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REV: JANUARY 19, 2021
MICHAEL CHU
CARLA LARANGEIRA
PEDRO LEVINDO
Nubank: Democratizing Financial Services
One evening in January 2019, David Vélez, founder and CEO of Nubank, turned off his laptop and
walked through the university-like open spaces of the company’s headquarters building in São Paulo,
with its modern lines and bright color panels. As he headed to his car, he continued debating in his
mind whether to propose taking Nubank to Mexico at the next meeting of his board in a few days. Two
years earlier, he had returned full of enthusiasm from an exploratory trip. After listening to him, the
board listed all the reasons why he should remain focused on Brazil with such clarity that the one
convinced ended up being himself. Had circumstances changed sufficiently?, he wondered. Did
Mexico make sense now?
Vélez and his co-founders formed Nubank in 2013, convinced that the Brazilian banking sector was
ripe for disruption. It was the largest banking sector in Latin America, 1 and one of the most consistently
profitable in the world, generating strong returns through hyperinflation, a political crises, and
economic recession. Yet according to Vélez, the value proposals it delivered to the end-customer were
so deficient that the market was hungry for alternatives. Digital technology, he thought, provided
precisely the means to unlock that repressed demand and the economics to sustain massive scale. In
September 2014, Nubank launched its first product, the Nubank credit card. Accessible only via
internet through a free app, it had just four requirements: to be at least 18 years old, a resident of Brazil,
inscribed in the Brazilian tax system and the owner of a smartphone. The entire approval process was
also online, with those accepted receiving a distinctive purple credit card, which could then be fully
serviced and maintained online. It came with one ground-breaking feature: no annual fees.
Brazil’s reaction to the Nubank credit card surpassed Vélez’s most optimistic expectations. In six
months, Nubank had over 19,000 credit card customers and thousands more on its waiting list. By
December 31, 2018, this had grown to 6 million, with 90% of the accounts active. Nubank’s revenues
for the year were $128.9 million, generated by assets of $2.8 billion.
In October 2017, Nubank introduced its second product, a digital account. It offered free and
unlimited money transfers, higher interest than conventional savings accounts, cash withdrawal in
a Brazil suffered from hyperinflation from the 1980s to the mid-1990s—with consumer price annual inflation peaking at 2,947.7%
in 1990 and 2,075.9% in 1994. To curb it, the “Real Plan” slashed public spending and established a new currency, the real. By
1996, inflation had dropped to an annual rate of 15.8%.
Senior Lecturer Michael Chu and Research Associates Carla Larangeira and Pedro Levindo (Latin America Research Center)prepared this case. It
was reviewed and approved before publication by a company designate. Funding for the development of this case was provided by Harvard
Business School and not by the company. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as
endorsements, sources of primary data, or illustrations of effective or ineffective management.
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Nubank: Democratizing Financial Services
more than 25,000 ATMs, and it was linked to a debit card. By year-end 2018, the company had three
million digital accounts.
The dramatic growth of the company required various financing rounds. The latest one in October
2018 brought in China’s Tencent Holdings Limited for $90 million, taking the cumulative capital raised
to $419 million, and valuing the company at $4 billion, 2 making it one of Latin America’s highestvalued startups.
While the growth of the company was impressive by any standards, for Vélez and his board it was
only the beginning. Nubank’s inroads were in only two of the many financial services people needed.
In addition, Nubank was just scratching the surface of financial inclusion. System-wide, its market
share of Brazilian banking was still minuscule.
Yet Vélez, a Colombian transplanted to Brazil, was convinced that the conditions that had permitted
Nubank to disrupt Brazil’s financial system were present in practically the whole of Latin America,
and most likely in many other emerging markets as well. Moreover, easy, transparent, and low-cost
access to financial services changed people’s lives. Literally hundreds of millions of Latin Americans,
he felt, needed Nubank. He was sure the best way to start reaching them was through Mexico. But was
the moment right? Would his board agree?
Brazil and its Financial Services
With the fifth largest landmass just behind the United States and with 210 million inhabitants, Brazil
was the largest and most populous nation in Latin America and ranked ninth among the world’s
economies with a gross domestic product (GDP) of $1.9 trillion. 3, 4 From 2003 to 2014, iron ore and the
boom in agricultural commodity prices led to a period of sustained growth and foreign direct
investment, with more than 29 million people escaping poverty and joining the country’s middle class. 5
In the early 2010s, 6 however, Brazil’s economy slowed. Dropping commodity prices, excessive public
spending, a massive corruption scandal and a series of political crises led the country into a deep
recession, with GDP contracting by -3.5% in 2015 and a further -3.3% in 2016. By 2017, the economy
started to slowly recover. (see Exhibit 1 for Brazil’s macroeconomic and social indicators). 7
The only Portuguese-speaking country in the Americas, demographically Brazil was predominantly
young: 21.3% were children of up to 14 years of age, 69.7% ranged from 15 to 64 years old, and only
8.9% of the population was 65 or older. 8 Like many Latin American nations, it was characterized by
inequality, where the top 20% of the population held 58.4% of the income compared to the 3.1% of the
lowest quintile. Disparity was also geographic. Brazil’s southeastern region housed its most heavily
populated cities, São Paulo and Rio de Janeiro, and in 2017 contributed 53% of the national GDP. In
contrast, the northern and central-western regions—the former including the Amazon rainforest—
accounted for, respectively, 6% and 10% of GDP. 9
In 2017, approximately 30% of Brazilians remained unbanked, 10 with banking penetration higher
in richer southern states. 11 While this compared favorably to the average 55% of the rest of Latin
America, access to bank accounts was much lower than in more developed countries like the United
States (see Exhibit 2 for comparative data on access to financial services). A study showed that,
although 40% of Brazilians reported having borrowed money the previous year, only 9% had relied on
a financial institution (and 14% had borrowed from family and friends). Moreover, there were
significant differences in the use of financial services across income levels: among the richest 60%, 70%
had credit cards and 35% debit cards while for the poorest 40% the figures dropped to, respectively,
44% and 16%. 12 Yet transactions involving Brazil’s unbanked were estimated at $224 billion a year.
2
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Half of this population reported they did not trust banks while they were likely to borrow a credit card
from a friend or family member. 13
Banking Sector
In 2018, Brazil’s banking industry, with deposits of $1,729 billion and a loan portfolio of $949 billion,
posted net profits of $19.6 billion. The country had 172 commercial banks but the industry was
dominated by five market leaders: Itaú Unibanco (Itaú), Bradesco, Santander Brasil, Banco do Brasil
(BB), and Caixa Econômica Federal (CEF or Caixa). 14 Combined, in 2018 these players held 79.5% of all
bank assets, 82.8% of the country’s deposits, were responsible for 82.2% of all credit operations and
issued 80% of all credit cards (see Exhibit 3 for credit card market share). 15 Otávio Ribeiro Damaso,
Deputy Governor for Regulation of Brazil’s Central Bank (BCB) noted that this concentration was
similar to much of the world, and among themselves, Brazil’s ”top banks compete intensely against
each other.”
In addition to offering few credit options to consumers and small and medium-sized firms, the
interest rates charged by Brazilian banks were among the world’s highest. 16 In December 2018 the
interest rate in Brazil for corporate loans was 52.3%, for consumer loans it was 120.0% and for credit
card indebtedness it was 272.42%. 17 That year, Brazil’s real interest rate—the lending rate adjusted for
inflation—was 34.7% compared to Colombia (7.3%), Mexico (5.6%), and Argentina (3%). 18 Exhibit 4
shows Brazil’s benchmark Selic rate, the federal funds rate used for the government’s monetary policy,
and commercial lending rates from 1997 to 2018. 19 Brazil’s loan stock—the total loan portfolio of the
country – was estimated at 47% of GDP in 2018 while the equivalent number in the United States was
186%. 20
Starting in the early 2010s, the BCB set out to reduce the high costs of borrowing for individuals and
firms in Brazil, seeking to intensify competition in the banking sector as a means to lower interest rate
spreads. 21 In 2018 it was 32.2%, 22 compared to Mexico’s 4.8% and Switzerland’s 2.9%. 23 Brazilian banks
blamed their wide spread rates on heavy taxation, high delinquency rates and operating costs, the lack
of consumer credit data, and inadequate bankruptcy procedures. In turn, industry analysts claimed
that the market concentration in Brazil drove spreads and interest rates up, 24 with leading banks
generating double-digit rates of return on equity for nearly three decades (see Exhibit 5 for Brazilian
top banks’ financial performance).
Nubank: An Aspirin for Brazilian Banking
Growing up in Colombia and Costa Rica, with both parents being entrepreneurs, Vélez grew up
with a strong sense of professional independence. At the age of six, Vélez began helping his father at
his button factory in Medellín, and by twelve, he had saved enough money to buy two heads of cattle
which eventually multiplied and provided him with funds to help pay for his undergraduate
engineering degree at Stanford University. “I just knew that at some point in my life I would start my
own business,” Vélez said. After Stanford, he joined Morgan Stanley followed by General Atlantic, a
large private equity firm in New York City, and jumped at the opportunity to return to Latin America
when the firm decided to open an office in São Paulo. After three years, Vélez returned to Stanford in
2010 for an MBA, bringing with him a handful of startup ideas.
Back in Palo Alto, Sequoia Capital (Sequoia), the fabled technology-focused Silicon Valley venture
capital firm, reached out to Vélez. Sequoia was interested in exploring Brazil and his prior experience
with General Atlantic was a perfect match. Vélez started traveling to Brazil for Sequoia while still at
Stanford. Joining Sequoia upon graduation, Vélez went to São Paulo to open the firm’s Brazilian office.
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Nubank: Democratizing Financial Services
In short order, he concluded that Brazil did not yet have a technological ecosystem: the number of
computer science engineers graduating every year was extremely low and had not changed materially
in the last two decades, and many of the local tech startups were clones of what had already been done
in Silicon Valley. Reluctantly, both Sequoia and Vélez agreed it did not make sense for the firm to have
a Brazil office. Having decided to remain in Latin America, from October to December 2012 Vélez
travelled between São Paulo and Bogotá, winding down the Sequoia office and trying to figure out
what he was going to do next. As he recalled:
My mind kept going back to when I opened an account with a Brazilian bank. At a
branch in Faria Lima, one of Sāo Paulo’s fanciest avenues, I got trapped in a bullet-proof
revolving door because I had a laptop in my backpack, and when I sorted things out with
the security guards, they treated me as if I was a criminal. The branch manager acted as if
he was doing me a favor in allowing me to open an account. I had to return multiple times
with different documents. Meanwhile, credit card APRs were at 450%. … I found it
baffling that five banks practically owned the market and grew consistently for decades.
Despite their lack of consumer focus, no one was competing against them … When I
consulted industry experts, the unanimous consensus was that it was impossible to defy
the giants — they would crush any competition. As to a branchless digital option, they
said the big banks had tried it already and it had failed. As to a new brand, they said
consumers would never trust a newcomer. But I didn’t buy into that. Brazil was the
world’s capital of digital social networking, WhatsApp use was enormous, smartphone
adoption was booming.
At year-end, Vélez decided to start a company he called Nubank. The enterprise would offer a fully
digital credit card service supported by an application with a data-intensive engineering focus and take
on the banking establishment. “When I pitched this David-versus-Goliath b narrative to the Sequoia
partners, they got really excited,” Vélez said. “Brazilian investors, on the other hand, panicked.” By
March 2013, Vélez had raised $2 million in seed capital, $1 million from Sequoia (its first investment in
Brazil) 25 and $1 million from Kaszek Ventures (Kaszek), an Argentine fund established by former
entrepreneurs of Mercado Libre, Latin America’s e-commerce icon. c
Now Vélez had to find co-founders. “I could raise capital, but I had no operational experience and
no technology background. l was also a foreigner and I didn´t know about banking in Brazil,” Vélez
remembered. Through mutual friends, he had met Cristina Junqueira, an engineer from Universidad
de São Paulo and an MBA from Northwestern’s Kellogg School of Management. Upon graduation, she
joined Itaú, forging a distinguished career, culminating as the head of Itaú’s largest credit card division.
“I thought it was an unsustainable business,” Junqueira said. “It was a horrible product with high fees
and high interest rates, requiring a fortune to jam it down people’s throats through aggressive
