Welcome to Breaking Banks, the number one global fintech radio show and podcast. I’m Brett King. And I’m Jason Henricks.

Every week since 2013, we explore the personalities, startups, innovators, and industry players driving disruption in financial services. From incumbents to unicorns and from cutting edge technology to the people using it to help create a more innovative, inclusive, and healthy financial future. I’m J.P. Nichols.

And this is Breaking Banks. Welcome to Breaking Banks. I’m your host, Brett King.

And this week, we travel to the land of Latin America, and we’re going to talk about specifically Brazil. Well, Latin America is not really a land, it’s a region, right? But we travel there. And we have a couple of really great experts, two friends of mine who are happy to join us today.

Joining us from Brazil is Bruno Diniz. Bruno is one of the top fintech influencers in Latin America. He’s a LinkedIn top voice.

He’s a bestselling author and has contributed, thankfully, to my new book, Brazil Gone Tomorrow, coming out at the end of the year. And Joao Bezerra Letty, Joao was previously the CTO at Itaú. We’ve got to know each other over the last few years, serving as board advisors for Drumwave Digital Wallet Play, based out of Silicon Valley.

He also sits on the board of many fintechs and banks in the region. He’s advisor to the Global Technology Board for MasterCard, Joao and Bruno, welcome to Breaking Banks. My pleasure, Brent.

My pleasure. So, Brazil just seems like, I don’t know, is there something in the water? Because for fintechs, it is going crazy right now. We’ve got Hixpay, which is just blowing up.

It’s like the fastest growing payments network in the world now. You know, we can talk about the numbers in a second. And of course, Nubank, we just got the news recently.

They had a very profitable year last year, but they just passed 100 million customers. And their market cap is on track to surpass the biggest banks in the region. Certainly, you know, Bradesco and Itaú in Brazil, making it not only the largest bank by customers in Brazil or in LATAM, but soon, presumably the most valuable bank in the region, which is incredible for a bank that is just, it’s less than 10 years old, 2015 is when they started, right? Bruno, when did Nubank get started? Was at 13, in fact.

13, okay. Yeah, yeah. Still, 100 million customers in 11 years.

I mean, how do you do that with branches, right? Definitely, definitely. They are a game changer here in Brazil and also a benchmark for the world. So I pretty much believe that Nubank took advantage also on some of the new regulations that took place in 2013.

So we had some, like a payment institution regulation here in Brazil that opened up space not only for Nubank, but for other neobanks as well. So that was one factor. Another factor, I think also that they found a place in which the user experience delivered by some of the major banks wasn’t that great at all.

And so that was another thing that raised the bar for the whole ecosystem here, for the way that financial institutions deliver services and products online. And besides that, they did an awesome job. When we look now in Brazil, Nubank is the third largest, in terms of brand, the third largest brand in the country.

And the first one is an oil company, Petrobras, and the second one is Zitao. So it’s crazy to see how they achieved that. I’m going to put that in the book, see if I can add that in.

That’s a great stat. So, Bruno, if you were to look at what has made Nubank so successful at acquiring customers as they have, there’s a few factors that I’m aware of. First of all, a lot of their customers are newly banked.

They have very good referral rates, so they’re the primary bank for most of their customers. What else can you tell me about what’s been behind their success of their acquisition strength? Back then, I think basically the service speaks by itself. So it was so much better than the experience some of the players were delivering that made them really grow here in the country.

So I believe the quality of the service, for sure. It took a while for the bank to start doing the big marketing initiatives, just like some of the conventional banks used to do. But I believe that the referral process into that, it was a major factor for boosting Nubank’s popularity in the country.

And also because Brazilians here in Brazil, they are early adopters in many of the things. When you look at the customer base of WhatsApp, which is big here, and some of the other Facebook as well, Instagram and all of that. So it wasn’t that hard for Brazilians to start using that and liking that and referring that to each other.

And then it became a huge success. But that was definitely… And also the product evolved through the time. So it started as a credit card and then an account and all of that.

