Have you heard the name NuBank? Hopefully, the answer is yes,
and if not, this might change soon because this Brazilian startup is disrupting the
banking industry in Latin America. With the goal to make banking easier for all,
this Fintech now has more than 48 million users and soon might be worth north of $50 billion.
But how did Nubank disrupt the banking industry? Join us as we break down Nubank’s startup story,
their marketing strategy, and how they are planning to become a global brand
Nubank is a Brazil-based financial technology bank that has taken over Latin America with
plans to expand into the rest of the world soon. The online bank has absolutely no
traditional banking branches and operates through products like the NuConta - their
digital banking account - along with a no-free, low-interest international credit card that
customers can use directly on their smartphones. The Nubank app allows users to track their
transitions in real-time, block their card in case of an emergency, apply for a limit raise,
contact customer support and carry out pretty much all kinds of banking activities with the click of
a button right from their phones. This has helped Nubank boost financial inclusion in Latin America,
where most people do not have access to or knowledge of traditional banking methods.
So, how did it all start? In mid-2012, Colombian David Vélez moved to São Paulo after completing
his MBA at Stanford to pursue a job as a Sequoia Capital partner. Doug Leone, head of Sequoia
Capital, had recruited him to scout startups in Brazil and the rest of Latin America. However,
a few months later, Leone called to say the project was overdue to a lack of promising pitches
and computer science graduates in Brazil. While the decision shocked him,
Vélez had always wanted to launch a startup of his own, and rather than view a lack of
Brazilian innovators as a negative he saw it as an opportunity for himself, with Velez saying in an
interview with Forbes that “in the U.S., there’s an oversupply of good entrepreneurs. Somebody with
my experience and background is a commodity. In Latin America, there was significant scarcity.”
Vélez identified the need for a convenient banking service in Brazil,
where half of the population was unbanked despite being the world’s seventh-largest economy.
Back then, there were about 5 banks in the whole country, and all of them charged a
huge fee with high-interest rates on credit cards and had terrible customer service.
Velez’ frustrating experience with trying to open a bank account in 2013
inspired this idea. After spending nearly an hour waiting at the bank to begin the process,
it took an arduous 4-months before it was complete. Velez knew that no matter where he went
in Latin America, the process would be the same. “We always say in Brazil that things are hard,
everything is complex, services are difficult to get, and a lot of people see that as a challenge,
I don’t want to deal with these companies, I don’t want to get a cellphone account because it’s hard,
we actually saw that as a huge opportunity, because everywhere you see frustration,
everywhere you see a consumer that is in pain, that is an opportunity
for a business to come do it better.” So, he decided to solve the problem all on his own
using technology. And so, Nubank was born as an independent, digital bank to help the people of
Brazil become more financially savvy. He recruited Cristina Junqueira who held an MBA and possessed
years of experience in the banking industry, along with Adam Edward Wible, an American
with a Computer Science degree from Princeton University, who had spent the first five years of
his careers in consulting and private equity, as co-founders, officially launching Nubank in 2013.
Now, Vélez had already secured $1 million from his mentor Leone and his former VC partners.
Argentine venture firm Kaszek pitched in another $1 million. WIth $2 million in seed funding,
Vélez - along with his partners - got to work and started developing their first product
with the support of a banking partner that allowed them to store their customers’ funds along with
Mastercard that provided them with a credit card. Finally, in 2014, Nubank entered the banking
sector with their Mastercard-backed credit card linked to their customers’ smartphones.
This idea was unlike anything the people in Brazil had ever seen before and grabbed their attention.
About 200,000 people put their names on the waiting list within the first year,
with 100,000 people successfully onboarded. Nubank was extremely careful about the people
they onboarded within their first few years because they were trying not to overburden
their system, which would result in a bad user experience. However, they managed to develop a
method that would allow them to scale their system as their number of users increased.