telemarketing.” She designed a pilot project based on a pull model where a good product was sold to
a willing buyer. When it was ready to launch, she pitched it to her Senior Vice President. In less than
half an hour, he flatly rejected it. For Junqueira, it was the last straw and she resigned. When Vélez
approached her with his vision for Nubank, she immediately signed on.
b David and Goliath were characters in a biblical account in the Book of Samuel. Goliath, a giant Philistine warrior, was defeated
by the young David, who used his sling to shoot a smooth stone at Goliath’s forehead. The phrase “David and Goliath“ has taken
on a more popular meaning, denoting a situation in which a smaller opponent faces a stronger adversary.
c Founded in 1999, Mercado Libre (“free market” in Spanish) was an online marketplace that facilitated e-commerce transactions
and auctions of new and used goods in Latin America. By 2019, it was the leading e-commerce company in the region, with over
$8 billion in retail sales, 44 million vendors, and more than 320 million registered users.
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To cover the technology side, Vélez sought out Edward Wible, an American whom Vélez had met
when he was with Sequoia and sat on the board of the company that employed Wible. Ultimately,
Wible had so many disruptive ideas which his employers were not keen on pursuing, that they decided
to part ways with him. A graduate of Princeton University in computer science, Wible first worked
with the Boston Consulting Group and then at a private equity firm in San Francisco and later in
London, where in addition to his work, he thought about new company ideas. He ended up attending
INSEAD for a year and getting an MBA. Finding that Paris was not the best place to start a company,
he was in Buenos Aires when Vélez approached him. He also was enthused by Vélez ‘s vision. “To
build a bank in Brazil was quite a drastic mid-career change,” he mused.
Nubank: The Early Years – 2013-2015
On April 1, 2013, Nubank was formally established, and started to operate from a small house (see
Exhibit 6). A few months later, Vitor Olivier, a Brazilian Duke University graduate in computer science
and working for BTG Pactual, one of Brazil’s most prestigious investment banks, agreed to meet with
Vélez out of curiosity, but couldn’t find the building. “I kept walking around the block in my suit,”
Olivier recalled. “Coming from the most expensive building in São Paulo, I couldn’t believe I had the
right address … Wible himself and another engineer were actually living on the second floor. They and
the co-founders were intensely at work on a minimum viable product (MVP).” Vélez pitched his vision
for Nubank to Olivier. A few days later, Olivier resigned from BTG Pactual and headed for the little
house.
The MVP they were designing was a smartphone digital application linked to a technological
platform enabling the issuance of a credit card product, initially relying on off-the-shelf credit risk
models available in Brazil’s credit bureau system. d “Launching Nubank with a credit product was key
for us. It’s easier to get people to trust you for the first time if you are providing them with funds,”
explained Olivier.
A major challenge was to meet all the complex regulatory and operational requirements essential
to get a credit card up and running. The relationships that Junqueira had established as a leading Itaú
credit card executive proved key. Nubank established a partnership with MasterCard to issue their
credit cards and use the company’s back office to process payments and execute banking operations.
In April 2014, a year after being established, Nubank issued its first credit cards in a pilot program
with 12 employees. By December of that year, they had 1,200 credit card clients, mostly friends and
family. “We basically approved all card applications during the pilot,” Vélez said. “We established low
credit limits and controlled our daily results on a spreadsheet.” Nubank was racing to meet the
deadline set by new central bank regulations to allow payment companies to be part of the Brazilian
Payments System without being affiliated to a financial institution. This would allow Nubank to
operate while it applied for a license to become a financeira in order to be able to take deposits from the
public, e a process that could take at least two years. “We got our engineers on full crunch mode,
offering them equity bonuses if we met our deadline, which we did,” Wible remembered.
d By 2018, Brazil had three major credit bureaus—all of them private—including Serasa (owned by Experian, a multinational),
Credit Protection Service (SPC, operated by a national merchant association), and Boa Vista SCPC (with several merchant
associations and American giant Equifax as major stockholders).
e Financeiras were BCB-regulated institutions used to finance consumer credit and working capital for companies. They were
allowed to take deposits by offering investors two types of fixed income securities: Bills of Exchange and Bank Deposits, which
had the interbank rate as a basis for remunerating investors. Both securities were guaranteed—up to R$250,000 per person or
company, per institution—by the Credit Guarantee Fund, a private deposit guarantee scheme funded by the financial institutions
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“We burned one million dollars during our first year,” Vélez said. “It was essentially our beta phase:
we gathered risk data and tested our platform against fraud. We were ready to move forward with our
go-to-market strategy and release our product to the public.” In August 2014, Nubank completed a
Series-A funding, raising an additional $15 million from Sequoia and Kaszek Ventures.
A Purple Credit Card for Brazil
In September 2014, Nubank launched its credit card to the general public. Vélez recalled:
The number of credit card applications soared. There was a lot of buzz about Nubank
in the media. People were psyched with our purple credit cards and it was a hot topic on
social media. We deliberately picked purple because our studies showed it was the color
least likely to be associated with a credit card … Typically, credit cards were a push
product, but we had a waiting list for ours. Nubank went viral. We asked our engineers
to include a button on the app so an approved cardholder could invite a friend to become
a Nubank member, and invitations became so coveted that they were even sold on
Mercado Libre.
To apply for a Nubank credit card, prospective clients downloaded Nubank’s app on their
smartphones, entering their names, email address, and national identity number (CPF) f and uploading
a selfie and copies of ID cards. Automated bots screened for potential security and fraud risks and in
typically less than two minutes, the applicant received a preliminary decision. If approved, applicants
got further information about the credit card and were given a credit limit (with the option of
requesting a limit increase through the app). This was run through Nubank’s credit underwriting
model and the applicant was notified of the final decision. Usually within two days, approved
applicants received their cards at home, ready for use upon app activation. Card applicants that were
initially denied credit continued to be monitored, often becoming eligible upon improved credit
performance (or when their own credit models evolved to be able to approve) and were then contacted
by Nubank.
“Our “Our first target customers were actually transactors (people who paid on time), rather than
revolvers (or those who used their credit cards to finance themselves). We purposely went after
transactors because they are more capital efficient,” remarked Vélez.
By year-end 2015, Nubank had 350,000 credit cardholders and revenues of $3.1 million.
Credit Underwriting Model
In time, Nubank evolved from off-the-shelf solutions to its own underwriting model with over 2,000
variables. Data came from public sources, such as information it contracted from credit bureaus, and
from private data compiled by Nubank on such things as bill payment history, spending patterns and
a host of other factors. “Our credit underwriting models are really novel and built to enable data-driven
and supervised by the Central Bank. In turn, commercial banks had other funding options, including capturing deposits via
checking accounts.
f CPF, or Cadastro de Pessoa Física (Physical Person Register), was a universal, personal and unique national identification
document issued by Brazil’s federal government at no cost. Used widely, the CPF was required for practically any transaction
of importance, such as income tax payment, the issuance of other official documents, accessing government benefits, and opening
bank accounts. Since 2017, newborns were automatically issued a CPF number.
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decisions, although traditional variables are still important, like payment history,” Wible said. “We
A/B test g everything you can possibly think of. We can now provide real-time responses for credit card
applicants, which translates into instant gratification for our customers.” One important variable was
how an applicant came to Nubank — somebody recommended by a well-performing cardholder was
likely to turn out to be a good client too. This was a welcome discovery, as referrals were Nubank’s
major channel for customer acquisition, accounting for 70% of all credit card applications.
The underwriting model was also dynamic. As more data came in from customers’ transactions and
behavior, card holders could become automatically eligible for credit limit increases. Credit limits
could start as low as $14 and some had gradually evolved to exceed $10,000, but in 2018 the average
credit limit was $720. “We even tested credit cards with limits as low as $10, which proved quite
effective and allowed these clients to gradually build their credit history,” noted Vélez. “By automating
this process, we solved a major pain point. Brazilians were frustrated that the big banks took forever
to increase their credit lines.” On the app, Nubank cardholders could monitor in real time how close
they were to their credit limit. If they were concerned with their spending, they could even lower their
credit limit themselves.
This made managing data central to Nubank. As Olivier explained:
Because the impact of our credit decisions will become clear only months later, we’ve
developed tools that allow us to access data quickly. We’ve created a culture of making
decisions based on the analysis of client cohorts, which are immutable data structures
through time. As we grow our portfolio, we can run algorithms through various cohorts
and test results. In this way, we can assess the first-, second- and third-order effects of our
decisions, and we can actually monitor customers’ net present value. It’s a rigorous
approach to decision-making. Incumbent banks have the advantage of owning decades
of data, but our modern data infrastructure gives us the agility to experiment.
Customer Service
Since inception, Nubank never invested in advertising. When it launched to the public, it had been
preceded by significant media coverage, with journalists drawn to a new fully digital model
challenging the established bank credit cards with no brick and mortar and no fees. Currently,
Nubank’s sole communication with the market was through the direct experience of its customers and
their word-of-mouth. Interaction with its cardholders took place overwhelmingly through the
smartphone app but whenever a customer wanted to contact Nubank, it could do so by phone, chat,
social media or email. Data modeling based on the customer’s prior interactions with the app predicted
why the customer might be seeking support and automatically routed the query to the most probable
appropriate team. “Our focus was to create an amazing brand,” Junqueira said. “Clients realized we
are truly here to solve their problems and that we walk in their shoes. Our customer experience team
is staffed with college graduates and bilingual professionals … At Nubank, we’re completely driven
people and our clients buy into that. Our customer service has won awards.”
Nevertheless, problems inevitably occurred. “When we ran into glitches, we were transparent with
our customers, apologized and made financial restitution whenever necessary, and learned from these
experiences” Junqueira added. “In fact, our customer service agents have a discretionary budget for an
g A/B testing was a user experience research methodology consisting of randomized testing with two variables, A and B, which
allowed for the comparison of two versions of a single variable and was widely used for understanding users’ online engagement
and satisfaction—e.g., with a new product or feature.
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extra touch whenever they feel appropriate – a little gift for a new baby, for example, if that came out
in the conversation with the client.”
The Economic Model
By the close of 2018, Nubank had just over six million credit card clients, with another fourteen
million applicants on the waiting list (see Exhibit 7 for the number of Nubank credit cards 2014-2018).
Nubank operated in almost every state, and the average spent by its cardholders was $192 a month,
mostly related to social experiences like restaurants and travel. A Nubank executive commented “We
made credit cards more democratic by saying yes when other banks said no.” The demographic
evolution of its customers is shown in Exhibit 8.
Nubank revenues were generated predominantly by the 5% fee paid by the merchants patronized
by Nubank credit cardholders. This fee was split between Mastercard, the company processing the
payments flow and Nubank. 26 One characteristic that made Brazil quite unique was that card issuers
paid merchants up until 30 days after being notified of the charge. In the United States, for example,
that period did not exceed 2 days. 27 In addition, Nubank charged a one-time 2% surcharge on new late
balances (customers who paid less than the minimum balance required of 15% of their statement
amount), as well as an interest rate ranging from 1.99% to 15.0% a month for overdue amounts
(customers who did not pay the full statement amount, and were financing the unpaid portion). “Our
late fees and interest rates are generally similar to those of traditional banks; we don’t want our clients
