How Do They Make Money?

NuBank was born out of frustration with the incumbent banks in Latin America. Their mission is to fight complexity to empower people in their daily lives by providing accessible, affordable, and easy-to-use financial products.

They are a FinTech company-- they have no physical locations + rely heavily on their technology. Cathie Woods + Warren Buffett's Berkshire Hathaway are investors.

Their business is based on four core principles:

(1) having a customer-centric culture;
(2) prioritizing human-centric design, products, services and interactions to create extraordinary customer experiences;
(3) developing advanced proprietary technologies built from the ground up by some of the best talent from around the world; and
(4) leveraging data science and powerful proprietary models that support every aspect of our business.

They make money from two main sources: fees and interest income.

Fees include feed and commissions applied to credit and prepaid card transactions, payments, loyalty programs, prepaid mobile phone top-ups, as well as the marketplace for the distribution of certain financial products (investments, insurance, and remiitance products)

Interest income is related to interest charged on revolving and refinanced credit card balances, purchases of credit card recievables, and loans to customers.

In their Fiscal 2023, 20% of revenue was earned through fee and commission income (which mostly comes from interchange fees); 80% was from Interest Income.

It makes me a little nervous that they make cater to the lower middle class, but make their money off of interest fees.

When they started, the made a lot of money off of interest fees, although CEO David Velez attempted to make it from interchange fees (swipe fees)-- but it's not. 20% of revenue is from interest income, which includes interchange fees

David's history:

"The next month, Nubank rolled out its first product: a credit card. Nubank couldn’t start with bank accounts because it faced a high hurdle to getting a bank charter—a Brazilian constitutional provision barring foreign bank ownership. But it didn’t need a banking license to offer credit cards. Plus, Brazilian credit cards had sky-high interest rates, then running 200% to 400% a year, meaning customers would either have to pay off their cards in full each month or pay Nubank a small fortune. While Vélez aimed to make money primarily from interchange fees—the 5% of credit card sales merchants kick back to issuers and the banks—he wasn’t going to be shy about penalizing late payers with interest and fees." (source: https://forbes.kz/articles/the_friendly_assassin)

Products and Services:

They are creating products and services for what they call their "Five Financial Seasons" (1) Spending, (2) saving, (3) investing, (4) borrowing, and (5) protecting

Some key products:

Nu Credit card + prepaid card
Ultraviolet pundle, released in 2021, premium metal credit card for affluent customers
- Gives customers 1% cashback on credit transactions that yields 200% of the Brazilian interbank deposit rates, which can be exchanged for miles, invested or transferred to our NuAccounts ● Full benefits of Mastercard Black, including insurance on select purchases and VIP airport lounge access ● Exclusive app theme and premium Customer Support, available 24/7 with our highest rated trained Nubank agents ● Free insurance against digital transaction fraud ● Free withdrawals ● Free Rappi prime signature (one of Latin America’s widely used food and delivery apps) ● Exclusive benefits for managing one's family finances ● Access to exclusive products within NuInvest
Mobile Payments
Nu Shopping (integrated mall app!)
Nu Personal Accounts (banking account)... including auto-invest feature!
NuCoin - sort of defunct crypto project
Investment accounts - ETF options
Persona unsecured loans / Personal secured loans / Payroll deductible loans
Purchase financing - enables credit card customers to split their purchases into installments after a purchase
NuPay - a way to make online purchases and pay for services with just a few clicks with partner merchants
They sell life, mobile, auto, home, and financial protection insurance policies

With all of these loan based products, I have a big concern over risk of default. They describe their approach to risk management as:

Our approach to risk management is core to our business model and has been designed to reduce friction, onboard a wide range of customers from unbanked to high income, while maximizing long-term value. We continuously improve our risk management functions by using data and technology to reduce the risk in our business and improve our credit underwriting engine.
1. Enterprise Risk Management
2. Low-and-Grow approach-- low limit credit line for customers with little or no credit history
3. NuX Credit Engine -- internally developed credit engine, enables to underwrite effecitvely. Uses AI to help underwrite
4. Liquidity Risk Management -- leverages data to capture all contractual cash flows.