Against the tide, unicorn fintech Creditas seems to be taking advantage of the opportunity that lies in every crisis.

Last month, the Brazilian digital lender added $200 million in its ninth funding round and announced it was buying both a bank and a mortgage lender as it sought to increase profitability.

Amid rising interest rates and lower funding in the region affecting the fintech sector, online lender Creditas thinks now is the time to be aggressive. It signed a $100 million deal to buy Andbank’s Brazilian banking license — including some of its assets — a decision that puts the fintech one step closer to selling shares publicly.

Since it became a unicorn company in 2020, Sao Paulo-based Creditas has long considered the possibility of doing an IPO. If so, the digital lender would follow in the footsteps of other major players in the country like Nubank, which issued shares in U.S. markets in December before rising rates abruptly upturned market sentiment.

The trend of fintechs buying banks is not new. Credijusto was the first company to buy a license in Mexico, whereas Argentine Ualá acquired two lenders in its home country and Mexico. However, Creditas’ purchase would be the first transaction ever since markets grew highly risk-averse.

Able to take deposits

Through the acquisition, the SoftBank-backed firm will be allowed to take deposits. This strategy could lower funding costs and make the company more competitive in the face of a slowing Brazilian economy and deteriorating household income due to inflation.

“[Fintechs buying banks] has become a trend worldwide. In Latin America, this strategy helps fintechs tap new sources of funding as well as expand the portfolio,” said Bruno Diniz, a fintech adviser, and best-selling author. “Creditas is becoming a very diverse fintech, with a growing variety of financial and non-financial products. This process can help in that direction.”

The company, backed by venture capital investors such as QED and Fidelity, offers consumer loans that are tied to collateral, such as a house. As a result, it claims to offer lower rates to Brazilians.

“Creditas seeks to optimize resources and reduce the cost of capital,” Jihane Halabi, founding partner at Halabi Abogados, a legal service for internet-based companies, told Fintech Nexus. “Improving margins is always a goal, but it becomes even more relevant in a wobbly moment like this one.”

Being able to rely on bank deposits could make a huge difference. Fintech companies without a license are frequently left depending on their access to venture capital, which can be volatile.

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Lower borrowing costs

In an interview, CEO and founder Sergio Furio said the acquisition would allow Creditas to lower borrowing costs to achieve greater profitability. The bear market has been particularly harmful to companies without a solid record of generating profits.

“Capital markets are more eager to look at companies that are close to profitable or already profitable, so it increases the chances of an IPO happening sooner,” he said.

Creditas has specialized in secured lending in Brazil, a market with few fintech competitors but with a vital banking presence. The company does auto loans or payroll lending and finances house repairs with the asset as collateral. It has amassed a portfolio of roughly 5 billion real securitized loans, or close to one billion U.S. dollars.

The Brazilian loan market shows signs of resilience even despite rising interest rates. The latest report by the banking association, Febraban, shows the overall loan book is growing at a 16.6% yearly pace, up from 16.3% in May, still robust in a context of high inflation and upcoming presidential elections.

“Brazil is undeniably a huge credit market,” Halabi, who authored a book called Brasil Fintech, said. “But it is a highly competitive sector, for which taking advantage of more convenient funding opportunities is crucial to reduce the cost of credit.”

Continue as broker/dealer & asset manager

Andbank, globally focused on private banking and has $30 billion under management, will continue operating in Brazil as a broker-dealer and asset manager. Creditas will distribute products from its credit portfolio to Andbank investors.

Analysts expect more deals of a kind could take place only in the case of highly capitalized fintechs. “However popular this kind of deal becomes, they involve large sums of money,” Diniz said. “Many fintechs are in survival mode, preserving capital to weather the crisis.”