Brazilian bank’s local subsidiary is the fastest-growing credit card issuer in the country
01/18/2023
David Vélez — Foto: Ana Paula Paiva/Valor
Nubank will strengthen its presence in Colombia with a loan of up to $150 million from the International Finance Corporation (IFC), a member of the World Bank Group. The local currency loan over a period of three years will be used to boost the growth of the local operation and expand access to financial services in the country.
With more than 400,000 cards issued in the last 10 months, Nu Colombia – a subsidiary of Nubank – is the fastest-growing credit card issuer in the country. “We are proud that an institution like IFC has trusted us to continue generating a positive impact in Latin America,” said David Vélez, CEO and founder of Nubank.
“Our loan to Nubank means more Colombians will have access to more and better financial services,” said IFC’s managing director Makhtar Diop. “Greater financial inclusion is a must for economic growth, and digital banking will play a key role in meeting the needs of underbanked and unbanked retail customers.”
Nubank has more than 70 million customers in Brazil, Mexico and Colombia.
Digital bank, which acquired Easynvst in September 2020, now has 6 million clients
10/26/2022
Fernando Miranda — Foto: Silvia Zamboni/Valor
A little over a year after Nubank’s acquisition of Easynvest was approved, the lender’s assets under custody exceed R$100 billion. Of this amount, R$40 billion are effectively in investments and R$56 billion in Nu Conta, the system that automatically remunerates account holders through bank deposit receipts (RDB).
When it closed the sale to Nubank in September 2020, Easynvest had R$24.5 billion under custody from a customer base of over 1 million. Today, there are more than 6 million, said Fernando Miranda, Nubank’s chief investment officer, who was previously Easynvest’s chief executive.
The deal cost Nubank, a digital bank known for its purple cards, R$2.3 billion and was the shortcut to enter the world of investments. After this step, the mass grew with an IPO in which 815,000 retail customers won or invested in the lender’s Brazilian Depositary Receipts (BDRs) traded in New York at the end of last year.
There is room for more, Mr. Miranda told Valor, considering that Nubank already has 70 million clients. “I see growth on two fronts: firstly, we must increase the market share among clients who already invest in stocks and CDB through cross-selling and by grabbing a larger share of their portfolios from competitors. Another front is the millions of non-investors that can start investing. There is that famous R$1 trillion in retail as a whole, but a big chunk of that is still out of the market.”
One bet to jump a few steps in investments was to make things simpler for individuals by eliminating jargons and splitting their money according to their plans for finances, from building a financial reserve to longer-term goals, such as buying a car or plan a dream trip. “We have developed many tools for investors to take this almost like a recurring debt. They outline the dream, the goal, and I show the monthly [evolution] to achieve it. These are engagement mechanisms that change the behavior of the investor.”
This type of approach that borrows from behavioral finance by stimulating savings became available to the entire base in August. Since then, 2.8 million people created at least 4 million savings “boxes.” Financial reserve accounts for 52% of the plans made. This money yields 100% of the interbank benchmark rate, known as CDI, in an RDB or low-risk fixed-income fund. “The big change is that you invert the thing. It doesn’t matter so much the specific asset. The most important thing is the dream, the goal.”
It has worked with the use of technology. A survey conducted by Nubank with 7,500 customers this month showed that 54% had saved money or invested for the first time with the lender.
Investment services for mass retail have been integrated into the digital bank’s application, while Easynvest’s infrastructure continues in parallel, now as NuInvest. Instead of building from scratch the backoffice and the connection with B3 and other market players, Nubank took shortcuts with the deal. “We bring what we have in NuInvest to Nubank’s app with adjustments for Nubank’s scalability,” said Mr. Miranda. “I had no dimension of dynamism until the acquisition. When we see Nubank’s numbers, with 70 million customers, the scalability discussion changes levels.”
He gives an example of this. The proprietary funds accounted for 8,000 to 9,000 transactions per day eight months ago. Today, that figure is around 30,000.
In the migration of products to Nubank’s app, the part related to the stock market is fully integrated, with stocks, BDRs and real estate funds. Access to Tesouro Direto, a system for buying and selling government bonds, which was the gateway for new investors at Easynvest, is not yet available. In the September sample, with data from July, NuInvest appeared in second position in number of transactions, behind only XP. Mr. Miranda estimates it has a 20% market share. The Treasury disclosed Tuesday the net issuance of R$1.19 billion in bonds for the program, with the stock at R$99.9 billion.
Considering own and third-party funds, Nubank’s asset management company has 1 million shareholders with about R$1 billion in assets, which emphasizes the low average ticket of the operation. The firm has invested in proprietary products with names such as Nu Reserva Imediata, Nu Reserva Planejada, Nu Cautela, and the Ultravioleta family, for bolder clients, which includes a stock portfolio and a hedge fund. These two portfolios are under the structure of a fund of funds that buys quotas from asset management companies like Verde, Constellation, Bogari, SPX, and Absoluto, taking investments starting at R$100.
