In Conversation with David Vélez

0:00 Please welcome to the stage the valley's founder and CEO, new bank and Erik Schatzker editorial director Bloomberg New Economy. Yeah. I told you you'd see more of me this morning. This is Davi Velez. David, it's great to have you here. Thank you, Eric, for the invite your company, Nubank. Everybody knows new back in Brazil.

0:35 But for those who aren't familiar with it, I need to tell you a little bit about this company. It's the largest fintech in Latin America. With a market capitalization of $70 billion bigger than the biggest traditional banks in this region, not far behind MercadoLibre, the e-commerce and payments giant. And also not far behind Petrobras, the traditional energy giant. Your stock has had a remarkable run. It's up 75% since the beginning of 2024. And it's up some 250% in the past two years.

1:09 Will 2025 be the year that Nubank becomes the most valuable company in Latin America? Well, if there's something you know about Brazil, Latin America that you never know, there is there is so much volatility. We went public and of 21 and the timing was incredibly accurate because two weeks after 2022 came in and stock went down 60 or 70% with everybody else. And so it's hard to control.

1:40 I think everything we can control inside is or execution. We've been extremely focused since the beginning of the company in 2014. The it's a very, very big market opportunity. This reinvention of financial services in Latin America. Brazil is one of the largest financial services markets in the world. And the business has been executing extremely well. So who knows what that means for prices? But you're getting at my follow up question, which is what could change your company's trajectory.

2:13 So, I mean, I think that we've continued to grow about 70 or 80% a year in terms of revenue. So revenue growth is significant. We have in our core market, Brazil, we really have close to 60% of the Brazilian population as a customer. So maybe six out of ten, our customers of ours and therefore will we should talk after to what's happening. But we only have about 14% market share in credit card, 7% market share in personal loans, 2% market share in investments and savings.

2:41 So there's a huge amount of growth still within the 60% of customers that we have in Brazil in a lot of our growth is going to continue gaining share every month across every single one of those verticals. We began in Mexico about four or five years ago and we're now about the fifth largest critic issuer in the market. And it's early days. Mexico has 12% credit card penetration. So I don't think we necessarily need a huge trajectory. Change is more about executing this plan where a lot of the market cap and a lot of the services of bank customers are moving away from incumbent banks into digital banks.

3:20 And I want to know more about that because 60% of the Brazilian population means I think it's about 105 million clients here. That's right. It is an amazing number for such a young company. But to your point, you have a smaller percentage of the national wallet. Share people with new bank accounts. Do. Often. A lot of the rest of their banking at the traditional banks, some of which are here, by the way, to thought here. But ESCO is here.

3:53 How do you change that? How does new bank capture more of the wallet share so that it's not just a purple credit card that you pull out of your wallet, you know, to show people how cool you are that it's actually where you get the lion's share of people's business. You know what's amazing is for over 60% of our customers that have been with us for over 12 months, we're already their primary bank account. So if you think we have 100 million customers in Brazil and where the majority primary bank account for those no bank is, it's already the largest primary bank account in the country, bigger than incumbent banks.

4:27 That's something you have you haven't seen really in any mark around the world where fintechs are able to build wallets. But making that transition from wallets, your primary bank account is extremely hard. We've been able to already accomplished that for the mass market. We haven't been able to accomplish that for the high income. That's a much harder challenge is a much more competitive segment. That's where incumbent banks do have branches, have private bankers have a lot of service.

4:51 We don't have that. I don't think we necessarily will get that we need to. So there is another sort of next level challenge of figuring how to do that in the app market. And that's a combination of more investment products. There is a lot that we need to do in the investments product to create already a very good investment proposition. We have to continue increasing the type of products that we have. We launched about 12 months ago what it's called in Brazil, Senado, which is a payroll loan backed by four government employees. That's the largest profit pool in the country. Over 600 billion Reais is effectively lending backed by debt by by the government.