And I think it started checking all the differences, different needs of the clients here from the unbanked to the underbanked. I mean, I think we can… We will talk about the design elements in a little bit. Obviously, Brazil, I think, from a cultural perspective, is very creative when it comes to digital and things like that.

They always have been. So it’s a brand that aligns with that in terms of aligning banking with that sort of creative digital. But, João, give me some perspective of what it was like being within a big bank at that time in terms of how you guys assess the potential for a challenger coming into the market.

What was the regulatory environment and so forth like? Well, I just started saying that, just take a step back in this conversation and talk a little bit about this financial system in Brazil. So Brazil is a highly regulated financial system and the central bank has been working on that for the last 25 years to protect the health of the financial system. And I’d say during some governments, there were some mistakes in the monetary policy, but they never stopped working on regulations.

So regulation on clearinghouse, regulations on acquirers, tariffs and fees, receivables. And then it started the opportunity for banks like Nobank. I would say the incumbents in Brazil, they are very competent.

They are not here. They are here because the other didn’t take care of the finance very well. And I’d say the problem in the banks today to find their way to digital has become banks, I mean, they have a very large product legacy.

So even they are good in negotiation, I mean, to create good things, they have a very big problem to plug and play new opportunities, to plug and play new, I mean, partners inside the bank. And then the bank were very comfortable with the profits. And they now, they assume they didn’t see Nobank as they should see.

But in fact, I’m not sure in my point of view, if Nobank’s really, it’s they compete for the same customers, but Nobank is another game. So Nobank didn’t follow Basel as the other banks follow. So they have, they compete for the customers.

They have, they started the credit cards, they then they open up a broker, they open a digital wallet. They broke the course because they were very good to serve, Nobank is very good to serve. And I guess, and with this, all this innovation agenda of central bank in Brazil, there is a plenty of opportunity for new fintechs, not for new digital banks, I guess.

Nobank has already won this race and banks should be worried about them because Nobank is getting what is more profitable from those banks. It’s on track to be the world’s most profitable bank. And WeBank also is claiming that title, right? So WeBank in Shenzhen, who is per customer, the leanest operation in banking today.

But you made an interesting point, Joao. You know, when you’re looking at your ability to respond to these changes, your technical stack is, and culture are really big elements of that. And so if we look at what makes Nubank profitable and WeBank profitable, you’d have to argue their technical agility, their speed to market, all of those things, but their operational cash efficiency is incredible.

And that’s what we’re learning about these challenger banks at this scale. Once you get past that 30, 40 million user scale, we seem to see clear evidence now of not only higher profitability, better cash operations, but really critically for both WeBank, for MyBank running on Alipay with their SME lending, for Nubank with their credit card delinquency, all of them perform much, much better on risk management than traditional players. And so that must be that must be technology and data model related.

Is that reasonable, Joao? Yeah, yeah, it is. I mean, Nubank, they have a very prepared and modern tech people in there, not just tech, but auditing, financial, commercial, but they are open mind. But I would say, I mean, I mean, Nubank is not really a bank.

I mean, has a friend of mine always says banking everywhere, never at a bank. Right. So I would say that if you take the traditional banks, the traditional banks, they are stuck in some regulations that Nubank doesn’t have to follow in Brazil instead because they are credit cards, they are digital wallets and payments.

They are they have credit, but it’s not basic credit, you know, you understand? So Nubank has a credit portfolio of 14 billion dollars. It all has a credit portfolio of 300 billion dollars. Right.

So they are different stuff. And Nubank makes 10 billion dollars profit every year. It’s different than Nubank.

And they are a multiple bank. So but they struggled to understand that the competition was coming. I mean, their CEO and their, I mean, even the board, they now understand they have to follow different paths, although they have to keep the path of a traditional bank as well.

