Key Takeaways
- The US Federal Reserve is expected to initiate interest rate cuts in 2025, which may weaken the dollar and enhance profitability for certain financial sectors.
- Latin American neo-banks may benefit from favourable currency movements and cheaper cross-border funding, improving margins and lending potential.
- US-based sub-prime lenders and BNPL providers stand to gain from lower funding costs, widened lending spreads, and stronger consumer demand.
- Despite potential rewards, investor caution remains warranted due to geopolitical risks and valuation volatility, particularly in high-growth names.
- Valuation metrics and historical responses to rate cycles suggest selective opportunities across both emerging markets and US fintech segments.
As the US Federal Reserve signals a shift towards interest rate reductions in 2025, a weaker dollar is poised to reshape opportunities across global financial sectors. Latin American neo-banks and US-based sub-prime lenders, including buy-now-pay-later (BNPL) providers, stand out as potential beneficiaries. These entities could see enhanced profitability through currency dynamics, reduced borrowing costs, and expanded consumer demand, setting the stage for robust performance amid evolving monetary policy.
The Federal Reserve’s Pivot and Its Ripple Effects
The Federal Reserve’s anticipated rate cuts, as outlined in recent policy communications, aim to address moderating inflation and labour market concerns. Chair Jerome Powell’s remarks at the Jackson Hole symposium on 22 August 2025 highlighted the balancing act between inflation risks and economic uncertainty, with a potential September cut on the horizon. According to projections from Morningstar dated 26 June 2025, the Fed could implement gradual reductions, potentially lowering the federal funds rate by 0.25 to 0.50 percentage points in the coming quarters. This easing cycle is expected to weaken the US dollar against emerging market currencies, a trend that has historically favoured export-oriented economies and financial institutions in Latin America.
A depreciating dollar typically boosts the relative value of local currencies in regions like Brazil and Mexico, where many neo-banks operate. This currency appreciation reduces the cost of dollar-denominated debt for these firms and enhances the purchasing power of their customer bases. Meanwhile, for sub-prime lenders and BNPL players in the US, lower interest rates directly translate to cheaper funding, enabling them to offer more competitive terms to borrowers who might otherwise be sidelined by high costs.
Implications for Latin American Neo-Banks
Latin American neo-banks, which have gained traction by serving underbanked populations through digital platforms, are particularly sensitive to US monetary policy. Firms like Nu Holdings Ltd. (NYSE: NU) and Inter & Co, Inc. (NasdaqGS: INTR), both listed on US exchanges, exemplify this group. As of market close on 24 August 2025, NU traded at $13.94, reflecting a daily gain of 1.97% on volume of 51,750,174 shares, while INTR closed at $8.08, up 3.99% with 1,488,408 shares traded. These figures underscore recent momentum, with NU showing an 8.32% rise over its 50-day average and INTR up 11.47% on the same metric.
Historical context reveals that during previous Fed easing cycles, such as post-2008 and in response to the COVID-19 crisis in 2020 (as detailed by the Brookings Institution in a January 2024 analysis), Latin American financials benefited from capital inflows and currency strength. In 2025, a weaker dollar could amplify this effect. For instance, neo-banks often rely on cross-border funding; a softer USD lowers hedging costs and improves net interest margins. Analyst models from firms like U.S. Bank project that sustained rate cuts could enhance lending volumes in emerging markets by 10-15% annually, driven by improved affordability.
Moreover, sentiment from credible sources remains bullish. Ratings data as of 24 August 2025 indicate a ‘Buy’ consensus for NU (rating 1.9) and INTR (rating 1.7), reflecting optimism tied to regional growth. Posts on social platform X have echoed this, with users noting carry trade opportunities in Latin American currencies like the Brazilian real, yielding total returns exceeding 11% year-to-date through non-deliverable forwards.
Opportunities in Sub-Prime Lending and BNPL
Shifting focus to the US, sub-prime lenders and BNPL companies such as OppFi Inc. (NYSE: OPFI), Sezzle Inc. (NasdaqCM: SEZL), and Affirm Holdings, Inc. (NasdaqGS: AFRM) are primed for gains from lower rates. As of 24 August 2025, OPFI closed at $9.78 (up 1.35%), SEZL at $95.67 (up 8.00%), and AFRM at $79.49 (up 6.71%), with volumes indicating strong investor interest—SEZL saw 1,252,599 shares traded, well above its three-month average.
