Podcast Interview: Nu Holdings (NU)

Last week, I made a guest appearance on the OAWS podcast from OMR, Germany’s largest business podcast network.

I joined the two hosts, Noah and Timon, to discuss their central question: whether Nubank could double by 2030 or whether the lending business is too risky.

The conversation builds on my earlier writing about why the fund invested in Nubank.

Below, you’ll first find the link to the original podcast episode (in German), followed by a full transcript of our discussion (in English).

Disclaimer: [00:00:00] Risk disclaimer. This content is for general information only, provided without guarantee, and does not constitute a recommendation to buy or sell any specific financial instruments. This is not investment advice. You decide for yourselves what you do.

Noah Leidinger (Host): Today is Saturday, April 4th. My name is Noah Leidinger, and this is “Ohne Aktien Wird Schwer.” As always, this podcast is supported by Scalable Capital, the broker offering a trading flat rate, loans, junior accounts for kids, and of course 2.5% interest on unlimited cash in your overnight savings account. Today it’s a Saturday episode, and we’ve got good news to kick off the new quarter: from now on, you’ll get a new episode here every Saturday with investors or managers, where we’ll take a much deeper look at a stock or a company than we do in the short weekday episodes.

And today we’re kicking things off with Nubank. With a market cap of 70 billion dollars, it’s now the fourth most valuable company in Brazil, and alongside Revolut it’s the most successful neobank to have launched in recent years. Nubank is also interesting because even Berkshire Hathaway invested before the IPO—something they usually don’t do with this kind of company.

Timon and I talked about it with Timo Buss. He’s the initiator and advisor of the Covesto Patient Capital fund and, as you’ll notice in a second, he’s dug pretty deep into Nubank over the past few years.

Timo, we always like to kick off our deep dives with the company’s story. Nubank, just like N26 here, launched in 2013, but today it’s worth closer to ten times as much. How did Nubank get started—and how on earth did the bank grow so big over the past few years?

Timo Buss (Patient Capital): I think in order to really understand Nubank’s success story, you also have to look at the founder’s background. The main founder is David Vélez, who still runs the company as CEO and originally comes from Colombia.

Back in Colombia, in his family, his father, for example, was an entrepreneur. He ran a factory that made buttons for jeans and other denim goods. And his father had eleven siblings, and they were all entrepreneurs too.

So that entrepreneurial spirit ran through the whole family—very clearly, everywhere. And the conversations at the dinner table, or when there were family gatherings, were very often about what was going well in their companies, what wasn’t, which decisions paid off, and which ones led to failure.

The whole family eventually moved from Colombia to Costa Rica. That was simply because drug-related crime in Colombia—especially in the 90s, as you can imagine—eventually got out of hand, and it started creeping closer and closer to the family. There were the first kidnappings of people they knew.

And at some point his parents said, we’re going to migrate now, we’re leaving the country. David’s father rebuilt the factory in Costa Rica, and David himself would often stop by the company and lend a hand—he earned his first pocket money there and also saw a lot firsthand: what can go well, and what can go wrong.

He was always a very, very good student. And he had this plan for himself that one day he wanted to study at a really good university, so he applied to Stanford. And when he got there, he did a pretty standard business degree, finished it successfully, and then initially went into a very typical finance career path.

That means he worked as an analyst at firms like Morgan Stanley and General Atlantic, really got to know the investing side of the business, but up to that point he’d never been a founder. Still, there was always something inside him saying, I don’t want to be an employee forever—I want to have my own company someday. And then in 2010 he went back to Stanford and said, I’m going to do an MBA now.

One of his classmates pointed out to him, “Do you actually know Sequoia?”.

Sequoia—many of your listeners will know it too—is one of the legendary venture firms in Silicon Valley. And at that time, Sequoia was looking for someone with a Latin American background, because they were seriously considering getting a foothold in Brazil relatively early on.

And for that they wanted to hire a part-time associate, and David applied for the role. The interview was conducted by Doug Leone. Doug Leone is also a very well-known name among many founders. Sequoia was originally founded by Don Valentine, but the second generation after Don Valentine included Mike Moritz and Doug Leone.

And Doug Leone is considered, to put it mildly, a very opinionated and rigorous allocator—an investor who’s extremely direct in conversations and pitches with startups, and not someone you can easily fool. And the interview actually went really, really well. David and Doug hit it off from the very beginning.

That ended up leading to Doug Leone offering David Velez the job very quickly. And as it so often goes, you think you’re doing your MBA and just taking on a part-time job at Sequoia—but it very quickly turned into something like a full-time job.

David has always been an absolute early riser. It became a pretty regular routine for him to get up at around 4:30 a.m., drive straight to Sequoia’s office, and use the time difference to call a lot of Brazilian founders—figuring out whether Sequoia could invest in good startups there or not. Then around 9:00 or 9:30 he’d head back to Stanford, sit in class, and go through a normal day at university, before regularly driving back over to the office again in the early evening.

Then comes, I think, the episode that really makes up Nubank’s founding myth: he had to open a bank account in Brazil—both for his own needs and for Sequoia. And at that time in Brazil, it was the case that five banks, operated in a very oligopolistic way and dominated 80 percent of customer deposits and savings accounts.

That’s Caixa, Bradesco, Itaú, Banco do Brasil, and Santander. Those have always been the five dominant players that carved up the market among themselves. And they’ve always had an incentive to keep it that way. Big headquarters, lots of branches—they’ve always liked taking on very wealthy people as customers, and of course providing them with every service. But the mass market was really underserved.

Meaning that when David, as a non-Brazilian, showed up at this bank, he first had to put down his backpack. Then there was a heavily armed security guard with a machine gun at the ready who said, “Please go through the security gate—the backpack isn’t allowed in here. Nothing may beep anymore—anything electronic or somehow metallic.”