to use our credit lines to finance their other card payments,” Vélez explained. “In fact, when people
use you as a financing vehicle to manage their overall obligations, there is too much risk involved and
you start incurring big losses. We actually experimented with offering better rates to good performing
clients but found no evidence of price elasticity. Good customers pay off their credit balance regardless
of the rates you offer them.”
Traditionally, credit card companies had three revenue streams—annual fees, interest payments,
and merchant fees. In Brazil, annual fees averaged $38.2 in 2018, 13.4% more than 2017—an increase
over three times higher than consumer price inflation for the year. 28 “We chose to rely on only two of
the revenue streams, but our economics make it work,” Vélez said. “The banks may receive annual fees
we don’t, but they probably spend four times as much in acquiring clients, while we get ours from
word-of-mouth.” Vélez added:
Our business models are fundamentally different. Most banks make money on clients that
never pay their balances and just continue making their monthly payments—it’s as if banks
are rooting for people to fail — while we go after clients that use their cards and pay on time.
In an ideal world, we would like to rely exclusively on revenues from the merchants. We see
ourselves as more of a payment business than a financing business. We have 91% of clients
who pay on time and 9% who roll over their balances, while typically the market’s figures are,
respectively, 70% and 30%.
In 2017, the company introduced the Nubank Rewards program through which credit card use was
awarded a proportionate amount of points redeemable with a variety of partners, including airlines,
Amazon, music streaming services, or Netflix. Initially available through a free 30-day trial period,
members then paid a monthly subscription fee of $5.20. 29
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In 2018, Nubank had revenues of $128.9 million, an increase over prior year of 88.2% and a CAGR h
of 612.7% since its 2014 market launch. After tax and social contributions, the company had a loss of
$27.5 million, a decrease of 25.1% from prior year. (see Exhibit 9 for Nubank’s financial statements
2014-2018). A metric that Nubank closely monitored was the economics by cohort, which were defined
as a group of Nubank´s customers that shared the same entry date (and could be grouped by year,
month, or another desired period). As cohorts aged, their contribution margin (Nubank´s operational
income net of variable expenses) increased (see Exhibit 10 for a client cohort analysis). A Nubank
finance executive elaborated:
Client revenues are typically low at first, as people have just started engaging and
using their cards, and revenues are limited mostly to merchant fees (interchange). Over
time, card utilization increases (ie., activity rate), we gradually raise credit limits, and
revenues ramp up. Card utilization eventually levels off but strong credit performers
continuously get their credit limits raised, to the extent they need it, leading to a sustained
increase in revenue over time. Clients who are consistently delinquent on their payments
generate negative P&L impacts mainly because: (i) there is an associated cost with
onboarding the client that doesn’t payoff (customer acquisition cost: issuing cards,
shipping and customer services) and (ii) credit provisions, which will build over time, to
the extent the client remains delinquent, getting to a point where we no longer expect to
collect from these clients and basically write-off these credits (usually after 12 months into
delinquency). Thus, it’s critical to the business model that over time we have the ability
to underwrite credit, assigning and maintaining the appropriate credit limit to each client,
so we can optimize credit losses in every cohort, contributing to the overall profitability.
That is why we typically start with lower credit limits and gradually increase them as we
know more about the client’s credit performance (ie., “low and grow”), giving us more
control over credit losses. In fact, in 2017, as our credit models were being continuously
enhanced, we granted lower credit limits at first than in 2016, so our contribution margins
took less of a dip and we had a better net present value. The reality is we only get to really
know the client once they start using our card.
A Digital Account for Brazil
In October 2017, Nubank launched its second product an easy-to-open digital checking and savings
account with two key features: balances earned the overnight interbank lending rates of the Brazilian
banking system, which on an annualized basis was 9.93% in 2017 and 6.42% in 2018; and there were no
transaction fees other than cash withdrawals from ATMs, when Nubank passed on to the customer the
fee it had to pay to the ATM bank (around $1.78). Payments to utilities, transfers to merchants and
friends and family, deposits, all could be done at no extra charge. The digital account also provided
access to a debit card. 30 In contrast, traditional banks paid interest only to account holders with a
minimum balance, at annualized returns that were below the interbank rate and charged a monthly
management fee that ate up most of the returns. 31
“Our initial motivation for a savings product was to help us fund our credit card business through
client deposits while providing a fair yield on their savings and daily liquidity,” said Olivier, who by
August 2018 had become general manager for the digital account product. “We also focused on
simplicity — customers were quite overwhelmed with all the acronyms and information they had to
h CAGR: Compounded Annual Growth Rate
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Nubank: Democratizing Financial Services
assimilate at traditional banks.” This promoted financial inclusion, as a senior company executive
noted, and strategically allowed Nubank to get to know clients who did not have purple credit cards.
“Within a couple of months, we had over one million customers and we were listening and adapting
to their needs,” Olivier said. By year-end, the amount deposited grew to $628.8 million. “We also
observed that each client cohort gradually increased their average balance and their activity rate (the
number of transactions per month): debit purchases, fund transfers and bill payments. Moreover,
newer cohorts also started at higher baselines than their predecessors.”
Competition
For over a decade, aware of the digital economy disrupting industries worldwide, the traditional
Brazilian banks paid increasing attention to incorporating technology into their operations. In 2018,
they invested $5.4 billion—3% more than the year before—in technology updates, focusing on such
areas as artificial intelligence and cognitive computing. In 2018, online accounted for 20% and mobile
for 40% of total banking transactions. 32 In 2014, Itaú launched Personnalité Digital, a “digital branch”
where everything was done online, 33 rolled out its own fintech incubator Cubo in 2015, 34 and started
to use WhatsApp to communicate with clients in 2017. 35 In 2017, Bradesco launched Next, a new standalone digital bank aimed at millennials; 36 by the end of 2018, Next had 500,000 clients and projected to
triple this number in 2019. 37 At the same time, following a sector-wide trend, Bradesco closed 132
branches in 2017-2018, reducing its footprint by 2.8% 38. Indeed, commercial branch density in the
country dropped by 6% between 2014 and 2018, with the number of branches per 100,000 adults
decreasing from 21.26 to 19.99. 39
Digital technology brought with it the promise of the disruption of the banking sector by companies
created specifically to apply these new possibilities to financial services, collectively known as fintechs.
Brazil’s central bank, committed to reducing the prevailing high interest rates and broadening financial
access to underserved populations, enacted various reforms to facilitate the entry of fintechs. In 2013,
the BCB liberalized the payment market. In April 2016, it allowed checking and savings accounts to be
opened and closed digitally (without the need for customers to be physically present at bank branches),
and enabled the creation of digital accounts and wallets. 40 In 2018, the BCB green-lighted the creation
of peer-to-peer lending platforms and allowed new credit startups to lend to third parties with their
own resources, without needing to be affiliated to existing financial institution. 41 “Our goal is to reduce
fees and spreads, cutting credit costs. We also want better products and more functionalities,” stated
BCB’s Damaso. “The way to get there is to modify regulations and increase competition. We will
measure our success in the future by the number of people with more access to financial services and
cheaper credit.”
In late 2018, Brazil had a total of 480 fintech companies, 42 including 377 startups, 43 an increase of
50% versus prior year (see Exhibit 11 for trends in Brazil’s fintech market). 44 Overall, they raised $400
million, over three times higher than in 2017, 45 and equivalent to 57% of the total capital raised by
fintechs in Latin America ($700 million in 125 deals). 46 Fintechs were taking advantage of faster internet
connections and technological innovations, 47 as well as customers’ desire for more agile service 48 and
lower interest rates. 49 Moreover, between 2013 and 2018, smartphone adoption among Brazilian adults
rose from 15% 50 to 60%, 51 and, although they were being used primarily for messaging services, social
media, and video streaming, 61% of smartphone owners were estimated to have mobile banking
applications on their devices. 52
However, most Brazilian fintechs still struggled to attract a sizeable customer base. Fifty-eight
percent of fintechs reported not having yet broken even in 2018, and half cited attracting qualified
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talent as the main hurdle for their business. 53 Still, a select handful, like Nubank, had achieved unicorn
status — enterprise valuations of $1 billion or more. 54 This included Stone and PagSeguro, credit and
debit payment processing companies that through lower fees and tapping into smaller merchants,
disrupted a market controlled by three players, all owned by Brazil’s largest banks. 55 Other promising
fintechs included Creditas, a digital credit platform that specialized in refinancing auto and home loans
at lower interest rates and for longer periods than the big banks; 56 and Ebanx, a platform that processed
international payments. 57
For Hugh Strange, a Princeton University engineer who joined from Bain & Company to become
Product Vice-president, Nubank needed to think in terms of share of wallet: “Payment-related apps,
like last-mile delivery services and digital wallets, are all fighting for a piece of the customer’s pocket.
Furthermore, tech players like Google, Facebook, and Amazon are also expanding into banking or
banking adjacent services.” Indeed, in January 2018, Google merged its Android Pay and Google Wallet
platforms into Google Pay, a new payment system that enabled Google clients to make payments
through other company products, such as the Google Play marketplace and the Chrome web browser. 58
Amazon offered payment services and loans to merchants on its platform, 59 and Facebook got an
electronic money license in Ireland, which paved the way for it to offer friend-to-friend payments via
its Messenger app in Europe. 60 In mid-2018, Apple and Goldman Sachs announced the creation of a
joint credit card using the Apple Pay brand—Apple’s existing payment service. 61 Analysts pointed out
that tech titans could use their vast customer bases and financial resources to create financial service
hubs, challenging large banks, a fight already under way in the payment sector, with core banking
itself more insulated due to the regulatory complexities involved. 62
As 2019 began, Nubank stood out among Brazil’s fintechs along almost every metric, from number
of customers (6 million cardholders), through capital raised to enterprise value. 63 In September 2018,
with over 5 million customers, they were already among the top five credit card issuers in the country,
and the largest digital bank outside of Asia. 64 But, as Vélez liked to point out, Itaú still had 32.4 million
active credit cards out in the market. let alone a total 9.9 million retail clients, 65 and one-fifth of them
used the bank’s digital channels.
Financing Nubank
Since its 2013 Seed Round and 2014 Series A where Sequoia and Kaszek were the only participants,
Nubank had completed four more capital rounds, bringing additional international investors to Brazil.
The two latest, Series E and E1, took place in 2018. In March, as the number of cardholders reached 3
million, Nubank raised $150 million and became a unicorn. 66 In October, Tencent Holdings, the
publicly traded Chinese gaming and social media firm, expanded the Series E round with a $90 million
investment and spent an additional $90 million to acquire an undisclosed minority stake from a current
shareholder.
Tencent had committed capital in other fintechs outside of China, but Nubank was its first
investment in Latin America. 67 By then, Tencent was already a major shareholder at WeBank, China’s
first digital-only bank. Established in 2014, Webank focused on providing inclusive financial services
to underbanked individuals and small and medium enterprises. Its loans averaged around $1,100. By
the end of 2018, Webank had over 100 million clients. 68 According to reports at the time, Tencent aimed
to help Nubank build a full-service finance platform and further develop areas such as payments,
consumer loans, engineering, and machine learning. 69 (See Exhibit 12 for a history of Nubank’s
funding rounds.) With Tencent’s investment, the total equity capital raised by Nubank increased to
$419 million.
11
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“When we started Nubank, we wanted a life project, and all the decisions we made are consistent
with that,” Vélez said. “If you want to sell out to a big bank within three years, you make very different
decisions. I feel our investors understand that and not a single board member is pressing us to sell or
go public.”
Nubank: The People
