David Vélez is an audacious and shrewd Colombian who is disrupting the banking industry in Latin America with his idea. The latter consists of his invention of offering suitable commercial retail banking services efficiently through the use of technology and without red tape while reaching the total addressable market in Latin America. In fact, after his awful experience opening a checking bank account in São Paulo, Brazil after relocating there through his job, he sensed that the entire process was tedious and cumbersome with quite a great deal of red tape involved in it. Soon after, he convinced his bosses at Sequoia Capital Operations LLC to come up with a business plan addressing this awesome opportunity to target a market up for grabs in Brazil. Accordingly, although close to two thirds of all Latin American adults are bancarized with a few countries including Brazil topping the chart at 80%, there is plenty of room for an innovative player to streamline the industry by reaching the masses, some of whom still keep their cash savings under the mattress. Likewise, brick and mortar commercial banks in Latin America usually only lend to well-established companies leaving small and medium-sized enterprises or SMEs at the mercy of obscure and unscrupulous lenders who take advantage of them often times being loan sharks themselves charging exorbitant high interest rates and poor credit terms accordingly. As a consequence, this is where the foundation of a digital commercial retail bank known as Nubank came into being in Brazil. Moreover, registered and domiciled off-shore in the Cayman Islands as Nu Holdings Limited, David Vélez along with two partners including Brazilian Cristina Junqueira and American Edward Wible were able to complete 12 funding rounds while raising $ 2.3 billion since 2013. Altogether, the initial seed capital came from Sequoia Capital while other high-profile investors joined the seeding frenzy along the way including the legendary Warren Buffett, Goldman Sachs Capital Partners LLC, QED Investors, Kaszek Ventures, DST Global, Tiger Global Management LLC and the Founders Fund. The last one mentioned is the venture capital arm of billionaire Peter Thiel, cofounder of PayPal Holdings Corporation and an early investor in Facebook’s parent Meta Platforms Corporation.
Moreover, after the initial launch of the fintech with the first credit card transaction using Nubank’s card reported for 2014, the growth of the entity has been outstanding with full steam ahead. In fact, before its subsequent IPO on the NYSE on December 9th of last year under the ticker symbol (NU), Nubank counted 48 million customers with revenue reaching $ 1 billion for the first three quarters of 2021, roughly twice the figure reported for the first three quarters of 2020, an 100% increase. In addition, the company has rolled out products including credit cards, checking accounts, saving accounts, personal loans and life insurance without the need of physical branches. Consequently, the overhead the company experiences is extremely low. In other words, the general, selling and administrative expenses of the company are expected to be maintained at a minimum and this feature in turn will allow the fintech to operate freely at a quite great deal of efficiency totally unmatched by any commercial retail banking player throughout the region.
On the other hand, the company went public late last year on the NYSE and the IPO was a total success with the issue having been oversubscribed. Altogether, Nubank was able to raise a sweet $ 2.6 billion windfall which is earmarked to be spent on expansion in Argentina, Mexico and Colombia. In addition, the IPO minted Cristina Junqueira as a new female billionaire and cemented the status of David Vélez as a wizard of fintech and Colombian billionaire accordingly. In fact, the career of David Vélez has so far been fantastic with an undergraduate degree in Financial Engineering as well as an MBA from Stanford University and stints in investment banking at Morgan Stanley Corporation, private equity at General Atlantic Partners L.P. and venture capital at Sequoia Capital Operations LLC. Moreover, Nubank is today the most valuable commercial bank operating in Latin America and the fifth most valuable listed company throughout the region when including the Caribbean after Petróleo Brasileiro S.A., better known by its acronym as Petrobras, Mercado Libre Corporation, América Móvil S.A.B. de C.V. and VALE S.A. reaching a market value of $ 52 billion after the closing the night of the IPO. This is quite a feat in itself that proves without any doubt that Latin America possesses potential in the form of hidden jewels if one is patient enough to look for them. Similarly, the growth the company is experiencing quarter to quarter justifies the current market valuation attained after the IPO. In fact, the company has a customer acquisition cost of only $ 5 while currently generating $ 60 in revenue per customer a year. In similar fashion, the hefty number of customers currently subscribed to the services Nubank offers will enable the fintech to make good use of economies of scale, not to mention the heavy cushion provided by the IPO. Furthermore, Nubank has four consecutive years beginning in 2018 generating positive free cash flow and tremendous growth in revenue as well, albeit not profitable just yet except for its Brazilian operation alone by itself after having turned a profit for the first half of 2021. Nevertheless, the convenience of accessing services anywhere in town using a mobile application and the cushion provided by the IPO equips the fintech with enormous muscle to go after other markets that are inefficient across the region. Overall, the current sources of revenue the company has include 30% from interchange fees, 23% from credit card interests and 15% from personal loan interests with extremely low overhead and an excellent efficiency ratio as a result.
To conclude, David Vélez is a newly minted billionaire in his own right and someone to be reckoned with now. This is a story of success in Latin America that has not ended yet. On the contrary, the company has a lot of space for growth throughout the region while disrupting it as well through innovation and efficiency. Accordingly, wreaking havoc in Latin America, I’m sure well-established brick and mortar commercial banks will defend their turf but with a solid customer base in Brazil while growing in Argentina, Mexico and Colombia as we speak, the numbers are expected to be good down the road no matter what the competition decides to do.