Welcome to Future of Finance, where Fortune asks prominent people at major companies about their jobs, how their firm fits into the crypto ecosystem, and what it all means for how we use money.
When David Vélez first dreamed up the idea for Nubank, he knew he wanted it to be the opposite of when he opened his first bank account in Brazil. The tedious process included long waits at a heavily guarded branch, to which he had to return several times.
Fast-forward to 2023, and Nubank has grown into a behemoth in Brazil, with 85 million customers. Nubank’s focus on the customer experience and a mobile-first approach has helped the company garner a $35 billion valuation and become the biggest fintech company in Latin America. It has also made Vélez the richest man in Colombia, worth an estimated $7 billion, according to Forbes.
Vélez says Nubank is also bullish on the potential of the blockchain. The company launched Bitcoin and Ether trading last year, and in March it created its own cryptocurrency, Nucoin.
Fortune caught up with Vélez to talk about Nubank’s founding story and what’s driving financial innovation in Latin America.
(This interview has been edited for length and clarity.)
Could you tell me a little bit more about your early career and where the idea for Nubank came about?
I began as an investor in private equity with General Atlantic, and then venture capital with Sequoia looking at Latin America. And given the importance of financial services in Latin America, I spent a lot of time looking at the sector. When you try to ask the question, “What are the biggest industries in this region?,” banks are generally the answer. Five of the top 10 Brazilian companies are banks, the biggest companies in Mexico are banks, the biggest companies in Colombia are banks, so this is as relevant a market size as it gets. So I was very curious to understand this industry better.
I also thought it was interesting, the fact that especially in Brazil, you saw one of the most concentrated banking industries in the world, one of the highest interest rates in the world, one of the highest profitability ratios in the world, in an industry that grew consistently in good times and in bad times. I eventually decided to leave Sequoia to start a business in 2012. Sequoia decided that they were just not that interested in doing venture capital in Latin America at that stage. And I went back to this dream of mine of starting a business, and so went back to financial services.
At that point, I had to open a bank account in Brazil when I moved to Brazil, and it was one of the worst experiences I ever imagined—going to the branch, being trapped in this bulletproof door, being escorted by armed policemen, waiting an hour to get attended and later going back to the branch about six times, then waiting five months. Anyway, this was a really awful experience, and that was hard to understand in the context of this being the most profitable industry in Brazil and these being the largest companies in Brazil. I couldn’t understand why these big companies were treating consumers that way and also leaving about 60 million people completely unbanked. They were not really serving consumers appropriately. Given the growth of smartphone penetration in 2012, 2013, after spending some time thinking about entrepreneurship opportunities, I got very excited about the potential of building a full digital bank.
Compared with Brazil’s biggest banks, where did you find specific advantages with Nubank?
All of these banks had grown through a lot of acquisitions for decades, and had effectively become a very big oligopoly. It was an industry that was very complacent because there was really no competition. They basically had acquired everybody that could compete with them, and so since there was no competition, there was a lack of access. There were very high prices, the product experience wasn’t really great; that was number one. Number two, it was a very protected industry. So in the Brazil case, banks even had a protection in the constitution of the country, where the constitution says that foreigners cannot invest in banks. You don’t see this in almost any other country, where it’s in the constitution, where you have this protection. They felt very comfortable, very protected.
As I started talking to a lot of experts in the industry, it was very apparent to me that there was also a lot of fear to compete with these guys. It almost felt impossible. What I often heard was, “David, you’re not Brazilian, you’re Colombian, you have no idea what you’re doing. It’s impossible to compete. These banks are too powerful. They’re too rich. They’re too well networked. They have too much influence, and so just stop. Don’t even try it, you’re about to fail.”
But I think that I was able to see, first, this consumer pain. It was very clear that people were very dissatisfied with the way banks were serving them, in that they, especially the younger population, were probably more ready to try new products and services. And then, second, technology adoption created that window of opportunity: the smartphone as an entry path toward reaching 100% of the population. You don’t need branches anymore—branches on every corner—to compete with these banks, and also cloud computing. If three years before I had wanted to start a new bank, I probably would have needed $50 million to buy an IBM mainframe to launch a bank. Suddenly, with a million dollars we were able to launch our first credit cards fully on the cloud through smartphones.
How is Nubank thinking about the future of cryptocurrencies?
First, I think we are generally bullish in the future of certain cryptocurrencies as investment products. We are believers in Bitcoin as an asset that consumers could invest behind, and therefore we offer a crypto investing platform. We’ve always felt a bit that way, especially in markets like Latin America, where you see significant inflation, where you see a lot of devaluation, we’re believers in offering either Bitcoin or even stablecoins of the U.S. dollar as a way for customers to invest behind and protect their savings.
Second, we are also believers in the blockchain generally as a new technology that might open up disruption in several verticals in the economy. We are active participants right now in DREX, this new sovereign digital currency that the central bank of Brazil is beginning. We think that that could actually enable a number of interesting use cases, such as, for example, collateralizing credit card loans, collateralizing a number of our financial products.
If you buy, let’s say specifically, a car or you buy a house, it’s a very cumbersome and expensive process. It takes maybe five months to buy a house, it takes you several months to buy a car. You’ve got to go to very expensive, what is called cartorios, which are these government entities that give you certifications. The entire chain is still very antiquated for some of these products, and we think blockchain could be a really interesting technology to reimagine a lot of these verticals.
