Tencent Holdings Ltd.'s acquisition of a US$180 million, 5% minority stake in Nubank is credit positive for the Brazil-based financial technology company, Moody's said in a sector report.
The transaction will enable Nubank, one of the leading digital fintechs in Brazil, to widen its digital product offering through its newly launched consumer finance company, according to Moody's.
Nubank will also gain from Tencent's expertise as one of the world's largest technology firms, as it will contribute value-adding financial and technological resources to the Brazilian firm's growth strategy and ambitions, Moody's added.
Tencent's foray into Brazil reflects big tech firms' interest in the country, which leads other Latin American peers in terms of advancement in the digital financial service sphere, Moody's said. Big traditional banks will also be forced to ramp up their innovation strategy to tackle the pressure brought by the rapid growth among low-cost fintechs. Moody's noted that these fintechs have already changed the means of doing business among big banks in Brazil.
On the downside, Nubank needs to record a profit and implement a sustainable business model in order to endure among strong and dominant banks, Moody's said. The company posted a loss of $12 million in June, the rating agency said.
Founded in 2013, Nubank began offering no-fee, digital credit cards in 2014. The fintech company has 5 million credit card users, accounting for about 6% of active credit card users in Brazil.
Nubank raised US$150 million in its sixth investment round in March, bringing the total amount it has raised to US$330 million since its inception.