Nubank Dangles 13% Interest Rate to Lure Customers in Colombia

(Bloomberg) -- Digital bank Nu Holdings Ltd. says it’s making inroads in Colombia by dangling a 13% interest-rate savings account that has quickly attracted 600,000 new clients. 

The Colombian unit of the Brazil-based company better known as Nubank has drawn 900 billion pesos (about $220 million) in deposits to its high-yield account between April and June.  

Marcela Torres, general manager of Nu Colombia, said the country has quickly become its fastest-growing market. “We are always going to offer the best rate we can,” she said. “In the Colombian market, as in many of our Latin American countries, the financial sector is very concentrated.”

Dominated by a handful of lenders, the Colombian banking system is struggling with a lower demand for credit and persistently high delinquency rates. Net revenue for the sector remains below pre-pandemic levels, despite some improvement in commercial loans and mortgages, according to a report Credicorp Capital analyzing May data from the financial regulator.

Nu Colombia is offering some of the highest interest rates in the country, though Torres said it’s unclear for how much longer the bank can keep it up. As on online bank, the company has lower costs and fees than traditional lenders. Another digital bank, Lulo Bank, owned by billionaire Jaime Gilinski, recently started to offer 13% rates as well.

Nu Colombia is “a bank that’s showing the rest of the financial system that it needs to improve efficiency,” said Sergio Olarte, an economist at Scotiabank. If they are taking losses to gain market share, they could risk sustainability down the line, he added.

Financial stocks in Colombia’s benchmark Colcap index have handed investors a total return of 9.9% this year in dollar terms, according to data compiled by Bloomberg. The shares of Nubank, which are listed in the US, are up 50%. 

With about 1 million clients, Nu Colombia has captured a 6.4% market share for credit cards in Colombia since arriving three years ago. But the market has proved more challenging than its home country Brazil, or Mexico, Torres said. 

Its growth has been hampered by interest rate caps that have made it difficult to approve cards for customers due to a lack of credit history, boosting the prominence of informal credit markets.  

“This limits our growth because of 100 people that come in requesting credit, we can only approve a relatively small percentage,” she says. “We are innovating to offer financial inclusion despite this restriction.”

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