5:27 We just launched that. And a lot of Brazilian public employees are high income. So that's a way to get high income, small businesses. We all read the largest, about 4 million small businesses. We're banking with them. So we're already one of the largest providers of services to small business in a lot of those small businesses are high income. So anyway, it's a much more competitive space to be primary bank account in the high income. I think we're laying out the ground is going to be a multiyear challenge, but there are some differentiators together to get us there. You mentioned some of this just now.

5:59 In addition to taking deposits, of course, new bank offers, loans, investments, insurance, credit cards. What am I missing? We are all for what? We are creating a marketplace which is not going to be on financial services. Now, you can buy e-commerce in our app, you can reserve hotel room, you can reserve, you can buy a ticket. And this is a beginning into launching more verticals outside financial services for 200 million Brazilians that we have. What other verticals make sense? I mean, really, I think what we're trying to. The way we think about it is if there's any consumer company or any consumer start startup in Brazil that needs to acquire customers, we can help. Because we're bringing 100 million people to their front door, number one. Second, we know how to underwrite and provide credit to 100 million people. So if you know something about Brazil, if you can provide credit, you can increase sales.

6:56 We can we'll go with booking or we can go with any type of provider and offering credit to sell more, and then we can integrate directly with them and save a lot of payment costs. The sky's the limit, really, in terms of verticals. As long as customers need to consume any type of product across different industries, we can we can be a gateway into that, into the vertical. Two things you just said bring to mind a question. The portal that you just described a few minutes ago about bringing people together where they can help, you know, get hotel rooms and book flights and that kind of thing, and also the importance of being able to acquire customers.

7:32 There is some it's important. We're here in Brazil. There is some speculation in the local market that you're interested in buying a telecom operator. Is there any validity to that speculation? No, we're not buying telecom operators, but the telecom space is an interesting space. So tell me more. It is an interesting space because, I mean, when you look at where the big vertical swing consumer, Brazil Telecom is certainly one of them is financial services, telecom, health care, commerce, education. If you those those five sectors basically run the entire Brazilian economy.

8:08 And so if you're a health care startup trying to acquire customers and paying $100 to Google or Facebook or you are a telecom company spending $100 to acquire a customer or you are an education company, there is a potential, an opportunity to for us to help, to be more of a platform that goes beyond beyond just banking products synergy. Now, would that be. Just to understand this a little bit better, is it both sides? You're talking about some kind of a partnership, some kind of an alliance, I assume. Is this is this one where new bank needs or it's actually the other side needs new bank or you both need each other equally? No, I think that's important to really collaborate. You know, who's we look at what are the biggest profit pools in the market or what's the most what are the most profitable companies in Brazil today? Surprisingly, it's actually Google and Facebook. That's where a lot of when you look at any consumer surveys, a lot of the a lot of them, a lot of the value created in the chain is captured by the advertising networks.

9:13 And so the job of acquiring customers is a very expensive job to be done. And if you get to a level where you have over 60% of the population in a country where you have the highest net promoter score, you have one of the most valuable brands in the country, we have a lot of trust and you have a lot of data that you can use all of those elements to acquire customers on behalf of somebody.

9:35 And what do we get in return? We are able to bring products and services to our customers, creating a virtuous flywheel and continuously improve the value proposition that we're giving somebody within our ecosystem. So what might this end up looking like? Wow. Well, I mean, we're already there. We're really have that marketplace is still are is still early is still a small percentage of our customer base by any third party. Yeah. Hopefully that means five, six years from now, a significant diversification away from financial services, market revenue, better value proposition, and of being able to work with a number of different partners across the economy.

10:10 Now, that new bank has built as big a business as it has in Brazil is new bank excuse me, is Mexico the biggest fintech opportunity for your company in Latin America? Yeah, I think it is. So, you know, Mexico's just passed Brazil from a GDP perspective. So actually is the largest economy in Latin America. It's a higher income per capita than Brazil, about 30% higher income per capita. So it's a wealthier economy, but you see 12% credit card penetration. Brazil has 60% credit card penetration.

