Invest Like the Best with Patrick O'Shaughnessy

David Vélez - Building Nubank and the Future of Global Banking - [Invest Like the Best, EP.495]

In Brazil, the top five banks have over 80% market share, and they've had that for over 30 years. The average Brazilian pays 30 times more for banking than the average American. And the return on equity of these banks is among the highest in the world — so they were making enormous profits by charging customers enormous fees.

Invest Like the Best with Patrick O'Shaughnessy

David Vélez - Building Nubank and the Future of Global Banking - [Invest Like the Best, EP.495]

The banks were making so much money that they could afford to give bad service, charge a lot, and treat customers poorly. And the reason they could do that is because there was an oligopoly of five banks that had 80% market share, and they had been there for decades with basically no new entrants.

Invest Like the Best with Patrick O'Shaughnessy

David Vélez - Building Nubank and the Future of Global Banking - [Invest Like the Best, EP.495]

The banks in Brazil were making 25% return on equity, some of the highest profitability of any bank in the world, while at the same time charging some of the highest interest rates. Credit cards were charging 300% a year in interest. And so you had this market that was highly profitable for the incumbents and yet deeply exploitative of consumers.

Invest Like the Best with Patrick O'Shaughnessy

David Vélez - Building Nubank and the Future of Global Banking - [Invest Like the Best, EP.495]

The Brazilian banking system was an oligopoly of five banks that had been around for decades, that were making 25% return on equity, charging the highest fees and highest interest rates in the world, and yet had the lowest NPS scores. So the opportunity was massive — you had a lot of value being extracted from consumers with very little value being given back.

Invest Like the Best with Patrick O'Shaughnessy

David Vélez - Building Nubank and the Future of Global Banking - [Invest Like the Best, EP.495]

The banks in Brazil at the time were making 50% return on equity. They had the highest banking fees in the world. They had interest rates on credit cards of 300% a year. And they were serving customers terribly. So the opportunity was enormous.

Invest Like the Best with Patrick O'Shaughnessy

David Vélez - Building Nubank and the Future of Global Banking - [Invest Like the Best, EP.495]

The banks in Brazil were making 25-30% return on equity for decades, which is extraordinary. And they were doing that by charging customers incredibly high fees and interest rates. So the incumbent had an Achilles heel, which was that they were making too much money.

Invest Like the Best with Patrick O'Shaughnessy

David Vélez - Building Nubank and the Future of Global Banking - [Invest Like the Best, EP.495]

The banks in Brazil were making 30% return on equity, some of the highest returns of any banks in the world, and yet the service was horrible, the products were terrible, the interest rates were the highest in the world. That paradox was a sign that something was deeply broken.

Invest Like the Best with Patrick O'Shaughnessy

David Vélez - Building Nubank and the Future of Global Banking - [Invest Like the Best, EP.495]

The banks were so profitable and they were so used to that level of profitability that they just didn't need to change. And so when we came in with a completely digital model, with no branches, with a much lower cost structure, we were able to offer a credit card with no annual fee at a time when every single bank in Brazil was charging annual fees that were sometimes higher than the credit limit they were giving to customers.

Invest Like the Best with Patrick O'Shaughnessy

David Vélez - Building Nubank and the Future of Global Banking - [Invest Like the Best, EP.495]

The banks in Brazil were making 25% return on equity consistently for decades. They were some of the most profitable banks in the world. And the reason they were so profitable is because they were screwing customers.

Invest Like the Best with Patrick O'Shaughnessy

David Vélez - Building Nubank and the Future of Global Banking - [Invest Like the Best, EP.495]

The banks in Brazil were making 30% return on equity every single year for decades. They were the most profitable banks in the world. And the reason for that was they had an oligopoly — five banks controlling 80% of all deposits in the country, and there was just no competition.

Invest Like the Best with Patrick O'Shaughnessy

David Vélez - Building Nubank and the Future of Global Banking - [Invest Like the Best, EP.495]

The banks were making so much money that they had no incentive to improve. And the government was protecting them because they were too important to fail, too important for the financial system. So you had this oligopoly that was just extracting enormous amounts of money from consumers and small businesses.

Invest Like the Best with Patrick O'Shaughnessy

David Vélez - Building Nubank and the Future of Global Banking - [Invest Like the Best, EP.495]

The banks in Brazil were making 25, 30% return on equity every year, but the consumers were paying 300% interest rates on credit cards. It was one of the most profitable banking systems for shareholders in the world and simultaneously one of the worst for consumers.

Invest Like the Best with Patrick O'Shaughnessy

David Vélez - Building Nubank and the Future of Global Banking - [Invest Like the Best, EP.495]

The Brazilian banking system was one of the most concentrated and profitable in the world — five banks controlled over 80% of all deposits, and the average Brazilian paid over 30 times more in banking fees than the average American.

Invest Like the Best with Patrick O'Shaughnessy

David Vélez - Building Nubank and the Future of Global Banking - [Invest Like the Best, EP.495]

Brazil had one of the most concentrated banking systems in the world — five banks controlled over 80% of all deposits — and yet it was one of the most profitable banking systems in the world. The banks were making enormous returns, 20-25% return on equity, while charging customers 300-400% annual interest rates on credit cards.

Invest Like the Best with Patrick O'Shaughnessy

David Vélez - Building Nubank and the Future of Global Banking - [Invest Like the Best, EP.495]

David believes the industry is still in its Blockbuster era, with most of the world's banking still running through branches and incumbent banks, and that AI will make digital banks dramatically more efficient than the incumbents they compete with.

Semafor

The Next 3 Billion on Tour Series: Nairobi Edition | Semafor Events

In the last 15 years, access to traditional banking services has improved substantially. Bank account ownership has increased by two billion people and most of that progress has taken place here in Africa. This progress is very promising as more people are connected to financial systems and break cycles of poverty. But still, one in five people across the planet remain excluded.