This is a challenge. And there are other banks in Brazil that are not, I mean, they have a lot of difficulty to follow this path. Yeah, I mean, has their focus as Nubank’s focus on mobile, Bruno, being a key element of this, I mean, you know, you know, I think we saw generally speaking that, you know, most of the big banks lagged, you know, HSBC, for example, didn’t have a mobile app till 2012.

You know, that certainly would be an effect. But was their investment in mobile was a big, big differentiator? Definitely. That’s one of the factors.

I think they operate under a different premise when you compare to the to the other traditional incumbent banks. And one thing that was said, it’s a fact, if it weren’t the case of new regulations that took place by 2013, like the IP, the payment institution regulation, perhaps we didn’t, we wouldn’t have Nubank. So that’s one, that’s one thing.

The regulations, and that’s the role of the central bank on creating, enabling regulations that can really bring competition to the market and all that. So that’s that’s one layer of that. Second layer is, OK, as we are a fully digital bank, we got an ace on on user experience and all of that.

And it’s, it’s, they did. Yeah. Yeah.

So they basically are a mobile only bank. And back then they also did something different from the other banks that basically they used to send some letters and they used to exceed in terms of customer experience, sometimes even delivering letters written in hand by some. The only physical one would be that just like try to this type of wall factor with their clients.

And then they focus on not only having a client base, but also having a fan base, because all the clients, because all the banks, in spite of all the amounts that money they spend on marketing, they would never have fans. No, but this is the, I mean, we talk about net promoter score and all this sort of stuff, but Nubank is the primary banking relationship for 60 percent of its customers. And that is a hell of a statistic, right? And Joao, to your point, in the last 12 months, Nubank’s launched 40 new products.

So they’re catching up. You know, of course, they’re, you know, they’re different products, as you’ve made clear from from the larger banks. But it’s not like, you know, they’re certainly diversifying in terms of their revenue and their relationship.

But what’s interesting is that the. If we look at the customer base that they’ve got, they now have more customers that Venmo, Cash App and Chase. Right.

So, you know, if you want to compare it with the U.S. market, it’s a pretty big, big achievement. Where is, beyond Brazil, where is the big markets where Nubank is showing real success? Well, that’s Mexico. I think that Nubank’s betting high on Mexico right now.

First, because we have a huge population. And the second, because we we have never seen anything like Nubank in Mexico. So it’s pretty greenfield.

No one did what Nubank did in Mexico. Although Revolut just got their license in Mexico, too. So, yeah.

But when you compare, they’ve got some catch up to play with Nubank. And considering that Nubank got this playbook on how to operate in Latin America and all that. So as they gained terrain in Brazil, now it’s Mexico.

And I saw multiple news about that, that they are focused on Mexico. And there’s a lot to be done there. Hello, friends, it’s Brett King from Breaking Banks.

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The other element that is is, again, incredible numbers that we’ve seen, which is PIXPAY, the fastest growing payments network in the world. Now, effectively, I understand, what is it, 95 percent of the adult population is using PIXPAY now. It’s like 75 percent of the population more broadly.

Joao, you know, we’ve got Fed now in the States. And right now it’s still around 5 percent adoption within the banks, it’s going very slowly. But in Brazil, PIXPAY, all the banks got on board very quickly.

And this is obviously part of the reason why it’s been so successful. But also this intersection of mobile going into that play. But why is it that that the banks in particular were so keen to also participate in the PIXPAY phenomenon? Well, in fact, as I said, it is this is not something that happened just the last four years.

It has happened for the last 25 years. You got here because there was several head of our central banks that just keep doing this job. And I would say the innovation agenda of central bank in Brazil today is a reference.

So and they have four pillars. One is fast payments with PIX, second is open finance, third is DREX, there is digital CBDCs, digital currency, and fourth is the currency internationalization. I would say PIX was a big success because I guess Brazilians were demanding for something like that and the pandemics helped a lot.

And then today we have the volume of transactions made by PIX is larger than the volume of credit and debit cards in Brazil. That is huge. It’s 40 billion transactions, payments, I mean, a year.

