It has been sixteen months since Nu’s IPO in December 2021, a celebrated milestone in our history and, in hindsight, I believe one of the best financial decisions we have made as a company. The buoyancy and optimism of the post-pandemic capital markets turned around quickly in January 2022, and we suddenly found ourselves in a much more challenging scenario as interest rates climbed across Latin America and the world. We believe that the strength of our balance sheet allowed us to focus all our attention on improving the cadence and efficiency of our execution through an uncertain 2022, while continuing to strengthen our long-term mission. We are happy to report that we could not be more excited with the milestones we achieved. But first, a bit on our mission.
Nu’s mission is to fight complexity to empower people, and our long-term strategy can be summarized in a few words: we want our customers to love us fanatically. If we manage to accomplish this feat while also enabling a profitable business model, customers will keep choosing to do business with us, and we will succeed. To pursue this mission, we believe that we have built one of the best technology company teams in the world, operating under a set of strong cultural values of ownership, efficiency, teamwork, and nonconformism. Luckily, we have been well versed in adverse and volatile macroeconomic scenarios with capital constraints since we started in 2013 in Brazil, and as we see additional volatile waters in 2023, we believe we have all the tools in our toolkit to continue pursuing this mission.
Our product strategy
In pursuit of this mission, we decided in 2013 to begin addressing the significant consumer pain we saw in the Brazilian financial services market. We issued 12 purple credit cards, one to each member of our starting team, painstakingly committed to reinventing what used to be a completely commoditized product and seeking to leverage the benefits of being inherently digital in order to offer a product with zero fees. Since then, customer growth continues to surpass our every expectation, and we have worked tirelessly in building the significant infrastructure to help support this growth while creating a comprehensive portfolio of financial services for consumers and small businesses by working to maintain the highest Net Promoter Score in each country we operate in. We decided to begin our regional expansion by launching our credit card product in Mexico in 2019 and in Colombia in 2020, where growth has also come faster than we expected and have reached the #1 position of net cards issued for Mexico and Colombia during every month of 2022, according to the Mexican National Banking and Securities Commission (CNBV) and Financial Superintendence of Colombia (SFC).
More recently in Brazil, we have taken our next step of going beyond financial services to mitigate complexity on behalf of our customers via our Marketplace, where our customers can shop at a growing number of partners with additional credit limits and benefiting from special discounts and cashback that we are able to negotiate given our scale. We see our Marketplace as a way to increase our value proposition while redefining and increasing our addressable market.
As 2022 progressed and showed a more challenging environment than most people anticipated, our team, already hardened by the significant volatility we have seen as a company since our foundation, increased execution focus and made a number of key decisions that helped us ultimately deliver results we are proud of.
First, as we saw interest rates rising to over 14% in Brazil, we launched Money Boxes, an innovative in-app tool for customers to shift their checking account deposits into an organized investment portfolio. Six months later we were able to lower our cost of funding, with strong and sequential growth of both deposits and Money Boxes.
Second, in the context of a more challenging environment for asset quality in Brazil, we took several measures to safeguard our portfolios that included more restrictive personal loan origination while repricing our products and increasing resilience within our portfolios. In parallel, we accelerated the launch of secured lending, with the broad rollout of payroll deductible loans in Brazil recently announced, as I will detail later in this letter.
Third, we doubled down on efficiency moves to foster profitability and display the operating advantage of our model. As an example, the 2021 contingent share award was terminated, which will reduce our costs by US$70 million per year, but we believe it also shows how committed I am to accelerate value creation for all of our shareholders. We expect that our efficiency ratio will continue to improve progressively over the coming years as we seek to capture cost savings opportunities and reduce the rate of headcount growth going forward.
In addition to several product launches, such as new credit card features, Buy Now, Pay Later (“BNPL”) products, new insurance products and investment features, such as Money Boxes, other accomplishments of 2022 include:
- During 2022, we welcomed 20.7 million new customers on our platform, while increasing our activity rate from 76% in 2021 to 82%. With that, we achieved the impressive milestone of 70.9 million clients in Brazil, or 44% of the adult population in the country, as of December 2022. Our expansion into Mexico and Colombia has also been notable, with total clients in these countries reaching 3.2 million and 565,000, respectively, as of December 31, 2022. Meanwhile, we have become the primary banking relationship for over 58% of our active customers who had been with us for more than 12 months as of December 31, 2022, compared to less than 55% as of December 31, 2021. Our strategic goal is to be the main bank account for our customers, not just a side wallet, and we believe these levels of primary banking relationship are best-in-class industry-wide.
