Something extraordinary is happening within the seemingly mundane world of Brazilian banking. Inter & Co, a digital banking powerhouse known for disrupting the Brazilian financial landscape, is quietly building a US dollar-based empire that has largely gone unnoticed by analysts. While the focus has been on Inter's impressive growth in its home market, a careful reading of the Q1 2024 earnings call transcript reveals a strategic move with the potential to redefine the company's global footprint.

Inter's global account vertical, launched to cater to the needs of Brazilians seeking access to US dollar-denominated products, has quietly amassed an impressive $460 million in assets under custody and deposits. This represents a staggering 223% year-over-year growth, a figure that dwarfs the growth rates of Inter's other verticals. While impressive on its own, this growth becomes even more remarkable when we consider the context of Inter's overall strategy.

Inter's "60/30/30" plan, a five-year roadmap outlining the company's ambition to reach 60 million clients, a 30% efficiency ratio, and a 10% ROE by 2027, has been lauded as a bold and ambitious vision. However, the global account vertical is exceeding these targets, suggesting that Inter is not merely replicating its Brazilian success in the US dollar market but potentially unlocking an even more potent growth engine.

Factors Driving the Growth of Inter's Global Account Vertical

Several factors contribute to this hypothesis. Firstly, the global account vertical attracts a particularly valuable customer demographic. As Alexandre Riccio, Senior Vice President of Retail Banking, noted in the earnings call, these clients "have better profiles, are more engaged and adopt 3x more products than the average client." This implies a higher lifetime value and greater potential for monetization compared to Inter's average Brazilian client.

Secondly, Inter's aggressive innovation within this vertical further underscores its strategic importance. Despite being a recent addition to the product lineup, the newly launched US dollar-denominated time deposit offering has seen "rapid adoption and growing interest." This demonstrates Inter's commitment to tailoring products specifically for the US dollar market, further enhancing the vertical's appeal.

Thirdly, the integration of the global account vertical with Inter's loyalty program, "Loop," creates a powerful synergy. Clients can now convert their Loop points into US dollars within their global accounts, effectively bridging the gap between Inter's Brazilian and US dollar-based ecosystems. This integration further incentivizes engagement within both verticals, fueling a virtuous cycle of growth.

The Potential Impact of Inter's US Dollar Expansion

The potential implications of this US dollar-based expansion are significant. Currently, Inter's global account vertical constitutes a relatively small portion of its overall client base. However, if the current growth trajectory persists, this vertical could become a major contributor to Inter's financial performance in the coming years.

Consider the following: If Inter maintains its 223% year-over-year growth rate in US dollar-denominated assets under custody and deposits, this figure could reach $1.5 billion by the end of 2024. Assuming a conservative net interest margin of 2% on these assets, Inter could generate $30 million in net interest income from this vertical alone. This would represent a significant increase from the current contribution and would have a material impact on Inter's overall profitability.

Moreover, the success of Inter's global account vertical has the potential to attract a new wave of international investors seeking exposure to the burgeoning Brazilian digital banking market. Inter's ability to tap into the US dollar market could broaden its investor base and potentially lead to higher valuations.

Inter's Growth Across Key Metrics

Inter has consistently outperformed market averages in terms of client growth, loan portfolio growth, and revenue growth. This strong performance is a testament to the company's disruptive business model and its focus on innovation.

Reference: Q1 2024 earnings call transcript

Projected Growth of US Dollar-Denominated Assets

The following chart illustrates the potential growth of Inter's US dollar-denominated assets under custody and deposits if the company maintains its current growth trajectory.

Conclusion

While Inter has not explicitly stated its ambitions for this vertical, the clues are there for those willing to see them. The company is quietly building a bridge between the Brazilian real and the US dollar, a move that could unlock a new era of growth and profitability. While other analysts are fixated on Inter's domestic success, we believe that the real story lies in the company's quiet ascendance in the US dollar market. Inter & Co, the sleeping giant, is awakening on the global stage, and those who recognize its potential early on stand to reap the rewards.

"Fun Fact: Inter & Co's name is a shortened version of "Banco Intermedium," reflecting the company's original focus on providing intermediary financial services. Today, the shortened "Inter" represents the company's streamlined, digital-first approach to banking."