10:43 So 88% of the Mexico country is outside. It doesn't get access to credit. You've had about 15 million Mexicans with access to a credit card for about 20 years. That number hasn't changed. Which is which is absolutely insane. You have about 70% of the of the country unbanked still putting money under the mattress and saving under the mattress. When you compare Mexico to a Brazil economy that has completely digitalized over the past ten years, you see infrastructure like picks that utilize the economy and you compare to Mexico. It feels like Mexico is still 50 years behind. So it is a really interesting opportunity because on one end you have a very large market.

11:21 But on the other hand, you still should see five, ten years of increasing digitalization which will drive demand for products like ours. I'm also curious about Argentina. As I understand things, there was a point in the past when you looked at Argentina, but but decided no. Politics were obviously pretty chaotic for quite a long time in Argentina. The economy was incredibly unstable. Has President Millard done enough to make you take another look at Argentina? Yes.

11:52 I mean, we're taking a look at Argentina. I mean, I think it's impossible to ignore what he's doing. And the flip turnaround of Argentina is is doing I think it's still early to be able to make a decision yet because we'll see. You probably need to figure out what's happening over the next 12, 24 months. But I think the speed at which the situation is changing has impressed absolutely everybody. And it is one of the largest GDP economies in Latin America. It has one of the highest human capital levels in Latin America. Some of the best universities, phenomenal people, engineers. And it's an economy that also doesn't really have credit. When you look at Argentinian banks, how do they make money? They're still making money, effectively grabbing money from consumers at zero and buying government bonds.

12:41 There is no credit market. There is no consumer credit. So it is you know, in a well-performing economy, you would imagine that that entire market needs to exist at some point. And so we are we're definitely curious to see what's going to happen there. He's the change agent that Argentina needed. We really hope so. Yeah. I mean, I think everybody in Latin America is rooting for him to be successful. What about the United States? I ask this question because as you know all too well, there are still millions of unbanked and underbanked people in the United States in financial services on a relative basis, certainly relative to what it costs a bank with no bank or expensive. And there's nobody there is no fintech doing in the U.S.. Everything you're doing here and certainly nowhere close to New BAC scale.

13:29 Would you ever expand into America? Well, I should have said something different before. Actually, the highest the largest GDP Latin country in the world is the US. It's actually not really Mexico. You have the GDP of the 60 million Hispanics is bigger than Mexico and Brazil. So and it's an underserved population. So from from from outside, from being from a distance, it is it could be an interesting opportunity. Now, you know this better than I do.

13:59 The amount of regulation that existing financial services in the U.S. offer. It's amazing to have seen Brazil leapfrog completely the U.S. over the past ten years. In terms of digital, you're probably still using cash. It checks. Yeah. This thing, the paper where you write, you're probably using you. Fortunately, I've been able to get away from the cheque. Okay. Good for you. Well, you're see that in a country like Brazil anymore. So maybe there is opportunity. I mean, it's half of the world's financial services is. Yeah, but it is daunting to see from the distance the amount of regulation. And when you look at the situation that no really no fintech in the U.S.

14:38 has really been able to capture a lot of the market. You could think about that from two perspective. One, maybe you think it's actually impossible. There is so much regulatory capture by the big banks that there is no shot that British can come in. Maybe the other side of the argument is nobody really has had to figure out what did the right strategy. So we turn around with the question, but it's something that we are not really ready yet to do. I'm going to turn the point that you made about regulation on its ear and ask you about regulation here.

15:06 Not every fintech in Brazil is running a sustainable business. Some of those fintechs are going to misjudge or mispriced credit risk and blowup as a result, and some might be doing inappropriate things with client data. Could bad behavior by your peers trigger a regulatory crackdown in Brazil? I mean, there's there's been less there's been bad behavior, but much less than you would have expected for an industry that has developed so much over the past ten years.

15:39 Right. I mean, I think in 2019 there were something like 45 digital banks in Brazil. And there's and there's been a huge amount of competition and there's been very few cases. So I would say that that the trend towards more competition that the central bank in Brazil has done has really paid off for society, has been incredibly successful, a bet by the regulators. Now, in terms of I want to throw a crack down, I don't think there is because it's already very regulated.

