Hello and welcome to Nu Videocast. I'm David Vélez, Nubank's Founder and CEO. And today I'm here with Cris, my co-founder and US CEO, on a special episode on our announced expansion, just happening yesterday. Welcome, Cris.
Thank you. Hi, everyone. It's a very special moment for us to be recording this here at Nu Stadium, as David mentioned, out of Nu Club, which is our special lounge, here in this beautiful stadium where we held yesterday the announcement event for our next phase of expansion. How do you feel about the event and the news?
We were just talking about that. It was a very special moment. It was something that was years in the making that we've been working towards for so long right now, and that so many people worked towards. So it was a very special moment to have our team here, to have our partners here, to start seeing customers come in. It was very special. So we're feeling good about the launch. But also now it's a new start line because now we have customers. So and now we have a business to run. So, interesting times. And you?
It's great. As we said yesterday to our team, it's a new founding moment for the organization, as we've had several in the past, in the past 13 years, the beginning of the next decade started. So very exciting moment. And David, I'm sure people are very curious about how we got here. So why don't we start with the headline? You know, until last week, Nu was in Brazil, Mexico and Colombia. And we announced here on the stage of Nu Stadium, we announced two things: that we're launching in the U.S. and that we're launching Nu Global, which is our first step towards an even broader international expansion. So how do those two things fit into our macro strategy?
Sure. So it might feel like a sudden announcement, but in reality it's one part of a thesis we have been executing for over 13 years. If you go back and you look at our seed deck, the thesis and the idea that we always thought about Nu is that, the same way technology companies disrupted and changed every other industry around the world because they found problems that were common to so many other countries, the same thing was going to happen in financial services. As technology enabled models like ours to come in that are able to create a better product at a lower cost. And so we began in Brazil, and clearly Brazil was ready to embrace us. And the growth in Brazil was faster than anybody anticipated. We were able to really solve a problem for both banked as well as unbanked customers. For the banked customers, and the majority of our customers were already banked, actually –
Given we are 10 to 15x more efficient than incumbent banks, we're able to offer a better product at a lower cost, especially when it operates in a context of culture of customer obsession. But then for unbanked population, obviously the business model enables to provide access to a product that they never had access to. And that was the story of Brazil, and then we went to Mexico and it was more unbanked than banked. Brazil was about 80% banked, 20% unbanked. Mexico and Colombia are about 50/50, but it's a better product for both, for both banked and unbanked. But then again, as we think about the rest of the world as an opportunity and we continue to execute this thesis, launching in the US was a natural evolution of executing that view. Because while you have perhaps fewer unbanked customers – there are a lot of underbanked, but fewer unbanked – you have a lot of banked customers who are paying incredibly high fees and costs to operate in the US banking market. So the entry into the US is a natural evolution of us trying to continue executing a thesis that we think is global in nature and is possibly one of the least appreciated opportunities from a disruption perspective globally.
It's true, it's true. How about Nu Global? How do you think about that? Because people kind of expected us to come to the US, but they didn't necessarily see that one coming. So how does that fit into our macro strategy?
Yeah, it fits from two directions. So the first way is: another big development, especially over the past ten years as we built the organization and we built Nubank's thesis on regulated banking markets, is the parallel evolution of the crypto world and stablecoins. And so we've always been very curious and excited about what this enables for financial services globally. It's the beginning of the creation almost of a parallel financial system that interrelates with the localized, regulated systems. So from a technology perspective and what that enables, we've been active students, and we already have one of the largest crypto platforms in Brazil. But at the same time, it enables faster internationalization than going country by country, getting banking licenses. And so Nu Global is a way for us to continue executing that thesis, getting broader, faster, to more countries in a way that is much more scalable through stablecoins and providing access to financial services to a larger percentage of the globe. And once we're there and we start establishing those relationships, then we see the pull of each individual market. And that gives us information around what should be country number five, six, seven, in terms of the deeper layer and the regulated layer of what we'll build, as we continue to build the regulated bank.
