When David Vélez moved to Brazil in 2008 to open a regional office for a private equity fund, he didn’t expect one of his biggest challenges to be getting a bank account. He had to make five separate trips to the branch, each time waiting for hours and hauling in a stack of documents. He found the bank staff rude and unhelpful. In the end, the process took five months.
“It was very painful, and I got really frustrated,” he recalls.
Vélez remembered that experience five years later, when he was hunting for a startup idea. He was back in São Paulo after working as a partner for Sequoia Capital, a venture firm, and graduating from Stanford Graduate School of Business the previous year (Vélez earned his BS at Stanford in 2005).
To him, Brazil’s financial services sector seemed ripe for disruption. The market was highly concentrated, with the five largest banks, including two owned by the government, controlling almost 80% of total banking assets (the share grew to 85% by 2016). Lack of competition had led to poor customer service, high fees, and average credit card interest rates of up to 500% per year. It had also made the industry highly profitable, even during economic downturns. In fact, bank earnings comprised more than half of total profits for companies listed on the São Paulo stock exchange in 2013 and 2014.
“The combination of my own frustration and seeing an attractive sector ready to be disrupted by technology got me excited,” Vélez says.
But when Vélez, who is originally from Colombia, consulted more than two dozen industry experts, all of them warned him against taking on Brazil’s most powerful companies. Established multinationals, including Citibank and HSBC, had tried and failed to set up shop in the country. “There was a lot of conventional wisdom that it was impossible to start a bank in Brazil from scratch, especially as a foreigner,” he says. “That’s why nobody dared compete.”
Vélez proved them wrong when he and cofounders Cristina Junqueira and Edward Wible launched Nubank in May 2013, with seed funding from Sequoia Capital and Kaszek Ventures, a firm founded by two Stanford GSB graduates. The fully digital bank launched with a no-fee credit card boasting below-market interest rates that customers could order through a mobile app in a matter of minutes. Instead of waiting for hours at a branch, clients could instantly reach customer service over email, chat, or the phone. They could also cancel a lost card, ask for a credit limit increase, or notify Nubank of planned travel through the app. Stanford GSB alum Hugh Strange, MBA ’12, joined as VP of product the following year, and Gabriel Silva, MBA ’08, came aboard as CFO in 2016.
“The opportunity was that with a cell phone, you can basically have a branch inside everyone’s home,” Silva says. “Thanks to technology, our cost structure was born 10 times leaner than that of other banks, and that efficiency allowed us to launch products — without fees — that are much better in terms of customer experience.”
It wasn’t easy. Nubank had to jump through regulatory hoops for three years to receive a banking license (until then, they partnered with a small local bank). The company also had trouble finding enough local tech talent. To address the gap, leaders recruited engineers from Brazil’s top universities, as well as from two dozen other countries, and built internal training programs.
Nubank attracted 1 million customers in its first two years with virtually no formal marketing. By 2019, it reached 14 million customers and brought in around $245 million in revenue in the first half of the year. The company has not yet made a profit, which executives attribute to investments in growth.
“It was surprising to see this viral growth, and it was a validation that being customer-centric was the recipe for success,” Silva says. “We essentially created a lifestyle brand.”
The bank now offers debit cards, savings accounts, personal loans, and small business accounts and will expand to Mexico and Argentina in the next few months. After raising $400 million in a Series F financing round led by TCV in July, the company is valued at around $10 billion, making it one of Latin America’s most valuable startups. In all, it has raised nearly $825 million in venture financing with backers including Tencent, DST Global, and Founders Fund.
Some traditional Brazilian banks have tried to follow Nubank’s example by creating similar mobile apps. “They spend a lot of money replicating the look and feel, but it’s not the same as having the mindset of, ‘I’m here to add value to the customer,’ ” Vélez says. “They’re sitting on legacy systems that make it hard to provide good customer experience, and we end up getting most of the traffic.”
In the coming years, Vélez expects that Nubank will offer a full swath of banking services and continue expanding across Brazil and Latin America, where 250 million people still lack a bank account. Eventually, he has an even bolder vision: to transform the financial services and technology industries in the region. “We want to force the big banks to bring better products and lower fees to consumers,” he says. “In the process of doing that, I think we can inspire and develop engineers and entrepreneurs and be the creators of a technology ecosystem in Latin America.”
Vélez has two key lessons to share with the next generation of entrepreneurs: First, he urges would-be founders to operate in a market where they have a competitive advantage. “If I had just stayed in Silicon Valley, it would’ve been really hard for me to differentiate myself from all the other super-competent people.”
Most of all, he says one’s ears should perk up when disrupting entrenched players is deemed impossible: “There’s a chance the conventional wisdom is correct, so do your due diligence. But if it’s wrong, that’s the best opportunity there is, and it’ll be hard for anyone else to compete with you.”