16:07 We are incredibly regulated. And I think this is something that people sometimes don't realize or we hear things like, well, you are you benefited from regulatory arbitrage or you're but it took us four years to get back. Your license in Brazil is one of the only countries in the world where the constitution of the country says foreigners cannot invest in banks because we had foreigners, investors. We had to go to the president of Brazil to get a presidential decree exception, to get a license. The paper was on the desk of the president, Temer, for six months. And everything we have to figure out is like who was going to put it in front of him so he could sign it.

16:44 So and then we had all the BASTA regulation. We have capital controls. We have all the regulation that you couldn't imagine. So there is not a space more to regulate more, really. We are a regulated of the biggest incumbent banks. And so while there might be, you know, actors in the system that might take advantage, there is not really space to be more regulated than we already are. As the $70 billion company, you get a lot of scrutiny. It comes with being big and successful.

17:13 Analysts have been scrutinizing your NPLs, the non-performing loans, the credits that might not be repaid. Should they be scrutinizing those things? Yeah, absolutely. I mean, I think we are now one of the largest issuers of credit cards in the market. We're growing extremely fast on the credit side. It is the place where I would, if I were an investor of no back, that I would be scrutinizing with a lot of with a lot of detail. The flipside of that, though, is we've built what I think is one of the most sophisticated credit infrastructure in the world. That was an opportunity we had in 2013, where we look at a market that was not differentiating really risk that we where we had the ability to go and grab some of the best talent in the world out of Capital One in the U.S. and mix it with the best talent in Brazil, build credit infrastructure from scratch on the cloud using a huge amount of data and different from our U.S. fintech peers.

18:08 We've seen about six different crises in ten years. The macro we've seen as a startup has been the worst nightmare micro or very intrepid, or we've seen an 8% GDP contraction in ten years. We saw presidential impeachment, we saw corruption scandals, which shone a huge amount. I remember U.S. investors asking us doing that there was post-COVID. What is going to happen with you when there is high interest rates and high inflation? And my answer was like, we see that every two years, like the U.S. fintechs don't see that inflation is like this phenomenon they haven't seen. For Brazilian entrepreneurs, inflation is high is there every day and the ups and downs is there.

18:48 So we've grown a lot, but with battle tested a lot of our credit infrastructure in really adverse conditions. And we've been able to show investors that we know what we're doing on the credit side. One last thing. Give us a glimpse of the future. Technology has been the great enabler for what new bank is able to offer today. What's going to be possible thanks to technological innovation that isn't possible today? Yes, a couple of things. On one end, you could you could think about banking development in certain phases or competitors. Today in Brazil or Mexico, they have about 100 million customers with 100,000 employees.

19:29 We have 100 million customers with 6000 employees. So there you already get a tax improvement through technology. But when we compare ourselves to some of the. Defi crypto platforms. They have 100 million customers with 30 employees. So there is another hundred X gain in terms of operational efficiency, and that also means passing that efficiency to the end customer via lower fees and lower interest rates. So there's huge amount of efficiency gain going forward in using more systems, smart contracts, crypto AI on efficiency side.

20:06 That's just one side of the coin. The other one is we think smartphones started to solve one part of financial services, which was access. Smartphones put a bank in every single person's pocket, but people still don't really know how to use the bank, right? Even if you have a bank in your pocket, you don't know how to invest your money. You don't know what's the best tax efficient fund to invest your life savings. You don't necessarily have negotiating leverage or knowledge to make different banks compete for the lowest interest rates.

20:37 We think I would put a banker and a bank in everybody's pocket, and so that will be the next phase of inclusion. That will be actually financial advice for every single person. And when you look at the access of that, financial advice is very equally distributed today that the top 1% has access to the best products. The bottom of the pyramid has effectively no access. So we are excited to see that the improvement in advice as well as the operating efficiency playing out over the next ten years. David, thank you so much.

21:09 Ladies and gentlemen, please join me in thinking. Very well. Thank you. Thank you for the technical.