Meet Nubank: The Pioneer of the Latin America's Fintech Market

Hey Everyone - Harry here!

Welcome to Issue #9 of Deep Dive with Inquisition. In this issue, we will cover the story of NuBank, one of the fastest-growing fintech companies based in Latin America, from its founding stories to the strategies it used to become the company it is today.

Early Days of NuBank:

NuBank is a Brazilian Financial Technology Company (Fintech) founded in 2013 by David Velez, Cristina Junqueira, and Edward Wible. The trio started the company with the mission “To fight complexity and empower people to take control of their financial lives.”

The mission statement was inspired by David Velez’s firsthand experience when he was trying to create a bank account in Brazil. When David moved to Brazil after graduating from Stanford to take over the Brazil Operations of Sequoia Capital as a partner, he realized how slow and not user-friendly the banking system was, and that it took a very long time to simply create a bank account.

Overview of the Global and Latin America Fintech Market:

1. Since 2016, over $460 billion in VC funding has gone to the Global Fintech Market.

2. Over one trillion dollars of exit value has been created inside the global Fintech Market alone.

3. According to a Boston Consulting Group (BCG) report, the Fintech industry revenue will reach $1.5 trillion by 2030. A stark increase from $235 billion in 2024.

4. 71% of adults in developing countries have an account from a financial institution or mobile money provider.

5. The Net Interest Revenue Worldwide from Banks will reach $8.52 trillion during 2024.

6. The Latin American Digital Payments Market’s total user numbers are expected to reach 271.4 million by 2028.

7. There are 1.4 billion unbanked adults. Unbanked adults are adults who do not have an account from a financial institution or mobile money provider.

Rise of NuBank:

David’s frustration from his personal experience of trying to open a bank account in Brazil sparked a realization in him and formed the basis of Nubank. Not only was Brazil in desperate need of a convenient banking service but around half of the Brazilian population in 2012 didn’t have a bank account.  When other parts of the world were going through a technological revolution via smartphones, Brazil was stuck in the old days. This became the tipping point for David to start NuBank.

Most people thought it was “impossible” for David to beat the giants. Why? Because 80% of the Brazilian banking industry was dominated by 5 players back in 2012: Itau, Bradesco, Santander, Banco do Brasil, and Caixa. In fact, the competitors didn’t care much about NuBank because they weren’t able to imagine how deeply technology could be connected to banking and didn’t think much of incorporating technology to begin with.

However, David knew the banking industry needed a major shake-up and firmly believed smartphones would be widely adopted around the world including the Latin America region. This is why David focused heavily on market research. During his research, David talked to many insiders who were working for big financial companies inside the Latin American region.

Even though there was a strong signal and potential inside the market, most investors rejected and passed on David’s idea due to not being able to imagine a Fintech beating its competitors and dominating it. But in the end, two investors saw the potential of David’s idea: Sequoia Capital (one of the world’s biggest Venture Capital firms) and Kaszek (one of Latin America’s biggest Venture Capital firms).

As Doug Leone states (Partner at Sequoia Capital):

It was clear that technology was going to disrupt the Latin America region. The banking system was broken and in desperate need for change in which the early investors believed that David and his team could become the “face of change and innovation.”

Thanks to these early supporters, David was able to secure $2 million after a series of rejections from investors. After the fundraising round, David was advised to find co-founders who held:

Deep expertise in the Brazilian and Latin America markets. Expertise in technology - from building the platform infrastructure to the platform (e.g., Mobile App).

David found and invited Christina, who was the credit-card portfolio manager at Itau, and Edward, who used to be working for a Private Equity fund that oversaw billions of dollars.

This was just the start of Nubank’s journey towards becoming the biggest fintech company in the Latin America region.

After fresh funding from one of the world’s best investors alongside additional funding of $15 million as a Series A during 2014, Nubank formed the best possible team with expertise in banking and technology, and was ready to tackle its next hurdles.

During 2014, in Brazil and the Latin America region, the major banks provided horrible service for their customers. It took months to even create a simple bank account and the payment options for customers' credit cards were really bad. Customers had interest rates of 200-400% during then from the traditional banks which only gave the customers the option to pay their credit card bill in full every month or pay alongside the ultra-high interest rate attached to the amount.

