Nubank: The Missionaries of Modern Banking

We saved something like $20 billion in fees that our customer would have had to pay to that oligopoly of five banks if we didn't exist. I was getting signals quite early on that there was something special here before I really actually understood what that was. Financial services is, I would say, probably the most underappreciated opportunity in technology around the world. It's possible that at some point Nubank could be the world's largest retail bank. Customers will choose whoever treats them the best and gives them the lowest price. It's not more complicated than that. If you're in a competitive market and you offer the best product at lower cost, you win.

Thank you, Lawrence, for the invitation. Happy to be here.

So we started with that question very early on with some hypotheses around financial services. I always tell the story of me trying to open an account, going through a bulletproof door in São Paulo, almost begging for five months to get a simple account, struggling like crazy to get it, and then eventually finally making it. The amount of frustration and rage that that entire process generated. While we started with figuring out how do we solve that experience, I think ultimately the conclusion actually was that the enemy was complexity. That what we wanted to solve is complexity to empower people. And so that has been the core purpose of the company since the very beginning. Actually, Nubank, the name comes from a way 'naked' in Portuguese, because it comes from this view that once you remove all the clothes and you become naked, you solve that complexity and you become simple. And once you're simple, you're empowered. So it is fighting that complexity to empower people that is underneath the raison d'être of the company.

Sure. Yeah, so I'm originally from Colombia, come from a family of entrepreneurs, and the dream was always to start my own business, but it took me a while to figure out how and where and where should even begin. And so I went into the financial services industry, being an investor with General Atlantic first, then with Sequoia. I went to business school to get finally two years of vacation, to have enough time to figure out, okay, now how am I going to start a business? And as you say, a couple weeks in, Doug Leone calls me and said, 'Hey, we were thinking about opening this in Brazil. Come talk to us.' And so for two years through business school, I went back to investing and I looked at a lot of early-stage companies, but I wanted to start a business. I envied the person that was on the other side of the table that was starting the business. I wanted to be him or her. And in 2012, after two years of going back and forth from California to Brazil, we came a bit to the sad conclusion at that moment, which was, 'Man, this is one of the most interesting regions in the world from a population perspective: 650 million people, big GDP. There should be a lot of startups, but there actually are very few, and they're not that interesting. They're all copycats of US startups, and these are just not the disruptive, innovative business models that Sequoia went to back.' And so at that point we said, 'Okay, we're done with Sequoia.' Felt like a bit of a sad conclusion to that chapter, but at the same time for me was a huge blessing because I was liberated to go finally do what I wanted to do, which was start a company. And that's when I had that experience that I mentioned initially of trying to open a bank account, and it was absurd how hard it was to get a simple account in São Paulo in the middle of Faria Lima, which is almost like the center of financial services in Latin America. And so from one end, I started to understand that consumer pain, and I started asking my Brazilian friends, 'How is this possible?' And what I heard from everybody was like, 'Well, yeah, it's not great, but what are you going to do? You go from Bank A to Bank B, same thing. From Bank B to Bank C, same thing.' Fully commoditized industry, big oligopoly where you have five banks that own 85% of the investments, credit card, insurance. And so that was interesting. And then technology was changing the landscape completely and opening a window of opportunity to reinvent banking. Smartphone penetration was starting to skyrocket in Brazil. The cloud and AWS enabled me to open a bank, have a bank infrastructure from scratch with a couple thousand dollars. If I had tried to do this three years before, I would have needed $40 million to buy mainframes from IBM. Now I could build a full bank on the cloud without needing any single server. I didn't need a banking branch in every corner, billions of dollars of capex. This could be fully digital. And then more importantly, there was this opportunity to really focus on the consumer and build something that consumers really loved. So as I got excited about the opportunities to reinvent banking fully digitally and with this culture of consumer obsession, then we went for it. And I think the market was readier for something new, something fresh, a new look than all of us really anticipated in the very beginning.

