In with the Nu! 🇧🇷
At a US$20b valuation on the NYSE, Brazil’s Nubank is the premier example of emerging markets innovation properly disrupting the incumbents. In this week’s issue of Outliers, Alex Barrat steps away from the typical macro-level themes and dives deeper on the micro-decisions that turned Nubank into a multi-decacorn (just wait til you read see some of their ratios).
Plus, Asia is 50% richer than Europe (you read that right) and how India banks.
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The most interesting global Seed to Series A deals from outside the US this week:
Out with the old, in with the Nu
As Brazil's first unicorn, Nubank is one of the most successful startups to truly disrupt an industry and the way people access finance. Now, with 70 million customers across Brazil, Mexico and Colombia, $NU is a US$20b NYSE listed stock. In fact, Warren Buffett owns roughly 2.5% of the company.
While most of Outliers’ content to date has been very macro level and demographic focussed, this week we’ve decided to get into the details on how and why certain businesses have succeeded; specifically Nubank. While early stage investing is about projecting into the future, we can learn so many lessons from what has worked in the past. With that, here’s a little history on the early days of Nubank before going deeper on why they were able to scale so quickly.
The graphic above comes from a great insight piece into the higher level strategy and opportunity for Nubank. Read it here.
A class above
Nubank founder, David Velez used to work for VC-mega fund Sequoia scouting out South American opportunities. At the time, 5 of Brazil’s top 10 public companies were banks. Despite their incredible profitability and size, they were delivering a sub-optimal experience for customers.
NuBank’s first product was a Mastercard credit card. Unlike so many emerging markets fintechs, Nubank wasn’t targeting the unbanked. They were delivering a superior experience to those who already engaged with an incumbent bank. This was for a couple of strategic reasons. Firstly, issuing credit cards didn’t require a banking licence and secondly, targeting higher revenue customers initially provided Nubank with a more sustainable business to then tackle other product lines.
Operating purely digitally rather than through branches allowed Nubank to offer lower fees and a mobile-first experience. Instead of transactions histories being sent through the mail or credit increases being negotiated in-branch, customers could bank through their phones; something we are more used to today but a significant step change in 2014 Brazil.
Still, it took Nubank almost 3 years to gain their millionth customer. Today, they’re gaining over a million users every month.
One of Lachlan Duffy and my favourite conversations is around the differentiation between growth and marketing. While they often fall in the same bucket/department in startups, we have found that some of the best performing companies tend to prioritise growth over marketing. What does this mean? Initiatives like a referral campaign are growth where as sponsoring a football team is marketing. At its core, growth actively brings new users onto the platform rather than more passively building a brand.
Nubank famously attributed 80%-90% of its customer growth to organic methods at the time of IPO a year ago. This is unpaid growth or word-of-mouth marketing. Such high organic growth rates keeps customer acquisition costs incredibly low; $6 in the last quarter to be exact. Just 20% of Nubank’s customers are sourced through paid marketing. 66% of costs to acquire each customer are directed to printing and shipping cards and credit data. How did they achieve such high organic growth rates?
It starts with an incredible product and experience. Being a digital first financial services app allows their costs to be a fraction of branch-first competitors. Nubank claims their costs to service clients is 85% lower than competitors which allows for lower fees and excess capital to be invested into a better product. Especially when targeting price sensitive audiences, it’s a no brainer that customers share Nubank with friends with when it is a class above other options. With a referral engine built into the platform (a copy and paste from Paypal, Dropbox and a heap of other uber-successful consumer businesses).
One thing that a slick UX and low fees don’t directly lead to is trust. Financial services are built on trust. As if Nubank isn’t a market leader in enough metrics, its Net Promoter Score (NPS) is amongst the best in the world. In simple terms, NPS measures the average response for a “From 1-10, how likely are you to recommend X” type survey; it’s the universal gold standard for satisfaction rankings.
In Nubank’s filings (page 8) they reveal a NPS of above 90 on products in all markets they operate. By prioritising customer service and offering an intuitive product, Nubank isn’t just good by Brazilian banking standards, they are among the best brands in the world.
Land and expand
Nubank reported to make US$95 in average revenue per active customer (ARPAC) per year, almost 16x their CAC. The chart below shows expansion in ARPAC (measured on a monthly basis). Having built a large customer base who trusts Nubank, they are now able to sell an increasing number of financial products to them.
Having claimed the title for #1 credit card issuer on the continent, Nubank now cross-sells debit cards, loans, investment accounts and more to their 70m strong customer base. Since their launch, roughly 40% of Brazil’s population have opened a bank account for the first time.
There are so many lessons to take from the rapid rise of Nubank; my primary takeaway is around the power of organic-first growth. Less than a decade since being founded, they seem to have flawlessly executed on building a huge audience with incredible love for their product.
If you have a spare hour on the weekend, I recommend flicking through their latest earnings presentation; I’ve rarely seen so many charts that go up and right so quickly and smoothly.
A super interesting thread from Anshul Gupta, founder of Wint Wealth which provides Indians access to high yield bond investments. In this thread, Anshul breaks down how different groups of Indians engage with financial services based on all types of demographic segments. While it starts with surface level stats, Anshul gets deep on the intricacies of the local banking system.
As a reminder because it confuses me every time: a crore is equal to 10 million rupees (~US$120k) . A lakh is equal to 100k rupees (~US$1.2k).
We continue to admire the work Visual Capitalist does to provide the most insightful and visually incredible infographics out there. Some of these figures are mind blowing. In graphs like the above, we can really see the balance between a small, relatively wealthy population and a large, less well of population. India almost has equal household wealth to the UK for instance. Breaking it down a bit further, Asia has 50% greater household wealth than all of Europe thanks to China and India and is marginally behind North America. South America and Africa combined to the same household wealth as Australia, roughly but are making some of the most significant gains as citizens connect to more formal financial systems.
Your authors this week
Alex Barrat - Fascinated by all things development and demographics. Open to any and all pitches, just reply to this email with your deck.