with a large-ish position but returned it to a small position. I hope to follow up with more detailed thoughts on some or all of $STNE, $MELI, $NU and $PAGS

For now, here are my condensed thoughts on these companies:


  1. Primarily a POS provider for small/medium businesses, though they are attempting to muscle in on micro businesses.
  2. Their POS solution is superior to incumbents’ because only ONE POS platform is necessary for basically any/all payment methods.
  3. They provide a differentiating high level of hand-holding and service to their customers including “hubs” where Merchants can talk in-person with customer service personnel.
  4. They have not yet proven themselves (imo) in adjacent areas in which they aspire towards, which include
  • Business software-as-a-service and integration of BaaS integration into their Merchant-verticals solutions
  • “Omnichannel” solutions that aspire to provide a $SHOP equivalent
  • Migrating their customers into their banking and investment solutions
  1. For now, they are a “greenfield” POS company that aspires towards sustainable growth via adjacencies


  1. Primarily a POS provider for micro businesses, though they are attempting to muscle in small/medium businesses
  2. …I don’t know much more than that; I’m just learning about $PAGS.
  3. I think though that for now, they also are a POS “greenfield” company that aspires towards sustainable growth via adjacencies.


  1. Neobank that is rapidly closing in on the market capitalization of the established oligopoly banks
  2. …I don’t know much more than that; I’m just learning about $NU.


  1. $AMZN equivalent that is rapidly expanding into other areas…and other countries!
  2. …I don’t know much more than that; I’m just learning about $MELI
  3. …that said, I think they have already demonstrated that they can move into adjacent opportunities, so their durable-growth profile looks pretty good to me so far.

TAKEN AS A WHOLE, imo, collectively these four companies are

  1. Crushing it
  2. Well-represented by investors I respect
  3. Under-represented in American retail investor portfolios.

I took my position in these companies several months ago using a “shoot now, ask questions later” approach and I spread my risk by buying small amounts in multiple prominent players. Meanwhile I’m in “catch-up” mode to learn more about these companies so I can determine how to proceed from here.

I hope to have piqued your interest in Brazilian fintechs as a category; please let me know whether I have succeeded!


Actually I think you are understating MELI here. Yes they are the LatAm equivalent of Amazon but in terms of fintech credentials, they are: a payment processor, a digital bank and a POS player. Actually I think their breadth is the best of all the players plus are not just Brazilian but LatAm wide with the best fundamental growth record of all.



Thanks for the banking history background on Brazil. I am a 10+ year holder of MELI. Obviously I have done well and MELI has been my top holding for the last couple years as I doubled up per the ecommerce growth. I have never had a good handle on their fintech segment growth or high profit margins. Banking is a bit of a head scratcher for me in the US and even more so in a foreign country. This is not like other high tech stocks that I can understand.

I am in the process of my due diligence on NU, a rapid growing Brazilian fintech that is expanding to Mexico and Columbia. So your post is timely to me understanding the opportunity. After reading several seekingalpha reviews it is time for me to dive through the recent NU quarterly reports. I believe NU has been previously mentioned on Saul’s board somewhere. These are the things that have attracted me. Nu has 89 million customers, nearly doubling its customer base over two years with a CAGR of 36%. Customer growth seems to be accelerating, reflecting 6.5% growth Q/Q. Gross revenue the last couple years has grown 103% on a neutral FXN and over 60% in 2023. Earnings are hitting the bottom line and PE has dropped significantly the last few quarters reflecting some valuation.

If I move into NU it will be a smaller position complementing my MELI holding, as this is a higher risk area.



I got into NU back in August. I think it’s impossible to evaluate their capabilities without understanding their amazing CEO, David Velez. The work ethic; the brilliance; the ability to communicate; the commitment to the mission and the team; the overall ethical core; the understanding of the market, opportunity, and business is absolutely second to none.

I first “met” him in this Fortt Knox Conversation from four months ago, and I bought my first tranche of shares almost immediately after watching. In fact, I may have paused the video to buy my first shares.

That video focuses more on Velez as a person. This one with Harry Stebbings is from three months ago and gives you many of those same insights while also hearing more of his vision for the company, the success they already have, their plans for expansion, where growth will come from, how ai will replace bankers (and how to avoid disaster in that), and how they maintain their culture.

Each video is right around an hour, but you’ll understand the opportunity more after listening to him than you will in pouring over numbers for the same amount of time.

My position is just over 14% currently.



Tonight the news came out that NU now has an operating license in Colombia. Like Remitly, Nubank moves to new territory slowly and carefully. Seems good for a bank.

Here’s the essence of the release:

…the Financial Superintendence of Colombia (“SFC”) has granted Nu. Colombia Compañía de Financiamiento S.A. (“Nu Colombia”) the Operating License, or Licencia de Funcionamiento, which allows Nu Colombia to operate as a financing company.

This license reinforces the long-term vision and commitment of the Company to Colombia and will enable Nu Colombia to expand its product portfolio into credit, payments and savings.



Thx JR, I took a small position yesterday in NU on the pullback.



Just to let everyone know:

I sold out of $STNE

  • I’m not convinced they are making progress in durable growth via adjacencies, which means for now I think they are basically just a payments processor.
  • They are growing, but I’m not sure they have long term prospects for accelerating growth beyond the initial gold rush induced by the relevant government reforms
  • I’ll monitor them for signs of accelerating growth

I sold out of $PAGS

  • Basically for the same reasons as $STNE

I’ve kept my small position in $MELI

Companies in similar/adjacent spaces I need to learn more about: