Nubank: Building a USD 10 billion fintech in 6 years

Nubank is the world's most valuable digital bank. This post reflects on some of the reasons why the startup was able to achieve such success.

An organization that is definitely a winner on the modern era of digital and business is Nubank. Nubank is a Brazilian native digital bank that has over 15 million clients and the highest valuation of its industry (challenger digital banks) globally (around USD10 billion). The fintech was founded in 2013 and after investments from firms such as Sequoia, Kaszek and Goldman Sachs, reached unicorn status in 2018.

Nubank started its business by offering a credit card w/ no annuity fees which could be managed through an app. Years later, the company also began to offer a rewards program with points that didn’t expire, followed by a digital account w/ no annuity. Now,the bank is piloting a personal loan product to its account holders. Nubank uses a very light operating model, with no physical locations, heavy use of AI and digital interaction with clients and puts emphasis on customer satisfaction.

There are five critical components that enabled Nubank to reach such an astounding success in its short life and which can be generalized as good practices in companies that want to become winners in the digital economy:

Market sizing and innovation potential: Nubank founders chose a market that is extremely relevant financially and socially speaking. That information by itself would be enough to draw attention to it, but Brazil’s case is especially curious because there is intense consolidation of the industry, in which 5 traditional banks hold 80% of the total deposits, interest rates for individuals are extremely high and profits of such institutions are escalating quickly. Such scenario and the fact that there are still dozens of millions of Brazilians who still do not have a bank account creates the perfect space for innovation (rich and underserved).

Starting from scratch: Being a startup, Nubank was able to start with a clean slate when tackling issues. That is extremely important because it enabled the organization to easily create a different business model that considers new technologies without needing to take into account outdated concepts (e.g. traditional banks have large overhead, old IT systems and many physical locations).

Positioning to disrupt: The approach used by the startup to tackle the issue of high interest rates and fees in the Brazilian market was perfect given the theory of Disruptive Innovation by professor Clay Christensen.  Nubank presented a cheap product with less resources but better customer experience than traditional banks with which the traditional financial institutions could not compete directly without being hit financially in their core business. That enabled Nubank to grow somewhat uncontested by incumbents and not only to steal clients from such institutions but to bring new customers to the market.

Creating customer love: Nubank focused on branding, customer experience and positioning itself differently from traditional banks. Its obsession for providing simple and intuitive products for customers embedded in transparency created a following of customers that advocated for the company and pushed its awareness and positioning forward. Communication with customers and prospects followed the company’s ethos of being simple, innovative and direct to the point, defining purple as the bank’s main color.

Iteration and speed: Finally, the company was able to achieve success by being swift in deploying its strategy and growing through VC and PE capital. In the process of growing the company, non-traditional methods such as agile were used to experiment and deploy innovations as fast as possible. This speed allowed Nubank to stay ahead of competitors that were created in the last few year and capitalize its high awareness.

 

Sources:

Nubank’s website.

Hoje em midia: https://www.hojeemdia.com.br/primeiro-plano/economia/brasil-tem-45-milh%C3%B5es-de-pessoas-sem-conta-ou-movimenta%C3%A7%C3%A3o-banc%C3%A1ria-1.736168

Reuters: https://www.reuters.com/article/us-nubank-brazil-growth/brazilian-fintech-nubank-has-grown-to-15-million-users-ceo-idUSKBN1WQ26C

Globo: https://g1.globo.com/economia/noticia/2019/05/28/cinco-maiores-bancos-comerciais-detem-848percent-do-mercado-de-credito-no-fim-de-2018-revela-bc.ghtml

Fintechfutures: https://www.fintechfutures.com/2019/12/top-10-challenger-banks-by-valuation-and-funding/

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