Yeah, I mean, I think one of the reasons to want to go into the entrepreneurship area was I was a bit tired of being too fragmented in my knowledge, seeing too many different industries, too many different companies, knowing a little bit of a bunch of stuff versus having the focus and the patience to go all in very deep on one single problem. And given that was what I was about to do, then I wanted to focus on the single hardest thing I could possibly imagine, the single thing that could have the most impact, because starting a business was going to be probably as hard to do a hard thing than an easy thing. And so when I started looking at a couple of ideas, I also went and looked at where is the market cap also in this region, because generally they tend to be a bit of a data point to see where the biggest problems are. And the biggest companies traded in Bovespa in Brazil were banks, and the biggest companies traded in Mexico were banks, and in Colombia were banks. And so this was the single largest industry, which meant the single largest problem, the single largest opportunity. For somebody like Sequoia, that was the type of disruptive opportunity they also want to be excited about. And I wanted to be spending my time doing something hard, not something easy. And what was interesting also is that doing something hard, challenging, ended up being actually easier at the end. Because I remember looking at a copycat startup in Brazil that was the Groupon of Brazil. And if you remember Groupon, at that point in about three months there were 3,000 different copycats of Groupon in Brazil. Every neighborhood in São Paulo had their copycat of Groupon in Brazil. And doing something that seems easy actually becomes really hard because there are no moats, there are no barriers to entry, everybody is doing it. Versus if you end up doing something that is really hard, few people will go through that door, few people will attempt to do it. But ultimately it's easier to hire the best people. The best people want to do something hard. It's easier to raise capital from the best investors because the best investors want to be backing something that is hard. And so ultimately it becomes a bit of a moat in terms of talent and capital that you can recruit. And yeah, we for a very long time faced a lot of skepticism. We heard from a lot of people that it would be impossible. Being an outsider, I think it was helpful in that it perhaps at times gives you a little bit of naivety. You don't really know how hard it might be, and you don't know fully what you're getting yourself into, but that's a positive at that point. But ended up ultimately bringing insiders that helped me execute this plan and being able to actually beat it. So it was a true blessing to be able to focus on a hard problem that had a lot of impact.

Yeah, it was... I remember in the deck, in the slide deck, there was one slide: there was the little David fighting the big Goliath. And I always say that the response to that slide is very indicative of how Latin American investors behave and how Silicon Valley investors behave. When a Latin American or Brazilian investor hears the story of a David versus Goliath, they run as fast as possible, because unfortunately the story in Latin America has been the Goliath just crushes the David again and again and again. Very sad, but that's mostly what has happened for a very long time, because the David doesn't have the political connections, doesn't have the capital available, doesn't have necessarily the network, and so you're at a significant disadvantage. So I showed that slide to a lot of investors in Brazil and they just said, 'Get out of here.' They almost kicked me out of the door. But then I went to Sequoia and they showed the same slide, and to them that's the story of the biggest investments in venture capital history. The story of Apple is David versus Goliath. The story of Google is David versus Goliath. The story of Meta is David versus Goliath. So that's the type of story that they want to get excited about. That's what they want to be doing with their time, with their capital, is backing those stories that might be low probability success, but if they work out they will reinvent an entire industry. And so when I showed it to Sequoia and they understood a little bit more what existed behind and what the strategy was, they were all in and they were very excited about backing that opportunity when they had passed on investing in every other Brazilian and Latin American company. And Kaszek was the same. The story of Kaszek, if you know the Kaszek team well, they were the founders of MercadoLibre. MercadoLibre was also a small little David going against a big Goliath of retailers in Latin America. And so they understood and they got excited about the vision, and they went all in. And raising the A and the B and the C was very similar. Unfortunately, in none of my 10 years basically until IPO were we able to find local capital. It was almost impossible to find local capital to back an idea like this one.

