Invest Like the Best with Patrick O'Shaughnessy
00:31:10 · David Vélez
[00:31:10] S1: It's more exportable than we would have expected. The part that was less exportable, the biggest difference between at least a country like Brazil, Brazil was actually much more banked than unbanked. And so when we went to Mexico, a lot the conversations that we heard is like, well, but people in Mexico like cash. They don't believe in digital payments or credit cards or debit cards. In the early years of Mexico, that was the biggest difference. When you go from a banked customer or banked country to an unbanked country, it's harder to compete. I always say that we are a shark in digital waters. When we are forced to compete in the offline world with banking branches, we're much less competitive. We don't have banking branches, don't have ATMs. And so for a couple of years, it was harder for us to compete, even though we became the second largest bank in Mexico by now, and the largest digital bank there. But as these countries digitalize also including Mexico, then the world's looking closer to each other. And that's ultimately what you actually see across any other industry. You look at social media across the world is the same product. You look at Netflix, the same product. You look at Spotify, the same product. You look at Uber, the same product. Amazon, generally the same product. So I would say historically there were a lot of particularities and the cash part was a specific one. The future looks much more homogeneous than the past, even for financial services.
00:32:31 · Patrick O'Shaughnessy
[00:32:31] S0: If I forced you to put your investor hat on thinking about FinTech writ large and where there might be other opportunities beyond the ones that you're focused on addressing. If I were to adopt the phrase of our great mutual friend, Mickey Malka, who said a couple years ago, fintech is dead. Maybe he's the best fintech investor ever, and now he's doing less of that and more things in AI and power and data and things like this. How would you frame the global opportunity to invest in fintech businesses of new companies, of startups versus companies like yours that had the scale can go take advantage of a lot of this thing? Like if I think about that battle between if I wanna invest in FinTech, should I do it in the incumbents? You're a new incumbent, let's call you, and to pure startups. Like what do you think the opportunity set looks like?
00:33:13 · David Vélez, Patrick O'Shaughnessy
[00:33:13] S1: I actually asked this question Ricky last week, because I saw him spay a lot of thumb in AI and investing in AI companies. I was like, what are you done with FinTech really? And I liked his answer, which is, no, we're not. We are just doubling down on the larger neo banks or neo FinTechs that are now running the sweet spot between maintaining the ability to transform themselves through AI, but now have access to these modes of scale and data and brand and licenses. And so he continues to be an investor of us. He continues to be an investor of an A lot of startups. And so for the early entrant, I think it's going to be in areas that are potentially less obvious as an entry path. It becomes a little bit harder and you probably are applications on top of AI models that you do. So there'll be specific applications, I think, of an entry path. But I think building a consumer brand with hundreds of millions of customers at this stage, unless you come up with something completely fundamentally different is going to be harder. [00:34:05] S0: Can you talk about this big announcement that you just made and why you're so excited about it, kind of what it means for the business?
00:34:11 · David Vélez
[00:34:11] S1: I think most people still identify NewBank as a Brazil Neo Bank or Latin America Neo Bank, which is what we are. But when you go back in time and look at our seed deck in 2013 and the way we thought about the opportunity, there's nothing specific about Brazil or Latin America around the thesis. The thesis really is that global retail banking will be transformed by digitally native companies. And this is because digital native companies can solve the problems that financial services have better. And these are the problems, the cost, the access, and the intelligence. And so we're excited about this announcement as we launch The US as a market. And we also announced launching to upwards of 35 different countries, a stablecoin backed account. Because this is the beginning of continuing to play in this thesis that is a global thesis in nature. We think about our past thirteen years as proving this model in Latin America and the countries that we operate. And I think we did. We're now the largest private financial institution in the entire continent. We have the highest Net Promoter Score. From a profitability perspective, we have the highest return of equity in a country like Brazil. So we kind of did all the checks and now is a moment to continue executing this multi decade vision of taking this model global. So we're very excited. US is obviously a very competitive market. It is the biggest market in the world. There is a lot of very strong neo banks and FinTechs in The US that will be coming to compete with. But in reality, it's a market that's still dominated by big incumbent banks. So while there is a lot of FinTechs, you look at where is the market, the market is still dominated by a few incumbent banks and some community banks. Most of the banking in The US is still happening through banking branches, as if most of their video and media were happening through blockbusters. They're still need to charge a lot and they need to pay zero yield effectively to be able to fund this physical infrastructure. And there is a lot of comparative advantages that we bring to bear, like our ability to do credit for the mass market, our ability to do payments globally. And there's something that we also announced with the feature. Ability to really make customer love fanatically.
00:36:12 · David Vélez, Patrick O'Shaughnessy
Bring a consumer obsessed culture in an environment and industry where customers just don't really care about their banking relationships, especially for The US mass market. [00:36:22] S0: What do you think is going be the hardest part about competing in The US? [00:36:25] S1: Building a very strong brand will be one of the hardest things. US consumers mention brand as one of the key attributes to choose banks and it's not cheap. And we want to do it in a way where we obviously have a lot of financial resources, being a very profitable position, but we want do it in a way that is smarter and more capital efficient than simply come in and invest in funnel marketing all over the place. So building an organic brand in an environment where there are so many strong banking brands might be one of the most difficult challenges that we'll do. And that's critical to build trust with consumers because we wanna become their primary bank account. That's what we aspire to do. [00:37:02] S0: If I had every buy side analyst that covers NewBank here, and you got to convince them of how they should think about your business through financial metrics. You mentioned return on equity earlier. Is that the metric that you would point them to as the barometer of how well you're doing? Are there other metrics that you would hope that investors would use to assess how good a job you're doing that are financial? How do you think about that?
00:37:26 · David Vélez
[00:37:26] S1: Growth of number of customers and Net Promoter Score and the cost to acquire that customer. So when you look at figuring out, have you hit a vein and are you growing in a way where you found an underserved market and you're able to offer a product that nobody else were able to offer? That's one of the key metrics, number, user count, NPS. But then are you doing it at a sustainable pace? Because you can buy your way into growth by spending a lot of money in marketing. So what is the equation there? What is your LTV to CAC? And ultimately, what is your return on equity? And the return on equity exemplifies the advantages that the business model could have. When you compare it with the big incumbent banks in the countries that we operate, we don't charge a lot of fees. We literally charge no fee. So we have less revenue, but then we end up with a return on equity that is two to 3x their return on equity. That basically means that you found a cost structure advantage. You found a way to offer a product at better quality at a much lower cost. And if you find that, generally it's through technology, then you found yourself a moat. You found yourself a competitive advantage, especially in markets like banking that are in ways commoditized. So I think it would be also looking at that combination of return on equity. Talking about The US, one of the most interesting, least appreciated aspect of it is that by now, some of The US incumbent banks have higher return on equity, are more profitable than emerging banking banks. There's some of the emerging market banks that we compete. That means your margin is my opportunity. The typical Amazon view or vessel view of that incredible ROE that even incumbent banks have, even on top of the huge amount of cost that you're using to provide your product. That means there is a significant opportunity to undercut.