- We displayed our cross-sell capabilities with checking accounts, our second product, growing 51% YoY to approximately 53 million active customers at year-end, while our initial product, credit cards, also expanded 36% YoY to approximately 34 million active customers. We believe that a second product that becomes even more relevant than the first is a rare achievement for a fintech company. Other products also followed a strong growth path during 2022, with active unsecured personal loan, investment and insurance clients growing 126%, 111% and 100% YoY, respectively. As per our internal analysis, we have become one of the five largest MSE (Micro and Small Enterprises) players in Brazil in number of clients, with 2.5 million MSE customers, surpassing 13% in the number of accounts for companies in this segment.
- We have already become the fourth largest card issuer in Brazil as of December 31, 2022, surpassing some of the incumbent banks, with our share of the card payment volume (PV) market (including credit, debit and prepaid) at 11.9% in 2022, 8.7% in 2021, 5.7% in 2020 and 3.7% in 2019, according to data from the Brazilian Credit Cards and Services Association.
- Our interest-earning portfolio achieved US$4.0 billion or double the US$2.0 billion posted a year before. We believe this shows the resilience of our credit underwriting model, especially considering our current scale and Brazil’s ongoing credit deterioration. In the meantime, we believe we have built a strong source of funding in Brazil, growing our retail deposits by 55% YoY on a FX Neutral basis, to US$15.8 billion. Following the launch of the money box features concurrently with the adoption of our new deposit interest payment framework, our average quarterly cost of funding improved to an all-time low of 78% of the interbank deposit rate (CDI) in December 2022 (compared to 98% in December 2021).
- Our credit-underwriting model was put to the test, and we understand it excelled amidst significant macroeconomic volatility, with our 90-day consumer finance delinquency rate, or NPL ratio, closing the year at 5.2%. This would imply 25% lower levels when compared to the industry average, adjusted by product, growth and income distribution, according to the Central Bank of Brazil and our own estimates. We believe our main credit underwriting advantages lie in our ability to assess what we call Ability and Willingness to Pay. On Ability to Pay, considering our lower unit costs and focus on technology, we expect to be able to: (a) enter pockets of the population that other players would be unwilling or unable to serve; (b) collect significant amounts of data that feeds and improves our credit models; and (c) rely on our strong relationships with primary banking clients to enable us to manage and mitigate the risks we take. On Willingness to Pay, by focusing our underwriting on primary banking clients, we believe we not only generate higher revenues, but also experience default rates that are 48% lower than those of non-primary customers as of December 31, 2022, based on our internal research. We believe this approach allows us to provide more accessible and efficient financial services while also managing risk more effectively.
- Monthly ARPAC was US$7.8 for the year ended December 31, 2022, compared to US$4.5 for the year ended December 31, 2021 (a 66% increase YoY compared to a US$4.7 on an FX neutral basis). In the meantime, our monthly average cost to serve per active customer remained stable at US$0.8 in 2022 and 2021, reinforcing the operational leverage advantage of our model.
- Finally, our total revenue increased by 182.2% (or 167.5% on a FX Neutral basis), reaching US$4.8 billion in 2022 from US$1.7 billion in 2021, while our gross profit increased 126.9% (or 115.1% on a FX Neutral basis) reaching US$1.7 billion in 2022 from US$0.7 billion in 2021.
As proud as I am of what we accomplished in 2022, I am equally excited about our opportunities and goals going forward.
- Firstly, our personal loan book, both unsecured and secured lending. On the former, we began introducing this product two years ago and have already achieved a 5% market share of outstanding receivables in Brazil, according to data from the Brazilian Central Bank. However, only 8% of our active customers in the country are active in this product with us. On the latter, we started testing this product in late 2022 and, we are commencing our full roll-out of secured lending through a fully digital distribution model that we believe is unparalleled in Brazil. We are starting this journey with federal public servants, where we are already observing promising initial indicators.
