While the UK and Europe bemoan their lack of high growth tech stocks, the biggest fintech success story on the planet can be found in a place you might not have thought to look – Latin America.
To be more precise, Brazil. The financial powerhouse I’m referring to is NuBank, listed as Nu Holding on the New York Stock Exchange. They have two powerful tail winds acting in their favour – a native population of 200 million people and those people’s distrust of the legacy banks who have not served them well in the past.
NuBank is a low cost provider of digital banking facilities to an underserved population. And boy has that demographic welcomed them with open arms – they now have more than 50% of Brazilian adults as customers. Rapid expansion into Colombia and Mexico has taken their client count to a massive 105 million, 83% of them active in the most recent quarter.
But here’s the clever twist. As European fintech players like Revolut have discovered, it’s hard to make big money from basic banking services. The gold is in the cross selling. And this is where NuBank is excelling. Of their 78 million active accounts, 42 million now have a credit card. Twenty million of these are Brazilians who have never owned a credit card in their lives.
Even more surprising, 18 million clients have bought investment services showing the potential scale of untapped capital among the population often disparagingly referred to as unbanked. Nine million NuBank clients have taken out unsecured loans and two million have secured insurance policies through the company.
So how is this success in acquiring and upselling customers translating into the financial numbers for Nu Holdings? Astonishingly well. They are already profitable and delivered a 55% increase in quarter on quarter revenue to $2.85 billion in Q2 of this yar. Earnings are up 115% compared to the year before and deposits are up by 64%.
All of which makes them the largest digital banking platform outside of Asia and the fourth largest financial institution in Latin America based on customer numbers. They are prices at 23 times forecast 2025 earnings which looks like amazing value compared to the level at which Revolut recently raised additional capital.
They’ve also moved into business banking with a Working Capital loan product that helps SMEs even out their cashflow needs. Two thirds of these companies were taking out their first ever loan so again NuBank is creating an entirely new market for financial services that arrogant legacy banks have ignored for decades. The volume of loans increased by 150% in the second quarter and 600,000 SMEs now have business credit cards with NuBank.
As someone who puts financial education high on the agenda, I’m impressed that many of NuBank’s 3 million customers under the age of 18 are getting into the habit of regular saving through the Caixinhas (Money Box) app. Their parents can even buy cry*os through the app without receiving the Spanish Inquisition every time I want to transfer funds from Barclays to Coinbase.
As an investor, the lesson I take from this is that we are still at the start of the global revolution in financial services. Previously unserved citizens and businesses will gain access to facilities that can transform their lives and power growth and productivity in their national economies. Legacy banks and financial institutions will need to adapt much faster than they seem to be doing at present if the want to avoid being the Blockbuster to fintech’s Netflix.
How much of your portfolio is in these legacy institutions? Caveat emptor.
Until next time
Graham