Nubank's CX Strategy: How They Became a Beloved Digital Bank

Nubank's Early Stages and Initial Challenges

As previously discussed in sections one and two of this EC-1 analysis, by the middle of 2013, David Velez, the CEO of Nubank, had secured the majority of essential elements for launching the company.

He had successfully recruited two co-founders, built dedicated engineering and operational teams, and obtained $2 million in seed capital from Sequoia and Kaszek Ventures.

Furthermore, a small office space was leased in São Paulo, and a clear mission was established: to provide banking services commensurate with the expectations of customers in a significant and profitable market like Brazil.

Navigating Brazilian Banking Regulations

Despite its name, Nubank was initially unable to function as a traditional bank.

Brazilian legislation at the time prohibited companies with foreign leadership from operating as banks.

This regulatory hurdle necessitated the development of a creative product strategy, allowing the team to gain market access while awaiting direct licensing approval from the nation’s president.

The Credit Card Strategy and Time Constraints

Nubank strategically chose a credit card as its initial product offering.

However, a critical time constraint existed; the company faced a rapidly approaching deadline.

While Brazil did not impose ownership restrictions on credit cards at that moment, new regulations were scheduled to take effect in May 2014, potentially preventing Nubank from launching.

Rapid Execution and Future Growth

To be eligible under the existing regulations, the company needed to execute its plans swiftly within the following eight months.

The operational tempo was exceptionally fast-paced, and this accelerated approach would ultimately drive Nubank’s remarkable ascent within the fintech landscape.

A Foundation of Trust and Innovation

Contrary to popular belief, the name Nubank doesn't directly translate to "new bank." The founders intentionally chose "nu," a Portuguese word meaning "naked," to symbolize their ambition. They aimed to establish a financial institution for the 21st century, free from the constraints of traditional Brazilian banking practices.

The core objective was broad accessibility, recognizing the significant wealth disparity within Brazil, where the minimum wage hovers around $200 monthly.

The initial launch centered around a credit card, a deliberate and pragmatic choice. Credit cards enjoyed widespread usage and understanding among Brazilians. Furthermore, online shopping in Brazil was largely dependent on credit card acceptance, as debit cards were not commonly supported.

how nubank’s cx strategy made it one of the most loved digital banks

To maximize its reach, Nubank’s credit card offered credit lines starting at just R$50 per month (approximately $10 USD), making it attainable for a large segment of the population. A key differentiator was the absence of annual fees, coupled with complete management capabilities through a complimentary mobile application.

Nubank actively sought to distinguish itself from conventional banks, opting for a vibrant Barney purple as its brand color and for its inaugural credit card. Velez recounted receiving feedback questioning the unconventional choice, as banks are typically associated with conservatism.

However, this advice proved somewhat inaccurate. Consumers were actively seeking a markedly different experience from existing financial institutions, a sentiment that Nubank’s color scheme effectively communicated. This strategy has since been emulated by other Brazilian fintech companies, such as alt.bank, which features a fluorescent yellow card.

Prior to its public release, Nubank refined its product through an exclusive invitation-only phase, initially extending access to friends and family. A referral system was implemented to foster immediate credibility and build a user base. Eligibility required applicants to be at least 18 years old, a resident of Brazil, registered with the Brazilian tax system, and possess a smartphone.

Recognizing the limitations of traditional credit scoring, Nubank developed its own system to extend access to the unbanked and underbanked populations of Brazil. This system analyzes numerous factors, ranging from simple indicators like contract acknowledgment to complex behavioral patterns, such as credit card bill payment timing.

Instead of denying credit to individuals with limited or no credit history, Nubank provided them with modest credit lines and progressively increased their limits based on observed behavior.

“A fundamental shift in credit scoring methodology was necessary within Brazil,” explained Vitor Olivier, VP of operations and platforms. “Reliance solely on income restricts eligibility for many. ” Indeed, 20% of Nubank’s initial customers obtained their first credit card through the platform.

Navigating Critical Technical Challenges Under Pressure

With a rapidly approaching launch date and the need to onboard initial customers, Nubank faced the imperative of swift action in securing vendors and establishing its technological infrastructure. As a provider of credit card services, identifying a suitable payment network was paramount. The team reached out to both Visa and Mastercard, ultimately selecting Mastercard due to a more timely response.

Nubank’s co-founder and Chief Technology Officer, Edward Wible, was also confronted with a key decision: whether to develop all systems internally or procure pre-built software solutions. This presented a significant challenge, compounded by the existing time constraints.

