Nubank’s first profitable H1 in Brazil vindicates its scale-first approach

The news: Nubank revealed that it turned its first-ever half-year profit in Brazil, its home market and its biggest one, per Reuters.

The neobank reported H1 2021 net income of BRL$76 million ($14.7 million), a year-over-year (YoY) surge from its H1 2020 loss of BRL$95 million ($18.4 million). (The update doesn’t include performance data for the company’s other markets, Mexico and Colombia.)

The neobank also experienced surges in key lending, payments, and usage:

• Total payment volume hit BRL$92 billion ($17.84 billion), doubling from a year earlier, per a disclosure from Nubank CFO Guilherme Lago. The CFO also noted that, since December 2020, Nubank brought in over 8 million customers.
• The loan book approximately doubled YoY to reach BRL$23 billion ($4.46 billion), data from Brazil’s central bank showed.

More on this: Nubank’s achievement follows that of other big neobanks which have recently reached similar milestones—although none has yet revealed quarterly profitability when measured as net income. Each neobank has used highly qualified terms to describe the circumstances under which it attained profitability—and the timespan for their achievements varies too widely for comparison.

• Starling, based in the UK, first turned a monthly profit in October 2020 and it’s on course to become profitable for its current fiscal year, CNBC reported
• UK-based Revolut reached break-even status for November 2020, according to NECN.
• Chime, based in the US, disclosed in September 2020 that it had a profit when measured by EBITDA, per TechCrunch.

The big takeaway: Nubank’s milestone shows that its strategy of initially focusing on user scale before shifting gears to monetization has paid off at home—and it could replicate that strategy abroad.

• The company has swelled its customer base and, as a result, became the world’s largest neobank as measured by users, with 40 million globally, according to TechCrunch.
• The giant challenger’s success was also powered by surges in both its loan book and payments volume. This suggests that it’s been able to scale its key operations in a way that’s tracked with the upsurge in its users. Its approach could be a good case example with lessons that other neobanks could incorporate into their own profitability pushes.

Nubank also has more room to run with respect to monetization and overseas operations:

• In July 2021, the neobank launched Ultravioleta, its first-ever paid account, with a monthly price of BRL$49 ($9.50). The roll out signaled another push by Nubank toward monetizing its users and boosting profits.
• The Mexican and Colombian presences are both fairly recent, which implies an upside in revenue and profit if the company can mimic its home-market success of garnering users and then moving toward monetization.