Then they left him sitting there for 40 minutes. At first, no manager from that branch even showed up. Everything took a really, really long time. Then there was a conversation that was very, very condescending, and throughout the whole episode David kept thinking: I’m trying to become a customer here. I want to bring you business. I’ve even got Sequoia backing me—how can it be that this is my experience when I’m trying to become a customer here? But that really was the reality back then.

And just to jump ahead for a moment: all these big, established banks have evolved tremendously since then. But this realization—that it really was that bad, and that nobody was doing anything about it—always sparked this urge in David that maybe he could change something himself.

Then at some point Sequoia said, “Hey, we need to set up a meeting. We like what you’re doing for us. We like you. But what we’ve seen so far, in terms of the quality of startups in Brazil, is not something we want to invest in. We’re seeing a lot of bad clones of American companies.”

That hit David a bit out of the blue, because even back then he’d been thinking maybe this could turn into something bigger for him together with Sequoia. But at the same time, it was the final, decisive push for him to go out and start something himself.

And that was in 2013, when he said, “I’ve found a problem. The problem is big. And of course I need a founding team. I’m fully aware that I don’t understand anything about Brazilian banking. I’m fully aware that I don’t know the local players. I don’t know the regulators. I need capable people who can more than make up for my weaknesses.”

I think to this day that’s one of David’s greatest strengths: that he went out and found those people. And then there were two co-founders: Edward Wible, who is still with the company today but not as visible anymore, and Cristina Junqueira, who was probably the best banker you could possibly have had for the job.

At Itaú, she ran the largest credit card portfolio. She knew the industry inside out. She was ready for a change. And she could see that the products the established banks had been offering up to that point weren’t particularly popular—that people wanted to cancel those cards in droves, and that the big marketing pushes weren’t really moving the needle anymore.

And she also asked herself: surely there has to be a better, more transparent way—without hidden fees, and with a bit more respect for the mass market, too. Together with those two co-founders, she then founded Nubank in 2013, and since then the company’s growth has been absolutely phenomenal.

If you’re interested, I’m happy to walk you through some of the key milestones along the way. But today, measured by customer numbers, with 113 million customers in Brazil—that’s 62 percent of the adult population in its home market—Nubank has become the largest private bank.

Noah Leidinger (Host): And back then, did they already start out with the vision of becoming a full-fledged bank—issuing loans and all that—or was it more like many of these neobanks that began with, say, a credit card just for kids, and then realized, okay, there are other products too and expanded from there? Or was David already that visionary from the very beginning: we’re going into lending and becoming a more full-service traditional bank?

Timo Buss (Patient Capital): That’s a great question, because in the beginning it really was a one-product company. The first product launched in 2014: what has since become the very distinctive, and in some ways even legendary, purple credit card in partnership with Mastercard.

By the way, Visa didn’t sign on back then. That means if Mastercard had said no as well, Nubank wouldn’t have been able to launch a first product. It’s as simple as that.

And back then it was also due to the fact that, depending on the license, the regulator only allowed you to offer certain services. And early on, with relatively little capital, you could fairly easily put out a credit card and process payments.

That was fine. But for taking deposits and offering more advanced services, you need bigger license packages and broader regulatory permissions. And by the way, to this day that’s still one of the key differences when you look at certain fintechs versus some neobanks, and how all these players differ from one another.

That means you very, very often reach the point where, if you want to offer the full package—not just a single product, not just be a payments processor, but actually take deposits—things tend to get trickiest right when you want to take deposits. For that, you often need broader, more comprehensive licensing from the regulator.

It was the same at Nubank. They started out with the card. They thought this card—managed only through the app, because Nubank is a purely digital bank with no branches—would be in huge demand from the mass market. And then in 2014 the card launched, and in fact the exact opposite happened from what they had expected.

At first there was basically no demand at all. But then, after a few weeks, a design magazine in Brazil—one that doesn’t really deal with finance or banks, but more with how products are designed, whether the marketing appeals to them, or how an app is designed—ran a very positive article for its own audience. And after that, things took off: all of a sudden they were getting several thousand sign-ups a day.

At first it came out of this particular bubble that wasn’t into finance at all, but into design. Then the whole thing picked up momentum and went a little bit viral. And once it went viral, they said, we have to put a stop to it for now. We need to introduce a waiting list. We first need to see what people’s credit behavior is like. So how many customers do actually default on their debt?

And with that waiting list, the desirability suddenly shot up. It got to the point where existing customers could refer one additional person. And those referrals started being traded—at some point you could even buy them on eBay if you wanted to become a customer.

And starting in 2016, they crossed the one‑million cardholder mark for the first time. And after that, you can really see how the product offering—a credit card with no fees, no hidden costs, from a company that speaks to you in a really friendly way in its marketing and says, “We want to treat you better”—took off.

Which, back then, was completely unthinkable in Brazil’s banking landscape. I mean, at the time banks were the companies with the worst consumer ratings. These days, by the way, it’s the phone and mobile network providers in Brazil. And that’s another service Nubank is now trying to move into with NuCel as well, to take that pain point away from customers again and give them a better deal.

And once the credit card was up and running—once they’d seen they had default rates under control and were starting to make some solid money—they began branching out into additional products from 2017 onward. The key one was the savings account, called Nuconta in Brazil. And Nuconta completely reshaped Brazilian customers’ expectations of how much interest you can earn on a regular savings or checking account.

The mass market got nothing at all. And in a country where the interbank rate is currently around 14.9% per year. So we’re not talking European conditions here—not 2%—and not American conditions, 3%. And with Nuconta, Nubank said: we don’t have all those overhead costs that incumbent banks have, we don’t have branches, we have the lowest cost structure. We can afford to pass on to you 100% of the interbank rate on your deposits.

And back then, that was revolutionary. Today, everyone offers that in Brazil—it’s become completely normal. But at the beginning, it led to a huge number of people signing up for the account.