And it’s a lot of new stuff coming next. But also you have these open finance coming up, the DREX, and most of those digital banks that follow this path will be very successful. Most of the incubator banks are trying to invest and bring this to be closer to this.

But this is not in the mindset for those. And for instance, open finance, they have today a hundred players and maybe five hundred billion invested, five hundred million dollars invested by the players and will come up. And I guess banks like Nubank will take advantage of that.

So the innovation agenda of a central bank in Brazil is an in-engine for any digital bank that wants to be successful in Brazil. It’s a reference. I’ve seen in Thailand, Thailand, they have the PromptiPay, they have Cargo, but we still, I mean, keep paying with the best, with the concurrency.

I mean, look, I think obviously it’s a challenge to, it’s ironic because Visa just announced their best results ever, right? With, you know, and so you wouldn’t think that Interchange is under any threat. But when we look at all of the fastest growing payments networks around the world, they don’t, they have very small interchange rails comparative to ad schemes. So it’s got to change.

You know, like I saw the projections for, I think it’s 2026, it’s like 60 percent of retail commerce will be PIXPAY in India, 2027 UPI will account for 80 percent of retail commerce. These are not card rails. These are wallet based mobile payments networks.

So, João, I mean, one of the arguments that’s been made in the US regarding the poor adoption of FedNow has been the cost of implementation of FedNow. But, you know, was that easier from a cost implementation perspective in PIXPAY? Why was that easier to implement in Brazil than what FedNow is in the US, do you think? I guess, although the banks were very reluctant to do that, that was a teamwork. And I say this does not exist in the US.

There is a lot of pushback. I would say banks are not understanding that’s good for them. It has worked in Brazil, if they embrace.

This pay by bank is if, I mean, it is about the only way you’re going to compete against mobile wallet plays, right? I know financial inclusive, but I mean, I would say success in Brazil is that the movement was genuine, was really to bring financial inclusive. And I say, I mean, there is no democracy without financial inclusion, you know? Right. Yeah, that’s true.

Let’s talk about some of the other players in Brazil that are successful. For a number of our friends listening today, you may not have heard of, and I’m not sure about the pronunciation, it’s Creditas, which is the consumer lending marketplace, which uses very different credit scoring mechanisms. Bruno, are you familiar with their business? Can you talk a little bit about some of that? Because they are a unicorn now and they’ve just purchased a bank in Brazil, right? Definitely, yeah.

Yeah, Creditas was one of the earliest cases on lending here, on digital lending. Their previous name was Bank Fácil, and then they changed to Creditas back in, if I’m not mistaken, 2012, something like that. But Creditas also took advantage on having this space of lending, on digital lending, bringing a different type of user experience, a different way also on getting those clients online and they brought it to good.

And I think they’ve been improving during the time. And not only that, they’ve been also creating an ecosystem around their solution. So they started with this type of collateral type of loan that you can basically use a car or a home as a collateral for your loans.

But then they expanded also to payroll, fintech services and solutions like that. So I think that’s a good case for a player that started very niche and that they incorporated other products along the way, because, you know, that’s a low hanging fruit for some of them, as they already had some clients and they have initially a type of demand. And then as the time passes, they also demand other types of products.

So it was a very cool, interesting case. So a lot of this we’re talking about, you know, we’ve talked about financial inclusion multiple times during this session today recording, and it’s clear that these are all elements in improvements in financial inclusion. But, João, is this changing the market share, you know, in in Brazil, are we going to see some smaller banks consolidated as a result of this? How is this sort of reshaping the market? Well, I guess so.

I mean, we see the incumbents are struggling to maintain their positions. We have new banks, besides Nubank, we had Banco Inter, we had C6 Bank, that is JP Morgan. So we have, I mean, even players like Mercado Pago, Rappi, and others that, I mean, Embedded Finance will come and will bring new solutions.

And I mean, a lot of small segments that the banks doesn’t understand very well, we’re going to have to see multiple. Today in Brazil, we have 1,700 fintechs, and fintechs is not just about digital bank. So we have several, it’s about to reduce friction in the financial system.