That's true. And I think a lot of people are also scratching their heads because when they thought about Nubank, maybe for some people the natural next step would have been the next country in Latin America, right? Like a fourth market that kind of looks like Brazil, Mexico and Colombia. Why do you think... What gives you confidence, you know, that going beyond Latin America at this moment was the right thing to do?
Yeah. So again, taking a step back, I think the big problems in financial services, and the way we think about them internally at Nubank, are problems around access, cost and intelligence. And in countries like Latin American countries, where you have 260 million people unbanked, there is a clear pain point around the access aspect. And that's what we've been able to solve in countries like Brazil and Mexico, where over 40 million people got their first bank account with us. Over 30 million people got their first credit card product. But the cost story, even in Latin America, has also been prevalent. Brazilian customers have paid some of the highest interest rates in the world and paid some of the highest fees in the world. They're paying for very expensive infrastructure that actually came as a result of a lot of consolidation in banking over a hundred years. And you end up with systems that have a very concentrated oligopoly, generally about four, five, six banks that own 60 to 70% of the market. After a while, they basically stopped competing with each other. And so consumers end up paying the bill for that lack of competition. And this is not specific to Brazil. You see the same dynamic in Mexico and Colombia, in the US, in really any other market. You'll find banking has become an oligopoly, whereas what technology enables is just more competition and more fragmentation. So other Latin American markets make sense from an access and cost perspective, and we'll continue expanding on that. But the US market perhaps has a little bit less on the access side, but has maybe the biggest prize in terms of cost, because, as you know well, and I'm going to ask the same question to you, US consumers today, while there is a significant percentage of banked consumers, they're probably paying for the most expensive banking system in the world in ways that are not readily apparent to them. And with models such as ours that come in to compete with the large incumbent banks in the US, we're able to pass back the efficiency of the model to that banked customer.
And David, one question that I know a lot of people could be thinking is: "Oh my God, these guys have so much going on. Clearly, they haven't run out of space to grow in Brazil, Mexico and Colombia. They're doing so well. Why would they even go try to do the US, which is so hard? It's a big bet. Aren't they going to get distracted?" How do you think about that? And how do you see us mitigating that risk in our day-to-day in how we run the company?
So there's still so much growth left in core markets. Right? We have close to 120 million customers in Brazil, but 7% market share. So if you start thinking about the opportunity in Brazil, then the fact that in Mexico we're even smaller, we're already the largest digital bank in the country, but we only have about 16 million customers. And then Colombia, early days. You can make the calculation that we could just double or triple our business in Latin America alone. And then you're starting the US opportunity and the global opportunity there is significant, substantial potential upside. Execution is key. And I think the way we've executed every new country, from Brazil, which we launched with ten people and $1 million, to Mexico, which we launched with about 40, 50 people and $10 million, to Colombia, and now the US. I mean, how many people do you have on your team?
It's a team of 60 people out of 10,000. They're mighty, focusing on an amazing opportunity. That is the way we like to try to execute, because this is effectively buying a lot of call options on future opportunities. A lot of the focus and priority continues to be, as you rightly said, on core. And even Brazil today, while we have close to 120 million customers, we only have 7% of the market share. So the way we think about it is we're building a lot of interlocking S-curves. Brazil continues to see a lot of that growth. Then you get Mexico, then you see Colombia, then you see the US and other products. And the majority of the company continues to be executing the core focus of those core markets.
It's so true. I think it's interesting to share. You asked the size of the US team. We're about 60 people. And unlike Mexico, we're launching here with an account, a credit card, a debit card, remittances and so much more. And we built a completely new app, and we have a new brand. We are able to do so much more today because of everything that we've built before and all the platforms that are now hosting not just the US, but Brazil, Mexico and Colombia, allowing us to be much, much more efficient across all markets. And when I think about that, I also love the fact that there are certain things that we're building for the US that are making Brazil, Mexico and Colombia better. So we knew that the bar in the US was going to be higher in terms of UX, in terms of the product. So there's a lot that we built already on platform that is going to be born in the US, but already ready to be deployed across our different markets. So not only are we not investing a ton because we're leveraging a lot of what already exists here, but even the things that we are building for the US are making the other markets better. So it's a pretty good ROI at this stage.
