- Nubank, founded in 2013, has raised $1.4 billion to-date and is one of the most valuable and well funded private tech startups in South America.
- The company has grown both its customer base and product offering in recent years to include investing beyond its original no-fee credit cards.
- “We’ve achieved a really large scale on existing products that we have with 30 million customers that makes us much larger than any other challenger in the world,” Nubank CEO David Velez told Business Insider in an interview.
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Fintech has been booming as the coronavirus pandemic forces a shift in how consumers interact with financial services. From banking, credit, investing, and beyond, digital players have seen a surge in activity.
Fast-growing Brazilian challenger bank Nubank has likewise benefited, growing customers from 5.9 million at the end of 2018 to 30 million now, CEO and cofounder David Velez told Business Insider.
“We’ve achieved a really large scale on existing products that we have with 30 million customers that makes us much larger than any other challenger in the world,” he said in an interview.
“It’s a different market, yes, but also a different model. Others focus on debit, but we focus on credit cards which is a higher revenue market with better margins.”
Nubank, founded in 2013, has raised $1.4 billion to date and is one of the most valuable and well-funded private tech startups in South America.
The past 18 months have been a whirlwind for the company, with the firm hitting a decacorn valuation of $10 billion. Its backers include venture capital and investment giants Sequoia Capital, TCV, Tencent, Goldman Sachs, DST Global, and Tiger Global.
The core of the company’s proposition, a no-fee credit card alongside an app that helps track payments, has helped draw in millions of customers, particularly millennials in a country which is historically unbanked.
Brazil’s population is around 210 million but around a quarter of that, 55 million, is unbanked, according to research by fintech Bexs.
Coronavirus has posed a major challenge to Brazil’s economy.
When Nubank was founded, Brazil’s interest rates stood at around 9%, as of August this year the central bank brought them down to a record low of 2%.
Velez estimates that the move leaves some 100 million Brazilians with deposits in the country’s five main banks that are now charging fees that are higher than yields.
The country’s finance minister last year as a result bemoaned the “excessive” profits and lack of competition in the Brazilian banking sector, led by Itaú Unibanco.
With Brazilian investors getting something of a raw deal from major banks, making equity investing in stocks simpler is now a key part of Nubank’s offering.
To that end, in August Nubank acquired Easynvest, previously backed by US private equity firm Advent, in a cash-and-stock deal at an undisclosed valuation. It was the company’s third acquisition this year. Easynvest already had some 1.5 million customers and was one of the first companies to offer Brazilians online access to various funds, stocks, as well as options and futures.
“We looked at the market and where we could make a difference and investment came top of the list,” Velez said. “We see this huge shift to equities so our time to market was reduced, we looked at M&A and have a good fit with Easynvest.”
“We previously had a more organic strategy but we needed tech expertise in the investment space to create a big footprint fast,” he added.
Nubank’s demographics shifted as the startup move to all-remote work
Nubank’s digital simplicity has driven its success to date. Banking is often a bureaucratic and paperwork-heavy process in South America’s largest country, with many state banks deemed unfriendly places to visit with armed guards and intense security. Velez has previously talked of the painful experience of banking in Brazil including being stuck in bulletproof revolving doors in Sao Paolo.
Like peers such as Monzo in the UK, Nubank’s customer acquisition costs are low. Velez has said the fintech spends next to nothing on marketing and previously noted that 80% of customer referrals are word of mouth.
Nubank has seen growth outside of its core demographic of young people too, thanks to the pandemic.
“The pandemic caused an acceleration towards digital banking, but not just for millennials but also over 60s,” Velez said, though he added that the product “isn’t good enough or simple enough yet for older demographics.”
Nubank has hired large numbers of customer service operators to help non-digital natives and is attempting to reduce the size of its smartphone app which can be too large for some phones, he added.
At the height of the crisis in April however, Nubank says it saw a deceleration of growth as travel spend and transactions diminished. But Velez added the fintech is now back higher than pre-COVID levels, having continued to grow and provide resources throughout the year.
The company’s some 2,700 staff went 100% remote overnight with Nubank sending computer equipment and ergonomic chairs to most employees to help with home working, Velez said. Nubank was prepared for the pandemic after reading Sequoia’s Black Swan memo, he added.
Despite the pandemic, Nubank is adding some 40,000 customers a day, Velez said.
Nubank is not profitable, but says it is cash-flow positive
Profitability remains a question mark hanging over even big-name fintechs which are raising larger rounds at ever-higher valuations.
Late-stage fintechs have been recipients of huge amounts of cash in 2020, with US neo-bank Chime and European payment firm Klarna set for mega-deals.
Velez said Nubank is cash-flow positive, and its revenues are growing as losses shrink.
In its first-half financial statement, the firm said its net loss declined 32% compared with the first half of 2019, while revenues doubled.
“We are not profitable but we are cash flow positive,” said Velez. “It’s not an issue for us, there is not as much funding available in Brazil so we’ve never had the luxury of growth at all costs.”
Mexico is now a major market for Nubank.
Much like Brazil, Mexico’s population is young, underbanked, and the sector is ripe for disruption.
“We have a strategy of being focused on going deep and well, so for now we are full up with Brazil and Mexico,” Velez said. Despite “a lot of inbound” from investors, Velez says the fintech is generating cash and its investment in Mexican expansion is fully funded. Nubank said despite the market being hot for fintech additional investment was “not something we are considering at the moment.”
Beyond credit, investment, and personal loans, Velez is encouraged by the growth of Nubank’s business banking product which he says is a massive opportunity in Brazil with SMEs and entrepreneurs making up a large portion of the country’s workforce.