NuBank coming to the Middle East: “Do or do not, there is no try”

Is Nubank planning to expand into the MENA region and enter KSA?

I have read a number of posts on LinkedIn which suggests the same but yet to come across any official news (unlike Revolut which has officially announced its intent to enter the UAE and also recently announced their CEO for UAE - congrats Ambareen Musa )

For those who dont know Nubank, its one of the world's largest and fastest growing digital banks with over 100 million customers. Its LATAM fintech's posterchild which now dominates the Brasil Banking Sector and has been expanding in the region.

For the purpose of this article, lets assume the #nubank has decided to enter the KSA so I decided to explore three questions (Please note, these are personal opinions based on my limited knowledge of the bank). The questions I chose to explore are:

1. Why would it make sense for Nubank to consider entering the KSA at this stage of their evolution?
2. Why it doesn’t make sense for them to distract themselves with KSA, when there is still so much headroom to grow in LATAM and Central America?
3. Why entering a massive market like the US might make more sense at this stage (instead of KSA) despite the competition which exists in the US?

The purpose of sharing my thoughts is to encourage discussion among those who are interested and in the process may be learn a little bit more.

Nubank is a brazilian fintech giant that has rapidly become a global icon for digital banking (and for all consultants who want to present benchmarks and/or discussion platbooks which other aspiring entrants can consider world over). Its potential expansion into a market like Saudi Arabia (KSA) has undoubtedly stirred conversations among fintech watchers like me and others, particularly given Nubank’s success in Latin America but also at the same time, a certain level of confusion on why would they venture to this part of the world?

So lets explore the 3 questions:

1. Why would it make sense for Nubank to consider entering the KSA at this stage of their evolution?

• Massive Untapped Digital Potential

KSA is undergoing a digital renaissance, which emphasizes digitization across industries, including banking. The country has been pushing for financial inclusion, improved digital services, and fostering competition among banks. This environment is (potentially) highly conducive to a player like Nubank, which has disrupted traditional banking models in Latin America by offering fee-free, mobile-first services although the the native digital banks have found it hard to get going (due to a number of a reasons incl. regulatory ones)

The Saudi banking sector is still dominated by traditional players, but digital penetration is increasing, and younger consumers are more tech-savvy, with smartphone penetration over 100% of the population. The demographics, particularly the younger generation, are favorable for Nubank’s digital model. A population where nearly 70% is under the age of 35 would be more inclined to adopt a digital-first solution. Nubank could capitalize on the evolving preferences of this youthful demographic who are seeking innovative, frictionless banking experiences.

• Saudi Government’s Pro-Digital Policies

Saudi Arabia’s regulators have been progressively opening the door to fintech players. The Saudi Central Bank (SAMA) has introduced the fintech sandbox to allow emerging players to test products in the market. The government’s clear backing for digital finance initiatives provides a window for Nubank to enter, experiment, and scale. The regulatory environment is designed to foster innovation, and SAMA’s engagement with fintechs positions KSA as a potential destination for Nubank, particularly with the strong government push for digitization and financial inclusion.

• Strategic Early-Mover Advantage

While Saudi Arabia’s fintech market is growing, it is still in a nascent stage compared to more mature markets. Nubank could gain a early -mover advantage by entering KSA before other global neo/ digital banks. Nubank’s ability to replicate its low-cost model of no-fee credit cards and digital accounts could resonate well in a market where traditional banking fees remain high. While local players like STC Bank and D360 Bank are making headway, Nubank’s expertise and brand recognition could set it apart, allowing it to carve out a substantial niche.

• Increased Global Recognition

Expanding into KSA aligns with Nubank's long-term goal of becoming a global digital banking giant. Entering a market as high-profile as Saudi Arabia would boost Nubank’s global recognition and credibility. KSA is increasingly becoming an important financial hub in the Middle East, and having a footprint there could pave the way for further expansion across the Gulf Cooperation Council (GCC) countries, Central Asia and even North Africa where financial inclusion efforts and digitization are also growing priorities.

• Ready access to strategic long-term capital

Saudi's SWF, PIF has been investing in the fintech, technology, and innovative companies globally, and they have a long-term investment horizon. Nubank’s potential expansion into Saudi Arabia could position it to attract substantial investments from the PIF, which has over $700 billion in assets and a clear focus on fostering innovation. This kind of backing would not only provide Nubank with capital to expand globally but also align it with one of the most powerful investment vehicles in the world. The backing of someone like a PIF could serve as a strategic boost, providing both financial resources and credibility, especially when expanding into other markets.

• Support for Aggressive Global Expansion (in continuation of the above rationale)

Despite Nubank’s successful IPO, having access to a sovereign wealth fund like PIF could accelerate its expansion strategy beyond Latin America. Saudi Arabia's deep financial resources would enable Nubank to take bolder steps globally, whether it’s entering new markets or developing new products. This strategic partnership could also facilitate partnerships in other sectors such as tech and telecommunications, which are integral to Nubank’s digital ecosystem strategy. PIF’s involvement could also potentially de-risk Nubank's entry into not only KSA but the broader Middle Eastern market by providing not just capital, but also access to local networks, market insights, and government connections.

Ok, enough on why they should enter, now lets explore the other side of the arguement

2. Why it doesn’t make sense for them to distract themselves with KSA, when there is still so much headroom to grow in LATAM and Central America?

