Nexo is buying Vauld, marking more DeFi consolidation

1

Nubank

Power Score: 62.04

Momentum Score: 78.82 (1)

HQ: São Paulo, Brazil

CEO: David Vélez

On Power

Brazil-based Nubank stands above the competition due to its size and momentum. As of Q3 2021, the company had accrued 48.1 million customers across Brazil, Mexico and Colombia. That’s even more impressive when you consider it had just 3.7 million customers at the start of 2018. And Nubank reports that 80-90% of this growth has come through organic user acquisition.

Nubank generated $1.1 billion in revenue in the first nine months of 2021, more than double the $535 million it made during the same period of 2020. Gross profit margins stood at nearly 50% in the first nine months of 2021, though Nubank posted an overall loss of around $99 million. These figures have helped Nubank attract investment from the likes of Berkshire Hathaway, Tencent and Tiger Global. The company went public in December, just days after this Power Index published. After downgrading its initial IPO pricing, Nubank successfully raised $2.6 billion in its IPO, lifting the neobank's market value to $44 billion (note that the ranking is based on data from before the IPO).

On Disruption

Nubank’s disruptive potential has a lot to do with where it operates. In Mexico and Colombia, over half the population is considered unbanked, per Global Finance. Likewise, around one-third of Brazil’s population is considered unbanked. Prior to Nubank entering Brazil’s market, five banks controlled approximately 80% of the financial system assets in the country, per S&P Global Intelligence. This oligopoly led Brazilian consumers to face some of the highest interest rates in the world.

So NuBank’s disruptive potential is heightened by a lack of competition. For instance, it’s able to offer better lending terms to customers because of its lower cost structure: Nubank estimates in its F-1 that its cost-to-serve and general and administrative expense per active customer stands at about 15% that of incumbents in these markets. In Brazil, Nubank also receives one-fifth the number of complaints per customer relative to the incumbent median. This all helps explain why Nubank has been so successful at poaching — and retaining — its competitors’ disgruntled customers. In Brazil, for instance, 28% of the entire population aged 15 and above uses Nubank.

Tea Leaves

Given the demand for neobanks in Brazil, Mexico and Colombia, it wouldn’t be all that surprising for U.S.- or U.K.-based banks to ramp up their efforts to gain market share there. It’s already happening to some extent: JPMorgan Chase purchased a 40% stake in the Brazilian neobank C6 in June 2021. This is part of the reason why Nubank thinks it's so important to scale now, in order to dissuade new market entrants.

They Said It

“Our model generates proprietary data on millions of individual consumers and SMEs across Latin America, which provides us with unique insights into customer behavior. We feed this data into our artificial intelligence and machine learning algorithms to improve our underwriting, differentiate our products and services, enhance our customer support, tailor customer experiences and lower our risks.” — From Nubank’s F-1 under the “We Have Significant Strategic Advantages” heading

Return to the Neobanks Power Index here .

Update: This article was updated to include details of Nubank's IPO, which are reflected in the text but not the ranking's underlying data. Updated Dec. 10, 2021.