At year-end 2018, Nubank employed 1,300 people, 40% of which were women, representing 25
nationalities and the company language was English. Most worked in the new eight-story building in
São Paulo (see Exhibit 13) but Nubank had opened offices in Berlin in order to tap into the local pool
of data engineers and developers.
“Building strong and diverse teams was not an accident; it’s a core value of the company since day
one,” commented Renee Mauldin, Nubank’s Chief People Officer, an American who joined the
company after a decade with Capital One, and whose previous work experience was with technology
platforms including Google, Uber, and Twitter. Indeed, “strong and diverse teams” was the fourth of
five values enunciated by the company, the first being “earning the fanatical love of the customers”
(see Exhibit 14.)
Nubank’s growth created an insatiable need for new staff. As Mauldin put it:
We had to define precisely what kind of talent we wanted to bring onboard and what
it truly meant to be a “Nubanker.” It’s less about previous training or pedigree, and more
about a learning mindset and a certain set of behaviors. We want them to buy into our
long-term view; we don’t want mercenaries. Yet, bringing the right people onboard is
only half the battle: leadership development is also key, particularly because we have a
lot of young talent early in their careers—we need resilient leaders. As we scale, we
engage in several formal and informal exercises to gauge where we stand in terms of
culture, and we organize regular meetings to share stories about our failures and foster a
risk-taking environment. Everybody is held to a high-performance bar and we have
strong incentive packages based on shared goals that run from top management to pretty
far down the organization.
“Of course the dynamics have changed since we were all crammed into the little house,” Junqueira
said. “But even though we’re now in a proper office building and have set up formal groups and
responsibilities, the executive team is still very tightly knit. We meet every Monday and probably
spend around 20% of our time working together.”
“Many think that the biggest challenge faced by Brazil’s top banks in fighting new entrants is their
legacy technology platforms,” said a senior Nubank executive that came from a leading traditional
bank. “But I disagree. Ultimately, technology is run by people. If the people are convinced and
committed to the change and are willing to change themselves, technology follows. Legacy platforms
and brand-new platforms make a difference, for sure, but it’s not the main reason why we are where
we are today.”
The Way Ahead
On his way home, Vélez recalled a recent conversation with Junqueira when they were
brainstorming about taking Nubank to its next level. “Customer pain is country- agnostic,” Junqueira
had said, “and there is so much pain in Latin America. It’s probably the best market in the world for
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our business: we can free millions of unbanked people from their current plight of high interest rate
spreads and lousy customer service.”
Vélez was convinced that the road to unlocking that potential began in Mexico. It was Latin
America’s second largest economy with a GDP of $1,221 billion and the second largest in population
with 126 million inhabitants and had a banking structure similar to Brazil. Five major banks (BBVA
Bancomer, Santander, Citibanamex, Banorte, and HSBC) controlled 73% of Mexico’s banking assets
and owned 80% of all branches. 70 The ROE i of the Mexico banking system averaged 13.8% between
2010 and 2018, 71 with BBVA Bancomer averaging 22% (see Exhibit 15 for ROE of Mexico’s banking
industry). 72 To Emilio González, a Mexican who following his MBA from Harvard Business School
moved to São Paulo in early 2016 to join Nubank as Customer Acquisition Lead, “Mexican banks were
still light-years behind U.S. banks. They seemed to only care about profits instead of simplifying
customer lives, and they even charged for using their online services, which to me was absurd.” (See
Exhibit 16 for Mexico key economic and banking indicators.)
Mexico also had low banking penetration. In 2017, only 36.9% of Mexico’s population over 15 years
of age owned a bank account, 20 percentage points lower than other countries at comparable levels of
per capita income, making it the worst-performing Latin American nation in terms of financial
inclusion. Some analysts believed that, while several factors contributed to this, it reflected a banking
sector not particularly interested or incentivized to serve poor customers. 73 This was so despite two
highly successful institutions that focused on serving the low-income majority of Mexicans,
Compartamos Banco and Banco Azteca.
Similar to Brazil, the general perception of banking was negative. In a survey, 37% of those not
bankarized indicated that a major barrier towards opening an account was a lack of trust in financial
institutions. Other reasons were the level and/or the volatility of income and a lack of perceived need.
Overall, Mexicans were more likely than other Latin Americans to report high cost of banking services
and difficulties in getting to banking branches (distance and cost). 74 Moreover, while 43% of Mexicans
with jobs in the formal economy had bank accounts, only 26% of those in the informal sector did 75 -and in 2018, the latter accounted for 52% of the labor force. 76
Meanwhile, internet access had become increasingly widespread over the past few years, 77 with
users totaling 74.3 million in 2018. 78 Likewise, smartphone penetration among mobile phone users
(which were above 83 million in 2018) had also increased, going from 65.1% in 2015 year to 83.1% in
2018. 79 In 2018 Mexico was Latin America’s second most active fintech space, with a total of 334
startups. Most of them concentrated on sectors such as payment and remittances, consumer lending,
enterprise financial management, and crowdfunding. 80 In 2018 Mexico passed a FinTech Act that laid
out a clear framework opening the market to fintechs and providing legal boundaries to safeguard
consumers. Under the new law, fintech firms fell under the purview of Mexico’s National Banking and
Securities Commission and the Central Bank. 81
But Vélez was acutely aware that there were plenty of opportunities for Nubank in Brazil – there
were many financial sectors with oligopolistic and inefficient structures ripe for disruption. One of
them was the insurance industry.
In fact, Brazil was the largest insurance market in Latin America. Despite rapid growth over the
past four years, the market was largely unpenetrated. In 2018 the average per capita expenditure on
insurance in Brazil was $345 compared to $4,480 in the United States. Total insurance premiums at
i ROE: Return on Equity
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Nubank: Democratizing Financial Services
$72.8 billion amounted to 3.9% of Brazil’s GDP, whereas it was 7.14% in the U.S. 82 Moreover, life
insurance, accounting for 54% of the premiums, had only reached 15% of the population, with 28% of
families in the top A/B socioeconomic strata protected but only 5% of those in the far more populous
D/E segment covered. j83 (See Exhibit 17 for comparative data on the insurance market.)
Another opportunity was personal investment products. In 2018, 162 million Brazilians had bank
accounts and 60 million had savings accounts, but only 2.4 million had investment accounts. 84 Up until
the early 2010s, the investment market had been vertically dominated by big commercial banks and
their respective asset managers. 85 Although penetration was still minor, in recent years the industry
had seen the emergence of digital platforms: online brokerages, and financial marketplaces. These
entrants made a number of products available to consumers through channels other than the large
traditional banks. This in turn opened the market for more and different broker and advisory services,
including comparison platforms and risk management. 86 (See Exhibit 18 for Brazil’s investment market
trends).
And whether Nubank launched a host of new products or not, there was still a lot of Brazilian
families for Nubank to reach, even if it was with just its purple credit card and digital account. “Brazil
is an enormous and diverse country,” Strange said. “From wealthy São Paulo residents and the poor
dwellers of the Amazon, there are a lot of people to be served. Ultimately, we will need to segment our
clients according to their relevant dimensions, which means understanding their top two or three
unmet needs,and use that to drive higher product customization. For example, we may have to
eventually consider more sophisticated investment products for the higher income segments while
establishing an offline presence to reach the lower-income segments.”
“For Nubank, the starting whistle just went off, we’re at the very beginning of the game,” Vélez
thought. “If we just consider a five-year horizon, it very likely makes no sense to do anything outside
of Brazil. But shouldn’t we be thinking 20 years down the road and the Nubank we all want to build — the enterprise of our vision?“ He wondered which his board would support.
j Based on numbers from Brazil’s National Statistics Office (IBGE, in Portuguese), FGV Social, a university-linked think tank,
classified Brazil’s social strata in 2018 as follows: the A/B stratum comprised households with a monthly per-capita income in
excess of $2,233; C-stratum households earned between $518 and $2,233 per capita monthly; and households in the D/E stratum
earned less than $518 per capita on a monthly basis.
14
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Nubank: Democratizing Financial Services
Exhibit 1
Source:
321-068
Brazil´s Selected Macroeconomic and Social Indicators, 2009 – 2018
Compiled by case writers based on information from the World Bank Open Data, https://data.worldbank.org/
accessed July 2020.
Note:
The Gini Index or Gini Coefficient is a statistical measure of income equality that ranges from 0 to 100, where 0 equals
perfect equality and 100 perfect inequality. It can also be shown from 0 to 1.
Note:
The interest rate spread is the difference between the lending rate charged by financial institutions on loans and the
rate paid by these institutions to capture deposits (deposit rate).
15
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Nubank: Democratizing Financial Services
Exhibit 2
Comparative Financial Inclusion Indicators in Brazil, 2017
Source:
Adapted by case writers with data from the Global Financial Inclusion (Findex) Database, The World Bank,
https://datacatalog.worldbank.org/dataset/global-financial-inclusion-global-findex-database, accessed July 2020.
Note:
Data represents the percentage of population with access to the financial service above 15 years of age.
Exhibit 3
Source:
Brazil´s Market Share for the Stock of Credit for Credit Cards, 2018 (%)
Adapted by case writers with data from Central Bank of Brazil, “Relatório de Economia Bancária 2019” (PDF file),
downloaded
from
BCB
website,
https://www.bcb.gov.br/content/publicacoes/relatorioeconomiabancaria/REB_2019.pdf, accessed July, 2020.
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Exhibit 4 Brazil’s Benchmark Interest Rate (Selic), and Commercial Lending Rates, Annual
Averages1997-2018 (%)
Source:
Note:
Compiled by case writers with data from Instituto de Pesquisa Economica
http://www.ipeadata.gov.br/exibeserie.aspx?serid=38402;
and
World
Bank
https://data.worldbank.org/, accessed July 2020.
Aplicada –
Open
IPEA,
Data,
The lending rate is the average interest rate charged by banks in short and medium-term loans to the private sector. It
differs between institutions and borrowers due to variables such as creditworthiness and financing objectives.
17
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Exhibit 5 Key Financials and Ratios for Five Major Brazilian Commercial Banks, 1996-2018
(Brazilian reais, millions)
Source:
Compiled by case writers based on data from Capital IQ.
Note:
(1) For the decade from 2000 to 2009, Caixa’s average financials and returns were calculated from 2001 to 2009;
Santander’s average financials and returns were calculated from 2004 to 2009. (2) Although Santander operated in
Brazil since the 1980s, it became one of the country’s biggest banks in the 2000s, after a series of acquisitions. The bank
consolidated its position after acquiring the local operations of Dutch bank ABN AMRO in 2008. The following year,
Santander Brasil listed in São Paulo’s stock exchange. (3) Though it was founded in 1861, Caixa Econômica Federal
underwent an equity restructure in 2001. The current entity, therefore, has published its numbers since that year. (4)
Prior to the merger of Itaú and Unibanco in 2008, the numbers shown reflect Itaú’s performance, given it was the larger
entity: Itaú closed 2018 with R$461.010 billion in assets, while Unibanco had total assets of R$171.718 billion. Numbers
for the merged bank shown from 2009 onwards. (5) Return over Assets (ROA) and Return over Common Equity
(ROCE) were calculated by case writers based on numbers provided by Capital IQ.
18
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Exhibit 6
Source:
Images of Nubank´s Original Office
Information provided by Nubank on July 2020.
Exhibit 7
Source:
321-068
Number of Credit Card Clients, 2014 – 2018
Information provided by Nubank on July 2020.
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Nubank: Democratizing Financial Services
Exhibit 8
Nubank´s Client Demographics by Age, Income Level and Region, 2014 – 2018 (%)
Source:
Created by case writers with data from Nubank provided on July 2020.
Note:
The real to dollar average exchange rate in 2018 according to the World Bank was 3.654
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Nubank: Democratizing Financial Services
Exhibit 9a
321-068
Nubank Income Statement, 2014 – 2018 (US$ thousands)
Item
Operating revenue
2014
2015
2016
2017
2018
50.1
3,112.7
22,082.5
68,469.1
128,876.8
Cost of services
(391.8)
(5,220.6)
(25,509.0)
(54,531.5)
(107,151.1)
Gross loss
(341.7)
(2,107.9)
(3,426.5)
13,937.6
21,725.8
Personnel expenses
Administrative expenses
Other operational revenues
Other operational expenses
Provisions for credit losses (a)
Stock option plan
Other operating revenues/(expenses)
(1,773.1)
(1,108.4)
5.5
(6.8)
(14.0)

