Thesis: Banking in Brazil — Leading Neon Pagamentos’ Series A
Portland to São Paulo
In 2013, weeks after joining BBVA Ventures, I found myself in Portland with Jay Reinemann, meeting with the co-founders of Simple, Josh Reich and Shamir Karkal. Following the trip, investment discussions turned into to acquisition discussions, and over the next few years between Portland, Madrid, and San Francisco we learned from the pioneers of digital banking.
Today, Neon announced a Series A round of funding led by Propel, with participation from Monashees and Quona. As part of the financing, Jay is joining the board with Marcelo Lima at Monashees.
Investment Thesis — Financial Services in Brazil
As the most populous country in South America and 5th globally, Brazil is home to over 200 million people. The economy is the 8th largest in the world, and the recovery from the country’s worst recession in history is underway.
The three largest companies in Brazil are banks, and the top five banks have approximately 85% of loans and 90% of branches. Of the top five, two are state-owned (Banco do Brasil, Caixa), two are private (Itaú, Bradesco), and one is foreign (Santander).
Interest rates for consumer credit in Brazil rank among the highest in the world, and the highest out of the top 20 global economies. Consumers are subjected to >100% interest rates for unsecured personal loans and >300% for credit cards. High APRs and record low interest rates from the Central Bank produce wide spreads for Brazil’s banks, and outsized return on equity compared to the US banks. Combined with high fees and a lack of competition, banks in Brazil have been able to push ahead despite the recent economic headwinds.
With these market dynamics, consumer choice is limited, and competition among leading banks for innovation and improving customer experience is low. Supported by local venture funds such as Monashees, Kazek, and Redpoint eventures, experienced entrepreneurs are building in fintech with a particular concentration in credit, personal/enterprise financial management, payments, and insurance. Over the next decade, technology will be a driving force in disrupting the oligopoly of the big banks.
The opportunity for fintech innovation in Brazil is among the most attractive globally, and we will be spending significant time in the region supporting entrepreneurs building companies at the intersection of technology and financial services.
Neon Pagamentos
Propel’s first Brazil investment is a stark contrast to the biggest banks in the country, in being transparent, accessible, and affordable. Neon Pagamentos, which launched in 2016, is a consumer-first, all-digital bank. Customers can create a bank account — accessing a debit card, bill pay, investment products, and PFM tools within minutes after downloading the Neon app. Neon operates without any branches and allows Brazilian consumers with a valid ID to access banking products while avoiding the bureaucracy and fees typically associated with a bank account in Brazil.
In March 2018, Neon Pagamentos announced the release of a credit card product during a live event on Facebook. There were over 10,000 requests for credit cards in the first 15 minutes following the announcement. Neon Pagamentos aims to reach one million customers by the end of 2018 and will expand into business banking services and additional investing options.
Pedro, a strong communicator, has surrounded himself with experienced executive talent with highly relevant operating experience. Recent additions to the management team include Jean Sigrist, former Director at Itaú and entrepreneur, Patrick Sigrist, founder of iFood, and Norberto Giangrande, founder of Rico. In addition to working alongside Pedro, the trio invested in the Series A as partners at Yellow Ventures.
We are excited to be working with Pedro and the team at Neon Pagamentos to build the bank of the future. By delivering a consumer-first banking alternative to the 200 million people in Brazil, we believe Neon Pagamentos can be the leading financial institution in the country.
Propel Venture Partners is a San Francisco-based venture capital firm focused on investment opportunities at the intersection of technology and financial services. The Propel team believes the future of financial services will be realized by rethinking and rebuilding, and partners with technology-driven entrepreneurs who are transforming the market with their vision and expertise.
