By many accounts, the Brazilian digital bank Nu Holdings (NU 0.84%) has been a tremendous success story in Brazil.
Since 2014, the bank has acquired more than 70 million customers, or roughly 39% of the Brazilian adult population, by offering lower-fee banking products and a sleek digital experience. Millions of Brazilians have gotten their first bank account or credit card through Nu.
While continuing to build on its core Brazil business, management at Nu has also begun to expand to other parts of Latin America such as Mexico and Colombia. Can the bank replicate the success it's had in Brazil in these new markets? Let's take a look.
Off and running
Nu's CEO David Vélez Osorno said he had assumed the story in Brazil would be hard to beat in other markets, but it's happening in Colombia and Mexico.
Image source: Nu Holdings.
With those markets now 26 months into launch, they are actually ahead in terms of users compared to where Brazil was at that point. Vélez Osorno also said Mexico and Colombia are beating Brazil's performance in practically every other metric including growth, virality, customer acquisition cost, monthly average revenue per active customer, and net promoter score.
Nu is also already the largest credit card issuer in Mexico and Colombia and also already has some of if not the lowest customer acquisition costs in all of fintech at about $6 per customer. So why is Nu performing so well in Mexico and Colombia? Well, Vélez Osorno believes that there may actually be better product market fit in these countries and with lower penetration in terms of financial services. This has enabled word of mouth about Nu to spread like wildfire in these countries.
How big could Mexico and Colombia be?
Mexico and Colombia combined are about the same size as Brazil in terms of gross domestic product and population. In the second quarter of the year, management said it had 2.7 million customers in Mexico and more than 300,000 in Colombia. In the third quarter, Nu said it had added about 500,000 new customers in both of these markets, placing the total number of customers at about 3.5 million at the end of Q3.
The other potentially interesting trend is that in a market like Mexico, credit card penetration is much lower than in Brazil at only roughly 12% of the population, while smartphones and the internet are actually more prevalent. This sets up really well for Nu's value proposition. Mexico is also a wealthier country than Brazil, with GDP per capita in the country at about $9,926 compared to Brazil at $7,518. The average monthly net salary in Mexico is also more than 62% higher than in Brazil.
Nu is in the process of expanding its services in Mexico and Colombia, which require certain regulatory licenses to operate. Vélez Osorno said the company has the necessary licenses to roll out checking and savings accounts in Mexico soon, potentially in early 2023, while Colombia will take a little longer and won't likely see these products until the second half of next year. These events could certainly accelerate customer growth in these markets.
Great promise
The Brazilian market has already been a huge success story for Nu and the company reported its best quarterly results in the recent third quarter, generating a very small profit.
Nu is trying to balance profitability and growth but the investment in Mexico and Colombia definitely seems worth it if these markets have the same potential as Brazil. In Mexico, that definitely seems to be the case.
If these newer markets can keep growing and generating the same key performance indicators that they have been, then there's no reason they can't be winners for the company and contribute to long-term shareholder value.