This is why Nubank offered its customers the option to pay a small fortune when using their credit card and eliminate every single fee possible that is associated with opening the bank account, credit card, and more.

Interestingly, fees are a major source of revenue for banks in the Latin America region where according to a JPMorgan analysis during 2019, 40% of the revenue from major banks inside the region came from fees such as monthly fees for fraud protection to message alerts alongside the fees for creating an account and credit card.

The above flaws alongside the increase in smartphone adoption became a major factor for people to transition over to using the services offered by Nubank, allowing the company to reach 6000 total users by the end of 2014.

How Did NuBank Become One of the Fastest and Biggest Fintechs in the Latin America region?

Nubank’s explosive growth started in 2015 when Brazil experienced an economic recession. As the country was suffering, more people started to shift from using traditional banks to customer-centric payment platforms such as Nubank. Because the traditional banks had unimaginable rates of high-interest fees while providing the worst possible customer experience.

Unlike the traditional banks, Nubank was obsessed with its customers, like actually.

Below is the quote that summarizes everything about Nubank:

Since everything was customer-centric, it was extremely easy and fast to open an account/credit card, send and receive money - it was something that everyone started to use.

A lot of people may think due to the avenger-type team, millions of dollars inside the bank account will make things easy. It certainly does give you an advantage until a certain stage however it will never make the journey easy at all.

Since its launch, Nubank has achieved 100 million customers after 11 years of operation, successfully IPO’ed the company to the New York Stock Exchange (NYSE), valued at $50 billion, expanded into other markets inside the Latin America region (e.g, Mexico and Colombia), and reached an annual revenue of over $8 billion during 2023.

Below are the strategies that contributed to Nubank’s growth:

1. Targeting an Underserved Market:
   → David was able to identify and predict that the Latin America region would be a massive market for any Fintech. It was simply due to himself being inside the market as a customer. David underwent the common pain points that other Brazilians experienced, realized that a lot of the population inside the region were unbanked through research, and experienced the rapid technology disruption himself (studied and worked in the US until starting Nubank). David’s first hand experience allowed him to become heavily exposed to the future of the world by experiencing the future himself. It is an understatement that one of Nubank's success factors is identifying and serving a heavily underserved market.

2. Customer-Centric Approach:
   → Nubank is obsessed with its customers unlike its competitors. In fact, the edge it had from its competitors was the super easy and fast onboarding process with zero fees when it comes to creating a bank account, credit card, etc. Not just fast and easy onboarding with zero fees, the user interface for techy and non-techy people contributed a lot. These strategies come from having a strong customer-centric approach with continuous implementation of feedback and change inside the product.

3. High-Quality Disruptive Product:
   → Nubank’s products have consistently been disruptive since launch, addressing both the needs and wants of their target customers which comes from building and shipping a high-quality disruptive product.

4. Little to zero fees - Fitting Business Model:
   → One of the most common Business Models that was used in previous issues was the “Freemium Model” however as a Fintech company, it is challenging to implement the “Freemium Model” due to various reasons such as having a different revenue structure, etc. This is why Nubank went for almost no fees since this was a major pain point experienced by its target users. By using the nature of digital banks, it reduced the operational costs by not opening and running a physical branch location which became a huge money-saving source - allowing the company to continue to provide bank accounts and credit cards with almost zero fees.

5. Having Crystal Clear End Goal with supporting Strategy:
   → Nubank had a clear end goal and a supporting strategy. The company found the real pain points to solve, created a product that is so good that it not only solves the pain points but gained traction through “Word of Mouth” and “Referrals,” meanwhile actively using external and internally created data to accept customers from the waitlist who can actually pay back - ensuring to minimize as much losses as possible during the early stage.

6. Expansion-based Diversification:
   → Since the competitors had money and a huge amount of customer base, the competitors expanded into the digital banking sector. In response to this, Nubank actively acquired other companies inside the indirectly related spaces such as the investing or insurance sector to expand and diversify its offerings. Since the company has secured a strong loyal user base, it was in a situation where it had already built a positive reputation which made the expansion and diversification of its products easier for existing and new customers.

