While the pandemic has left some startups strapped for cash, the aptly-named Brazilian neobank Nubank is swimming in it. This morning, the company announced that it has raised a $400 million Series G round, putting their total funding to date at $1.2 billion. But even more remarkable, in addition to their new $25 billion valuation (up from $10 billion in 2019), is their customer base of 34 million users, which they’ve built up since the fintech’s launch in 2013.
“We’ve gone from 12 million customers in 2019 to 34 million solely based on word of mouth,” said David Velez, the company’s co-founder and CEO. By September last year, the company was onboarding 41,000 new customers per day. Nubank prides itself on having a $0 customer acquisition cost. Velez said the startup spends what would be marketing money on “great salaries” and superior customer service, which in turn creates “fanatic” customers who share their love for the brand with others.
The new valuation places Nubank as the fourth most valuable financial institution in Latin America and the largest digital bank in the world by the number of customers and app downloads.
The round was led by both private and public investors including current investor Singapore’s GIC, Whale Rock, and Invesco. Other current investors Tencent, Dragoneer, Ribbit Capital, and Sequoia also participated in the round. Velez is a former Sequoia partner and is originally from Colombia though he attended Stanford University and worked in the U.S. for many years.
Nubank, based in São Paulo — the financial capital of Latin America and home to 12.8 million people — has expanded to Colombia and Mexico and plans to use the new funding to flesh out its operations in those markets while continuing to build out its product offerings in Brazil.
What started as a credit card company now functions as a full-service bank, minus the cumbersome bank branches, which is one way the company has been able to allocate its funding primarily toward growth.
“People were really done with being mistreated and paying high fees,” said Velez, speaking to Brazil’s notoriously bureaucratic and dreadful banking experience (liken it to going to the DMV, but regularly). Historically, to pay your monthly bills in Brazil, you had to go to a bank branch and wait in line — often outside in the heat — until it was your turn. The lines wrapped around the block like that of an Apple Store upon the release of the latest iPhone.
“It’s like they are doing you a favor by opening an account for you and then charging you 450% interest rate per year,” said Velez. “Our bet was that people would really like to be treated like humans,” he added.
In 1994, when the Brazilian real currency was introduced, it was pegged at 1:1 with the U.S. dollar. However, in recent years, with the country’s largest corruption scandal in history which saw three consecutive presidents jailed, impeached, and incriminated, respectively, the economy has plummeted. And COVID-19 certainly hasn’t helped. The exchange rate is now 1 USD to 5.40 BRL. With low exchange rates in Brazil, Colombia, and Mexico, a $400 million USD investment creates a sizable runway, especially since Nubank’s Brazil operation has been cash-flow positive since 2018.
The company is known for reaching the unbanked population in Brazil, especially those who simply weren’t in the financial position to get a credit card. Traditional banks are present in about 80% of Brazilian municipalities, but considering that Nubank’s app-based product is location-agnostic, it’s able to reach 100% of the municipalities, the company said. In addition, it’s been helping Brazilians build credit. Its Barney-purple credit card starts at a monthly limit of $50 reals per month (roughly $10 USD). If a customer pays on time the first month, their credit continues to increase over the following months.
Amongst its slew of products, Nubank also offers a debit card and savings account, and while it doesn’t have branches of its own, money can be withdrawn from network ATM’s, as is common in the U.S.
“Nubank was born out of the conviction that people deserved better, more transparent and human financial services that would allow them to be in control of their money and their future. We started seven years ago in Brazil, a country with one of the most concentrated banking sectors in the world, and we were able to free millions of people of the bureaucracy and the pain. Through technology and human customer service, we were able to have a positive impact on their daily lives,” said Velez.