Could you talk a bit more about the digital and crypto innovation happening in Latin America?
The first wave of startups in Latin America were effectively clones of U.S. startups. You would see the Uber of Brazil, the Amazon of Brazil, the Groupon of Brazil. That meant that they weren’t necessarily solving the big problems. The problems that you have as a Brazilian citizen or a Mexican citizen are very different problems than the problems that you have as a San Francisco citizen. I think a lot of that first wave of entrepreneurship was missing the product of localization, and they weren’t really asking the question, “What are the big, impactful products or problems that we got to solve locally, and forget about the U.S. or forget about Europe?” I think Nubank was maybe the first startup in that second generation where it actually asked the question, “What are the big problems that we need to solve in Latin America?”
I think we were the first in the second wave that really focused on the local problem. That’s why Sequoia got excited about investing in this as a seed round. They did not get excited about investing in any of the clones before, but here they saw, “Wow, it’s low-probability, but if they have a shot, then you are redesigning the single biggest industry in the region.” This is real impact. We were the first one that asked that question and went after a very big market. After us, I think there were a lot of new startups that actually thought very similarly, once they saw that it was actually possible, that you could compete with these big oligopolies. Then more entrepreneurs went and looked at health care and education and consumer goods—a bunch of our industries that felt way out of reach for entrepreneurs in the first wave of startups.
What exactly is Pix, the Brazilian central bank’s instant payment system introduced in 2020, and how is Nubank involved?
Pix is probably the most successful payment infrastructure run by a government in history. I think Pix has been what has allowed a country like Brazil to leapfrog developed economies like the U.S. and in Europe, and has positioned Brazil today probably five years ahead of the U.S. I don’t think anybody understands that, and probably in the U.S. they didn’t really expect that. But when you look at a system like Pix that has effectively digitalized, or is digitalizing, the entire economy, is digitalizing cash, is increasing financial inclusion, and doing all of this for free 24/7, I think it’s probably the biggest disruption, or one of the biggest disruptions, in financial services in the world.
This is happening faster than India UPI, which was already a really successful payment scheme that the Bank of India launched a few years ago. Having been one of the main players in Pix and today being responsible for about 25% of all Pix transactions in the country, we’ve been able to see firsthand how this has become a vehicle to digitalize the economy and how eventually it will be a way to increase competition in the market, increase user experience, and increase financial inclusion.
You mentioned earlier that Nubank is bullish on Bitcoin as an asset, but have your ambitions in the crypto sector faded at all with the recent market downturn?
I think we arrived at crypto a bit late in the sense that we launched a platform during the Crypto Winter. We didn’t necessarily jump on the bandwagon when everybody was jumping on the bandwagon, offering up thousands and thousands of different tokens, and thousands and thousands of different things where maybe 98% of them were not real investment assets.
We took a very different approach. We’re a bit late to the game, but we’re very focused on trying to differentiate what’s just pure speculation in the crypto world from what is real about the technology. I think there is risk on both ends, thinking that everything makes sense or thinking that nothing makes sense in crypto—you tend to see both extremes. So we have a nuanced approach, and we think there’s some real technology differentiators around blockchain. We think Bitcoin is differentiated from everything else, and there are a couple of other tokens that make sense. We even launched our own token, Nucoin, which already over 8 million of our customers are using actively. We’re using it right now with an interesting application around loyalty for the platform.
What do you think about the future of finance?
I think the future of finance, especially retail finance, is being built today in emerging markets. It’s more Brazil, India, China, than probably very developed economies. Some of the elements that you would see in the future are, first, completely interoperable digital payments that connect 100% of the population and allow 100% of the population to make real-time payments for free, 24/7. That’s number one.
Number two, a very advanced open-finance infrastructure where consumers can connect all of their existing bank accounts into one app, allowing every bank to compete in every single product for the consumers’ business. It decreases the barriers to entry, it decreases a lot of the existing friction, it enables, effectively, the best product to win—the best credit card to win, the lowest interest rate cost to win.
Then I would also expect AI to make a pretty significant dent in that future. If the smartphone was the way to get a banking branch in every single person’s pocket, AI is going to be the way to get a personal banker in every single customer’s pocket, and that means a real opportunity to democratize access to 100% of the population—not only access but advice. Today, you might have access, but a big percent of the population doesn’t really understand very complex financial services products. They have a hard time understanding things like compound interest and they really need a lot of advice. The historical answer from institutions has been, “Well, they need financial education.” I think there is a very significant limit to financial education. I think what people really need is the right advice, the right banker next to them, helping them make the right decisions. And I think AI is going to enable that.
Finally, I think crypto is going to be playing a role in a number of different applications, with blockchain enabling simplification of a number of different verticals that are still very complex—the tracking of assets, collateralization of assets—while also enabling global, real-time remittances at close to zero cost. Eventually, global payments will be looking like a global Pix, where everybody has access to payments and everybody has access to digital cash.
(This story has been updated to reflect that Nubank has about 85 million customers, not 35 million, and an estimated valuation closer to $35 billion than $25 billion.)