I remember the early days I had a really good conversation with Roelof of Sequoia, who basically told me, 'Hey David, listen, this seems like a really good interesting opportunity, but you're not Brazilian, you don't know anything about Brazilian retail banking, you never did credit, you are not a data scientist, you want to build a technology company, you're not necessarily a technologist.' And I thought he was going to finish that entire listing with the conclusion of 'therefore don't do this.' But his conclusion was, 'Therefore your number one job is finding a team that is going to fill all the different gaps that you have in your experience. Being an outsider is great, you found the opportunity, but you're going to need to be an insider also to be able to execute.' And so with that, it was a very clear plan in how what I needed to do next. And next was I needed a full insider that understood the space, the landscape. And that's how I found Cris, my co-founder, who came from Itaú, one of the largest private banks in Brazil. And then we wanted to be a technology company, not a bank, and so needed a strong technologist, and that's how I found my other co-founder, Ed, after meeting a lot of people. And the rest of that initial team followed that view from Sequoia that those first 10 to 15 hires were critical. It was always finding these different people that filled different gaps, but also that were aligned in terms of the culture that we wanted to build. And here I always tell the story of our first office. Our first office was this little house in São Paulo that looked nothing special, and we would invite people to interview to this Nubank backed by Sequoia, and they would come to interview. And there were only two different reactions. There was one profile of people that would come to the interview with their suit and tie, looking very sharp, with their very impressive sounding LinkedIn profile, and they would look at this office that looked like a house and said, 'What a waste of time, these people are crazy, I'm out.' And they wouldn't even ring the bell. And then there was another type of people that would go in, 'You know, yeah, this seems a little bit odd,' but they would go in and they would sit on the floor, and there was a dog, and my co-founder Ed came from the second floor, and after 30 minutes we were telling them what we wanted to do, they said, 'This is awesome, I want to be here, I'm here on Monday.' And so that house became the best interview filter, because only a certain type of people that were the missionaries, not the mercenaries, they were attracted by the challenge, they were attracted by the impact, by the complexity of what we wanted to build, were the type of people that were integrated in that initial DNA of the business. And once you have those first 10, 15 people, then you bring the next 100 that are consistent with those first 15 people, and they help you interview them, and then the next thousand, and then you start scaling culture based on those kinds of principles. And that has been really an unbelievable way to be able to maintain consistency of culture as we've been able to scale.

Yeah, so we raised $2 million with a deck, and we had a lot of unanswered questions. We didn't really know if we were going to launch a financial product, what the regulatory wise was going to be doable, if Visa or Mastercard were going to say yes to us or no. If they both had said no, we would be done. At every point in that plan there were life or death decisions and gaps that we had to figure out. And so the sense of urgency was huge. Every day counted because we were going to run out of money, and we had to be able to prove by the next round that we had a product that we could get to customers, that we had figured out regulation, that we were able to attract a team even in the face of so much skepticism. And so what it created was a map where we were always figuring out every time that something like a new obstacle came in, we had to figure out how to solve it. And we tell the story about us integrating with Mastercard and having the days counted and considering hand delivering, getting to a plane, hand deliver a form to Mastercard in Belgium because that would save us one day versus sending that paper via FedEx. That was the type of mentality of how valuable time was as a very scarce resource. And then you mentioned this regulation that changed. We initially thought this wasn't regulated, and five months in, certainly it is regulated, and we had to be operational by April of 2014. And if we were not, we were going to be out. We were going to have to apply for a license, which meant waiting for two years. So that was undoable, that was completely not doable. So it was a time where time was the most scarce resource, and we were all in 24/7 trying to figure out obstacles as things came up.

