Since its inception in 2014, the Brazilian fintech business Nubank has developed banking solutions for communities that previously could not or did not have access to the country’s five major banks. It first created its characteristic purple credit card to alleviate excessive interest rates (up to 400 percent a year on other Brazilian credit cards) and to simplify the credit procedure with a virtual, app-based system (and no hidden fees)—and is currently Brazil’s sixth-largest credit card issuer. In 2017, the company expanded into high-interest savings accounts via which users can transfer money or pay bills. Last year, it introduced direct deposit for users’ wages, as well as debit and ATM withdrawal capabilities.
The company decided in 2013 to develop a firm that actually appreciated its customers, placed itself in their shoes, and offered them easy, accessible, and transparent solutions because we were tired of the red tape, high fees, and poor service provided by other banks.
Seven years later, Nubank is the world’s largest digital bank, with over 25 million customers. We are Latin America’s leading financial technology services company and, according to Fast Company, one of the world’s 50 most inventive.
Nubank focuses on using technology to solve financial difficulties. We design solutions that are simple to use, comprehend, and operate via a mobile application that provides complete autonomy for individuals to resolve everything on their cell phones.
Nubank’s Beginnings: A Brief History
Nubank was formed in 2013 by David Velez, Cristina Junqueira, and Adam Edward Wible in So Paulo, Brazil.
Velez, who is of Colombian heritage, spent the first nine years of his life in Medelln, which was racked by a brutal drug war at the time.
His family subsequently relocated to Costa Rica, where his father, who previously ran a button factory, established a similar business. Velez went on to finish high school as valedictorian and attend Stanford, where he majored in engineering.
Instead of giving in to the Valley’s start-up frenzy, Velez headed up east to join Morgan Stanley’s analyst program. He then joined General Atlantic, one of the world’s leading private equity funds, to build up the firm’s investment arm in Latin America.
In 2010, Velez returned to Stanford to pursue his MBA. While still in school, he was recruited by Doug Leone, one of Sequoia Capital’s long-standing partners, to scout startups in Brazil and beyond.
Unfortunately, that task proved to be much tougher than expected. During his two-year tenure at Sequoia, Velez did not source any deals at all. Brazil’s startup ecosystem simply did not offer many attractive business opportunities, largely as a result of an ongoing financial crisis as well as a lack of engineering talent.
Where others saw only obstacles, Velez saw an opportunity. Velez began investigating numerous company prospects after being encouraged by his family, which was mostly comprised of entrepreneurs.
Banking was the industry he returned to again and again. Back then, the banking business in Brazil was dominated by five big institutions: Ita, Bradesco, Santander, Banco do Brasil, and Caixa, which had a combined market share of more than 80%.
Customers faced a slew of issues as a result of their market domination. For starters, banks were renowned for charging outrageous fees, such as requiring clients to pay up to 15% in interest on outstanding payments.
Second, opening a bank account or obtaining a credit card was a time-consuming process. Customers had to go to the actual branch (which was sometimes only open for a few hours each day), wait for a statement to be mailed to them, and then go through a lengthy phone interview to seek modifications.
To make matters worse, physical branches were not available in every part of Brazil, leaving a sizable portion of the country’s population unbanked.
Simultaneously, smartphone usage and broadband internet access began to rise, laying the groundwork for a slew of new business options.
Velez spent the following few months speaking with bank executives from Brazil and others to iron out the kinks. Many of the experts he consulted warned him not to go after the incumbent banks. Even global banks such as HSBC had previously unable to establish a local presence in Brazil.
Velez, on the other hand, was unfazed. To gain the help he needed, he enlisted Junqueira and Wible as co-founders. Junqueira, who has an MBA from the Kellogg School of Management, has worked in the banking industry for many years.
At the age of 24, she was the head of the SME lending division at Unibanco, Brazil’s largest private banking organization.
Unibanco merged with Ita, Brazil’s second-largest private bank, the following year, and she was appointed as a portfolio manager for Itacard, the company’s new credit card.
Junqueira departed the firm in 2012 after becoming dissatisfied with her employer’s unethical business methods (she had previously proposed to launch a commission-free credit card). Soon after, a mutual friend acquainted the two.
Velez and Junqueira recruited Adam Edward Wible, an American with a Computer Science degree from Princeton University who had spent the previous five years of his career in consulting and private equity, to round out the team.
Both corporations invested $1 million in July 2013. The signing of the documents, on the other hand, proved to be a little more difficult than anticipated. Cristina Junqueira, the co-founder, was recently admitted to the hospital following the birth of her first child. The agreement was finally signed the day before she delivered birth. Junqueira was already back at work one day after giving birth.
The crew began to work after receiving $2 million in early funding. Over the next year, they were able to get a banking partner (which enabled them to keep customer funds), a collaboration with Mastercard (which provided the credit card), and develop the Android and iOS apps.
