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Neobanks are coming from where you least expect them

Nubank founder and CEO David Vélez recently posted on LinkedIn the famous quote, “First they ignore you, then they laugh at you, then they fight you, then you win.” If his company hits the $50 billion it’s aiming for in its New York IPO, it will be the most valuable publicly traded bank in Latin America, and one of the top listed companies of any kind in the region. As soon as this year, Nubank, the Brazilian financial technology company Vélez started in 2013, could be worth one third of Citibank.

Before you think the number is crazy, you should check out the detailed financial statements Nubank filed in advance of its IPO. Neobanks are not cheap to run and Nubank still loses money, but in the nine months to September 30th its revenue doubled year over year while losses before taxes in the same period widened by less than 4%.

Vélez’s vision was to serve the vast market of people in Latin America without a bank account, and eight years later 48 million and counting have signed up for Nubank. That is his superpower, and his board has given him voting powers to match:

Neobanks were supposed to target millennials who are more familiar with technology and would therefore be more willing to skip traditional branch offices. A popular poll some years back claimed that 71% of millennials would rather visit the dentist than a bank. The theory lacks evidence but rings true because so many people have had bad experiences with their banks. The customer satisfaction benchmark net promoter score (NPS) for all of banking is 35 points vs 47 for tablet computers. Nubank’s is 90.

I could visit your branch but it’s gonna cost you

There sure is more to Nubank than generational change. TechCrunch used the IPO statement to better gauge if digital-only banks have a future. They found that Nubank pays roughly $5 for every new customer. Meanwhile US retail banks pay $280 per new customer or $120 if they manage to offer digital onboarding. Nubank’s monthly revenue per customer this year was $4.9, with customers bringing $23 to $34 per month as time goes by and they use more services.

At this rate, Nubank should be able to turn a profit soon. Latin America was always a tough market for banks to crack because of high inequality and an infatuation with cash. Yet, Nubank shows the massive potential of the region’s huge young and connected population. Other fintechs like Mercado Pago, the financial arm of Latin-American ecommerce giant Mercado Libre, are tapping the opportunity by offering bank accounts for children as young as 13 years old.

You give Latin America a good name—and $

Nubank’s story is behind the digital tsunami of venture capital in Latin America, which has already crossed a historic $9 billion this year, a lifetime record and more than double last year’s figure. VCs which invested in Nubank early on are about to make a killing. QED is one such VC. They invested in Nubank in 2014 not out of a passion for Latin America but because they were impressed by Vélez.

Lauren Morton is now in charge of the expanding Latin-American portfolio at QED. She talks about all the elements in favor of the region, the small, medium, and big startups they are supporting in different stages of development, and the many opportunities that the region still offers for future investment. She says Nubank’s IPO “will be the clearest indication yet that you can build a juggernaut of a company in Latin America.” Thanks to Vélez, many regional founders will not be ignored anymore.