So I’d say those 1,700 will become 3,000 fintechs shortly, because… Especially with AI, right? Yeah. Yeah, exactly. So AI and the innovation agenda of central bank.

So I would say we’re going to see new things coming up there. And I mean, you have to watch that. You know, when I talk about Nubank on stage, this is one of the lines that I use, you know, and I say, you know, so I talk about Nubank, I talk about their market cap, number of customers, I talk about Itaú, their market cap, their number of customers, their age, you know, and I say, so in 10 years time, who do you think is going to be the biggest bank in Brazil, right? And it’s like, well, you know the answer already, because the answer is already, you know, Nubank, unless you’re talking about asset size or, you know, lending portfolio, some of those traditional metrics.

But by pretty much every other metric, you know, Nubank is the largest bank. And that’s not going to change anytime in the next 10 years. So in the next 10 years, if we have more fintechs come in and we have the embedded finance and stuff, it just seems like Brazil is going to be, you know, like, it’s where fintech is happening.

You know, how do you guys feel about, you know, the leadership that Brazil presents to the rest of the world? And how do we get that news out? How do we help people understand that revolution that’s happening in Brazil and use that to inform what’s happening out of the markets, do you think? Well, basically, I think that Brazil set the pillars for the financial innovation revolution that we are witnessing right now. So it started, as I mentioned, with regulation. And then that became infrastructure, like BIX.

And one cool fact is BIX is a success because of interoperability, because the central bank mandated any bank that got more than 500,000 accounts to join BIX. And because of this network effect of the big banks, it became a reality. The same happened also with open finance.

So the large ones got to be there. It’s not it’s not optional. It’s mandated.

And then with infrastructure and regulation and all that, and because the people here, Brazil consumers are early adopters, I think it set all the terrain for the revolution that we are witnessing. And I pretty much believe that soon enough, we’re going to see more entrepreneurs coming from abroad to take advantage of the sandbox that we’re creating here, the full stack. And not only that, because despite the fact we have all of that, we still have problems that need to be solved in terms of the way that it’s not about being unbanked, but underserved in some of the products.

So like insurance and many others. So I believe that we are in a very good way, not only to be a benchmark to other countries in the region that can replicate some of what we’re doing. When you look at Mexico, for example, they are like eight years behind Brazil.

So they can really look at some of the things that we’re doing. And I believe that with Drax, which is the next step on all that tokenizing the economy, we’re going to see many cool, good things and some players that hopefully will be like Nubank at some instance. Fantastic.

João, is there any specific fintechs that you think we should be watching out of Brazil? You mentioned a couple before. Well, I don’t have something in mind right now, but there are a couple. Let me ask you a different question then.

Probably, if you were the CTO of Itaú today, what would be your strategy? Well, to have this marketplace, to invest strongly in technology, invest in AI, to be open to the market, to have open innovation in mind and trying to connect as many players as you can, to connect to all those fintechs to understand the different players that are in the market and trying to bring new experience. But also we have to struggle with your legacy to be fast. So that’s one thing that Nubank has now.

Nubank has a strong focus in some products. I mean, focus to be successful in some of those products, to be leaders in some segments. And technology is key, right? It’s interesting.

HIX has impacted payments revenue in the market, right? Because you’ve got lower rails fees for consumers in particular. And presumably this trend is going to be a global trend with pay-by-bank emerging. And challenges have been reliant on interchange revenue.

So it does mean that challenges have to move into deeper products, particularly credit more quickly. But given the pressure that the banks are facing, how is this changing the balance sheet? Well, they have to be more, I mean, they have to work in this 360 customer view. So, for instance, in the case of Itaú, for instance, they just integrate the acquiring company inside the bank.

I mean, acquiring is just a means of payment. So I guess customer is the focus. If they focus on the customer, if they are genuinely focused on the customer, I guess that the result will come.

