Nubank CEO talks expansion plans amid Q1 beat

Shares of Nu Holdings (NU) are trading higher on Wednesday as the company beat analysts' expectations for revenue and earnings in the first quarter. David Vélez, the CEO of Brazil-based Nubank, joins Market Domination Overtime to discuss the company's results.

As Nu Holdings expands its business beyond Brazil, Vélez sees Mexico as a "phenomenal opportunity," highlighting the country's large market size. He notes that entering a market where many individuals lack access to banking services allows them to compete "pretty significantly."

Vélez reveals that the company plans to achieve profitability in Mexico by offering higher yields and aiming "to have the very best deposit and savings account in the market." Additionally, he emphasizes the company's strategy of introducing new functionalities while decreasing yields and maintaining "the value proposition" for customers.

Addressing the recent flooding tragedy in Brazil, Vélez states, "We've been very forthcoming in trying to make it easy for our customers there."

For more expert insight and the latest market action, click here to watch this full episode of Market Domination Overtime.

This post was written by Angel Smith

Video transcript

Well, one of the top training tickers all day on Yahoo Finance new holdings.

It's the parent company of the Brazilian Digital Bank, New Bank.

That's new as in nu not new and the company reported record revenue in the first quarter.

Joining us now is David Bella New Bank, Ceo David.

It's great to see you again.

Thanks for being here.

Hi, Julie.

Thank you for the invite.

So you guys are big in Brazil.

That's your home market.

Um And what's remarkable to me is the growth that you guys have been seeing in Mexico.

You're, you're branching out into Mexico and Colombia, but in Mexico, in particular, um your growth has been fairly extraordinary and I know some of it has been offering depositors their higher rates on their deposits.

But talk me through your strategy in Mexico.

Sure.

So Mexico is a phenomenal opportunity because we have a large market that is very, has very access to financial, very low access to financial services.

You have 12% credit card penetration.

You have over 80 million people that have no bank account.

It's a very much an informal economy and we get the opportunity to come into this market, compete, compete fully digitally by offering better yields and better products uh to the back population.

So we've been competing pretty significantly gaining share across all the different verticals and becoming one of the largest issuers in just a few years.

Um And David, as I mentioned, one of the reasons you've been doing that is, is offering folks yields to, to get them um from unbanked to bank in some cases or to take market share from your competitors.

But that's coming at a cost to you all obviously offering attractive interest rates right now.

You're gaining scale there.

When does it flip to sort of profitability in that market?

Sure, we're following actually the same uh playbook we used in Brazil.

What it's interesting about Mexico is that when you look at the profit pool of banks or 40% of the profits don't come actually from credit.

They come from deposits.

Banks in Mexico pay effectively zero or very close to zero to their consumers.

And so there is significant value to be created in offering higher yields.

There is a lot of unit economics.

On the credit side, we are growing first with the credit and even at offering higher yield, we're still making very significant unit economics.

However, our goal is to have the very best deposit and savings account in the market for that we need high yield and a number of different functionalities as we add new fund functionalities to our bank account, we're gonna be able to decrease those yields while maintaining the value proposition.

We did that in Brazil as we launched in 2014 where we launched a market without paying 100% of the ref free rate.

Eventually, we, we were able to decrease that yield while maintaining significant consumer activity and consumer base.

Uh And David, I do wanna get your, your take on one metric I saw here, I I was reading David, your Q one did show an increase in delinquencies.

Uh Can you walk us David?

Kind of just what's going on there and how you navigating that?

Sure.

So we just announced or Q one result has been really record across all the different uh numbers.

We were able to do about $443 million of net income in Brazil or core market.

We had over 40% return on equity.

So New Bank is very unique globally today in that it is the only Digital bank in the world outside of Asia that has crossed 100 million customer base while maintaining a very high set faction and very high profitability, higher profitability than incumbent banks.

Specifically to your question on delinquency.

What happens is Q one tends to have a higher delinquency than Q four.

There tends to be a bit of a hangover in the market because Q four tends to be very high purchases.

So we're seeing that seasonality go up, but at the same time, we're seeing a significant opportunity to expand in certain of segments of the market.

We're pricing risk effectively for the higher delinquency.

And we ultimately, what we're trying to do is optimize N PV.

We're not in the business of necessarily minimizing uh credit losses.

If we wanted to do that, we just stopped growing.

We don't let anything.

We're in the business of pricing risk appropriately and that's the opportunities that we're seeing in the market.

And finally, David just on a note about Brazil specifically, I know there has been extensive flooding in the south of the country um that has basically immobilized.

Uh the southern state centered in Puerto Alegre.

Uh is that having any effect on your business?

Is that having an effect on, for example, borrowers ability to repay?

Are you gonna see any effect on your default rate as a result of what's going on there?

Yeah.

No, it's a, it's a phenomenal question.

Unfortunately, this is probably the biggest uh tragedy we've seen in, in recent history in Brazil.

Uh effectively the entire state of Rio Grande do sul has been flooded.

Uh About 5% of our consumers, customers live in Rio Grande do sul.

So our exposure is limited.

Uh However, we've been very forthcoming in trying to make it easy for our customers there.

We've uh participated insignificantly in donations in the area and we are extending and lengthening significantly payment terms for all the different consumers that we have.

So I think it's not going to necessarily directly create significant impact for us.

But from a consumer perspective, we think we've got to be there helping our customers that are going through these very tough times.

Makes sense.

David, thanks so much for being here.

Really appreciate it.

Thank you so much Julie, pleasure to be here.