Yeah, yeah, so the million customers in five years felt almost impossible, felt crazy, because we put that goal when we had no customers and we didn't even know if Mastercard was going to say yes to us or Visa, or if we were going to find initially a banking partner that we needed. But then we worked in that accelerated fashion, and we launched the product for the few customers we initially had. 12 cars, and it was the 12 of us, 12 employees. And there were a couple data points that were interesting. The first one was we picked purple as a color because it was the most anti-bank color we could possibly imagine. Every single card in the Brazilian space was silver, was gold, they all look the same, they'll smell the same, they're completely commoditized. And purple was the craziest color we could imagine. And it was interesting to get customers to react to that, because immediately it caught their attention. Some people loved it, some people hated it, but it created reaction, it created some kind of emotion. And I remember us going to a bar that was close to the office and paying the bill, and the lady seeing the card and said, 'Wow, I really like this color. Can I take a photo of it and send it to my Facebook account where I have 30,000 followers?' And we're like, 'Sure.' Oh, interesting. We started to see the potential power of social media. It was early days on social media then. I pay a taxi with my card and the taxi driver tells me, 'I really like that card, I really like that color. How can I get it?' And I say, 'Well, give me your email, I'm gonna send you an invite.' And I write his email, put it in my pocket, and when I get home I lost the paper. And I was furious. Like, how is it possible that I lost the paper? I don't know how to get in touch with this person. So we added a feature in our app to send an invite to somebody. You could simply, if somebody was interested, you put the person's email and it would send an invitation. And it turns out that people started inviting other people, and we created certain benefits in the credit model where if you were invited by an existing customer, there was a higher likelihood that you would get accepted, because again it's a credit card, we cannot say yes to everybody. So that started to create this sense of scarcity in the market where people would go to social media to ask for an invite. At some point we started seeing people selling these invites on MercadoLibre for a free product. There was no cost to it, but we started to see these kind of viral dynamics in social media where people were saying, 'Wow, this is unbelievable.' That gave us an opportunity to really wow the customer through certain experiences. Somebody called with a problem, we would ask our team to go beyond. Somebody called saying, 'My dog ate the credit card, I need a new credit card.' And our customer service team would send the credit card and it would send a toy for the dog and a handwritten letter saying, 'Hope you enjoyed, have fun.' And remember, in a market where people were hating their banks and their experience, having somebody suddenly treat them like that was completely mind-blowing. So all of those data points in social media and their reality made us that in March 2015, I remember we went from getting 500 customers per month, a thousand customers per month, to one month getting 30,000. And partly was also PR. There was an article in a specific niche publication that talked about Nubank and the benefits, and then that really began the huge viral growth that we've seen since 2015 until today.