And technology is key to bring convenience. And I mean, just in Brazil, payments was very easy to be very expensive. So today, payments in Brazil, it’s a kind of universal rights, right? Yeah.

So when this is genuine, if you embrace it, so it happens. So I guess financial inclusion will become a universal right as well. Yeah, especially with AI, because, you know, I mean, with digital economies emerging, you know, everything has to be digitized payments, identity, health care, et cetera.

So, I mean, it is sort of foundational for the future of the economy. All right, Bruno, is there anyone we should be watching over the next 12 months or so this year, you know, in Brazil that we haven’t already mentioned? Well, in fact, I think that changing a little bit of the perspective of the question, I think that there are some cool players, especially the ones tapping to new verticals or trying to bring new products to the reality of the tokenized economy they’re going to see pretty soon. So there are some players like this emerging DeFi with some other things.

There’s a player which I think it’s called Cloudwalk. I’m pretty sure you guys from other parts of the world are going to know them too, because they’re tapping to the U.S. market as well. And they merge payments, AI and all of that.

It’s just a type of a square block now, it’s like a block, but they go beyond because they really know how to do DeFi and use that on their back office as something that can really give them an edge on costs and all that. And AI. So they are blending all this stuff.

So I believe that you should take a look at Cloudwalk. They just had $320 million in revenue and $22 million in profits. Yeah, profitable, all of that.

Anytime Fintech is profitable, it’s good news, right? Yeah, definitely. But I think one thing is, as we’re talking about some of the major players like Nubank and all that, I think in the state that we are in right now, there are lots of Fintechs in the country, not only in Brazil. There are just features.

They are not a very strong and robust product, and some of them are going to be acquired by some other players like Nubank. It’s good to see. Yeah, we’re not going to see just consolidation in the banking sector and the credit sector.

We’re going to see consolidation in Fintech as well. Definitely. Well, to your point, we may see some banks making some lay acquisitions and things like that to try and stay technically competitive, right? Definitely.

And the thing is, when you look at, for example, we saw an explosion of global accounts, some players that introduced themselves to be like, if you are a traveler, you can use a dollar account elsewhere. Now Nubank just is incorporating this type of product. So, OK, if you’re doing just that, how can you compete with Nubank? And now there is a racing result to be the primary bank of a customer and this network effect.

Well, I think it’s going to be the primary AI wallet that’s the battle, right? Could be, yeah, definitely. Super wallets, I call them, AI-based wallets, you know, sort of what Drumwave is building, but beyond money as well. All right.

So, Bruno, how do people follow you and find out more about the work you’re doing? OK, there’s my website, which is brunodiniz.com, but most of my thoughts and things that I write, I post on LinkedIn. So you can just type Bruno Diniz and Fintech, perhaps, and then you’re going to find me. And that’s it.

And Instagram, basically. And in my YouTube, I also have a podcast called Fintech Talk. I have a Thursday night, Brazilian time at 7pm.

Check it out, Fintech Talks. Yeah, I have some folks there. Hopefully, you’ll be there as well.

Oh, I’ll come back on for sure. No problem. It’s been a while since we’ve done that together.

So it’s great to be on the show too. Gerard, what about yourself? LinkedIn, I guess, is probably the best. Yeah, it’s on LinkedIn.

That’s it, LinkedIn. So just to share my ideas and, I mean, to have fun. Yeah.

Well, listen, thank you both for joining us. It’s a very exciting market. I’m really pleased that we have a couple of veterans from the market with real experience to talk about it.

And, you know, just keep us informed of anything else that happens there that we should have on the show. But thank you both for coming on today. Thank you.

That’s it for another week of the world’s number one Fintech podcast and radio show, Breaking Banks. This episode was produced by our U.S.-based production team, including producer Lisbeth Severins, audio engineer Kevin Hirsham, with social media support from Carlo Navarro and Sylvie Johnson. If you liked this episode, don’t forget to tweet it out or post it on your favorite social media.

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