Noah Leidinger (Host): I think what a lot of people also assume about Nubank, based on its history, is that they initially got off to such a strong start because so many people didn’t have a bank account at all.

But you already hinted at it: the incumbent banks in Brazil have caught up. And you’d also say that targeting the population that still doesn’t have an account—that issue has actually become much smaller in Brazil and Nubank’s penetration rate today is already quite high.

Timo Buss (Patient Capital): The penetration rate of the adult population, so the customers Nubank has in its home market—that’s 62 percent.

Realistically—and that’s how I’m planning it—you might still be able to win another 20 million customers in Brazil. That would add about another 10 percentage points of penetration, so you’d maybe get to 72, 73 percent of adult customers. But at some point, this market is simply tapped out in terms of adding more customers.

What I think is really interesting is that if you were to talk to Christina Junqueira, for example, and ask her how big your potential in Brazil is if you can’t win any new customers there—113 million, which you have today, and that’s it—then she’d tell you that in the medium term they could be two to three times as big just with the existing customer base.

And that’s also one of the big growth drivers for the company over the next few years: you keep seeing it, and by now you have cohort analyses of customers who joined in 2016, 2017. You’ve got almost a decade of data, and over time you can see different patterns.

You see customers start with one product—maybe at first just the savings account or the credit card. Later on, though, they start trading stocks as well — or ETFs, and in some cases cryptocurrencies, which are also very popular in Latin America. And then, later, maybe a higher credit limit gets added, and a larger personal loan. And over time you can see that the number of products existing customers are asking for keeps growing.

And you can see that the average monthly revenue per customer—right now at Nubank, calculated in dollars—comes to about $13.3 in revenue per month per active customer (ARPAC). In the cohort analysis, that $13.3 per month grows quite significantly. If you look at the older cohorts, the ones that already have enough history, you can ask: if the average is $13.3 today, where should it be in five years?

Purely mathematically, it would have to be almost three times as high. That’s why it’s correct that the number of customers in Brazil will reach a plateau over the next few years. However, it’s not correct to say that this means the monetization potential in the home market has been fully exhausted.

I don’t think so, and that’s mainly because of the revenue growth per customer—you can already calculate it today, you can already see it, and there are no signs that those numbers won’t hold up going forward.

And since you mentioned Mexico: you really have to say it’s like night and day in terms of the untapped customer potential. People who’ve traveled through Latin America will have noticed that Brazil is a fully digitized country. And it’s not just about social media. Anyone who wants a bank account has a bank account. Anyone who wants a credit card has a credit card.

Mexico, on the other hand… I did a lot of research in Mexico for a convenience store chain there that the fund is also invested in. And you realize pretty quickly that Mexico is still very, very cash-dominant. To put it in concrete terms: in Brazil, if you look at all consumer payments in retail, you can say that 85% are already fully digital.

In Mexico, a huge share of transactions is still cash-based. About 40% of the adult population still doesn’t have a bank account. This isn’t even about credit cards—it’s really that the unbanked population in Mexico is massive. That’s a night-and-day difference compared to Brazil. In Brazil, it basically doesn’t exist. It’s basically a rounding error.

Credit card penetration in Mexico is around 25%—about a quarter of the population has a credit card. Which means there’s huge potential for Nubank to reach these people. They’ve been in the market for six years now and already have about 14% of the adult population as customers—14 million customers there—and they’re adding another million customers every quarter.

Things are going fantastically there, and when it comes to customer numbers, that’s clearly going to be the biggest driver for me over the next few years.

Noah Leidinger (Host): We just touched again on revenue per customer, which keeps rising because there are different products. And you also said that originally they started with the card—so of course they earn the card fees from that. By now they’ve also built up a lending business, they have accounts, they have trading, and so on.

Do you want to give a rough overview of what they mainly make money from and what the most important areas are?

Timo Buss (Patient Capital): Overall, you can keep the following rule of thumb in mind for the entire banking industry: there are only two ways to generate revenue. You can either earn net interest income, or you can collect fees.

And how exactly that’s structured can get very intricate and varies a lot, but those are the two main drivers. And overall, worldwide, if you look at all bank revenues—meaning retail banks that serve private customers—about two thirds come from net interest income, and about one third comes from fees.

At Nubank it’s different. At Nubank, 85% of revenues come from interest income. So it’s a bank that’s very, very heavily focused on lending. 15% comes from fees. Fees in the banking industry can be different things: they can be account maintenance fees, they can be custody or brokerage account fees, but they can also be interchange. And at Nubank, this small share of fees—those 15% of the total—is of course also due to the fact that they don’t really want to rely much on hidden fees.

But if you asked me—if you really want to scale this business model, if you truly want to take it global—then at some point you hit a ceiling: what the customer can already afford to pay today as a monthly fee for various services will only get you so far.

Especially not in emerging markets. You can do that really well in Europe—we see it with Revolut, who execute it exceptionally well—but in other markets, you can only get so far with the money the customer already has. And beyond that point, you have to work with the fact that a customer has liquidity needs they can’t yet cover on their own, and you have to work with the fact that people want to take out loans to make investments.

And you have to—at least from my point of view—in this area, in the core business of banking, you have to get really, really good in the core activity of lending out money. You have to get really, really good not just at issuing loans, but at actually getting them repaid. And if you don’t get them repaid, you have to price them properly.

You need a solid provisioning policy. You have to build reserves very conservatively at every point in the cycle. And that’s why I actually like the fact that Nubank has dug so deeply into this line of business and generates the lion’s share of its revenues there.

Noah Leidinger (Host): That’s actually pretty positive, because two of the risks many people see with the model are, for one, especially in Brazil there’s this PIX payment system. And Mastercard and Visa always get asked about it: it’s a government-run payment system that doesn’t run on the rails of the big card networks. So the question is always, okay, what happens to interchange fees—do they disappear if PIX gets used more, because they simply don’t exist there.

