LTGG Reflections: Skipping the queue

June 2024 / 3 minutes

Explore how Nubank is revolutionizing Latin American finance.

If reputation is to be believed, queuing is what the British are renowned for doing, and doing very well. With a queuing etiquette seemingly encoded in our DNA, the likes of tea, cake, and camping chairs have been known to make an appearance in many a British line. From an external perspective, hours spent waiting around may look like a fun-past time in Britain.

The same is unlikely to be said about Brazil. Lunch hours consumed in the notorious banking ‘fila’ only to return to the office, wearily carrying unpaid bills despite best intentions, has been a common occurrence in Brazil over the years.

© Shutterstock / Postmodern Studio

According to a study in 2019, almost 50 per cent of Brazilians have been late for work because of lengthy bank queues. Physical bank branches are often few and far between, whilst limited hours and notoriously long lines make them difficult and timely to access. You can imagine the collective sigh of relief then as 440 million hours of waiting have been spared for customers of new Brazilian digital bank – Nubank (or Nu for short).

In a familiar David vs Goliath narrative, set against a banking system that is dominated by large incumbent banks that have failed to put the customer first, the neobank finds itself as the main protagonist. Controlling over two thirds of Brazilian loans, deposits, and banking revenues, the top 5 Brazilian banks have over earned on fees for years. Such high fees are intolerable for low-income customers, leaving many in the country without access to banking services. Over 9 per cent of the adult population in Brazil do not have a banking account (vs c.3 per cent in US and c.1 per cent in UK). The proportion is much higher in other Latin American markets such as Mexico (>50 per cent) and Colombia (>35 per cent) where similar fee-leveraging dynamics play out. A starting point such as this offers a considerable growth opportunity for the digital underdog.

Armed with a scalable backend platform and a highly motivated and thoughtful leadership team, Nu has become one of the fastest growing financial services platforms in the world. Entering the arena with a no fee credit card followed by a free digital account has enabled Nu’s customer base to organically surpass 100 million in just over 10 years.

Alongside time recouped from the lunch break queue, Nu’s digital banking services have helped its customers save more than $11billion (US dollars) last year alone. Staying true to its mission of “fighting complexity to empower people” has helped the company to achieve a Net Promotor Score (NPS) that is nearly 3x higher than its big Brazilian banking competitors and amongst the highest of any consumer company in the world. Put simply, Nu’s customers love its products. Furthermore, from an operational perspective, Nu’s branchless model and associated labour efficiency commands an 85 per cent cost advantage against these Goliath incumbents.

Much of Nu’s success has been driven by the bank’s own protagonist – CEO and co-founder David Vélez. Driven by personal frustration at the inefficient banking giants, Vélez has been deeply involved in building the company from the ground up, attracting top talent, and shaping a culture of accountability and customer obsession. Maintaining a clear and consistent strategic message since Nu began in 2013, he has demonstrated a remarkable execution capability. Moreover, despite the company’s rapid growth, Vélez has held on to a substantial portion of his shares, demonstrating a strong commitment and belief in Nu’s long-term vision. Our clients will know all too well that we like what we see – a visionary founder with skin in the game.

Given such appealing dynamics, we recently took a holding in Nu; our upside thesis centres around further penetration of Latin America’s underbanked population, particularly in Mexico and Colombia; increased spend in high earning Brazilian cohorts; and the introduction of new products which Nu can cross- and up-sell. We believe there is sufficient probability that Nu could grow 5x from a $55bn valuation at time of initial purchase to $275bn within the coming decade. Our contention remains that the biggest danger to investors is a lack of vision to see the great growth stories in front of our noses. From helping customers to skip queues to putting an AI-driven private banker in every pocket, Nu is one such story we look forward to watching unfold.

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