Nomad: A License to Bank

In late 2023, Lucas Vargas, CEO and co-founder of Nomad, a fintech that offered financial services in the United States for Brazilian residents, had to decide what to do to ensure the company’s continued expansion. Nomad launched its first product, a U.S. digital bank account, insured by the FDIC, with an international debit card, in late 2020. The company targeted affluent Brazilians who traveled abroad, in a moment where there was no international traveling due to the Covid-19 pandemic. In 2021, however, travel restrictions were lifted, and the company took off, growing exponentially. It also increased it product offerings, giving customers the possibility of investing their assets in the U.S., protecting their savings from the volatility of an emerging market currency. However, the company depended on several partners to operate in the U.S., such as a local bank and investment broker, since it did not have a banking license in the country. It also had to navigate regulatory hurdles in two jurisdictions: the U.S. and Brazil. By late 2023, Nomad’s customers’ assets accounted for approximately 30% of their banking partner’s assets, a concentration that was risky for both parties. The startup also had to negotiate with the partners whenever it wanted to expand its offerings, for instance. Vargas mulled applying for a banking license in the U.S., which would give him more freedom to operate and control over processes and the company’s destiny. It would also require capital, increase regulatory scrutiny, and demand the hard work of actually creating a bank, diverting time from a team that was focused on growth. Should Nomad consider buying an existing bank? Was it the right move? And if so, what was the best timing? Should Vargas consider other options, such as expanding to other emerging markets or offering more services to its Brazilian customers, before trying to become a bank in the U.S? To expand further, should he consider selling a stake in the company to a larger financial institution, or should he file for an IPO?