• Significant Unmet Demand in Latin America

Despite Nubank's extraordinary growth, there remains significant untapped demand in its home region. LATAM’s financial inclusion rates are still far behind global averages, meaning a large portion of the population is either underbanked or unbanked. Nubank is already established as a leader in Latin America and has clear competitive advantages in understanding the unique needs of consumers in countries like Brazil, Mexico, and Colombia. Venturing into an entirely different market when there’s still so much potential at home could dilute Nubank’s focus.

• Challenging but familiar regulatory environment

Latin America’s regulatory landscape, though challenging, is very familiar to Nubank and they have learned how to thrive in it. They’ve built strong relationships with regulators, and have developed robust strategies to navigate the complexities of markets like Mexico and Colombia. Expanding further within the region would allow them to consolidate their market leadership without the need to invest heavily in understanding new regulatory environments, as would be the case in KSA. Also, if you would ask fintechs - especially the digital banks that operate in the KSA, they will be the first to tell you that managing the regulatory ambiguity and complexity has been one of the biggest challenge for them. Personally, I dont think Nubank has anything unique in their arsenal which will help them on this topic.

• Cultural and Market Differences

Saudi Arabia presents a vastly different cultural and business environment than what Nubank has encountered in LATAM. The financial needs, cultural nuances, and expectations of Saudi consumers are distinct. Adapting Nubank’s products and services to fit the local context would be an expensive and time-consuming process. It would require significant localization efforts, from customer acquisition strategies to regulatory compliance and even product offerings

LATAM markets, on the other hand, share more commonalities, allowing Nubank to scale without reinventing its model each time. Focusing on adjacent Latin American countries, where it already understands the customer base and regulatory landscape, may prove to be more cost-effective and strategically sound in the near term.

• Resource Allocation Challenges

Entering a completely new region would require substantial resources, including capital, talent, and management bandwidth. Nubank’s existing growth strategy in LATAM has been fueled by aggressive customer acquisition and significant investment in technology and data. Redirecting resources to the Middle East might stretch the company thin, especially given the headroom for growth it still has within Latin America. A more prudent approach might be to focus on deepening its penetration in current markets before venturing into uncharted territories.

So, if they really want to expand beyond LATAM arent they better of considering the biggest market of them all, USA....

3. Why entering a massive market like the US might make more sense at this stage (instead of KSA) despite the competition which exists in the US?

• Familiarity with Western Regulatory and Market Structures

While the US is one of the most competitive banking markets globally, it offers a regulatory environment that may be easier for Nubank to navigate than the one in Saudi Arabia. The US fintech ecosystem is highly advanced, with a mature regulatory framework for digital banks and fintechs. Nubank already has some experience with Western markets through its partnerships with investors and advisors from the US. This familiarity with the regulatory and competitive dynamics of Western financial systems might make an entry into the US more seamless than KSA.

• Access to a More Established Fintech Ecosystem

The US is home to a more developed fintech ecosystem, including a sophisticated venture capital network, advanced payment systems, and cutting-edge digital technologies. Nubank could benefit from strategic partnerships with US tech companies, fintech players, and regulators. The market also has a more established user base accustomed to digital banking products, making it easier for Nubank to introduce innovative financial services.

• Brand Recognition and Product-Market Fit

Nubank’s cultural and linguistic affinity with the Latino community in the US is a powerful advantage. The Latino population is one of the fastest-growing demographics in the United States, expected to account for nearly 30% of the US population by 2050. This community often faces barriers in accessing traditional financial services, such as language issues or high fees from established banks. Nubank could tap into this market by offering tailored services that resonate with the needs and preferences of Latino customers.

By entering the US market, Nubank could leverage its brand identity, which is already well-known and trusted in Latin America, to attract this group. Offering bilingual services, low-cost products, and culturally relevant marketing strategies would position Nubank as a preferred choice for the Latino community, particularly for those who are unbanked or underbanked.

Nubank already has a deep understanding of the financial needs and behaviors of Latino consumers from its operations across Latin America. This knowledge could give them a head start in targeting the US Latino population, as they can easily adapt their existing products and customer service to suit the needs of US-based customers. The ability to offer a seamless experience across borders, such as allowing customers to manage accounts both in the US and Latin America, could be a huge selling point.

Unlike Saudi Arabia, where Nubank would be starting from scratch in terms of brand-building, its reputation in the US could accelerate its entry and reduce the need for extensive localization efforts.

• Established Economic and Remittance Corridor

There is a well-established economic and remittance corridor between the US and Latin America, and Nubank could leverage this to its advantage if it enters the US market. The US is the largest source of remittances to Latin America, with billions of dollars flowing back to countries like Mexico, Brazil, and Colombia annually. This corridor presents an opportunity for Nubank to offer seamless, low-cost cross-border payment solutions, capitalizing on its expertise in digital banking and financial services in Latin America.

Nubank could potentially create new products or expand its existing offerings to cater to the millions of Latino immigrants in the US who regularly send money home.

..... there are other reason why I believe the expansion into the US would be the natural next step for Nubank

My final thoughts.....

In summary, while KSA offers significant untapped potential, particularly for a digital banking pioneer like Nubank, the complexities of entering such a different market cannot be ignored. The cultural and regulatory hurdles, combined with the immense headroom for growth in LATAM, make it a less obvious choice for immediate expansion (at least in my opinion)

On the other hand, entering the US, while competitive, aligns more closely with Nubank’s existing strategic direction, offering potential synergies with its investors, access to a mature fintech ecosystem, and an opportunity to compete in a well-established, digitally inclined market.

However, a long-term view could see KSA, and the broader MENA region, as a viable market for Nubank once it has solidified its position in LATAM and perhaps entered the US. For now, the most sensible path to me might be obvious, but then again what do I know......