(2,896.7)
(7,922.5)
(3,754.7)
18.6
(34.6)
(1,015.6)

(12,708.7)
(16,202.5)
(11,829.6)
1,102.8
(1,491.5)
(36,026.6)
(4,593.5)
(69,041.0)
(26,779.4)
(17,584.8)
7,558.1
(5,574.7)
(99,547.8)
(8,369.2)
(150,297.7)
(41,614.9)
(25,157.1)
14,483.3
(6,002.7)
(133,256.2)
(9,342.4)
(200,890.0)
Operational income (loss)
(3,238.4)
(14,816.7)
(72,467.5)
(136,360.1)
(179,164.2)
Financial revenues (b)
Financial expenses (c)
903.1
(87.5)
5,334.5
(368.8)
28,638.8
(12,104.6)
109,202.1
(27,362.0)
208,606.7
(61,272.3)
Financial results
815.6
4,965.7
16,534.2
81,840.2
147,334.4
(2,422.9)
(9,850.9)
(55,933.3)
(54,519.9)
(31,829.8)


20,894.0
17,854.9
4,382.9
(2,422.9)
(9,850.9)
(35,039.2)
(36,665.0)
(27,446.9)
Income before taxes
Tax credit/current and deferred income tax
and social contribution
Net income/(loss)
Source: Company’s financial statements.
Note:
(a)
(b)
(c)
The real to dollar average exchange rates according to the World Bank were: 2.353 for 2014; 3.327 for 2015; 3.491 for
2016; 3.191 for 2017; and 3.654 for 2018.
Provisions for Credit Losses: Following Brazilian Central Bank instructions, the total projected loss over the entire life of a
client (assessed at nine risk levels) was recorded upfront upon client acquisition. Projected income, once it was overdue in
excess of 60 days, regardless of risk level could not be accrued and was recognized only upon receipt of payment. In
contrast, under International Finance Reporting Standards (IFRS) 9, the financial reporting of loss provisions was based
on regular periodic assessment of the credit quality of the client, based on performance.
Financial Revenues: Interest income derived from financial activities related to the client portfolio and financial
instruments owned by the company.
Financial Expenses: Interest costs incurred by the funding activities of the company.
21
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Nubank: Democratizing Financial Services
Exhibit 9b
Nubank Balance Sheet, 2014 – 2018 (US$ thousands)
Item
31-Dec-2014
ASSETS
Cash and equivalents
Financial instruments
Credit card receivables
Miscellaneous
Allowance for other credit losses
Other current assets
Total current assets
31-Dec-2015
31-Dec-2016
31-Dec-2017
31-Dec-2018
346.4
11,481.8
1,413.6