Rate cuts reduce the cost of capital for these lenders, who cater to higher-risk borrowers. Bankrate’s analysis from 28 July 2025 explains that Fed decisions influence everything from credit card rates to auto loans, potentially lowering them by 0.5-1% per cut. For sub-prime players, this means wider spreads between funding costs and lending rates, boosting profitability. Forward EPS estimates support this: AFRM’s projected 0.47 for the next year implies a P/E of 169.13, signalling growth expectations, while SEZL’s 12.40 forward EPS yields a more attractive 7.72 P/E.
In a weaker dollar environment, these firms also benefit indirectly through increased consumer spending. US News & World Report’s December 2024 piece on Fed cuts highlighted winners like borrowers, who face lower debt servicing costs, thereby increasing demand for BNPL services. Analyst-led forecasts from CCN on 21 August 2025 suggest US interest rates could stabilise at 3–4% in five years, fostering a benign backdrop for credit expansion. However, risks persist; SEZL’s 30.29% drop from its 50-day average as of 24 August 2025 hints at volatility, possibly from overextended valuations.
Broader Market Context and Risks
The interplay between Fed policy and these sectors isn’t without caveats. Yahoo Finance reported on 31 December 2024 that fewer-than-expected cuts in 2025 could bolster traditional banks but pressure fintechs reliant on low rates. Geopolitical risks, as noted in AInvest’s 23 August 2025 analysis, could exacerbate dollar fluctuations, impacting Latin American exposures.
Still, the thesis holds: a Fed easing cycle, projected to include at least two cuts in 2025 per CBS News on 18 December 2024, should catalyse outperformance. Investors might consider diversified exposure, weighing metrics like price-to-book ratios—INTR at 0.38 appears undervalued compared to NU’s 7.04.
| Company | Symbol | Price (24 Aug 2025) | 52-Week Change | Forward P/E |
|---|---|---|---|---|
| Nu Holdings | NU | $13.94 | -4.72% | 22.48 |
| Inter & Co | INTR | $8.08 | 3.59% | 14.43 |
| OppFi | OPFI | $9.78 | 105.89% | 10.99 |
| Sezzle | SEZL | $95.67 | 374.48% | 7.72 |
| Affirm | AFRM | $79.49 | 149.34% | 169.13 |
In summary, as the Fed navigates its 2025 easing path, Latin American neo-banks and sub-prime/BNPL lenders are well-positioned to capitalise on a weaker dollar and lower rates. While market sentiment leans positive, prudent analysis of earnings trajectories—such as NU’s upcoming report on 14 August 2025—will be key to navigating this landscape.
References
- Bankrate. (2025, July 28). How the Federal Reserve impacts your money. https://www.bankrate.com/banking/federal-reserve/how-federal-reserve-impacts-your-money/
- Brookings Institution. (2024, January). The Fed’s response to COVID-19. https://www.brookings.edu/articles/fed-response-to-covid19/
- CBS News. (2024, December 18). Federal Reserve meeting interest rate cut decision. https://www.cbsnews.com/news/federal-reserve-meeting-rate-cut-interest-rates-december/
- CCN. (2025, August 21). Projected US interest rates in 5 years. https://www.ccn.com/analysis/business/projected-us-interest-rates-in-5-years/
- Morningstar. (2025, June 26). When will the Fed start cutting interest rates? https://www.morningstar.com/markets/when-will-fed-start-cutting-interest-rates
- U.S. Bank. (n.d.). Federal Reserve interest rate outlook. https://www.usbank.com/investing/financial-perspectives/market-news/federal-reserve-interest-rate.html
- Yahoo Finance. (2024, December 31). Fewer rate cuts could boost banks. https://finance.yahoo.com/video/fewer-rate-cuts-boost-banks-154338293.html
- US News & World Report. (2024, December). Fed rate cut: Here are the winners and losers. https://money.usnews.com/loans/articles/fed-rate-cut-here-are-the-winners-and-losers
- AInvest. (2025, August 23). Federal Reserve 2025 rate cut: Navigating labour market shifts and geopolitical risks. https://ainvest.com/news/federal-reserve-2025-rate-cut-navigating-labor-market-shifts-geopolitical-risks-investors-2508
- AInvest. (2025, August 23). Federal Reserve September 2025 rate cut: Strategic sector positioning. https://ainvest.com/news/federal-reserve-september-2025-rate-cut-strategic-sector-positioning-equity-investors-2508
- AP News. (n.d.). Federal Reserve interest rates and borrowing. https://apnews.com/article/federal-reserve-interest-rates-loans-consumers-borrowing-f2cc94978bb7909de9fe49a3280473dd
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