Software vendors frequently “tropicalize” their offerings, meaning they extensively customize them for the Brazilian market and to ensure compliance with local regulations. Wible expressed concern over this practice, stating, “This pattern is somewhat concerning to me; it raises red flags.” He further noted that purchasers of software often lack a comprehensive understanding of what they are acquiring.

The decision was made to collaborate with Conductor, a Brazilian credit card processing company. Furthermore, the remaining components of the product suite were to be developed in-house, as obtaining the necessary licenses for alternative solutions would be excessively time-consuming and “exceed our available financial resources,” Wible explained.

“The prospect of a two-year wait for licensing, particularly after securing venture capital from Sequoia, was untenable,” Wible stated. “Therefore, certain options were eliminated.” He emphasized the importance of rapid progress – not necessarily perfection, but the ability to initiate operations quickly.

A noteworthy technical choice that shaped the company’s development trajectory was the selection of a specific programming language. In contrast to many Silicon Valley startups that favor languages like Python or Ruby, Wible opted for Clojure as the primary development environment.

Clojure, a functional programming language derived from Lisp, compiles to the Java Virtual Machine. This distinction necessitates substantial investment in training to ensure effective utilization.

Despite his prior experience with Ruby, Wible chose Clojure for Nubank due to its inherent simplicity. “The language is straightforward and engineered to simplify complex tasks. Our primary goal was to mitigate complexity,” he said. However, neither he nor many of the initial engineering team possessed prior knowledge of the language, requiring concurrent learning alongside product development.

Wible characterizes himself as a largely self-taught engineer, highlighting his aptitude for learning as a core strength. “I cultivated the ability to acquire new skills, persevere through challenges, and learn from failures,” he explained. To this day, Nubank prioritizes a candidate’s willingness and capacity for rapid learning during the recruitment process.

Adding to the demands of building a technology stack, mastering Clojure, and launching a credit card product in a new country, Wible was simultaneously studying Portuguese. “Considering the stress and intensity of our work, I am still astonished that I could dedicate an hour each day to Portuguese lessons,” he remarked. Currently, both Wible and Velez are fluent in Portuguese, with only slight accents.

Nubank: A Customer-Centric Investment Strategy

The launch of Nubank’s credit card in Brazil generated a response that exceeded all projections. Obtaining a Nubank credit card was streamlined, requiring only a three-minute application process, with card delivery occurring within 3 to 15 days.

Nubank processed its initial credit card transaction during a beta phase in May 2014, coinciding with the closure of its Series A funding round. Rapid adoption followed, with the company acquiring over 19,000 customers and accumulating a substantial waiting list within a mere six months.

The subsequent three years were dedicated to product refinement and expansion of market presence. By December 31, 2018, Nubank had achieved unicorn status, boasting over six million active credit card users – representing a 90% activation rate.

Annual revenues for that year reached approximately $129 million, demonstrating significant financial performance.

Securing Growth Through Funding

This substantial growth necessitated multiple rounds of investment. Approximately one year after the public release of its credit card, Nubank secured $30 million in Series B funding, spearheaded by Tiger Global.

Following this, Nubank embarked on an aggressive fundraising campaign, and securing capital would prove to be a relatively minor challenge in the years ahead.

Just seven months later, a $52 million Series C round was completed, with Founders Fund joining as an investor.

To this point, the company has successfully raised close to $2 billion in venture capital funding.

Key Milestone: Reaching unicorn status by December 31, 2018.
Customer Base: Surpassing six million active credit card users.
Revenue: Achieving approximately $129 million in annual revenue.
Total Funding: Accumulating nearly $2 billion in venture capital.

Nubank’s success is rooted in a commitment to user experience and a strategic approach to securing the necessary financial resources for sustained expansion.

Evolving Nubank into a Full-Service Bank

Despite achieving considerable success in the development and distribution of its credit card, Velez maintained a core ambition: to establish Nubank as a prominent banking institution.

The company’s first three years were dedicated to gaining market presence and fostering customer confidence, as well as building rapport with the Brazilian government.

As the subsequent product was envisioned as a conventional banking service – a savings account – Velez and his team recognized the necessity of securing a presidential decree to obtain a banking license, given governmental restrictions on foreign investment in local banks.

Velez recounted, “Many predicted the Central Bank would decline our application, citing concerns about increased competition within Brazil. However, my meeting with them in Brasilia yielded a positive response; they expressed a desire for greater competition.”

With the necessary approval secured, Nubank resumed its development efforts, ultimately launching its banking product, NuConta, in 2017. This “naked account,” as it was translated, was intentionally designed for immediate usability.

