HIGHLIGHTS: David Vélez - CEO of Nubank

0:01Hi, everybody. Tune in to this short version of the podcast, which we do every Friday. For the long version, tune in on Wednesdays. Hi, everyone. I'm Nikolaj Tangen, the CEO of the Norwegian So-and-Wealth Fund. And today I'm joined by a true fintech pioneer who has transformed banking in Latin America. David Velez is the co-founder and CEO of Nubank, one of the world's largest digital banks, serving something like nearly 120 million customers in Brazil, Mexico and Colombia. and under David's leadership, NewBank has grown from a startup to one of the most valuable banks in the region. So David, a warm welcome.

0:40Thank you, Nikolai. It's a pleasure to be here with you. Now, take us back to the beginning. How did your upbringing shape what you're doing now? Sure. So I don't come from a family of bankers at all, but I do come from a family of entrepreneurs. I'm originally from Colombia. Grew up in a family where my dad had 11 siblings. My mom had five. And they were all micro-entrepreneurs. They all had their own business. My dad as well. So what did you guys talk about around the dinner table? Yeah, so the understanding was that you had to go and build your own thing. And if you were about to get a job or you were going to try to manage something that was look upfront, What was cool in the family, the DNA in the family was starting your own thing and solving a bunch of problems.

1:32So you decide, okay, now I'm just going to go for it. I'm going to start a bank. What do you do? Who do you call? What do you think? What kind of stuff do you have to do? Yeah. So I had spent a lot of time looking at financial services as an investor. and I had realized how amazing, how interesting and attractive this industry was from a business model perspective. When you look at Brazil, Mexico, Colombia, and frankly, almost all countries, the biggest companies are banks, especially countries that don't have technology, large technology companies now, as you would look at the US. But in Brazil, the five biggest companies are banks, in Mexico, the same, but you look at Africa, you look at emerging markets, it's always banks having significant market cap.

2:18And then you look at the market structure and you realize that four or five banks generally have 80 to 85 % market share. And so it's an oligopoly that then generally always means bad products, lower quality products and services for consumers, lack of access, very high interest rates, very high fees, and a significant percentage of the population left out. So without offending the Brazilian banks too much, how bad were they? They were pretty bad in 2012. I remember we looked at this list of the top 10 most hated companies in Brazil, and the top five were banks and the second five were telecom companies.

3:00Now that's not the case. I think we like to think that because of the significant competition we brought to the market, now banks are actually very well placed in that list. And that has been an enormous impact that we've been able to create through bringing more competition. But at that time, it was an oligopoly that hadn't really seen competition for a very long time. But it's pretty incredible that an anti-bank manages to get 60 % of the adult population in Brazil as customers. I mean, it's just like incredible. How is it possible to go from zero to 60 % of a country? Yeah, I mean, I think what was amazing is it was all word of mouth, barely driven.

3:37Our customer acquisition cost has been$2,$3 over 12 years, getting to over 120 million customers. I think ultimately what we were able to do is we found a clear consumer pain. We were able to identify that consumers were readier than everybody expected to embrace a new products and services. The fact that it was fully digitally in the moment that the entire economy was digitalizing, that every consumer was getting a smartphone in their hand helped a lot. So we got the timing just right of writing the entire wave towards smartphone penetration. And we were able to create a product that really talked to consumers, used the right language, communicated almost like a friend, like the best friend of a consumer versus the experience that banks had of prisoners.

4:28And the fact that we had a fully detailed business model meant we don't need to charge all those fees. Our cost structure is 20x more efficient than banks. So we don't charge all those fees. We charge no fees. We have lower interest rates. So ultimately, it's a better, it's a superior value proposition for consumers. I also heard that, for instance, you apologized to your customers because you had overcharged them. That's a great story, yeah. Well, it's true, no? It's true. It is true. And it's a story that we tell our employees or tell our friends. Our number one mission as a company, our number one cultural value is we want customers to love us fanatically.

