After three years of its launch, Nu Mexico has over 2.1 million cardholders and is growing at a much faster pace than Nubank did in Brazil almost a decade ago. Without revealing updated numbers or guidelines, the fintech’s general manager Emilio González told LABS that, ideally, Nubank‘s portfolio in Brazil is a roadmap for Nu Mexico but that the subsidiary will not necessarily follow the same steps taken by LatAm’s largest neobank in its first market.
The credit card with no yearly fee was Nu’s first product in Mexico in March 2020. “At the end of 2021, we had 1.4 million cards, which means that we issued 700,000 cards between January and March [an average of of over 233,000 a month]. There’s still no public information [from official sources] on the traditional banks, so we cannot directly compare ourselves to all the others. Still, the likelihood of Nu being the largest issuer is high because the bases of some of the biggest institutions, like BBVA and Santander, indicate that they were issuing around 100,000/110,000 cards a month at the end of 2021,” explained González.
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For González, the number of cards issued and Nu’s net promoter score of 94 points — something unusual in the financial segment and any other—shows how attractive the product is. “A lot of this growth comes organically, from people recommending the product to their family and friends. It’s a direct result of the continued customer focus that we have at the company.” With no layoffs ahead, Nu Mexico already has over 1,000 employees (in December, there were 400) – and 60% of the staff is dedicated to customer support.
In April this year, a $650 million line of credit was announced to “speed up” Nubank‘s international expansion in Mexico and Colombia. According to González, an important part of this amount goes towards financing the customers’ balances, in order to boost portfolio growth. The credit line was granted by Morgan Stanley, Citi, Goldman Sachs, and HSBC, which participated in Nubank’s IPO in December 2021, when the company raised nearly $2.8 billion.
The key to Nu Mexico’s portfolio expansion lies, among other things, with the acquisition of Akala, a Sofipo or Sociedad Financiera Popular, a kind of financial institution, for nearly $3 million and which was cleared by regulators and announced last September. With it, one of Nu’s most obvious next steps would be offering deposit accounts. “Right now, we haven’t migrated our [credit card] product to it; we continue to operate with another partner. But the plan is to do that, and we are already in charge of Akala’s operations.”
González said that Nu Mexico knows that it can offer several services with “a superior user experience” and that it’s no secret that the fintech is already working on it. Still, he did not disclose which would be Nu’s next offer in Mexico.
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Faster growth doesn’t mean fewer challenges
Mexico accounts for 20% of LatAm’s population, and according to the latest National Inclusion Report (ENIF), only 67.8% of its population has access to at least one financial service.
To a certain extent, the lower financial penetration rates and less competition from fintechs indicated that the path of Nu Mexico could be traveled more quickly than in Brazil. More challenges also mean more opportunities, but not everyone seems to be seizing the moment.
The latest ENIF also points out that the proportion of Mexican adults with bank accounts increased by just two percentage points between 2018 and 2021, to 49.1%, while card usage for transactions over 500 pesos increased to a modest 12.3%.
“Despite the access challenge — 40% of our customers didn’t have access to credit card before —, we do not position ourselves as a solution for the unbanked [population]. The truth — and this is one of our major discoveries – is that anyone needing financial services is a potential customer to Nu México, even those that already have access to other institutions and fintechs. (…) As we expand our product offering, we will really start to move the needle [of financial inclusion] in Mexico,” highlighted González.
He also said that the number of customers should not be the only metric for measuring financial inclusion, as it is essential to see what kind of difference a financial product is making in people’s lives. “They have to be actively using the product. And this is something that surprised us since we have good engagement rates.”
That’s also why Nu Mexico developed, early on, several functionalities that speak directly to Mexican consumers. “Mexicans use their credit card as a financial vehicle much more than Brazilians; they are more revolvers or no totaleros, as we say in Mexico, meaning that they effectively use credit and carry their balance from one month to the next. So, we built, right from the start, options that allow them to create fixed installment plans to pay for their bills, and we also connected them with several meses sin intereses (interest-free installment plans partners,” said González.
He recognized that things are happening faster for fintech companies in LatAm than they did a decade ago.
Credit portfolio expansion and more revenue per customer are key for Nu to achieve profitability
In Brazil, in addition to digital payment accounts, credit cards and personal loans, Nubank also offers investments — through its broker Nu Invest, the result of acquiring broker Easynvest in September 2020 — and several in-app services through over 20 partnerships, such as e-commerce, gaming and insurance.
Analysts see the expansion of Nubank‘s credit portfolio in Brazil as vital for Nu Holdings to achieve profitability, as it is a crucial move to increase its revenue per client, still far from that of traditional banks — and it is clear that a similar path is expected of its subsidiaries.
“Despite strong year-over-year revenue growth, we still make six times less revenue per customer than large retail banks,” CEO and co-founder David Vélez said at Nu Holdings’ earnings release in May. “Our cross-selling is still low.”
Nu Holdings posted a record revenue of $877.2 million in the first quarter of this year, up 226% from a year earlier, seeing its net loss shrink to $45.1 million from $49.4 million a year earlier. It also reported 59.6 million customers (78% of them active). Its monthly average revenue per active client rose to $6.7, from $3.2 a year earlier. Annually, according to estimates by Morgan Stanley analysts, Nubank obtains less than BRL 200 ($37.67) from each active client, whereas its largest rival, Itau Unibanco, gets more than BRL 1,200.