129.5
13,371.4
13,869.2
62,466.8
80,409.8


1,314.0
158,059.8
34,898.0
119,330.7
440,552.1


40,106.8
634,887.5
201,172.2
28,722.0
1,060,471.1


87,734.8
1,378,100.0
73,399.4
941,864.9
1,770,126.7
59,384.9
(145,660.5)
5,504.1
2,704,619.5

245.9
(7.2)
39.9
278.7

509.2
(75.3)
27.2
461.0
22,384.8
1,775.7
(325.3)
210.8
24,046.0
42,280.6
3,087.6
(570.8)
32.0
44,829.5
55,224.8
8,176.1
(1,497.1)
531.5
62,435.3
13,650.02
158,520.82
658,933.56
1,422,929.49
2,767,054.88
1,260.4

75,305.3

1,143,504.6

374.3
1,634.7
4,414.2
79,719.5
451,054.5

58,969.2
10,638.0
520,661.7
81,268.4
1,224,772.9
1,673,171.5
628,778.8
50,394.1
126,040.5
2,478,385.0







12.9
12.9
83,977.4
5,264.9
89,242.3
312.8
10,830.4
11,143.2
Capital stock
Capital reserve
(-) Accumulated losses
Total shareholder’s equity
14,225.8
346.8
(2,557.2)
12,015.4
86,548.3
2,386.9
(10,134.0)
78,801.3
180,159.3
7,780.9
(49,681.1)
138,259.0
177,495.6
15,740.5
(84,321.8)
108,914.3
353,149.3
22,249.0
(97,871.6)
277,526.7
Total Liabilities And Equity
13,650.02
158,520.82
658,933.56
1,422,929.49
2,767,054.88
Financial instruments
Tax credits
Property, plant and equipment
Depreciation/accumulated amortization
Other non-current assets
Total non-current assets
Total assets
LIABILITIES
Paybale to merchants – credit cards
Demand deposits
Loans and financing
Other current liabilities
Total current liabilities
Loans and financing, long-term
Deferred income
Total non-current liabilities
Source:
Company’s financial statements.
Note:
The real to dollar exchange rates according to the Instituto de Pesquisa Econômica Aplicada (IPEA) were: 2.6556 on
December 31, 2014; 3.9042 on December 31, 2015; 3.2585 on December 30, 2016; 3.3074 on December 29, 2017; and 3.8742
on December 31, 2018. Source: Ipeadata/ http://www.ipeadata.gov.br/ExibeSerie.aspx?serid=38590&module=M,
accessed July 2020.
22
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Nubank: Democratizing Financial Services
Exhibit 9c
321-068
Nubank Cash Flow Statement, 2014 – 2018 (US$ thousands)
Item
Operating activities
Net income/(loss)
Adjustments to:
Provisions for credit losses (impairment provision)
Other adjustments
Adjusted net income
2014
2015
2016
2017
2018
(2,422.9)
(9,850.9)
(35,039.2)
(36,665.0)
(27,446.9)
14.0
374.8
(2,034.0)
1,015.6
2,606.9
(6,228.4)
36,026.6
(18,386.1)
(17,398.7)
99,547.8
(3,702.6)
59,180.2
133,256.2
24,455.4
130,264.6




(12,958.4)
(1,609.4)
1,422.4
235.4
(14,943.9)




(64,139.5)
(94,247.4)
87,364.0
3442.7
(73,808.5)




(56,147.5)
(357,310.8)
336,795.8
-14197.9
(108,259.2)




92,267.3
(748,831.7)
724,621.1
20200.3
147,437.2
(559,968.5)
(947,398.5)
646,110.8
740,840.7



13,888.3
23,737.5

(259.7)

(401.3)

(1,087.9)

(1,387.0)
(48,480.0)
(5,874.1)
(45.0)



(504.9)
(304.7)
(401.3)
(1,087.9)
(1,387.0)
(54,859.1)
Financing activities
Capital increase
Funds obtained (loans and financing)
Amortization of loans
14,030.2