But Nubank is actually pretty well protected there, because people still want the credit card—since what they’re really after is the credit. And the other risk I’d seen in Mexico is that they’re discussing whether to lower interchange fees. That obviously wouldn’t be great for Nubank either, but in terms of revenue volume it wouldn’t be dramatic if that happened.

Timo Buss (Patient Capital): PIX has been around since 2020. It’s something that’s become incredibly popular in Brazil: you can make transfers for free, not just to a merchant, but also to your friends. And today, a little over 170 million people in Brazil use PIX. That’s basically the entire population.

And that’s why debit cards—and even cash—have been completely disrupted in Brazil. So these days, typically, when you’re standing at the checkout in a supermarket and you’ve bought something small, you just pull out your phone, open PIX in your banking app, scan a QR code, and pay the merchant via PIX in real time.

Why have credit cards held up so well, while debit cards—and cash—haven’t? Because in Brazil, credit cards are mainly used to pay for big purchases in interest-free installments. In other words, the kind of installment payment we have in Germany, in Brazil it’s called “parcelado sem juros,” and it’s interest-free for the customer.

That means the customer thinks, “I know the opportunity cost.” And by the way, it doesn’t matter whether you have a lot of money or not. In Brazil, everyone spreads their payments out as far into the future as possible, because otherwise the opportunity cost is just too high when the interbank interest rate is 14.9%.

And accordingly, a huge number of people use this “parcelado” feature—meaning you say: I’ll pay in twelve monthly installments on my credit card at most merchants when I’m making a big purchase. If those installments are interest-free for the customer, then of course the bank that issues the card still has to monetize it somehow.

And typically what happens is that the bank monetizes the merchant. So either the bank earns an interchange fee on each monthly installment, or it tells the merchant: you’ll get the full amount today, but in return you have to pay us a so‑called anticipation fee—and that’s how the bank recoups its profit.

Noah Leidinger (Host): Maybe one last question about the revenue split. You just said, very roughly, there’s fee income on the one hand and interest income on the other. But with interest, there are different kinds too: there’s credit card interest, interest on other loans, and there’s also interest when people, for example, have balances and you don’t pass on the full interest rate that you yourself earn.

How is that interest revenue actually made up—like, which products matter most, and which ones are maybe growing the fastest?

Timo Buss (Patient Capital): Exactly—the interest income Nubank collects comes from its loan and securities portfolio, which looks like this: Nubank’s total loan portfolio last year was about 33 billion dollars in size. Because the lion’s share of that is interest-free, due to those installment-payment transactions we already talked about, of $21 billion in credit-card receivables on Nubank’s balance sheet only about $7.5 billion actually bear interest. And then there are also regular personal loans that have nothing to do with the credit card.

That personal loan portfolio is about $11 billion in size. And from those two products, you end up with the entire interest-earning portfolio of $18.5 billion dollars last year.

And that’s what generates interest income. And what does that typically look like? Basically, you can assume that in Brazil, if you don’t pay your credit card debt within the required deadline, if you miss that deadline, you move into the phase where you’re essentially in the revolving credit segment.

And once you’re in that bucket, you actually pay interest rates that, across the country right now, are around 15% per month—not per year. That means, annualized, credit card interest rates in Brazil are roughly 450%. And of course the immediate question is: what on earth is going on here? Is this loan sharking, or are lenders basically profiting at the borrower’s expense?

But you have to take one thing into account right away: who in Brazil actually ends up in that category. Because most people say, either I pay my credit card balance on time, or I use my credit card for installment payments that don’t accrue interest. Meaning, if I had credit card debt. And if I didn’t pay it on time, then that really, really, really is the absolute last resort.

Nobody wants to be there. That’s really not the norm at all. With these receivables, you can basically see every year that 50 or 60 percent default. And if you think about it: you have 100 units of money, you hand them out, you lend them, and you lose 50 or 60 units of that—so you’re left with only 40 units from customers who can even still repay.

But you still have to make some kind of profit to get above 100, right? So the interest rate has to be several hundred percent, otherwise the math just doesn’t work anymore—and then the business wouldn’t exist. And in the personal loan space, the monthly interest rates are significantly lower. We’re talking about roughly four percent per month, which of course, annualized, is still a big number.

But the default rates there aren’t nearly as stratospherically high as they are in revolving credit. That’s why you can say that from this loan book—those $18.5 billion dollars—Nubank generates a net interest margin of about 17% relative to the deposit interest they have to pay. And 17% is very, very high.

So a credit card bank in the United States might have a net interest margin of maybe 10%. And a completely normal commercial bank that has lots of corporate loans—where hardly anything defaults—typically has a net interest margin of around 3%, or 3.2%. So that’s basically the scale.

But you have to say this: those high net interest margins always go hand in hand with higher default rates. And if you have higher defaults, you need that margin in the first place to be able to run the business economically.

Noah Leidinger (Host): I think we’ve got a pretty good handle on the lending business now. Timon, are there any other areas you still want to ask about?

Timon Wunderlich (Host): Yeah—besides lending and the account management or payments business, what other areas are there? For example, is trading not a topic at all at Nubank?

Timo Buss (Patient Capital): Trading is a major part of the fee-based business, and in fact they previously brought the second-largest broker in Brazil in-house and acquired it. That was also the biggest acquisition Nubank has ever made. So that’s one part of the business.

It pales in importance compared to the size of the lending business, but it is offered. In general, the bank now offers everything you, as a customer, would expect from your main bank or you’d want from your main bank—except maybe for certain loan products where the established players still dominate the market.

For example, if at some point you wanted to buy a house and needed a mortgage: that’s an area Itaú dominates, where Nubank doesn’t play any role at all and doesn’t even offer a product.

That’s also extremely competitive, and it’s relatively hard for a new bank to come in and actually make money there—so that’s an offering you wouldn’t really find with them. But aside from that, everything from trading to ETFs to crypto, you can do there; it’s just not as important as the lending business.

