RIO DE JANEIRO, Brazil–A fintech offering in this country that has captured nearly half of this country’s adults with its credit card, digital banking and loan products offers some lessons for American fintechs and, perhaps, credit unions as well, according to a new report.
In 2013, David Vélez launched a Brazilian bank called Nubank that has surprised analysts by posting $142 million in net profits for the first quarter of this year on $1.6 billion in revenue, an 87% increase from the year before, according to Forbes, adding that Nubank’s stock, which trades on the New York Stock Exchange, has surged 30% since that report, pushing its market value to $37 billion and Vélez’s 21% stake to nearly $8 billion.
“To be frank, it should not really come as a surprise,’’ the 41-year-old CEO told analysts, Forbes reported.
Vélez added that it’s “consistent” with what he’s been saying for years: once his low-cost, digital-only, data-dependent model reached maturity in a market, it would produce a high return on equity.
‘Astonishing’ Penetration
“Nubank now claims an astonishing 46% of Brazil’s adults as customers,” Forbes reported. “In just the past two years, it has more than doubled its customer base to 80 million people in Brazil, Mexico and Colombia–all served by just 8,000 employees. By contrast, Chime, the most successful digital bank in the U.S, likely has fewer than 20 million registered users (it doesn’t disclose the number), laid off 12% of its staff last year amid slowing growth and is probably worth a lot less now than the $25 billion it was valued at in a 2021 fundraise, during the pandemic-fueled fintech boom.”
Forbes noted that Nubank launched in a market in which five Brazilian banks controlled 80% of that market, earning fat profits by lending at 200% to 400% annual interest rates, charging monthly fees for everything from fraud protection to text-message alerts and delivering lousy customer service.
The U.S. market, by contrast, was much more competitive, with 5,800 traditional banks, more digital bank startups in the works and a generally higher standard of service—despite consumers’ gripes about overdraft and other fees, the report explained.
The Differences
The differences in Nubank’s offerings include, according to Forbes:
- While most U.S. digital banks have started out with a checking account and debit card, Nubank launched with a no-fee credit card, because it didn’t need a banking license to issue a card and because almost all the Brazilian card issuers charged fees. By launching with credit cards Nubank wasn’t burdened with high upfront marketing costs, and used the “classic velvet rope” strategy of inviting early adopters (and then their friends) to apply for its distinctive purple credit cards, Forbes said. Within three years of launching its credit card in 2014, Nubank had nearly two million customers.
- In addition to the absence of annual fees, its mobile app, which lets customers do everything from applying for a card and requesting credit-limit increases to reporting fraud, has helped Nubank build a broad, loyal customer base, Forbes said.
- Vélez told Forbes Nubank has many low-income customers, and that lower income doesn’t mean bigger lending losses, just as higher income doesn’t lead to smaller losses, as long as the FI is extending the right amount of credit. Nubank starts some customers at a limit as low as $10, and for higher-risk customers, it only offers them a secured card, meaning they must make a cash deposit before using it, according to Forbes.
“Then it ramps up a card’s limits–sometimes after just 15 or 30 days–as it collects more data on both a particular user and users in general,” Forbes reported. “This patient approach means you must be willing to lose money for a significant period of time among low-income customers, Vélez notes.”
Others React
The report did note that one challenge for Vélez and his team as they expand: the incumbent players in countries into which Nubank is moving having taken note of its success and are reacting faster than Brazil's banks did.
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