Olivier emphasized the product’s simplicity, stating, “Our focus is on prioritizing customer needs, eliminating the need for complex choices regarding various features.”

Conventional savings accounts in Brazil often require account holders to make financial decisions that can be challenging for those lacking financial expertise. Nubank, conversely, assumes these decisions on behalf of its users. For instance, the company determines optimal investment strategies for customer funds rather than soliciting their individual preferences.

Furthermore, the account offered fee-free wire transfers and daily access to funds, facilitating easier budgeting and financial planning for customers.

This offering resonated strongly with many Brazilians. Alan Pontes, a 35-year-old small business owner from Rio de Janeiro, exemplifies this. He transitioned from Bradesco to Nubank in 2018 and remains a highly satisfied customer.

“Traditional banks impose numerous fees for every transaction. These fees significantly impact finances, and I was often surprised by the charges,” Pontes explained.

Pontes highlighted the common practice of Brazilian banks packaging their services. Customers purchase monthly packages encompassing a limited number of wire transfers, checks, and other services. Exceeding these limits results in additional charges.

Similar to other Nubank users, Pontes initially learned about the company through positive recommendations from friends.

“I began using Nubank and was so impressed that it became my primary bank,” he stated. The low fees and ease of use were particularly appealing, as he found the Nubank app intuitive. “My previous bank’s app had an overwhelming number of buttons, yet I only utilized a few.”

NuConta mirrored the success of Nubank’s credit card. Brazilians appreciated the inherent simplicity, coupled with exceptional customer service and the absence of excessive fees. By 2019, Nubank had amassed 10 million customers and secured $962 million in funding. The company also expanded its geographical footprint, establishing a technology office in Berlin.

Nubank: A Banking Experience Resembling Disney, Despite Certain Shortcomings

Pontes embodies the typical Nubank client, and, similar to the majority of its user base, discovered the company through recommendations. Nubank emphasizes a customer acquisition cost (CAC) of $0, a remarkably uncommon achievement for a rapidly expanding enterprise – even if it can still be categorized as a startup.

Rather than relying on traditional marketing, Nubank prioritized delivering exceptional customer support. Wible explained that significant investment was directed towards the customer service experience, largely due to the absence of physical branches.

He observed that Nubank essentially needed to simply excel at fundamental aspects of service, given the low standards prevalent at other financial institutions. “Providing excellent service, behaving with empathy, and being courteous – this contrasted sharply with the prevailing practices in the market at that time.”

However, even this renowned customer service hasn’t secured universal approval. Fernanda Freitas, legal counsel for a luxury fashion firm in Rio de Janeiro, indicates that the online banking experience offered by established banks is sufficient for herself and others with substantial financial resources.

“These digital banks emerged, but I lacked a compelling reason to switch,” she stated. “Currently, I avoid fees by maintaining investments with both of my banks.” She added that the monthly service fees charged by traditional banks can quickly become substantial for many Brazilians; Freitas, for instance, pays R$85 (approximately $17) monthly to Bradesco for one account.

“A key benefit of these online banks is the accessibility of credit cards, regardless of income or credit history,” she noted. “I perceive these digital banks as serving individuals who may not have access to conventional banking services.”

This explains why Nubank’s customer base primarily consists of individuals aged 18-35 with monthly incomes ranging from R$1,000 to R$5,000 ($200-$1,000 USD), as detailed in a Harvard Business School case study.

Despite its strong customer service record, Nubank hasn’t been immune to negative feedback when issues arise.

In August 2020, NuConta users reported unexpected discrepancies in their account balances. Social media platforms, including Twitter, were quickly inundated with complaints demanding, “Nubank, return my money!” in Portuguese.

Nubank attributed the inaccurate balances to errors within the system of Caixa Econômica Federal, a state-owned bank. The company promptly restored the correct balances, but Olivier recalls this period as challenging. Ultimately, however, this incident appears to have had minimal long-term impact on customer trust.

Since its initial banking service launch, Nubank’s product portfolio has expanded considerably. It now includes a debit card, peer-to-peer payments through Pix (Brazil’s equivalent of Zelle), loans, rewards programs, life insurance, and business accounts and credit cards, alongside its original individual credit card offering.

The company is also actively pursuing geographical expansion. By 2020, Nubank had launched in Mexico, initially offering only a credit card, mirroring its Brazilian strategy. It has also entered the Colombian market, where the product remains in beta testing with approximately 3,000 credit card users and a waitlist of 300,000.

However, geographical growth isn’t Nubank’s sole focus. As will be explored in the fourth part of this EC-1 series, Velez has ambitious plans to disrupt additional sectors with the same dedication to customer service and innovative features.