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 were making so much money that they didn't need to change. And the customers had no other choice. It was a very stable but deeply inefficient equilibrium that only existed because there was no technology and no capital to disrupt it.

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 had been making so much money for so long that they had basically forgotten to serve the customer. They were just extracting value from the customer. And the interesting insight that I had was that you could build a much better bank just by using the customer as your north star, as opposed to using profit extraction as your north star.

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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 were making so much money that they didn't need to innovate. They were the Goliath, and we were the David. But what we understood is that in the age of the internet, David actually wins.

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.

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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]

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.

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 and were so profitable and had so much political power that nobody was able to change them. And the reason we were able to disrupt them is that we came from the outside, we had no legacy, we had no branches, we had no mainframes, we had no employees that were used to a certain way of doing things.

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Compound Interest

Is Walmart Backing America’s Next Financial Super-App? | Compound Interest

90% of the US lives within 10 miles of Walmart. this incredibly large ecosystem and the idea of creating an independent company that is outside the four walls of Walmart backed by Walmart and backed by Rivet Capital to be able to acquire customers into a openloop financial services platform that can help customers manage their money holistically.

Diet TBPN

Stripe’s $53B PayPal Offer, OpenAI’s First Device, TBPN’s New Business Ideas | Diet TBPN

PayPal is a quote sprawling legacy fintech with 25,000 employees. That's a huge company. Decades of technical debt. Neither Stripe nor Apple would want to absorb that.

Diet TBPN

Stripe’s $53B PayPal Offer, OpenAI’s First Device, TBPN’s New Business Ideas | Diet TBPN

You have a $50 billion company printing 5.5 billion in free cash flow. You can use a lot to finance debt, obviously, which is what's proposed here. Uh 400 million uh consumer accounts. So, lots of consumers have PayPal accounts, have Venmo accounts. Maybe they're not fully active, but they're ready to be engaged. It's a huge footprint and huge distribution mechanism. Uh, and they have bank info attached. That's difficult. You can't get that from many other consumer applications.

Diet TBPN

Stripe’s $53B PayPal Offer, OpenAI’s First Device, TBPN’s New Business Ideas | Diet TBPN

That's sort of the the white whale of consumer. How deep can you go in the KYC flow in the consumer bank relationship? You really know these customers uh which is valuable for for for a potential buyer like Stripe in this case.

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How Bitcoin Rewired a Classic Computer Science Problem

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