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XP intends to strengthen its hand in the space it considers less busy in the corporate segment: that of companies with cash surpluses rather than those that require credit – and typically provide better returns to banks.
After revenues in the segment reached R$850 million last year, compared with zero three years earlier, the platform plans to go a long way in the so-called “middle market,” which brings together businesses with revenues above R$200 million. XP was born making only investments and now boasts R$815 billion under custody.
XP, with about 50,000 clients in its portfolio and R$65 billion under custody in this segment, plans to reach 400,000 companies by 2025 and increase revenues with the segment tenfold by then. Last year, net funding was close to R$30 billion. To expand its base, XP bets on independent financial advisers connected to the platform, which have been adding specialized labor. Of the 500-people commercial team, 90% comes from the external channel.
Since it went public on Nasdaq, at the end of 2019, XP has said that people in Brazil are leaving large banks behind, a move still in its earlier chapters. Yet, XP itself became a bank by setting up the infrastructure of services existing in the old-school financial firms. This created the conditions to move beyond investments. Now the firm wants to repeat in the corporate business what it achieved among individual clients.
“[Corporate] clients who are purely investors are not the main targets [of banks]. They are not the ones who pay the highest spread because they have more bargaining power, they are not so dependent on credit, the bank does not get a ‘cross sell’ so easily,” said Rodrigo Moreira, a partner at XP who leads the corporate business since 2019, after a decade at Itaú. “Banks don’t have a broad suite of products in the portfolio for investment clients. It’s an easier arena for us to fight in.”
By starting with the investment end, XP follows the same logic that helped it scale up services to individuals. This approach includes a platform open to third-party products and a technological overhaul that matches the regulator’s agenda with the advent of open banking to foster competition, said José Berenguer, CEO of Banco XP. “The banking segment will be part of our services, but we will work to connect other providers to our platform. We try to have simple contracts and price appropriately as we do not have to shoulder fixed costs,” he said, referring to distribution through independent financial advisers.
The base is the investment account, since the XP bank account for companies is not yet transactional, Mr. Berenguer said. The firm expects to increase the power of attraction when this stage is over, something expected for later this year. The executive says it is reasonable to estimate that at the current growth rate, the segment will double in size every 18 months.
According to the executive, this customer group is poorly served in traditional bank branches, which depends on credit, pay expensive rates and is the first to suffer in crises. “It is the first credit that disappears,” Mr. Berenguer said.
Offering unsecured credit is not, however, in the original script of Banco XP. “We have also been doing it, but it is not the flagship. Many credits are collateralized [with investments], but our role is also to teach how to take credit, to have a financial life more adequate to the reality of the budget, of the companies’ income,” he said.
Mr. Moreira believes that over time credit will become important for XP as a whole. “Will it be the most important line? Only time will tell, but it is unlikely to happen in the short term.” He says that the company already has some structures where it takes some risk, combining investment collateral. The most likely is to move into some kind of working capital, with export financing lines, with the use of derivatives and treasury operations.
When mapping the universe of entrepreneurs or executives in leading positions in the companies, XP counted about 150,000 clients within its own base, Mr. Moreira said. This has been the starting point. There is synergy with the public served in private banking, of high-net-worth individuals and families.
Source: Valor International