Nubank used the ‘velvet rope’ strategy in the beginning to attract more customers. This meant
that you could only apply for their credit card if a friend invited you. Aside from the exclusivity,
this digital bank charged no annual fee and helped the customers make all kinds of transactions
through their phone really helped Nubank build itself a user base almost instantly.
People who qualified for the card were instantly notified through the app. Their
iconic purple-colored credit cards would arrive in two days, allowing them to do
just about any banking activity through their phone. Compared to traditional Brazilian banks
that charged annual bank fees that started at $20 per year - this was a great deal.
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In 2016 - just two years after their official launch - Nubank hit 1 million accepted credit
card customers—almost entirely through word of mouth and referrals. And with the kind of success
that the Neobank had experienced, in 2017, Nubank received a Brazilian banking license,
allowing the platform to offer checking and savings accounts, which automatically increased
their user base. Within five months, about 1.5 million of Nubank’s credit card customers
had signed up for bank accounts. In 2019 - right before the pandemic
hit - Nubank had managed to make $523 million in revenue with a loss of just $78 million.
And despite the pandemic, the platform only benefited from the lockdowns,
as people transitioned from traditional banking to mobile and web banking. This helped Nubank’s
revenue almost double in 2020 to $963 million, with the losses going down to just $44 million.
Considering all of this, Nubank went public on the New York Stock Exchange on December 9th,
2021. The company raised $2.6 billion, with shares opening trading at 25% above the offer price,
giving the bank a market capitalization of nearly $52 billion.
As a response to the platform’s success, Brazil has recently seen a sudden increase
in digital banking services, with traditional banks scrambling to launch their own apps,
trying to enter the fintech market. The biggest competitors for the digital bank are Brazil’s ‘Big
Five’ banks, including Itaú Unibanco, Caixa, Banco do Brasil, Bradesco, and Santander.
However, Nubank is currently dominating the fintech market in Brazil and offering features
that other companies will take a long time to match. Last year, Nubank acquired a pioneering
digital investing platform and rolled out a life insurance product, selling 100,000 policies in
the first two months. At the same time, the digital bank has also expanded to Argentina,
Mexico, and of course, to Vélez’s mother country Columbia to tap into their unbranched markets.
But, with all of this, how exactly does Nubank make money when they don’t even charge a fee for
their credit card? Whenever you make a purchase through their credit card, an interchange fee
is applied through the Mastercard network. At the same time, when you store your money in a Nubank
account, they earn interest through these funds. The bank also charges overdraft fees,
ATM withdrawal fees, and referral fees, along with offering loans. More recently, Nubank launched a
premium credit card called the Ultravioleta, which grants customers various benefits for a monthly
subscription fee of $49. So, it’s safe to say that the bank has a diverse range of income streams -
even though their basic credit card plan is free. Since its inception, Nubank has raised a total
of $2.3 billion in funding across 12 rounds of debt and equity financing,
with investors like Sequoia Capital and Berkshire Hathaway believing in the company’s potential.
Currently, Nubank has a valuation of $30 billion after the company raised $1.15 billion in a Series
G led by Warren Buffett's Berkshire Hathaway. The platform now has 48.1 million customers,
including approximately 28% of the population of Brazil aged 15 and above.
So, what does the future hold for Nubank? According to official stats, Nubank is currently
growing by 41,000 new users every single day. With ambitious plans of expanding its empire
into other unbanked regions all over the world, there’s no denying the fact
that Nubank will continue empowering people financially and breaking the monopoly of
traditional banking through technology. In 8 short years, Nubank has gone from an idea
born out of Velez’s frustration with Brazil’s outdated banking system to launching its free,
app-linked credit card and obtaining a banking license to offer a broader range of financial
services. In the process of disrupting Latin America’s banking sector, the company has
made banking accessible to millions of people and built the world’s largest digital bank.
That’s a wrap for our breakdown of Nubank. What do you think of this and other digital banks like
it? Do you think it will achieve its target valuation? Let us know in the comments below.
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