It is, it is. So how do we tackle such a big market like the US? Right? From the outside, it seems almost an impenetrable system with very, very, very powerful banking franchises, the most valuable in the world. This is the biggest market. When you walk in Manhattan or in Palo Alto or in the big metropolitan cities, what you hear from people is, "What do you mean? There's no problem here. Look at all these banking branches. What problem are you trying to solve?" Right? Which, by the way, is exactly the same conversation I would hear in São Paulo in 2013 or in Mexico City. It's like, "There is no problem here." So where is the opportunity? Can you talk a little about where the crack in the armor is in the way we think about entering that market?
Yeah, of course. And you, of all people, know this wasn't a spontaneous decision to just wake up one day and say, "Oh, why not the US? You know, let's just give it a try." But the reality is, even though people don't seem to think there's a problem, we know from our own experience and from talking to customers that people are paying extremely high fees here. We know that people are paying north of $75 billion in fees every year in the US. Consumers are paying, and that's on the costs they actually see, because, you know, in theory, they could see the fees that are being charged. But when you take into account the deposit side, we're talking trillions of dollars that are sitting in accounts, idle. Well, they're actually getting paid, but the banks are taking all the payout from those deposits and sitting on it in their P&L. Right? So we know that if customers were to get paid yield on their deposits in the US, they would get north of $300 billion in yield. And today they're getting nothing. I think the average a deposit in the US gets, according to the FDIC, is 0.38%. And that's in an interest rate environment that's close to 4% a year. So how can that be true in the US? You know, that's a lot of inefficiency and a lot of money that is being taken from consumers in the form of fees or absence of yield to go pay for all those branches that no one cares for. So we're talking about 4,000 branches — 4,000 banks with tens of thousands, if not hundreds of thousands of branches that no one wants to go to. Not to mention all the paperwork and the bad UX that they still have on those apps. So there's a lot that we can improve in the experience here in the US. And by the way, I think an interesting exercise for investors to do when they look at financial services globally is to look at that deposit product specifically. It's actually not that different when you go across banks and across countries. Some of the big balance sheets of the big US incumbent banks look very similar to the Latin American ones and European ones and other ones, where a significant percentage of their profit comes from the deposit product. And that float goes to pay for a very expensive banking infrastructure. And it almost has... Again, I love the example of Blockbuster and Netflix. It's going back 25 years ago, when Blockbuster was charging a bunch of different fees for you giving back your DVD to go pay for a banking branch, or for a Blockbuster store. And people would go and say, "What do you mean? There's no problem here. I love getting my DVDs, and I love having all the access to the VHS." So what's interesting is people are not aware of the cost that they're paying to receive a certain level of service in this industry. That should have already changed, because the cost structure of the industry is changing. And it's one of those profit pools that if you look 10, 20 years ahead, will turn to a zero. It should not exist. There is an arbitrage opportunity in how banks are using their balance sheets.
That's absolutely true. And we've been talking a lot about the revenue side, the yield and the fees. But to your point, investors can do that calculation very easily. If you look at cost to serve, you know, we invest about a dollar to serve our customers extremely well across the geographies that we serve. And even here in the US, we don't expect the cost to be much, much bigger than that. And then you look at incumbent banks, and they're spending more than 20 times that to service customers because of all the branches and the call centers and all their infrastructure that is outdated. So a combination of a different revenue model that is going to compete away a lot of their revenue and a cost structure that is like 20x someone like ours, that is a very powerful combination for disruption, you know? So that's something for investors to watch out for, for sure.
Cris, we announced yesterday the launch of the US business on top of a banking-as-a-service platform with our partner, Lead Bank. Why did we do that if we had applied for a banking license?