90,208.6

71,368.4
55,041.8

26,824.2

213,771.8
62,612.8
(52,404.2)
Cash flow due to financing activities
14,030.2
90,208.6
126,410.2
26,824.2
223,980.3
1,609.4
391.0
276.5
16,275.3
15,510.7
32,573.8
35,636.2
208,510.5
182,090.0
374,948.8
Increase of trading securities
Increase of other credits
Increase of demand deposits
Increase of interbank transactions
Increase of financial instruments
Increase of credit card receivables
Increase of payables to merchants
Other transactions
Cash flows (invested) generated in operating activities
Investing activities
Purchase (sale) of securities, except for trading
Acquisition of fixed assets (changes in property and
equipment in use)
Acquisition of intangible assets
Cash flow due to investing activities
Cash and cash equivalents
Cash and cash equivalents – beginning of the year
Cash and cash equivalents – end of the year
Net increase in cash and cash equivalents
(1,218.4)
15,998.8
17,063.0
172,874.3
192,858.8
Source:
Company’s financial statements.
Note:
The real to dollar average exchange rates according to the World Bank were: 2.353 for 2014; 3.327 for 2015; 3.491 for
2016; 3.191 for 2017; and 3.654 for 2018.
23
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321-068
Nubank: Democratizing Financial Services
Exhibit 10a Credit Card Cohort Analysis, 2016 – 2017
Source:
Information provided by company on July 2020.
Note:
Charts are for year-cohorts (group of people who became customers in the same year) for 2016 and 2017.
Exhibit 10b Profit and Loss Average of All Monthly Cohorts, 2016 (Index)
P&L
Merchant Fees
Interest, Late Fee and Other Revenues
Revenues
Sales Taxes
Other Deductions
Deductions
Credit Losses Net of Recoveries
Cost of Risk
Risk Adjusted Margin
Customer Support Expenses
Other Variable Expenses
Variable Expenses
Contribution Margin
45.9
54.1
100.0
-8.1
-13.7
-21.8
-23.7
-23.7
54.5
-7.6
-4.6
-12.2
42.3
Source: Information provided by company.
Note: At Month 42, when cohorts are considered to reach maturity. Company indicates results are similar for 2017.
24
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Nubank: Democratizing Financial Services
Exhibit 11
321-068
Fintech Startups in Brazil by Sector, May 2018 (%)
Source:
Elaborated by case writers with data from Statista, “Fintech in Brazil” (PDF file), downloaded from Statista database,
https://www.statista.com/study/56890/fintech-in-brazil/, accessed July 2020.
Note:
Other sectors include personal financial management (6%), identity and fraud (6%), trading & markets (5%), digital
banking (4%), crypto payments (2%), personal financial management – comparison (2%), and enterprise technology
for financial institutions (1%).
Exhibit 12
Nubank´s Funding Rounds, Seed – Series E1 (US$ millions)
Source:
Elaborated by case writers based on information provided by Nubank on July 2020.
Note:
Investors for the respective series were: Seed and Series A – Kaszek Ventures and Sequoia Capital; Series B – Tiger
Global Management, Sequoia Capital, Kaszek Ventures and QED Investors; Series C – Founders Fund, Tiger Global
Management, Sequoia Capital and Kaszek Ventures; Series D – DST Global, Sequoia Capital, Founders Fund and Tiger
Global Management; Series E – DST Global, QED Investors, Redpoint Ventures, Ribbit Capital, Dragoneer Investment
Group and Thrive Capital; Series E1 – Tencent.
25
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321-068
Nubank: Democratizing Financial Services
Exhibit 13
Source:
Nubank´s New Office Images
Images from Nubank´s website, https://blog.nu.com.mx/conoce-la-sede-de-nubank/ accessed July 2020.
Exhibit 14
Nubank´s Core Purpose and Values
Core Purpose:
Fight complexity to empower people.
Nubank’s Values:
1)
2)
3)
4)
5)
Source:
We want our clients to love us fanatically
We are hungry and challenge the status quo.
We think and act like owners, not renters.
We build strong and diverse teams.
We seek smart efficiency.
Information provided by Nubank on July 2020.
26
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Nubank: Democratizing Financial Services
Exhibit 15
Source:
321-068
ROE of Mexico’s Banking System and Selected Banks, 2010 – 2018 (%)
Adapted by case writers with data from Informe Anual Comisión Nacional Bancaria y de Valores – CNBV
(https://www.cnbv.gob.mx/TRANSPARENCIA/Transparencia-Focalizada/Paginas/Informes.aspx);
BBVA
Bancomer (https://investors.bbva.mx/es/inf_financiera/); Banorte (https://investors.banorte.com/es/financialinformation/annual-reports/all-years); and Santander Mexico (https://www.santander.com.mx/ir/informaciontrimestral/). Accessed August 2020.
Exhibit 16
Mexico´s Selected Macroeconomic and Social Indicators, 2013 – 2018
2013
2014
2015
2016
2017
2018
1,274
1,315
1,171
1,078
1,158
1,221
Economic Indicators
GDP (nominal US$, billions)
GDP growth (annual %)
GDP per capita (current US$)
Inflation, consumer prices (annual %)
Interest rate spread (%)
1.4%
10,725
2.8%
10,922
3.3%
9,606
2.9%
8,740
2.1%
9,278
2.1%
9,673
3.8%
4.1%
2.7%
2.8%
6.0%
4.9%
2.9%
2.7%
2.8%
3.4%
4.6%
4.8%
120
122
123
124
Social Indicators
Population, total (millions)
Income share held by highest 20% (%)
119

54.7%

52.4%
Income share held by middle 60% (%)

Income share held by lowest 20% (%)

12.7%

4.7%

126

51.7%
13.3%

13.5%
5.1%

5.4%
Financial Inclusion Indicators
Account (% age 15+)

