Nubank’s Approach to International Expansion

Thank you. I'm very happy to be here today.

Yeah. So, Mexico has always been a tremendous opportunity for us. We've always, it's been years since we started flirting with the idea of coming to Mexico even before we could. Well, it's very obvious the size of the opportunity. Mexico today is actually maybe the largest economy in Latin America, has been pretty close to Brazil GDP depending on FX rate, even surpassing Brazil's GDP. And when you look at the GDP per capita, it's actually 30% higher than Brazil. So when you combine that with how underpenetrated financial services is in that country, you know, you see that credit card penetration for instance is like maybe a third of what we see in Brazil. Like there's a lot of room for the size of the pie of financial services to grow in a country that frankly is so large and so much richer even than Brazil. So the way that we think about Mexico is that it's an opportunity that could be as big or, I don't know, there are scenarios that it could be even bigger than what we've seen in Brazil. So there's a lot to like on the Mexican financial opportunity. The way that we think about it is like it's not bigger today not because of lack of demand. It's actually lack of supply and that's one of the problems that we're trying to tackle there. And it seems that it's playing out very nicely, right? As per the recent KPIs that we demonstrated, Mexico is ramping up faster than Brazil across the board.

Yeah, for sure. It's something very nice to see. That makes us very proud because when we came out of Brazil and came into Mexico, we had no idea what was going to happen. Like in our minds, there was a part of us that thought, you know, is any other country going to be as big or as successful as we've been doing in Brazil? And the reality is when we compare Mexico to Brazil at the same stage, right, like the number of quarters after launch, a year after launching Conta in Brazil which is more or less where we are in Mexico today, we do see that Mexico is actually ahead of Brazil which is mind-blowing for us. You know, we've recently surpassed 8 million customers in Mexico, which is huge given the size of the population. Again, further ahead than where we were in Brazil. And that's a lot of customers that had never had access to financial services before. About half of our customers in Mexico had never had a credit card before. So, we are at the same time growing, sure, growing market share, but also including a lot of people into the system, providing a lot of access, right? And what we've seen with deposits is just amazing. We now have over $3 billion in deposits in Mexico, which is outstanding. We're overfunded now. You know, when we look into our credit book growth, and that's something very key for any operations in these types of markets. So, we're very happy. When we look at the KPIs, it's hard not to be excited about the progress that we've been making in Mexico so far.

Yeah, of course. So when we launched our savings account or Cuenta product in Mexico, we already knew that we needed to build the deposit base that's very healthy given our ambition or appetite for building also a credit book in the country, right? So we looked into the way that the market behaved and we saw that actually there was this large, very large profit pool on the incumbent side that just made money on the deposits and paid very little or nothing to customers and that just didn't seem right. So we started already paying some remuneration on the deposits. But as soon as we had the option of having what we call money boxes or in Mexico Cajitas, we started adjusting those yields and actually being more aggressive with how much we're paying for deposits to make sure that we're growing our deposit base in a way that makes sense for our business. As we introduce new features like Cajitas a plazo which allows customers to actually put deposits locked down for a longer term, we managed to also decrease the yield on shorter term deposits but continue to offer extremely attractive rates for the longer run. So that's actually a great strategy for us to start matching the duration of deposits in the loan book now that we're also getting to personal loans and that has been extremely successful. We've managed to address the yield curve and we have been bringing the 24/7 yield rates down without actually impacting the growth on deposits. That is something that we're very interested in.

Yes.