Mr. Miranda said that the funds collection is wide enough and, unlike its competitors, does not intend to have 100, 200 portfolios in the platform.
Despite using artificial intelligence based on clients’ objectives, Nubank’s decision was to discontinue the services of Vérios and its robo-advisor Ueslei. The digital asset management business was acquired by Easynvest in January last year and brought in about R$400 million from investors who were already making their transactions through the platform. “We discontinued the brand, but brought in all the machine learning technology and robo-advisor algorithms to add value to the asset and portfolio management models,” said Mr. Miranda.
In order to serve high-income clients, either because they amass more money during the relationship or by bringing those who like the digital universe, Mr. Miranda said there is already a team of specialists aimed at premium investors, with portfolios starting at R$150,000. They work “differently from what is done in the market, without conflicts of interest or sales targets.”
This is an unprecedented move in the trajectory started by Easynvest in the past, since it migrated the old brokerage Título to a fully digital investment platform. It is something that is being tested to understand the needs of clients with this profile. Mr. Miranda says he is not spending much energy on this – this is something for the future. But the strategy matches with the development of the capital markets activity, which began in January. This year, Nu Invest has coordinated R$1.5 billion in operations with debt issuers such as Burger King, Raízen, B3 and Alupar. It is in the wealthier segments of the population where it finds the greatest interest for this type of asset.
“We are still focused on building up, and on the same strategy. In five years, we’ll talk.” This is how Nubank founder David Vélez reacted when asked in Davos, Switzerland, where the World Economic Forum is being held, about the fintech’s new dive in the stock market, which gave it a lower market capitalization than rival BTG.
“Until then, you’re going to have crises and cycles. It’s Latin America. But in the long run…” Mr. Vélez told Brazilian reporters after speaking at a dinner dedicated to Latin America, in which he told the story of Nubank.
Mr. Vélez noted that the market capitalization of Latin America’s banking industry is $1 trillion, while the region has 250 million unbanked people. According to his view, the digital model is much more profitable than traditional lenders, as these banks have no branches, for example.
Asked about derisive comments in the market that the value of the fintech seemed unreal, the Nubank founder smiled. “That’s great because being ignored is the best thing that can happen,” he said. “We were ignored in Brazil for three to four years. Nobody was looking at us. We went through the four Gandhi phases: first they ignore you, then they laugh at you, then they fight you, then you win,” he said, misattributing the quotation to Mahatma Gandhi. “Now we go back to being ignored,” he added.
Nubank, once the most valuable bank in Latin America, now has a market capitalization of $15.53 billion (R$74.7 billion), the sixth-highest among Brazilian banks, behind the likes of Itaú (R$236.5 billion), Bradesco (R$194.6 billion), Santander (R$126.1 billion) and BTG (R$99.33 billion).
Asked about when he estimates that Nubank will recover the IPO price, he replied that it is impossible to know. But reiterated that “we are still an ant, and our strategy is long term.” He said Nubank is focused on Brazil, Mexico and Colombia and getting close to 60 million customers – mostly in Brazil. “We still have to grow with that base,” he said.
In Davos, he took advantage of contacts with other fintechs, but said he has no plans for partnerships at the moment. “Since we are the biggest in the world, we get a lot of emails from neo banks abroad,” he said. Sometimes Nubank invests in other companies, as happened with a bank in India. And all this with an eye on the potential for the next 20 years.
Nubank is currently facing its toughest governance test since it went public — Foto: Divulgação
Nubank is currently facing its toughest governance test since it went public, with pomp, in December. In addition to the controversy of more than R$800 million in compensation for the management team, the lock-up period on the trading of shares sold in the IPO was set to end earlier than expected. The result is reflected in the fintech’s market capitalization, which was $24.6 billion on Wednesday, 40.7% lower than when it went public.
Earlier this week, the digital bank changed the date for the end of the lock-up period. The deadline was shortened by about a month, to May 17, the day after the release of first-quarter results.
As Nubank signaled that it did not intend to slow down in credit despite rising interest rates, the measure led some investors to wonder if this was not a sign of bad results to come. The suspicion was greater because it was compounded by the uneasiness with the compensation package planned for the management team this year, a whopping R$804 million. The number, which appears in official Nubank documents, caused a furor in social networks last week after it was reported by Valor.
Days later, Nubank released a statement to the market to explain itself to investors: 84% of this remuneration goes to David Vélez, cofounder and CEO of the fintech, who will only receive it if ambitious goals are met, and that the banker is committed to donating his fortune in life.
It wasn’t enough to calm things down. First, the total amount continues to differ from what other banks and companies pay. Second, the clarification took a long time – the statement to the Securities and Exchange Commission (SEC) was made five days after the news went viral, an eternity in times of social networks.
Stocks are a snapshot and do not always say much about the quality of a company, but they are the most important signal of the perception that investors have of it. Therefore, Nubank will have to learn how to deal with them. In this sense, transparency always goes down well – even more so at a time when the cost of money is rising and shortening the tolerance of technology investors.
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