- Secondly, we prioritize “winning our fair share of wallet in the upmarket in Brazil,” with customer acquisition and then customer monetization. In terms of customer acquisition, we already have approximately 70% of Brazilians earning a monthly income above R$5,000 on our platform. Furthermore, approximately 60% of Brazilians who earn a monthly income above R$12,000 are also on our platform. This means that we have already made significant progress in the initial phase of our journey. In terms of customer monetization, we continue working to increase our share of wallet with those clients: Banking-Spending-Savings. For the first pillar, we expect upcoming launches of personal financial management services/tools to enhance user experience for this segment, helping to increase financial control and daily usage, which can foster engagement in our platform. For the second pillar, we intend to continue launching new products and enhancing credit limit adequacy. We understand this is critical for this segment, in contrast to our widespread low-and-grow credit methodology serving lower income individuals. Finally, for the third pillar, we have advanced – since the Easynvest acquisition completed two years ago – being the largest direct digital investment platform in Latin America in number of customers as of December 2022, according to our internal analysis. We expect to continue expanding our product shelf and cross sell opportunity in parallel with finalizing the integration of our investment platform into a single app.
- Thirdly, continue working on our growth model in our new geographies. We expect 2023 to be the year in which we can launch and deepen the penetration of Nu Account, our checking account product, in both Mexico and Colombia, aiming to accelerate the growth and sustainability of our platform in those countries. We understand this is important for three reasons. Firstly, we currently deny a large percentage of customer applications, between 60% and 70%, because they do not meet our credit score requirements for eligibility for our credit card product, the only product available in those countries. By introducing Nu Account, we can welcome customers who have not yet built up a credit score, thereby potentially expediting the growth of our platform with limited additional credit risk. Secondly, we believe that building a sustainable retail deposit platform, as we did in Brazil, is essential to growing our consumer credit business in concentrated markets such as Mexico and Colombia. We understand we cannot rely on wholesale funding or securitizations in the long-term. Thirdly, we expect the scale gained through the launch of Nu Account to benefit our credit underwriting model, which uses AI and machine-learning proprietary systems. We intend to continue investing significantly in both countries as we think the potential reward is substantial.
While our consumer base is already significant in Brazil, we also believe our market shares across most of the product lines in which we play are still relatively low. As of December 2022, our market shares in Brazil stood at only 12%1 in credit cards, and less than 5%2 in effectively all other product lines we have in the country – while our customers already accounted for 44% of the adult population in Brazil and keep growing month after month. Today, we believe we have a strong footing in the three largest economies of Latin America, a US$1 trillion financial services market cap industry, as of December 31, 2022, according to our internal estimates.
We believe we are defining a new fintech category globally, one that we describe internally as a “Money Platform”: a technology platform that has the optimization of money on behalf of its users at its core. We understand this concept can hold significant power as successful management and optimization of finances are crucial factors in effectively engaging the entire adult global population. Money touches every aspect of life, and its significance cannot be overstated. People often pay excessive or unnecessary interests and fees to intermediaries that can further erode financial well-being. These costs can be detrimental to the economic welfare of an entire society. We believe we have a once in a generation opportunity to tackle this societal problem and unlock value to our stakeholders.
After establishing a significant consumer base in financial services, characterized by high consumer trust, brand loyalty, frequent usage, and sustainable profitability, we will be well-positioned to expand our offerings beyond financial services to address other relevant needs of our consumers. Under the concept of the “Money Platform,” we believe we can expand our addressable market while developing an additional array of essential capabilities, further accelerating our path to becoming “the one and only indispensable app” in our market.
This all makes us excited about still being in the first minute of the first half of this game. We look forward to partnering with you in this exciting journey that has just begun.
David Vélez Osorno
Founder, Chairman and Chief Executive Officer
1 Share of the card payment volume (PV) market (including credit, debit and prepaid cards), according to data from the Brazilian Credit Cards and Services Association.
2 Shares at the end of the period. For personal loans, share of outstanding receivables; for investments, share of Assets Under Management (AUC). Securities share considers the gross written premiums of the year, and Marketplace considers the Gross Merchandise Value (GMV) of the year. Sources: Brazilian Central Bank, Brazilian Credit Cards and Services Association, Brazilian Association of Financial and Capital Market Entities (ANBIMA), Private Insurance Superintendence (SUSEP) and Brazilian Electronic Commerce Association (ABCOMM).
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