Incumbent banks that are overhauling internal processes will put up “formidable” competition for new digital institutions like Nubank, the Brazilian lender’s CEO has said.
But not all big Brazilian banks take that approach – and Nubank’s strategy of leading with lending has kept startup competition at bay, he said.
“Some of the incumbents understand that this is about technology, but it’s also very cultural,” David Vélez said at CB Insights’ Future of Fintech event on Thursday.
“There’s a big cultural transformation inside [these banks]. That is hard – but they are willing to go through that, through the pain of breaking down the hierarchy of the bank, making it more open, changing the culture to engage the consumers in a different way. For those incumbents, I think they’ll have a way better shot and they are formidable competitors.”
Brazilian banks vary in their approach to innovation, he said. The incumbents that think an app or outsourced technology can answer competition from startups, will fall short. “That’s almost like saying that Blockbuster just needed a website to compete with Netflix,” Vélez said. “Or Barnes and Noble just needed an app to compete with Amazon.”
Credit advantage
Meanwhile, Nubank is watching the progress of other startups carefully, he said. But Nubank’s strategy of starting with lending has made it harder for other startups to compete with it, said Vélez.
“You need to figure out how much money you can loan and expect them to pay back, in the middle of the worst recession in Brazil’s history,” he said.
“GDP has contracted 8%. It’s arguably the worst time ever to start a fast growing lending business. That’s really hard. So as a result of that, few started with a credit card product, a lot of them started with a savings product.”
Nubank started operations in 2014 by offering a credit card with no fees, managed by mobile app. The company reached 4 million customers last year. It added a digital bank account product in October. Since then, 1.5 million users have opened accounts.
Nubank has raised USD 300milion in equity in six fundraising rounds since its launch.