Timon Wunderlich (Host): How much do all these smaller business segments make up in total of the revenue?

Timo Buss (Patient Capital): You can assume that everything that isn’t interest income makes up about 15% of the 15.8 billion dollars. And the lion’s share of that comes from interchange. So the commission business in brokerage is relatively insignificant.

Timon Wunderlich (Host): If you look more at the cost side: back when they went public, there was this statistic that it cost Nubank only five dollars to acquire a new customer. Do we know what that looks like now? Are they still growing mainly through word of mouth?

Timo Buss (Patient Capital): Customer acquisition costs are a bit higher today—so 5 dollars isn’t the latest figure I’ve seen or calculated anymore. It’s more like 7 dollars per newly acquired customer. Overall, when it comes to marketing efficiency, Nubank is absolutely leading the pack. Last year they spent around 300 million dollars on marketing and have a balance sheet total of around $75 billion.

If you put that into perspective, that’s about 0.4% spent on marketing. For a bank that primarily issues credit cards—and of course also offers other banking services, but at its core still thinks of itself as a credit card bank—that’s very, very little.

That’s basically negligible. Typically, for a credit card bank in the United States, you’d spend around one to two percent of your total balance sheet on marketing. You can see that pretty clearly with Capital One, which has taken over Discover and is now one of the largest card issuers in the United States.

For example, last year Capital One had a marketing spend of $5.9 billion. Nubank was at $300 million. And that $5.9 billion is actually more than what, say, Coca-Cola or Nike spends. So it’s just an incredibly marketing-intensive business, really, being a credit card bank.

Because Nubank managed to generate so much new-customer growth from those 300 million, you can also say that, per customer, those 7 dollars are unbelievably cheap. Since we were just talking about the fact that they make, on average, 13.3 dollars in monthly revenue per active customer. If you annualize that, you end up probably around $150 in annual revenue per active customer. And if you assume Nubank had a net margin of roughly 18% last year, then you earn back those customer acquisition costs in about three months. Recouping your customer acquisition costs that quickly is absolutely best-in-class for the industry.

That’s extremely rare. And historically, about 85% of new customers in Brazil came through referrals—exactly what you meant: people you don’t have to acquire at great expense, but rather a happy customer bringing in another happy customer. In Mexico, the number is also very, very strong, just not quite as high.

It’s around 55%. That means you do have to acquire customers with a bit more marketing effort here. But still, about half of new customers come from referrals by existing customers.

Timon Wunderlich (Host): How does it look, for example, in relation to—or compared with—Revolut? That’s another really big, important neobank. What does their marketing efficiency look like, for instance?

Timo Buss (Patient Capital): I follow Revolut as a cross-read to Nubank. I’ve looked at their annual report as well, which came out last month. I honestly can’t tell you precisely what their marketing spend was last year. What I can tell you is that last year they had around 68 million customers in total and grew strongly.

Those 68 million compare to Nubank’s 130 million total customers. But they have a completely different model. Their revenues are 75% not from lending, but from fees. And that can work really well if you run the whole business model in Europe, because here you also have a lot of customers who have the means to pay monthly amounts for a great card or for extra features.

You hit limits faster with that approach in Latin America, to be honest. But it’ll be really exciting to see how the two companies—on the one hand—are already facing off directly in Mexico, and how the really big chapter, where these different cultures and different monetization models will now collide, is going to be in the United States, where both companies have now received the license to become active there.

Timon Wunderlich (Host): Do you also see the expansion into the US as critical overall? Because there are already so many local players there, like Cash App or SoFi—you said that yourself. Isn’t that a risk too?

Timo Buss (Patient Capital): Honestly, so far I don’t really see it as a major risk, for a few different reasons. If you look at the route Nubank chose for the United States, they didn’t buy an existing small bank to get a full banking license.

They took the more roundabout route and obtained what’s known as a de novo license there. And if you capitalize a new bank in the United States under that license, in most cases it initially costs no more than 20 million dollars. So the upfront equity investment is quite manageable.

Nubank has three billion in excess cash at the holding-company level. That’s equity they don’t need—nor do they need it to meet CET1 ratio requirements and so on. So getting the market up and running initially won’t be particularly expensive, and they have the liquidity for it; they don’t need to raise additional capital. So I see the risk as pretty manageable for now.

And I can very, very well imagine it’ll be the same story again: sure, the free credit card is nice and all—credit cards are an extremely competitive market in the U.S.—but by the way, on your regular savings account you now get 100% of the interbank rate, and you don’t have to do anything for it. You don’t have to click anything, and we can offer you these features—because we have the scale and the cost advantages that other people simply don’t have.

In the United States, back in the 1950s and 60s, there was this saying. It went: if you run a commercial bank with a retail business, you structure your whole operation around what they called the 3-6-3 rule.

And it was always you used to pay 3% on deposits, you charged 6% on loans to your customers, and by 3 o’clock, if possible, you were out on the golf course enjoying your afternoon.

The fact that someone, from day one when you open an account, proactively tells you, “I’ll give you a very attractive interest rate without you having to do anything for it,” is still a rarity.

And even SoFi is now starting with, “we’ll pass 90% on to you.” So there’s definitely a reason to exist where you can say, we’ve got a few product features that have always been very, very popular, and of course we also have a Latin America–leaning population here in the United States. We have the so-called Hispanics—that’s 68 million people in the States.

And I think the biggest misconception is that in America you’d have to penetrate an unbelievably large share of the population for it to become a big, profitable business.

Out of the 68 million Hispanics in the United States—and then add a few other Americans who might simply take a liking to the product. If you can win 20 or 25 million customers there, but monetize them four times as strongly as you currently do in your home market, then that’s already enough to build a business that could easily be as big as your Brazil business with 100 million customers. So really, I’m very, very positive about entering this market.

