The neobank you always wanted to be
If you could choose to be one neobank, which one would you like to be? I would pick Nubank, the Brazilian FinTech that debuted on the NYSE in December. Nubank is the largest digital banking platform outside of Asia, with around 48 million customers, currently operating in its home market in Brazil, in Columbia and Mexico. After eight years, they are already operationally profitable in Brazil, and have sufficient cash on hand to participate in the Series C financing of Indian neobank Jupiter, which was announced last week.
For a detailed discussion on Nubank, as well as the PIX faster payments scheme, and the upcoming central bank digital currency trials in Brazil, please tune in to the latest episode of our eXponential Finance podcast:
Nubank’s numbers are truly impressive. Here are some of the highlights.
- As of September 30, 2021, Nubank had 48.1 million customers across Brazil, Colombia and Mexico, including approximately 28% of the population of Brazil aged 15 and above
- Unlike many of the European neobanks, which customers still use mostly as a secondary account, Nubank has become the primary banking relationship for over 50% of their active customers — which they define as customers who had at least 50% of their post-tax monthly income moved in or out of their NuAccount in any given month
- Acquired approximately 80%-90% of the customers organically on average per year since inception, either through word-of-mouth or a direct unpaid referral from an existing customer without incurring direct marketing expenses
- As a result, the customer acquisition cost is around USD 5 per customer of which paid marketing accounted for approximately 20% — making customers profitable with cumulative contribution margins in less than 12 months
- Nubank has acquired a world-class technical team, with software engineers making up about 25% to 30% of the employee base; the core banking engine is build-for-purpose, resulting in an extremely low operating cost of USD 1 per customer account per month (please do not ask your legacy banker for comparative metrics, he would start crying)
Although strongly positioned in the South American market, there remains headroom for growth, with banking penetration generally low across the region, caused by prohibitively high costs for financial services.
According to a study from the Inter-American Development Bank (IDB), one of the most cited reasons for not having a bank account is that opening and maintaining accounts are too expensive. In Brazil, 30% of the 169 million people aged 15 and above did not have a bank account as of 2017, according to the World Bank.
In Colombia and Mexico, the unbanked population in 2017 stood at 55.1% and 64.6% of the 40 million and 96 million people aged 15 and above, respectively, according to the World Bank. Together, these three countries account for 134 million unbanked adults.
Additionally, aggregate household debt in Latin American economies averaged between 5% and 30% of GDP in 2019 according to IMF data, compared to between 55% and 80% in the developed economies of the United States, Western Europe and Japan. Lastly, credit card penetration in Brazil, Colombia and Mexico stood at 27.0%, 13.9% and 9.5% of the population aged 15 and above, respectively, compared to 65.6% in the United States and 65.4% in the United Kingdom, according to World Bank data for 2017.
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