BBVA grows in Brazil with an investment of US$300 million in the digital bank Neon

RIO DE JANEIRO, BRAZIL – BBVA announced Monday an investment of US$300 million in the Brazilian digital bank Neon, where it already had an 8% stake through the private equity fund Propel. The new purchase raises the Spanish entity’s position to 29.7% of Neon. It reinforces the strategy of trying to grow in other markets through digital financial platforms: in 2015, it entered the British Atom Bank -of which it owns 40%-, and in 2018 in the German Solarisbank -16%-.

Neon, founded in 2016, facilitates access to financial services for individuals, self-employed and small Brazilian companies and has 15 million registered accounts. BBVA sees two major advantages in acquiring more shares in the bank. “In addition to a clear commitment to innovation, the investment allows BBVA to have exposure to the retail banking business in Brazil, one of the markets with the greatest potential in the world,” it explains in a press release sent out Monday.

South America is BBVA’s fourth-largest area of influence. In 2021 it obtained a profit of US$555 million there, 10.1% more than the previous year, but behind the profits in Mexico, Spain, and Turkey. The bank has carried out a geographical redistribution of its assets in recent months. In November, it sold its U.S. business to PNC Financial Services Group for US$11 billion, giving it financial muscle. That same month it launched a takeover bid for the half it did not control of the Turkish bank Garanti in exchange for US$2.5 billion. And now it is growing in the Brazilian digital banking segment.

Neon’s financial services offering includes free checking accounts, debit and credit cards, loans, and specialized products for microenterprises. Its performance has attracted the attention of BlackRock, the world’s largest investment fund manager, which is a shareholder. So is the PayPal payment platform. Before BBVA’s investment, the company had raised US$478 million in various financing rounds. Its partners include the General Atlantic fund, Vulcan, and Banco Votorantim, Brazil.

FINTECH: COMPETITORS AND ALLIES

Pedro Conrade, founder of Neon, believes that BBVA’s investment will help them reach more customers. “We want to reach more Brazilians and further our purpose of reducing inequalities and making a difference in people’s lives in Brazil,” he said. The share subscription and payment will occur in February. And according to the Spanish bank, the transaction will have a consumption of approximately ten basis points in BBVA’s fully-loaded CET1 capital ratio, the highest quality ratio, which at the close of 2021 stood at 12.75%.

The disbursement comes in an environment of growing competition between traditional banking and an ecosystem of fintech, neo-banks, and financial applications that the entities that now dominate the market fear will be joined by technology giants such as Google, Amazon, Facebook, and Apple. To counteract this, banks are acting in two areas: internally, with accelerated digitization of their operations generating tensions by leaving behind older customers accustomed to face-to-face dealings and, in some cases, disconnected from the digital universe. And externally, with the acquisition of stakes in digital financial platforms.

In corporate operations, BBVA is also closely observing the process of selling Banamex, which will begin in the spring, after the U.S. bank Citigroup, its owner, announced that it intends to sell its consumer and small business banking activities in Mexico. BBVA is currently the leader in the Mexican market. Still, some of its competitors, such as Banco Santander, threaten that privileged position if they grow in Mexico by acquiring Citi’s business.