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São Paolo-based Nubank (NYSE: NU) just turned 10 years old and has become a bright spot in the fintech ecosystem.

In a conversation with Axios, CEO David Vélez discusses how his company has differentiated itself and how it thinks about expansion into new markets.

Why it matters: As other neobanks struggle, Nubank has reached profitability while expanding operations in Brazil, Mexico and Colombia.

Q: What's the current status of the markets you operate in?

In Brazil, we have a mature operation with very significant scale. We reach 75 million customers in Brazil, so ... almost one in every two Brazilians are customers of Nubank.

In Mexico, we have about 3.5 million customers, and most of them are still banked … but the shift to the unbanked is going to happen faster in Mexican and Colombia than in Brazil, because banking penetration and credit card penetration is much lower.

In Brazil, credit card penetration is around 35%; in Mexico, it’s 12%; in Colombia, it’s 14%. So that means we are making the switch faster in these markets.

Q: Why did you decide to get a banking license in those markets?

In the beginning of the fintech wave … a lot of people in a lot of geographies identified the opportunity for tech companies to compete with banks and take share.

But [many] decided they wanted to be a bank without … having a license. Both because of regulation and valuation. If you had a banking license, your valuation was going to be treated like a bank and not a tech company.

We didn't have that luxury. In a market as volatile as Brazil, it was clear that we needed a banking license in the beginning because we needed our own deposits. To build what we wanted to build, we needed retail deposits, and to get retail deposits we needed a banking license.

Q: How do you decide what markets to expand into and what country or region is next?

We want to be where you have your primary banking relationship. To do that, you need to build a very deep stack, and that’s one reason why we like to have our own banking license. But we also have to build a lot of technology and a lot of integrations locally.

As a result, it’s a model that is harder to internationalize. It's harder to imagine being in 20 or 30 countries. We’d rather do fewer countries and go very deep versus a ton of countries and be just a tiny layer.

We look at metrics around banking penetration, we look at demographics … generally, the combination of low banking penetration and a young population using smartphones or using Uber, YouTube or Spotify. And we obviously look at the regulatory space or existing regulation, as some markets are just too regulated for it to really matter.

We'll see what is country number four. We've said we don't want to do any new countries for the next 12-24 months. We're very much focused on these three and want them to do well.

Q: In all of these markets, you started with credit cards. How do you differentiate from other lenders?

If you give too much credit or you miss your credit models, you can be dead in weeks. So you have to be extremely careful about your credit capabilities and your methodology.

One of the different decisions we decided to take was starting with credit versus debit, because most banks you see started with payments or debit. They don't start with credit.

That isn't because it's easier; it’s because you're not taking any credit risk. You don't need any funding. But credit accounts for 70% of the profits in the system, so you cannot build a large financial services firm if you can’t collect credit at some point.

Expert voices: How Nubank became profitable in emerging markets

Nubank has reached profitability and grown operations in Brazil, Mexico and Colombia.

Photo illustration of David Velez surrounded by abstract shapes and a repeating pattern of the Nubank logo. 

Photo illustration: Axios Visuals. Photo: Courtesy of Nubank

Fintech

<p><strong>São Paolo-based Nubank</strong> (NYSE: NU) just turned 10 years old and has become a bright spot in the fintech ecosystem.</p><ul><li>In a conversation with Axios, CEO David Vélez discusses how his company has differentiated itself and how it thinks about expansion into new markets.</li></ul>

Expert voices: How Nubank became profitable in emerging markets

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