NuBank scaling back size of its IPO sparks concerns in industry

Karthik Subramanian

Brazil-based NuBank, one of the largest neobanks which provides banking services online, has announced that it would be scaling back its IPO which sees its valuation drop from $55 billion in August to about $40 billion now has sparked concerns within the neobank industry.

Neobanks were considered to be the next-generation banks with very limited or nil branches and all banking services being provided online via desktop or mobile app.

Are Neobanks really the Future?

These banks had many advantages going for it as they were very easy to establish, did not need huge infrastructure and investments as they did not need to set up many branches or ATMs and they were in tune with the times as they helped the younger generation by offering all their services online and avoiding all the kinds of delays, queues and wait times that are associated with that of traditional banks.

The fact that Nubank also had a $500 million investment from Warren Buffet had raised a lot of interest in the direction that the neobank would be taking and also in its IPO as well but the fact that it has now decided to scale back on its intended share price has raised many eyebrows in the neobank industry as a whole. It brings into perspective all the heady valuations that many of the startups in this industry were getting and it also leads to a question on whether all these valuations would now need to be revised as maybe, the industry is still not growing at a pace that such valuations warrant.

Industry Growing Very Fast

The fintech industry is progressing at a very fast pace and even any innovations or upgrades made by any specific business can be easily and quickly provided by another business as well. As proof of that, though the fintech startups were the first to enter into the neobank industry, the traditional banks have not been left far behind and they have also pulled up their socks and now have apps and websites where users would be able to use many of the banking services without the need to go to the respective branches. These traditional banks already have a strong userbase which they have established over the years and it is easy for them to port over the existing userbase to the digital systems making the job of acquiring new users for these startups, that much more difficult. This could be a major reason why the neobanks are not able to grow at the pace that they had expected to, initially.

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