Yeah, I know. So I think that early experience that I had with a bank kind of made me realize the consumer pain, and it was very clear as a company, as I said initially, our job was to fight complexity to empower people. And effectively a strategy of the business was going to be building a product that people love. And we set that as our number one cultural value, which is we want customers to love us fanatically. Those are the type of words that we use. Love as an emotion, which didn't exist in financial services, it was actually the opposite. And fanatically, we wanted fans, we didn't necessarily want customers. We spent some time looking at some companies that had done that or had tried to do that. We remember going with Cris and Ed, my co-founders, to Sapphire in Vegas and spending an entire day looking at the customer service of Sapphire. My co-founder Cris is a huge fan of Disney, and we studied a lot how Disney tried to create this magical experience. Obviously we're in a very different domain, but there were a lot of things about how you build magic into a product or service. Amazon has been, they want to be the most consumer obsessed company in the world. We love that view because ultimately, if you think about it in an environment of alternatives, it's very simple: customers will choose whoever treats them the best and gives them the lowest price. It's not more complicated than that. If you're in a competitive market and you offer the best product at lower cost, you win. And so that value of consumer love fanatically happens to also be our strategy as a business. We believe fundamentally that if we make customers love us fanatically, we will win as a business. All financial profit, stability, all financial metrics will just follow that consumer love, because customers would choose us. So that is almost like the philosophical basis of the business. Then as we've executed that, we've made a number of different decisions. I mentioned this example of our customer service team sending a toy for the dog. There were thousands of those examples where we were able to tell the customer, 'Hey, you're more to us than a simple customer.' We would hear from the incumbent back, 'But that's very costly to send a gift or a card.' Somebody calls saying, 'I want a higher limit because I'm getting married and I'm going to Italy on a honeymoon.' And our team would send a handwritten letter with the best restaurants in Florence and a travel guide. So it might seem expensive if you're looking at it from a very short-term orientation, but once that customer puts that on social media and you get 100,000 likes, that's the cheapest customer acquisition channel you can ever imagine. So we manifested that value in a number of those decisions. Then eventually, as we scale, what has been more challenging is as you make financial decisions that need to be consistent with that consumer love. The example I like to tell more is a couple years ago, an analyst comes and says, 'Hey, our revenue per active customer just spiked.' Say, 'Go, what happened?' And what we heard was, 'Well, there's a bug in the system and we removed a reminder email.' And because we had this value, it was very easy to know what to do. We had to go put that email back, apologize to the customer for having forgotten to remind them to pay on time, and give them their money back that they overpaid. Remember, there's no regulator that is forcing us to do that. There's no mandate that we have to remind the customer. We're doing it because we want the customer to love us fanatically, and this is a way to build trust with that consumer. And you might say, 'Well, are you an NGO? What about financial profits? You had a higher revenue per customer, now you're not going to have it.' And my answer is like, 'Yeah, it's true. We are sacrificing that short-term revenue because we fundamentally believe that once that customer receives that email saying sorry we didn't remind you, we just earned the loyalty of that customer for the next 30 years.' And in the long run, that's how we tied up that value of consumer love to building a very valuable company. And you probably earn the loyalty of the next 5, 10, 15 people that they tell that story to, and they go, 'That's a bit different from Bradesco or another bank in Brazil.'

That's right. And again, hard to prove this definitely, and if somebody has an example please let me know, but our Mexico credit card as we launched had a 94 NPS, and we think it's the highest rated consumer product in the world, higher NPS than a Tesla, than an iPhone. And it's amazing to see this in a credit card, in a physical credit card. It just tells you how valuable credit and a good financial services product might be for a certain population that has been very much left out of the traditional banking system. They've tried to get in and they've been left out, and suddenly somebody gives them a great product and they immediately embrace it.

Yeah, I mean, listen, one of the insights that we had at the beginning was that tech companies were reinventing every single industry around the world. We talked about Amazon and retail, or Netflix and media, or Uber in transportation. And when you try to abstract the first principles of how that disruption happens, a key component is always efficiency and cost to serve. They, through the use of technology, are able to generate a cost structure advantage that if you use it on behalf of the customer, allows you to reach more customers and charge less with higher quality. It's magic, ultimately. Technology allows you to compete in an environment through magic. And the same first principles should have applied to financial services. Nobody was doing it at that point. But if you think about it from the first principle, the same thing applies. If today we can serve 100 million Brazilians with 7,000 employees, and my competitors need 100,000 employees to serve the same amount of customers in 7,000 branches, the cost structure advantage that I have is so big that I can charge less. That's why I can afford not to charge any fees whatsoever. So it's a better product, it's simpler, I don't have to charge all of these different things, higher quality. And then there were about 250 million people in Latin America, or 60 million in Brazil, that were completely left out of the banking system. Because when you just have $1,000 to invest in a savings account, or when you just need a $100 loan, if you try to get that through a banking branch, the banks will not let you.

If you did that through a banking branch, they would lose so much money on that transaction that they would just shut the door on your face. But if you have this cost-structure advantage, we can get to these customers and say, 'Hey, you have 100 reais, $100 to invest? We take that. You need a $50 loan? We'll give you that.' And we can do that profitably, with a marginal cost that is positive for us. So it is a huge advantage in both serving the banked customers and a huge unfair advantage in getting to the 250 million people in Latin America, globally over four billion people, that have been completely left out of the banking system.