Yeah, that's a great question because I don't think people fully understand some key differences from Brazil. For instance, for us to build our credit book, especially focusing on credit cards, credit cards are much more capital and funding intensive product in Mexico than they are in Brazil, right? We need a lot more working capital because of the settlement cycles and also Mexican customers revolve a lot more and they do finance a lot more using credit cards so we just need a lot more funding there than we need here. And by the way, it's very attractive, like given that there's a lot more financing going on margins are much, much higher so that allows us to pay more on the deposit side to make sure that we're well funded so that's a great strategic advantage. But beyond that I think it's also important to notice that attracting customers on the deposit side first allows us to say yes to everyone, right? Because on the credit card side there's only so many customers that we can approve, right? Like our approval rate is never going to be 100%. Secondly, customers that come in, bring their deposits, they're giving us data as well, which is going to allow us to improve our customer models and to increase our credit exposure over time for sure. Right? And by the way, we have already seen those effects. As you know, our NPLs in Mexico have gone down in the past 12 months by almost half, right? Like they've come down from about 11% to about 6%. We've seen a much better mix of customers coming in like every month through our monthly acquisition cycles. So, it's been super strategic to make sure that we're managing well the deposit yield and the deposit franchise.

So that's a great question too because people talk a lot about competition and of course we are taking some market share from incumbent banks but actually the way that we think about this is our biggest competitor is actually cash, right? Like we have over 40% of payments in Mexico today are still done by cash. We have over half of Mexicans saving money like under the mattress or the equivalent of that. Like that's just mind-blowing, you know, and being able to offer them a digital safe option that allows them to actually get paid for those deposits, you know, in a way that not only compensates inflation but allows them to grow their principal. It's just something that can be life-changing for these customers, right? Like not to mention that this is an entry point for them to have a financial life, for them to build a credit score, for them to eventually have access to credit. So, it is a very different mindset than I guess what we've seen in Brazil historically. And in that sense, of course, we had to also adjust our offer there, right? Like we've recently set up a partnership with Mastercard with one of the companies that they own that allows to have access to over 4,000 points of cash in cash out throughout the country. So, that's a very important feature for those customers. Again, slightly different profile from what we see in Brazil. That's probably the main difference is the use of cash. But we do see some others. Again, the lowest penetration that we have in general financial services products is another striking one, right? So again, half of our customers have never had a credit card. So there's a lot of education going on, you know, financial education, just helping customers understand how a credit card works and how a minimum payment works and how financing works and how revolving works, right? So that they can start using those products in a responsible way.

I think we've been positively surprised by the results so far. Not only the financial ones, the ones that you're referring to, we've been seeing again great growth on the deposit side, on the credit books. We've seen NPLs go down. We've seen growth in terms of number of customers all ahead of the pace that we had in Brazil. So, and that's amazing. We've also been super positively impressed by the impact that people are telling us that we've had in their lives. So we have customers telling us, more than half of the customers telling us that we allowed them to have better control of their finances. 93% of them will tell us that we had a positive impact in their lives, you know, and we are very widely present in Mexico. We're currently in 98% of the country's municipalities. So the impact that we know that we're having in customers' lives is amazing. So that is something that really motivates us. Having said that, sure, the formula in terms of as far as break even, profitability goes is not different from what we've done in Brazil, right? And I feel that locally in Brazil, people, analysts, the press, people in general understand what was the process to get to profitability. There's a lot of investment in growth in the beginning and that's the phase that we're at in Mexico. And there's a lot that we're doing in terms of educating local people in Mexico about this curve, right? Because reality is at 8 million customers, we already have a very large revenue pool coming in. But we're investing a large chunk of that revenue into continued growth, right? Because it wouldn't be wise for us to not take advantage of the growth that is happening right now of the large demand that there is out there for our products. So that's a choice that we're making. And the moment that we cross a balance between more mature customers, customer cohorts, they're more profitable and the growth that is coming in and we have more of these and a smaller share of new customers that are still taking investments, we're going to get to break even. But that's going to be a consequence of our growth and of maturity. Not something that we're actively pursuing. We're actively pursuing continuing to grow our customer base in a responsible way, continue to grow our credit book in a responsible way, in a way that is profitable at the units, you know, at the margin. And that's essentially the same thing that we've done in Brazil successfully, by the way, because you've seen the ROEs, right? Like that we're printing Brazilian at the holdings level.

Exactly.