Nubank’s regulatory disclosure raises concerns for customers and analysts

Nubank’s disclosure of its Form 20F filing, sent to the United States’ stock exchange regulator, caused quite a stir recently. Founder David Vélez’s accompanying remarks set off alarm bells for many customers. In the filing, the bank revealed that the National Congress is considering reducing interest rates on credit products such as overdraft and revolving credit. Though there is no timeline for implementing the changes, they are expected to have a significant impact on the bank.

Market analysts believe that Nubank would be the institution most affected by potential interest rate cuts. This is due to the fact that much of its revenue comes from credit cards, which is not the case with larger banks.

Nubank itself also worries about the adoption of new capital requirements for type 3 conglomerates, rules that began to be implemented in July 2022 and will continue to be expanded until January 2025.

According to the digital bank, if the new regulations were already in effect at the end of 2022, regulatory capital demand would have risen by $261 million, or approximately R$1.4 billion. The figure reinforces concerns about the negative impact on the company’s finances.

In an interview with the Valor Econômico newspaper, Nubank’s CEO, David Vélez, stated that the creation of an interest cap for credit cards would be “very detrimental” to the financial system.

“If this happened arbitrarily, tens of millions of people would lose their cards the next day because the operation would no longer be profitable. It would be a shock to the system,” he said.

Vélez also said that concern over interest rates is understandable but that there are other possible measures.

“We are actively, along with other banks, trying to suggest some other options. But, in my assessment, the solution is to have more competition – something that the Central Bank has been doing – and, on the other hand, it is the macro issue. High interest rates come directly from high inflation, which is now being controlled, but which is something that is outside the reach of financial institutions,” he added.

The concern about the impact of potential interest rate cuts on Nubank is not unfounded. But it is worth noting that the bank has already shown its ability to weather challenges and changes in the market.

Earlier this year, Nubank became the fourth financial institution in Brazil to reach a valuation of $25 billion, despite a challenging financial environment. The bank’s success can be attributed to its focus on the digital experience for customers and providing a more accessible and transparent banking system.

However, Nubank also understands that it cannot rely solely on its current business model, and it’s essential to continue to be innovative and adapt to changes in the market.

For example, the bank recently launched a tool that allows customers to increase their credit card limit instantly. The feature aims to provide greater flexibility for cardholders, allowing them to make purchases or cover unexpected expenses more easily.

Nubank’s approach to innovation has been one of ongoing experimentation and a willingness to take risks. The company has a culture of testing, learning, and iterating, which has allowed it to stay ahead of the curve.

The bank’s CEO has also emphasized that the company’s success is based on a focus on its customers rather than its financial metrics.

“Our goal, first and foremost, is to make life easier for our customers – to earn their trust, become their primary financial institution, and keep them with us for the long haul,” Vélez said.

Nubank’s commitment to its customers has been evident from the start. The company was founded in 2013 with the goal of providing a more customer-centric banking experience. Its mobile app and debit and credit cards eliminated many of the fees associated with traditional banking products, making it more accessible to a broader base of consumers.

The bank has continued to expand its offerings over the years, launching insurance and investment products and even a digital account for small businesses. The company’s focus has always been on making the banking experience more straightforward and more accessible for everyone, regardless of their income or financial background.

As Nubank continues to navigate potential changes in the market, it will be essential for the bank to stay true to its founding values and continue to innovate. By focusing on its customers and remaining agile in the face of challenges, Nubank can continue to thrive and help to revolutionize the banking industry in Brazil and beyond.