Photo: Brenda Alcântara/alt.bank Courtesy

alt.bank, Brazil's new fintech challenger raises $5.5 million to tear down incumbents high-interest rates

Founder and CEO Brad Liebmann told LABS that alt.bank's social mission in Brazil speaks louder than the commercial one

04.May.2021 17:56 BRT
UPDATED 05.May.2021 09:02 BRT

American Brad Liebmann spent the 1990’s doing technology mergers and acquisitions on Wall Street. He moved to London to start Simply Business in 2005, United Kingdom’s first fintech. That startup had one of the best underwriters of insurance in the UK, and later in 2017 was acquired by the U.S. insurance company The Travelers Companies for $490 million. Liebmann then did what entrepreneurs do after an exit: retired and moved to Saint Lucia island in the Caribbean. End of story? No way. After so (or too) much peace, he got bored and decided to start another company.

Because of his previous experience, Liebmann’s second endeavor had to be a fintech (he thought). But this time, it needed to have a social purpose behind it. “In 2017, I discovered the financial inclusion issue. There are 2 billion people in the world that have no banking account. I thought that was crazy; anyone with a smartphone should have a bank account. That is a problem I can solve,” he told LABS.

Brad Liebmann, Founder and CEO at alt.bank. Photo: alt.bank/Courtesy

Searching for a launch country, Liebmann visited the 26 most populous ones, getting to know regulators and potential customers. “By the time I got to Brazil, the country just blew me away due to the impact that we could have in Brazil. Not just because of the financial inclusion issue, but also because the banks are so predatory in nature and the interest rates are so stratospheric. So I thought: ‘in Brazil, we can do more to help people than in any other country.’”

The regulator was a critical factor in deciding to launch in Brazil, according to Liebmann. “Brazilian Central Bank is by far the most progressive regulator, alongside the UK regulator. I like doing business in regulated industries; it makes competitors follow the rules.”

Focused on credit loans with fair interest rates for Brazilians, alt.bank was born in October 2019, backed by a Seed round co-led by Liebmann himself. “Our social mission is more important than our commercial mission,” he stated. Asked about how much alt.bank’s borrowing rate would be, the CEO said the firm will introduce its first credit products later this year, so the fintech is still looking at that.

“Most of the people that we’re targeting have very few options right now; or they have a highly predatory lender or an agiota (loan shark, a p2p lender who offers loans at extremely high-interest rates, has strict terms of collection upon failure, and generally operates with no rules).”

So far, the fintech has its app (already downloaded by more than one million Brazilians) available on the Android system. Attached to the app there are a prepaid card and a fluorescent yellow Visa debit card. Like Nubank and Mercado Libre‘s fintech arm Mercado Pago does, alt.bank’s digital account pays 100% of the CDI rate, a daily average of overnight interbank loans in Brazil, over its customers’ balances. It is a yield higher than that of poupança (a type of investment account popular in Brazil but not very profitable, since it is linked with the country’s benchmark rate, today at its lowest level ever).

alt.bank’s debit card is known as amarelinho (yellow, in Portuguese) by its members. Coincidentally (or not), the fintech‘s pack leader in Brazil, Nubank, has its so-called roxinho (purple) card used by more than 35 million Brazilians, 16% of the country’s population.

“We are taking a different path than Nubank. Nubank obviously did an incredible job, but we’re addressing a different market, and, hopefully, we will be as successful as they’ve been,” says Liebmann.

alt.bank’s target market are people neglected by traditional lenders, particularly the big five banks in Brazil. “There are 63 million negativados (defaulted neglected people) in Brazil, and that number has grown from 55 million last year. We can [financially] include these people that traditional lenders couldn’t serve.”

Boarding Union Square Ventures: alt.bank’s Series A

On Wednesday, alt.bank announced it has raised a $5.5 million Union Square Ventures-led Series A round. The U.S. venture capital firm has already invested in Lending Club, Stripe, Coinbase, Twitter, and Kickstarter. It is the first time that the early-stage fund invests in South America.

CEOs of fintechs Taavet Hinrikus (founder and CEO of Wise), Nick Talwar (president and CEO of CircleUp), and Iñaki Berenguer (founder and CEO of CoverWallet) also participated in the round.

Now, Union Square Ventures’ John Buttrick comes to alt.bank’s board alongside Thomaz Srougi, Founder and CEO of Dr. Consulta; Michel Goguikian, former CEO of Santander LATAM and Nick Talwar, president and CEO of CircleUp.

The proceeds will go to the development of new products, such as personal loans and credit cards, besides marketing initiatives and hirings. alt.bank has applied for a Brazilian Central Bank license to be able to issue cards, but Liebmann doesn’t disclose which license he is waiting for.

The startup currently has 84 employees: 78 of them are Brazilian, based in São Paulo and in the countryside city of São Carlos, where alt.bank handles customer service.

“We have few specialists outside Brazil, our machine learning specialist, and a couple of engineers,” says the CEO. Over time, alt.bank wants to develop its machine learning’s underwriting models to assess these neglected people for loans.

“Our goal is to hire rockstars, best quality people, and scale our team to have the capacity to handle up to 10,000 new customers per day.” Liebmann doesn’t disclose alt.bank’s financial metrics, nor the firm’s valuation after the round.