I’m not actually modeling anything from it yet through 2030, even though something will surely happen there. For me it’s more of an option—I think it has value—but for my valuation it still isn’t really decisive at this point.

Noah Leidinger (Host): Now that you’ve brought up modeling, that also takes us to the last part, where we always take a bit of a look at the valuation—and at the future as well.

And I think it would be exciting to take a structured look at it again: what are maybe the three biggest growth areas? So, the U.S.—we’ve already understood that—has potential, but it’s not something you can count on with certainty right now. As a first point, which we’ve already touched on, what you can probably plan for more reliably is assuming that the existing customers in Brazil continue to develop like the previous cohorts—that maybe another 20 million get added there, and that Mexico might come on top as well.

From your perspective, are there any other markets, or would you start by modeling those first—looking at markets as the primary growth driver?

Timo Buss (Patient Capital): Exactly. So if I model it personally—and as an investor that’s always the question—I’m paying a certain price for the company today: is that price attractive? With Nubank, the market cap we’ve been seeing over the last few days has been around 70 billion US dollars.

Then there’s also a small amount—about three billion—in excess cash, which in theory you could pay out to yourself if you owned the company. You can basically subtract that in your own calculation. But it’s roughly 70 billion, and the question with those 70 billion is: if I believe that this investment can give a fund an edge.

So what does the path look like for this company to be worth more, for good reasons—and then hopefully for the shares to become more valuable as well, for the right reasons and not the wrong ones.

My modeling focuses on the two points you already mentioned. So it’s about what happens in the markets that are already working—where you know the business model holds up, that it can be profitable, and that customer growth will continue. How many customers can I have in total between 2025 and 2030? That’s the detailed planning you do yourself for five years, and after that it gets a bit more rough-cut.

And my assessment of Nubank is based on these two pillars. First: in my view, how many customers will I have by 2030? And second: based on the development of the existing customers we already have data on, and if you analyze the cohorts, how much revenue do these customers generate on average in five years?

If I run the numbers, you’d basically have to model it—because the cohorts don’t really allow any other conclusion—that as customers adopt more and more products, and as they become wealthier, Nubank benefits. And you also shouldn’t forget: Nubank has a huge portfolio of accounts and cards that, at this point, are essentially held by the children of existing customers.

So when it comes to youth accounts, Nubank is now the biggest player in Brazil. And of course, those are people who will generate revenue in the future—once they’re out of school, in a job, starting to earn money, and maybe wanting a loan or planning bigger purchases.

Today the company has 131 million customers in Brazil. We already talked about the fact that I don’t think the penetration rate will increase massively from here. By 2030, I’m expecting roughly 20 million additional customers in Brazil—that would be another 10 percentage points of penetration. In Mexico, the latest data point was that they had 14 million customers.

This market has roughly 131 million people in total, and of Mexico’s adult population—about 100 million—you’re at 14% penetration. If Mexico continues to develop the way it has so far and customer growth keeps up at the current pace—and there’s really no reason to assume that won’t be the case—the business there is absolutely booming. And Nubank is backing that up with further investments, hiring more employees, and if anything accelerating its plans rather than pulling back.

In Mexico, I’d be very, very optimistic that the curve may look roughly the way it did in Brazil. And if that’s the case, then by 2030 you’d realistically probably have an adult-population penetration of 40 to 45 percent. If you get that, you’re adding another 35 million customers in Mexico.

Then you’ll also get some additional growth in Colombia, but Colombia isn’t a market big enough to really move the needle. Colombia has a bit over 50 million inhabitants, and Nubank already has 4 million customers there. But Colombia works well because, of course, the David Vélez story resonates strongly there—he’s Colombian, after all—so you do have a bit of a home-field advantage.

The customers there who are registered with Nubank are very, very satisfied and have a relatively high Net Promoter Score, meaning they’re happy to recommend the products to others. If that assumption holds—if we can grow from 131 million customers to 190 million customers between 2025 and 2030—then we’re looking at a factor of 1.5x in the customer base.

The average revenue per customer should, based on everything you can calculate and if you run through the products, roughly triple. I apply a certain haircut to that. That’s just conservative planning. So there’s no data basis for this conservatism, but I’m assuming an average revenue per customer that goes from about $13 ARPAC at the moment to $27 to $29.

And those two factors together—roughly a 1.5x increase in the number of customers and a 2x increase in average revenue per customer—mean overall that I believe the company could generate three times as much revenue by 2030 as it did in 2025. In other words, from $15.8 billion in revenue, I can imagine that by 2030 we’ll reach a revenue level of $48 to $49 billion.

If that’s the case, then the cost structure should really continue to scale as well. Here too, for conservative reasons—I still don’t know how marketing-heavy the United States will become—I’m not assuming any major margin expansion. I’m modeling roughly 20%. For comparison, net margin last year was 18%.

If my assumption is correct, then I think it could be realistic that by 2030 we’ll be looking at a company that could earn 10 billion in net profit. And that’s the key point. Based on this estimate of 10 billion in profit in 2030, everyone can then ask themselves: what’s a fair value for a company like that?

I find it hard to imagine, given the growth opportunities, that this bank would trade at under ten times earnings in 2030. And you’re also going to generate a lot of cash—you’ll have to retain part of it, but part of it is excess liquidity, meaning that, in my view, you can look at this bank today at a market cap of roughly 70 billion, and I think it’s a plausible assumption that by 2030 this company could be worth more than it is today, based on 10 billion in profit. And by enough more that it clears the hurdle rate I look at with every investment.

Noah Leidinger (Host): And that means you could, for example, do the math like this: if it’s currently trading at a P/E of 17, and you take a slightly conservative view and assume that by 2030 it might be at a P/E of 15, then you say 10 billion in profit times 15 gives you a market cap of 150 billion.

That would mean it’s a double, then. For example, you could calculate it like that to kind of factor in that discounting in advance.