Nubank eventually debuted its first product, a MasterCard Platinum credit card linked to the customer’s smartphone, to the public in September 2014. Furthermore, the team was able to collect $14.3 million in Series A funding (led by existing backers Sequoia Capital and Kaszek Ventures).
More than 200,000 people signed up for the waiting list in the first year, with 100,000 successfully onboarded. Nubank maintained a conservative approach to onboarding speed in order to allow its systems to expand with rising traffic and optimize the app experience.
In fact, Nubank was able to create a system that analyses over 3,000 data points to determine a customer’s attractiveness and risk.
On the other hand, incumbent banks had only used 10 variables, resulting in substantially higher risk and, in many cases, fewer accepted applications.
In June 2015, the company raised $30 million from Tiger Global Management and existing investors as a result of its patient and steady strategy. Much of 2016 and 2017 were devoted to raising new rounds of loan and equity funding.
What happened later?
During those two years, Nubank was able to acquire an extra $274 million in cash. Instead of pouring money into expensive marketing initiatives, the company spent the majority of its money on hiring excellent people.
As previously noted, Brazil’s startup ecosystem has long been plagued by a scarcity of talent, particularly among software developers. Nubank avoided this problem by hiring employees from other countries or having foreign branches. For example, in December 2017, the company established an engineering hub in Berlin, Germany, from where certain development work will be carried out.
Furthermore, Nubank’s ability to offer a superior product experience, from onboarding to customer service, resulted from its investment in high-quality staff. As a result, the majority of its users discovered the app through word-of-mouth.
Meanwhile, Nubank stealthily obtained a banking license, allowing the company to extend its product portfolio. Velez’s journey to China in 2018 was a major source of inspiration.
There, tech companies such as Alibaba (Alipay) and Tencent (WeChat) have created so-called mega applications that provide services such as loans, insurance, and investments all inside a single ecosystem. Furthermore, the demographic of China in the late 2000s resembled that of Brazil in 2018, presenting them with a roadmap for expanding Nubank beyond credit card payments.
To get firsthand knowledge of how to build such an ecosystem, Nubank agreed to accept $180 million from Tencent, the Chinese technology giant, in exchange for becoming an advisor to the Brazilian bank.
Nubank released a personal loan product as well as a digital savings account in 2019. In addition, proprietors of small and medium-sized businesses would be able to open accounts and collect client payments.
By July 2019, Nubank had surpassed the milestone of 10 million customers. Furthermore, Nubank expanded not just vertically (into new product lines), but also horizontally, by entering new markets.
The company maintained its focus on expansion, for example, by opening in Columbia in February 2021. As a result of the firm’s growing market penetration, David Velez will become Nubank’s global CEO in April 2021, while Cristina Junqueira will become CEO of the firm’s Brazilian operations.
That same month, CTO Adam Edward Wible resigned to return to the trenches and work as a software engineer for Nubank. Matt Swann, who formerly managed engineering teams at Amazon and Booking, took his position.
Nubank becomes LatAm’s biggest, and riskiest, bank
Fintechs come in a variety of shapes and sizes. Nubank, which was recently listed on the New York Stock Exchange, has recently become Latin America’s largest bank in terms of market value. It collected $2.6 billion in an initial public offering read more on Wednesday evening at $9 a share, giving it a market worth of more than $40 billion. That’s a high price to pay for improbable excellence.
The newcomer’s valuation now slightly outperforms that of regional behemoth Ita Unibanco (ITUB4.SA), though that could alter once trading begins later on Thursday. That’s impressive for an eight-year-old startup that was founded to provide low-cost credit cards in Brazil.
So is Nubank’s price-to-tangible book value ratio, which is around ten times. That’s astronomical given that Ita is worth less than twice as much, according to Refinitiv data, JPMorgan (JPM.N) is worth slightly more than twice as much, and less secure banks like Citigroup (C.N) and Deutsche Bank (DBKGn.DE) are worth less than tangible book value.
The wager is on turbocharged expansion. In less than four years, Nu Holdings, as it is formally known, has more than tenfold increased its customer base to 48 million. Financial-technology investors may place a premium on growth-oriented valuation criteria such as revenue multiples. These factors serve to justify investments in Nubank, either prior to or during the IPO, from companies such as Warren Buffett’s Berkshire Hathaway (BRKa.N), Sequoia Capital, and SoftBank Group’s (9984.T) LatAm fund.
NEWS IN CONTEXT
- A Latin American financial technology start-up Nubank priced its shares in an initial public offering on the New York Stock Exchange on December 8 at $9 per share. With a market valuation of $42 billion, it is the most valuable listed bank in the region.
- The business, officially known as Nu Holdings, lowered its intended IPO price range by a fifth the week prior, to $8-$9 per share from $10-$11.
- Nubank also attracted so-called cornerstone investors interested in purchasing at least $1.3 billion in shares – around half of the total issued – including previous backers like Sequoia and Tiger Global Management as well as new ones such as SoftBank Latin America Funds.