39.1%


36.9%

Richest 60%

45.7%


44.0%

Poorest 40%

29.4%


25.8%


17.8%


9.5%

Richest 60%

24.6%


13.9%

Poorest 40%

7.7%


2.6%

Credit card (% age 15+)
Source:
Elaborated by case writers based on information from the World Bank Open Data, https://data.worldbank.org/ and
the World Bank´s Global Financial Inclusion Database, https://datacatalog.worldbank.org/dataset/global-financialinclusion-global-findex-database accessed July 2020.
27
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321-068
Nubank: Democratizing Financial Services
Exhibit 17
Source:
Company data on the insurance market.
Exhibit 18
Source:
Insurance
Volume of investment assets in Brazil, 2011 – 2018 (R$ trillion, nominal values)
Elaborated by case writers with data from Oliver Wyman, “The Brazilian Investment Landscape – A new era for
Brazilian
investors”
(PDF
file),
downloaded
from
Oliver
Wyman
website,
https://www.oliverwyman.com/content/dam/oliver-wyman/v2/publications/2019/dec/the-brazilianinvestment-landscape.pdf, accessed July 2020.
28
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Endnotes
1 Economist Intelligence Unit, “EIU Data tool,” http://data.eiu.com.ezpprod1.hul.harvard.edu/EIUTableView.aspx?initial=true&pubtype_id=1363181321, accessed July 2020.
2 “Tencent Invests $180M in Brazilian FinTech Nubank,” October 9, 2018, https://www.pymnts.com/news/partnerships-
acquisitions/2018/tencent-investment-brazil-fintechnubank/#:~:text=China’s%20Tencent%20Holdings%20paid%20%24180,held%20startups%20in%20Latin%20America, accessed
July 2020.
3 World Bank, “GDP current (US$) – 2018”,
https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?end=2018&most_recent_value_desc=true&start=2013&year_high_
desc=true, accessed July, 2020.
4 World Bank Open Data, https://data.worldbank.org/ accessed July 2020.
5 “Inequality in Brazil: A Regional Perspective,” by Carlos Góes and Izabela Karpowics, IMF Working Papers, published
October 31, 2017, https://www.imf.org/en/Publications/WP/Issues/2017/10/31/Inequality-in-Brazil-A-RegionalPerspective-45331, accessed July 2020.
6 World Bank Open Data, https://data.worldbank.org/ accessed July 2020.
7 The Economist Intelligence Unit (EIU), “Financial Services – Brazil,” EIU, Industry Report, 4th Quarter 2019.
8 Statista, “Brazil: Age Structure from 2008 to 2018,” https://www.statista.com/statistics/270806/age-structure-in-brazil/,
accessed July 2020.
9 Instituto Brasileiro de Geografia e Estatistíca, https://www.ibge.gov.br/explica/pib.php, accessed July 2020.
10 Global Financial Inclusion (Findex) Database, The World Bank, https://datacatalog.worldbank.org/dataset/global-
financial-inclusion-global-findex-database, accessed July 2020.
11 The Economist Intelligence Unit (EIU), “Financial Services – Brazil,” EIU, Industry Report, 4th Quarter 2019
12 Global Financial Inclusion (Findex) Database, The World Bank, https://datacatalog.worldbank.org/dataset/global-
financial-inclusion-global-findex-database, accessed July 2020.
13 “O Brasil sem Banco,” Exame, by Karla Mamona, Marília Almeida, Natália Flach and Anderson Figo, September 26, 2019,
https://exame.com/revista-exame/o-brasil-sem-banco/ accessed July 2020.
14 Itaú and Bradesco were publicly listed, national groups; Santander Brasil was the majority-owned listed subsidiary of
Santander, a Spanish group; while Banco do Brasil (BB) and Caixa Econômica Federal (CEF) were state-controlled institutions.
15 Banco Central do Brasil, “Relatório de Economia Bancária 2019” (PDF file), downloaded from BCB website,
https://www.bcb.gov.br/content/publicacoes/relatorioeconomiabancaria/REB_2019.pdf, accessed July 7, 2020.
16 “Brazil’s Banks, Profitable Whatever the Economic Weather,” The Economist, August 2, 2018,
https://www.economist.com/the-americas/2018/08/02/brazils-banks-profitable-whatever-the-economic-weathera, accessed
January 9, 2020.
17 Associação Nacional dos Executivos de Finanças, Administração e Contabilidade (Anefac), “Pesquisa de Juros” (PDF file),
December 2018, https://3783fb27-40b2-47fa-ab2d4ffef8b3c87b.filesusr.com/ugd/21624f_ec3c0a5a56b4458fbcb970c0672a0aa5.pdf, accessed July 15, 2020.
18 World Bank Open Data, https://data.worldbank.org/ accessed July 2020.
19 Instituto de Pesquisa Econômica Aplicada, http://www.ipeadata.gov.br/exibeserie.aspx?serid=38402, accessed August 5, 2020.
20 PricewaterhouseCoopers(PwC) and Associação Brasileira do Crédito Digital (ABCD), “A nova fronteira do crédito no Brasil
– Pesquisa Fintechs de Crédito 2019” (PDF file), dwoanloaded from PwC website,
https://www.pwc.com.br/pt/estudos/setores-atividades/financeiro/2019/pesquisa-credito-digital-19.pdf, accessed January
2020.
21 These spreads marked the difference between average yields that banks received from loans and rates paid on borrowing
and deposits.
29
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Nubank: Democratizing Financial Services
22 Jonathan Wheatley, Bryan Harris and Andres Schipani, “Brazil’s Booming Credit Markets Fan Hopes of ‘Revolution,’”
Financial Times, December 6, 2019, https://www.ft.com/content/a633b70c-176e-11ea-9ee4-11f260415385, accessed January
2020.
23 World Bank Open Data, https://data.worldbank.org/ accessed July 2020.
24 “Bank Competition, Cost of Credit and Economic Activity: Evidence from Brazil,” Banco Central do Brasil, Working Paper,
by Gustavo Joaquim and Bernardus Van Doornik, October 2019, https://www.bcb.gov.br/pec/wps/ingl/wps508.pdf,
accessed January 2020.
25 Mariana Desidério, “Nubank: A startup cresceu,” Exame, June 20, 2019, https://exame.com/revista-exame/a-startupcresceu/, accessed May 2020.
26 Daniel Pereira, “Modelo de Negócios do Nubank,” O Analista de Modelos de Negócios, October 29, 2018,
https://analistamodelosdenegocios.com.br/modelo-de-negocio-do-nubank/, accessed June 2020.
27 “Nubank pode fechar as portas se BC confirmar mudança amanhã,” Exame, December 19, 2016,
https://exame.com/pme/nubank-pode-fechar-portas-se-bc-confirmar-mudanca/, accessed August 2020.
28 Nathália Larghi, “Anuidade de cartões de crédito aumenta mais que a inflação,” Valor Investe, September 11, 2019,
https://valorinveste.globo.com/produtos/servicos-financeiros/noticia/2019/09/11/anuidade-de-cartoes-de-creditoaumenta-mais-que-a-inflacao.ghtml, accessed August 2020.
29 Nubank website, https://blog.nubank.com.br/nubank-rewards-vale-a-pena/ accessed June 2020.
30 Nubank website, https://blog.nubank.com.br/cdi-o-que-e/ accessed June 2020.
31 Mariana Zonta d’Ávila, “Aplicacoes automáticas: porque não vale a pena aderir aas opções oferecidas pelos bancos,”
InfoMoney, October 17 2019, https://www.infomoney.com.br/onde-investir/aplicacoes-automaticas-por-que-nao-vale-a-penaaderir-as-opcoes-oferecidas-pelos-bancos/, accessed July 2020.
32 The Economist Intelligence Unit (EIU), “Financial Services – Brazil,” EIU, Industry Report, 4th Quarter 2019.
33 Natália Gomez, “Itaú lança Personnalité Digital,” Exame, June 10, 2014, https://exame.com/tecnologia/itau-unibanco-lanca-
personnalite-digital/, accessed August 2020.
34 Cubo Itaú website, https://cubo.network/, accessed August 2020.
35 Aluísio Alves, “Itaú começa a usar WhatsApp para atender clientes de alta renda,” Exame, September 5, 2017,
https://exame.com/tecnologia/itau-comeca-a-usar-whatsapp-para-atender-clientes-de-alta-renda/, accessed August 2020.
36 Fernando Scheller, “Após dois anos de desenvolvimento, Bradesco lança o banco digital Next,” O Estado de S. Paulo, June 5,
2017, https://economia.estadao.com.br/noticias/geral,apos-dois-anos-de-desenvolvimento-bradesco-lanca-o-banco-digitalnext,70001826186#:~:text=Em%20seu%20projeto%2C%20o%20Bradesco,independente%20para%20o%20novo%20neg%C3%B3
cio.&text=Para%20colocar%20o%20projeto%20em,antrop%C3%B3logos%2C%20cientistas%20sociais%20e%20matem%C3%A1t
icos., accessed July 2020.
37 Álvaro Campos and Talita Moreira, “Bradesco projeta ter 1,5 milhao de clientes do banco digital Next,” Valor Econômico,
January 31, 2019, https://valor.globo.com/financas/noticia/2019/01/31/bradesco-projeta-ter-15-milhao-de-clientes-nobanco-digital-next.ghtml, accessed July 2020.
38 Departamento Intersindical de Estatísticas e Estudos Socioeconômicos, “Desempenho dos bancos em 2018” (PDF file),
downloaded from Dieese website, https://www.dieese.org.br/desempenhodosbancos/2019/desempenhoDosBancos2018.pdf,
accessed July 10, 2020.
39 World Bank Open Data, https://data.worldbank.org/ accessed July 2020.
40 Eduardo Campos, “CMN autoriza abertura de conta digital por depósito,” Valor Econômico, April 25, 2016,
https://valor.globo.com/financas/noticia/2016/04/25/cmn-regulamenta-abertura-de-conta-de-deposito-por-meioeletronico.ghtml, accessed June 2020.
41 Daniel Alvarenga, “Regulação das fintechs promove inovação,” Valor Econômico, May 16, 2018,
https://valor.globo.com/opiniao/coluna/regulacao-das-fintechs-promove-a-inovacao.ghtml, accessed June 2020.
42 Statista, “Fintech in Brazil” (PDF file), downloaded from Statista database, https://www.statista.com/study/56890/fintech-
in-brazil/, accessed July 2020.
30
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Nubank: Democratizing Financial Services
321-068
43 Statista,, “Fintech in Brazil” (PDF file), downloaded from Statista database,
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44 Statista,“Fintech in Brazil” (PDF file), downloaded from Statista database, https://www.statista.com/study/56890/fintech-
in-brazil/, accessed July 2020.
45 “Latin America is suddenly fintech’s hottest market. Here are the 3 reasons why,” CB Insights, February 20, 2020,
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47 PwC, “Blurred lines: how FinTech is shaping financial services” (PDF file), downloaded from PwC website,
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48 BBVA, “The next step in finance: exponential banking” (PDF file), downloaded from BBVA website,
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49 International Finance Corporation – World Bank Group, “Reinventing business though disruptive technologies” (PDF file),
downloaded from IFC website, https://www.ifc.org/wps/wcm/connect/8c67719a-2816-4694-91877de2ef5075bc/Reinventing-business-through-Disruptive-Tech-v1.pdf?MOD=AJPERES, accessed July 16, 2020.
50 Jacob Pousther, “Smartphone ownership rates skyrocket in many emerging economies, but digital divide remains,” Pew
Research Center, February 22, 2018, https://www.pewresearch.org/global/2016/02/22/smartphone-ownership-ratesskyrocket-in-many-emerging-economies-but-digital-divide-remains/, accessed July, 2020.
51 Laura Silver, “Smartphone ownership is growing rapidly around the world, but not always equally,” Pew Research Center,
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52 We Are Social and Hootsuite, “Digital 2019 – Brazil,” Datareportal, January 2019, https://datareportal.com/reports/digital-
2019-brazil, accessed July 2020.
53 PwC and ABFintechs, “Pesquisa Fintech Deep Dive 2018” (PDF file), downloaded from PwC website,
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54 Carla Matsu, “Os 5 unicórnios brasileiros de 2018 e o que esperar para as startups em 2019,” Computerworld, December 18,
2018, https://computerworld.com.br/2018/12/18/os-5-unicornios-brasileiros-de-2018-e-o-que-esperar-para-as-startups-em2019/, accessed July 2020.
55 Lucas Amorim, “A bolha das maquininhas estourou?” Exame, November 21, 2018, https://exame.com/negocios/a-bolha-
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Nubank: Democratizing Financial Services
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