Timo Buss (Patient Capital): So that’s one of many possibilities. I’m not saying that’s my valuation approach, and for your math to work a lot would have to fall into place: you’d need to see the bigger plan manifesting itself clearly, and you’d need to be able to keep rolling the model out further.

Otherwise, I don’t think you’re going to see that kind of multiplier. With a bank that no longer has big opportunities for new customers or growth, you’ll typically see a multiple that’s significantly lower. So you’re more in the 9 to 10 range—and for you to be right, it would definitely have to happen that not only Mexico keeps working, which I have little doubt about, and not only Brazil keeps working, which I also have little doubt about, but you’d also need to see results and progress in the United States.

And on top of that, you’d need a credible outlook that more countries could follow. Then, of course, your math could work out as well. I’d gently suggest that my calculation could probably be more conservative than yours.

Noah Leidinger (Host): Yeah, I just mean, for example, when you project things forward, you always have to ask yourself—because a lot of people do the math and say, okay, they’ll make 10 billion in profit in 2030, they’re worth 70 billion today, so that’s a P/E of 7. That obviously gives you not much insight, because you also want to generate a return by 2030.

Do you have a general thesis on why Nubank is valued the way it is right now? There are also investors who are more skeptical and see risks there. Is it mainly the lending business where they say it’s just too risky for us in Brazil?

Is it the concern that they won’t be able to pull off the expansion? From your perspective, what are the biggest risks? Is it currency-related issues? What are the main topics?

Timo Buss (Patient Capital): When it comes to the risks of investing in banks in general—and in Nubank specifically—it’s basically always the same topics. There are really always three big question marks.

The biggest problem any bank can have is if there’s an issue with the quality of its assets. That means you’ve got receivables, you’ve issued loans, and then you realize: when we originated the loan, we booked a certain amount of loan-loss provisions for it. But two or three years later—depending on how long-term those loans are—we find out we’re getting paid back far less than we expected.

So a poor provisioning policy, poor repayment behavior by your customers—any issue in the loan book—is basically the biggest problem you can have.

And a bank always carries the fundamental risk that it typically operates with a level of leverage you’d never see in a normal industrial business.

So if you think about how much debt a typical bank has relative to its equity, it’s often a ratio of nine or ten to one. In a non-financial company in the real economy, it’s usually more like one and a half to one. That means you’ll very often see a bank with an equity ratio of maybe ten percent.

In companies in the real economy, you typically see an equity ratio of around 40%. And if you then imagine that at some bank—whether it’s Nubank or any other bank—10% of your total assets on the balance sheet suddenly go bad or default, then you very quickly have a problem: how much equity do you then actually have left?

And that’s why every bank has these three buffers. First, there are the provisions for expected losses from the lending business. If those get exceeded, then you have to book even more loan-loss allowance expenses in the profit and loss statement. That reduces your profit. And if profit no longer covers it either, then at some point you reach the final threshold—the last hurdle you have before the company is in real trouble: how much equity do you still have left?

Now, on this topic of risk at Nubank as far as the loan book is concerned, there are a few things that are very, very positive to me. What I find really positive is that, for example, in the last financial year you had a pre-tax profit of $3.9 billion. But before that, in the profit and loss statement, you had already booked loan-loss allowance expenses of $4.2 billion dollars.

If these were to turn out to be twice as high in the future because you’re seeing far more people default than we had planned, you’d still be profitable. And from a macro standpoint, Brazil is basically at a point in the cycle right now where, realistically, borrower quality is more likely to improve.

What’s driving that? We’re currently starting from a very high level of non-performing loans and borrowers who would typically default in the credit card or personal loan business. But in Brazil, interest rates will most likely come down soon, based on everything we’re hearing from the central bank there.

If that happens, then with a certain time lag, fewer borrowers will default as well. From a macroeconomic perspective, Brazil is at a pretty interesting spot right now. You also have to think a bit about how the election coming up in October—depending on which candidate wins—could affect the macro picture, for example in terms of fiscal policy.

That’s certainly an unknown. But overall, Nubank has the advantage that they already build in a lot of buffer anyway—so the loan-loss allowance expense, those $4.2 billion in the income statement. What actually defaulted are the net charge-offs. Last year, NCOs were about $2.8 billion dollars.

That means you’re already setting aside about one and a half times as much in loan loss allowance expenses as what actually ends up being charged-off. In other words, you’re taking a very conservative approach in your profit and loss statement. And if you also look at—this is a popular metric for banks as well—what’s the ratio of non-performing loans?

These are typically loans that are 90 days past due. So as a bank, you would have expected an interest payment or a repayment on day X. And if, 90 days later, it still hasn’t been made, then you classify that loan as non-performing. At Nubank, about 7% of the total loan portfolio is classified that way.

And those are also the defaults that occur later on. So these non-performing loans are an early indicator: how many of them end up defaulting later. And relative to Nubank’s total loan book, that’s in the range of about 7, 8 to 10 percent per year. That’s roughly the portion you ultimately can’t recover, where the borrower simply doesn’t repay the loan.

And for the fact that you have that ratio of seven to eight percent, you’ve always been booking loan-loss provisions, and then you have a certain reserve on the balance sheet that’s basically there as a precaution for what could happen in the future. And that reserve is 200% as large as what’s actually non-performing.

And I’ve already said it: the loan-loss allowance expense that runs through the P&L is one and a half times what ultimately has to be charged off. And that’s exactly what I like to see in terms of risk policy. I’d rather have management that reports lower profit in the income statement, because all of that reduces your pre-tax profit.

You could just book a lower loan-loss allowance expense. You could even justify it to your auditor—say, “my model says it won’t be that bad, and I don’t see any increased default risk here.” You can usually get that through. And yet this conservatism is one reason why I don’t see the risk that can arise in the loan book as particularly problematic or as a major challenge.

The company is very conservative about provisioning, and in the past it’s never really had major problems in its loan book that it hadn’t already provided for.