5:05We think that in the long run, consumer love is correlated with value of the company, with financial returns. In the short term, that might not be correlated, but in the long run, those two things go in the same direction. And the story you're mentioning is one day there was a bug in our system and we stopped reminding customers to pay on time. And so they overpaid a couple of days of late interest. And it was very easy for our team to know what we needed to do. We had to put back those emails reminding customers to pay on time, but then also go back to the customers that we had forgotten to remind them, give their money back, and apologize for not having, remind them to pay on time.

5:44And if you think about it, well, then, yeah, we're making less money in the short term, and that's true. But in the long run, what is the value as a customer if somebody proactively tells you, sorry, we didn't remind you several times to pay on time, and here's your money back? What are you even noticing? That's kind of ultimately the bet of the company, is that we think that those type of experiences will drive long-term value creation and loyalty with consumers for a very long time. So now you have the purple card. You've conquered Brazil with the card. What do you do then? So just how do you think about more products, more geographies?

6:18Just what's going on through your mind here? Right. So the end goal was always to build a fully digital bank. It was not a digital credit card. The issue, though, is we had to create this tactical plan where we would launch credit card, would figure out how to fund that credit card growth and in parallel, try to get a banking license. Getting a banking license was very hard in Brazil. It took us over four years to get one. Just to give you one data point of how protected this market was, Brazil is only one of the few countries in the world where it's in the constitution of the country that foreigners cannot invest in banks.

6:56So it required a special presidential exception to get a foreign to have a bank. And that happened. Obviously, there were some foreign banks operating in Brazil. But for us as a startup, it took us four years to navigate the entire political environment to ultimately get to get that presidential decree, get the banking license, and then launch a savings product. And our savings product was very simple. We paid 100 % yield to any consumer deposit. And we gave real-time free payments, transfers between accounts. It was amazing how, again, that simple design created a huge viral growth in the market and allowed us to go from something like 50 million customers at that point to 60, 70, 80 million customers in about two, three years, becoming today the largest bank account in the country and the largest primary bank account.

7:49So once we have savings and credit, then we've been growing in two vectors. The first one has been more products. We've launched consumer loans, an investments platform, crypto, insurance, and now we're expanding also to small businesses. And the second vector has been internationalizing to Mexico and Colombia. And for now, we're very focused on these three countries, as this is a model that requires a lot of focus and requires to go very, very deep in the countries that we operate with licenses with credit. How big is NewBank in 20 years? Well, you know, I think it's 10 to 100 exercise that we have right now.

8:31Financial services is the biggest segment of the world economy today. So, we're$8 trillion of profit and still 99 % is still dominated by banks with branches. Even though there's been a huge amount of progress in technology and there is crypto and there is stable coins and everybody talk about these technologies, most banking today is still done in banks that are using physical cash and banking branches. And you still have 3 billion people outside the banking system in emerging markets. You still have 3, 4 billion people that are completely left out of the banking market. They don't have access to credit.

9:08They're not investing. They're not buying crypto products. They're not even in the formal economy. So this is today the early, early, early minutes of the game. And the bet is that in 20 years, this entire market will digitalize and there'll be digitally native technology companies dominating a lot of these markets. And we think we are extremely well positioned to take a very significant percentage of this market. What keeps you going? I think it's just purpose. it's been exciting to build this story for 12 years but I think the challenge of now taking this to more countries is going to be really exciting for me personally the fact that there's so few maybe really very few Latin American companies or Brazilian companies playing at the world stage and that we have the opportunity to be one of the few ones ever gets me really exciting and the possibility to show that we can play at a world class in competing with some of these bigger companies around the world.

10:11It gets me very exciting. And the innovation aspect of it is this question around financial inclusion advice and how we can use our product and our people and culture to reinvent an entire market. The challenge and difficulty of that, it's something that gets me going every single day.

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