This piece was originally published in my newsletter Emergent.
My name is Mikal – I’m an early-stage tech investor and I was born in Asia, grew up in Africa and now live in the US. Every week I break down a fast-growing business in an emerging market to understand its product, market and growth strategy.
This week I’m breaking down Brazilian fintech giant Nubank.
In emerging markets today a large minority or majority of citizens don’t have a bank account, don’t have a debit card, don’t have life insurance and much more. This pattern is a common feature in countries from Latin America to Africa and Asia. However, in recent years a wave of digital banks (banks with no physical locations that are accessed purely through the internet) have been founded hoping to solve this very problem. The largest and most successful digital bank in an emerging market today is Brazil’s Nubank.
Nubank is a digital bank offering its customers digital accounts, credit and debit cards, life insurance and more. Nubank was founded in 2013 and since then has grown to reach massive scale:
- 35 million customers
- Available in Brazil, Mexico and Colombia
- $5 billion in customer deposits
- $800 million in revenue in 2020
- $175 million loan book value
- Valuation of $25 billion
Today Nubank is the largest digital bank in the world by number of customers and the fourth-most valuable financial institution in Latin America.
Nubank is rapidly evolving into a full-service financial institution servicing a range of different customer needs. Today Nubank’s products include:
- Digital bank account
- Credit and debit cards
- Consumer Loans
- Peer-to-peer money transfer
- Life Insurance
- Business Banking
Nubank’s core product is its digital bank account for consumers. Customers can deposit money or their salaries into this account and take advantage of a range of benefits including zero fees, interest on their account balance, unlimited transfers and withdrawals at over 25,000 ATMs. Its digital bank account product has proven dramatically successful in Brazil. Nubank has grown from 6 million customers in 2018 to 35 million by the start of 2021. However, 45 million people still remain unbanked in Brazil today despite Nubank’s impact (the company says 20% of its customers have never had a credit card or bank account before Nubank).
Nubank’s digital account is its initial hook for customers but over time Nubank slowly upsells its customers to its other services – credit cards, loans, its rewards program and more. Nubank is continuing to steadily add new services for its customers. For example, in 2020 Nubank launched a life insurance product and late last year Nubank acquired Easynvest, a stock-trading app in Brazil with over 1.5 million customers. Finally Nubank is starting to experiment with business banking and now offers business accounts to its customers with no maintenance fees and specialized debit cards for business owners.
Historically, the Brazilian banking sector has been very highly concentrated, with 5 banks controlling 85% of the total market. This has led to Brazil’s banking sector being one of the most profitable in the world. However, the rise of Nubank and other digital banks is putting significant pressure on incumbent banks to adapt.
Brazil’s top five largest banks are:
- Banco do Brasil ($450+ billion in assets under management)
- Itaú Unibanco Holding l ($410+ billion in assets under management)
- Caixa Economica Federal l ($388+ billion in assets under management)
- Banco Bradesco l ($450+ billion in assets under management)
- Banco Santander Brasil ($200+ billion in assets under management)
Their significant investment in digitization is starting to pay off and the top three banks (by assets under management) have reported over 20 million digital customers in their most recent quarterly updates. Despite that, Nubank’s 35 million customers makes it the clear leader in Brazil in the digital banking segment, and its customer base is growing far more rapidly than that of incumbent banks.
Nubank’s other set of competitors are other digital banks in Brazil including the likes of:
- Neon: 9.4 million accounts to date and recently raised $300 million in fresh funding
- C6 Bank: 4 million accounts and recently raised $250 million in fresh funding
- PagBank: 7.9m accounts, publicly-listed company (NYSE:PAGS)
The size of the Brazilian market and the high numbers of unbanked Brazilian’s has caught the eye of incumbent banks and fintech startups across the country with significant investment being deployed to try to capture market share. So far, Nubank is winning this race.
Despite rising competition, Nubank’s rapid growth and current market-leader position offers it the chance to grow its business in several different ways. Nubank has three possible growth avenues ahead of it:
- Continued expansion of its customer base into the unbanked / underbanked segments
- Geographical expansion
- Broadening and deepening its business banking products
Nubank is clearly already aggressively pursuing the first strategy and the word-of-mouth effect powering its growth shows no sign of stopping. Nubank is also already pursuing the second strategy and launched in Mexico in 2019 and Colombia in 2020.
While Brazil is the largest country in Latin America by population (200 million), all the countries in the region have similar percentages of unbanked citizens as Brazil. Nubank’s scale and access to cheap financing will drive its expansion into new markets and enable it to outspend any local competitors, a notable advantage of being so large. This gives it the opportunity to aggressively acquire market share in new markets.
Finally, business banking is a large opportunity for Nubank. While its DNA has primarily been as a consumer finance company to date, it has been experimenting with early business banking products through its digital accounts and debit cards for business. Nubank’s brand recognition in Brazil offers it the chance to expand far more aggressively into business banking products, and capture far more market share.
To put things in perspective, Nubank’s loan book of $175m (mostly consumer loans) pales in comparison to Banco Do Brasil’s loan book of $132 billion (as of December 2020). Of this, $84 billion of the total amount are loans of various kinds to businesses in Brazil. With over 4.3 million businesses active in Brazil the opportunity in business banking is a huge one and a logical expansion of Nubank’s platform over time.
Nubank’s rapid rise to become the largest digital bank in the world is just the start of its journey and evolution into a full-service financial institution. It has now set its sights on expanding throughout Latin America and launching a range of new services for its customers from stock trading to insurance. Nubank’s story is a sign of things to come in many other emerging markets globally with digital banks like Kuda, Grab Financial and others hoping to replicate Nubank’s rapid growth.
This piece was originally published in my newsletter Emergent.