The next thing that can always go wrong at banks is poor maturity transformation. Meaning: you can say, I raise money short-term, I offer interest products so people place certificates of deposits with me, and maybe that runs for three months—and in three months I have to do it again, and again.

And to do that, I then issue loans that can run for 10 or 20 years, which is absolutely the case with mortgages. If you do that, it’s kind of the textbook example of the Savings and Loan Crisis in the 1980s. That was a banking model in the United States where regional banks basically had just one job: getting Americans into their own homes. And for that, they issued long-term mortgages that could really run for 20 or 30 years, and they refinanced those with short-term deposits.

Then there was very high inflation in the early 1980s, and along came the legendary central banker Paul Volcker. He took office and raised the FED Funds rate back then to 19 percent.

And then all those banks were sitting on mortgages they’d issued at three, four, five, six percent. But all of a sudden, on the short-term side, their refinancing costs for deposits were 20, 21 percent. And that, of course, triggered a mass exodus. So bad maturity transformation can become a huge problem.

Why am I telling you all this? Because at Nubank, almost no loan runs longer than 12 to 18 months. Credit card debt certainly doesn’t, and personal loans only in the rarest of cases. That means you have relatively little maturity-transformation risk. And you also have a very fast feedback cycle.

That means if you see that on a credit card someone hasn’t paid in full, but has moved into the revolving balance and is now effectively paying interest—and then you notice that they default quickly, or that more people are defaulting faster than before—then you can very quickly say, look, we’re going to lower the limits for existing customers. For new lending, we become more restrictive.

That means you get feedback signals very quickly—signals you’d only get much later with other types of credit. If you manage it well, I think that can actually be a huge advantage. And the third risk would be a so-called bank run. If tomorrow, for whatever reason, a rumor started circulating on social media that Nubank had a problem or was facing an existential threat, and all customers with online access wanted their deposits back at the same time—from their savings accounts and checking accounts—then Nubank would also face an existential risk.

That means the only countermeasure is that you always have to manage everything really well, and you must never even come under suspicion that anything could be going wrong on your end.

Brazil hasn’t had a bank run for 40, 45 years. So it’s not really an issue there . But I think specifically, what’s still viewed critically with Nubank—where investors say, isn’t that a risk—really comes down to two additional points.

One point is that people always ask whether the founder culture is healthy. David Vélez still owns 19 percent of the equity today—by the way, he controls a lot more of the voting rights. So Nubank is another case where there are two classes of shares, and one class has significantly more voting power. That’s something we know from the United States: you can have a person who’s a co-founder or the CEO who can essentially run the show unchallenged.

With Nubank it’s similar—you could say that can be a risk too. If you think those founders might eventually ease off, or that they’re no longer as fired up about continuing to develop Nubank.

And right now, Brazil is actually in the middle of a banking scandal. I don’t even know whether it’s being covered in Europe to that extent, or whether it’s really being noticed.

It’s a huge topic. I mean, it really is—maybe not quite as big as Operation Car Wash, but it’s everywhere, in every media outlet. And recently a bank, a traditional bank called Banco Master, was forcibly liquidated, and then when the regulator stepped in, they found that basically everything had happened there that should never happen.

It’s about money laundering with cartels, it’s about embezzling customer funds, it’s about bribing judges. So there was this completely shady, utterly non‑credible businessman running the bank, and he basically did everything a bank is not supposed to do. And now, unsurprisingly, the bank is insolvent—it was really just an empty shell once people took a closer look.

And of course there’s always the strongest counterweight you can have to prevent something like that from happening at a bank is really a culture, a management team, and an owner group that, for good reasons, you genuinely believe are conservative—who truly make sure the bank consistently sticks to sound lending standards, accounts conservatively, and doesn’t try to do anything exotic, more daring, or riskier.

But I don’t see that at Nubank, for a number of reasons. For one thing, as I’ve already said, they could already be showing significantly more profit today if they were more aggressive and booked lower loan-loss allowance expenses. They could do that, and then profit would be noticeably higher. The capital markets often reward that in the short term, but in reality it’s sometimes an overstatement of today’s earnings at the expense of future profits. And you don’t want that.

It’s the same in Mexico, by the way. I mean, Mexico—if you wanted to, you wouldn’t have to invest there right now; you could say, starting today we’re profitable, and you could produce completely different numbers there as well. But there, too, they’re really thinking long term and trying to set the guardrails in a way that, in five or six years, you’ve got a really strong business.

And overall, it’s this mix—what’s the core business: Short-term consumer loans and credit card receivables, fast feedback cycles, conservative risk provisioning, and a culture, plus still a founder who truly stands behind the company—that makes me feel relatively reassured.

And I think the risk that’s always kind of in the back of my mind is whether—this is a major point of criticism, at least—whether in some of these international expansion efforts you’re too slow and not aggressive enough.

Something you really don’t see at all with Revolut, for example. Revolut always had a very clear guiding principle: “In the medium term, we also want to reach 100 million customers, and we want them in more than 100 countries.”

That’s something you would never have heard from Nubank. There it was always: we have to earn it—first the initial country has to work, then five years later we go into the next one, then that has to work, and then we’ll see what comes next.

That’s commendable, I welcome that. But from a certain point on it can also become a risk—if at some stage you end up giving away your head start and other people move in and take that spot.

Noah Leidinger (Host): That was our first deep dive of the year. From now on, like we said, every week. Of course we’d love your feedback on the new format—topic ideas, guest suggestions. And we’d also really appreciate it if you recommend the episode to others, or drop by oaws.de, subscribe to our email newsletter, or follow us on WhatsApp. We’ll talk again on Tuesday. Have a wonderful Easter. Adios.

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Disclaimer: This article is for informational purposes only. It is no investment advice. The Imprint applies.

Holding Disclosure: At the time of writing, the fund holds a position in Nu Holdings.

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