Challenges for NuBank:

1. Navigating through the Dynamic Market:
   → As Fintech usage is growing in Latin America, this also means there is an increase of new Fintechs being created inside the region alongside the traditional banks transitioning into digitalization for their products. As the company is actively expanding into new countries inside the region, navigating the complex market with new and existing competition will be an ongoing challenge for Nubank to solve.

2. Locking the doors - having strong security compliances:
   → As a Fintech, security is never an option - it is a must. Financial institutions are always exposed to risks such as cyber attacks from anyone from anywhere which makes it crucial for companies to have strong security compliances. In addition, Nubank recently implemented “Open Finance,” which is an initiative where financial institutions share individual customer data with each other alongside third-party platforms in an attempt for transparency and better customer experience - making security more important than ever.

Future of NuBank:

1. Continuous growth via improvements and expansion of the product:
   → Since Nubank's focus is on being a “customer-centric” company, the company will need to continue to listen to its customers and improve the product alongside providing new types of products that the customer needs and wants.

2. Continuing to secure the growth in every aspect:
   → Nubank is continuing to grow every single quarter in every aspect - users, activity rate, revenue, profit, etc. In fact, the company is the most valued Fintech in the Latin America region. It can be expected that Nubank will continue to strive due to the strong continuous growth every quarter.

Key Takeaways from the Story of NuBank:

Nubank contributed to the transition to digitization of banks and financial institutions inside the Latin America region while changing the experience that customers received. It can be agreed that Nubank follows and fulfills its mission of “To fight complexity and empower people to take control of their financial lives'' by allowing people to control how their data is being shared with other institutions and simplifying the process of creating bank accounts to credit cards without charging ridiculous amounts of fees that made banking inaccessible for most.

The story of Nubank is an inspiration not due to its high numbers but due to the fact that the founders during the early stage were told that it was “impossible” for the small fish to beat the giant fish. Lastly, the company not only empowered its customers but also positively influenced the startup ecosystem inside the region by becoming an example itself, giving hope for founders inside and outside of the region. Remember - David was a Sequoia Capital Partner who was in charge of the Latin America region but canceled its operation back in the early 2012s due to the lack of exceptional founders inside the region which later became the tipping point for David’s journey to start his own startup - Nubank and become the example himself.

Below are the key strategies that Nubank used to become the company it is today:

1. Don’t ever be scared to compete with the giant fishes:
   → Remember when everyone told David that it would be “impossible” to beat the giant fishes inside the pond? Well - fast forward 11 years, Nubank became the most valued bank inside the Latin America region surpassing 100 million customers with continuous growth Quarter to Quarter (QOQ). The success of Nubank notifies us that anything is possible when it has a crystal clear target identified with a winning strategy.

2. Identify and Target an Underserved Market:
   → This is one of the major reasons for the success of Nubank. Even though there were 5 companies dominating 80% of the Brazilian banking market during then, it still had huge opportunity for growth due to the market being underserved (e.g., high-interest fees that makes banking more inaccessible, long lines to create bank accounts and credit cards, etc). By identifying and targeting an underserved market with solutions that solve the pain points, it allowed Nubank to strive and shine.

3. Create a Disruptive Product:
   → Having a disruptive product that checks the boxes is crucial. Your company product/service needs to be solving a big problem and actually provide a solution that solves the problem. This rule applies to everyone whether it is a one-person startup or a 10,000+ Startup with billions of dollars inside the bank account. The reason why Nubank scaled its user base to 100 million is because it is killing it by solving a problem inside a market that is massively underserved by its competitors.

4. Be User-Centric for everything - whether it is design or strategy:
   → At Nubank, everything is centered towards its users from the designs to strategies it uses to scale. The only thing that matters the most is solving the problems that users need and want to solve since once you hit the sweet spot, the user will always use your product/service. This is why the company itself focuses on its users and how they can solve everyday problems while fulfilling the need and wants.

5. Business Model matters a lot:
   → Unlike the typical Software as a Service (SAAS) companies, Fintechs have it different with the business model. In fact, Nubank decided to go for an entirely different route of the traditional banking and financial companies' method of Business Model, shifting from earning money through high-interest fees to minimizing earnings from fees but instead relying on fees such as interchange fees from the usage of credit/debit cards to charging a monthly fee premium subscription plan known as “Nubank+” to its customers who spend a certain amount per month with providing bigger benefits.

Thank you so much for reading!

-Harry