Why doesn't the USA have a Nubank scale Digital Challenger?
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Weekly Rant ??
Why doesn't the USA have a Nubank scale Digital Bank?
The USA doesn't have a digital-only bank at the 100m+ user scale.?
Why doesn't the USA have a Nubank?
The answer follows this chain of logic.
Incumbents still dominate the consumer banking market and their service is much better than the Brazilian default. The U.S. regulatory landscape is 100x more complex than Brazil but there's a gallery of potential giant digital banks. Cash App, Venmo, SoFi, Robinhood, Chime, Current, heck even Zelle?
All of these things could build something that looks and feels like a Nubank.
I think there's an opportunity for something else. A money hub. A financial control center. And the key isn't being good at PFM. It's a disruptive business model with the ability to move money without friction.?
It sounds easy. It sounds obvious.?
If it were easy someone would have done it by now.
That's why I think the unlock is in a business model, not UX.
Nubank won in Brazil with amazing timing and execution
When Nubank entered Brazil, there were no major alternatives to the large banks, which offered poor mobile experiences, account opening relied on branches, and horrendous pricing to anyone in lower income segments. The practical reality was the large banks just didn't bother with the vast majority of the consumer market.
That's not to take anything away from Nubank. Their execution is world-class regardless of market. They have an 82% monthly active user (MAU) base compared to Cash App which has an active rate closer to 50%.?
Great execution came with great timing.
Brazil has been a giant growth success story. From Brazil the Country of Fintech's Future:
Nubank is a different animal, from a different place and time.
The U.S., today is a tough nut to crack.
Replicating this in the U.S. would be much harder thanks to regulation
It's almost impossible to get a banking charter in the U.S. Nubank is a bank. It was founded in 2013 and got a banking license in 2017 (after a presidential decree). The U.S. has granted barely a handful of licences in the last decade. Varo is a notable exception to this rule, but the primary path appears to be buying a bank (as we've seen with companies like SoFi).?
I have no doubt it was non-trivial to become a bank in Brazil, but Nubank solved a massive social challenge in a unique way in a very different regulatory environment. If you've never interacted with the Brazilian central bank, go out of your way to speak to people who have. They'll tell you how forward-leaning this group of regulators is, whereas the U.S. is much more concerned about process and risk management.?
The U.S. is also a ZOO of regulators in a way Brazil isn't.?
By contrast the Brazilian market has a handful, with the central bank having a clear mandate to instruct banks to adopt new payment methods (like Pix), oversight of consumer protection and all banks, credit unions and lenders.
Getting a charter can be seen as a negative in the U.S. In public markets, the multiple on a bank was historically much lower than a technology company's. Most large banks trade somewhere in the 10 to 12x earnings (profit) multiple range. Block is closer to 45x earnings. Becoming a bank could, on paper, be very damaging for market cap (at least in the short term.?
The capital requirements, and dramatic step up in direct oversight by state and federal regulators make that a step that feels like jumping off a cliff.
The scrutiny for a consumer bank with 25m active customers would be significant. A high-profile brand that serves mostly lower-income consumers like Block would invite significant pressure if they did get a charter. Revolut, a much simpler business on paper, has taken more than 3 years in the more "friendly" U.K. market to get a license. Block has a music service (Tidal), directly sells crypto assets, and has esoteric projects like TBD and Bitkey under its corporate umbrella.?
The rates you can charge for lending are typically lower. Many U.S. states have a usury law that caps the APR% a lender can charge, and while this doesn't apply nationally, it does create downward pressure. This isn't Brazil, where the pre-Fintech default is no loan or exorbitantly high fees with terrible service.?
Today, many non-bank lenders base themselves in states like Utah, where there is no cap. Thanks to the Depository Institutions Deregulation and Monetary Control Act (DIDMCA), federally insured banks can charge out-of-state customers the highest rate permitted in their home state.
There's much more competition for consumers with lower FICO scores. Chime is aggressively low-fee, PayPal, Capital One and Syncrhony Financial all play in this market at scale with millions of customers. Far from being the vacuum of competition that Brazil was?
The rules for using technology to innovate in underwriting are much more restrictive. Laws like TILA and ECOA require explainable algorithms and may prevent more accurate lending in the name of fairness. (There's an interesting debate to be had about whether the implementation of these laws has actually made the market less effective at serving these segments.)?
The Existing Competitors all have unique market positions and opportunities.
Cash App's demographic data makes them an Urban favorite.?
Their strategic challenge is interesting. They've excelled at payments as a wedge to offer everything else but have not driven upmarket yet. They simultaneously want to keep their core base of users and bank them and go upmarket, winning the more affluent segment.?
So does everyone else.?
The big banks, the Neobanks, and the competitor wallets like PayPal all want this space. Wanting it won't be enough. Speaking of PayPal.
Venmo is so very meh. Venmo should be the big winner but everything PayPal has been so meh for the past decade they'll have to peddle hard to recover that opportunity.?
PayPal seems to be stuck playing catch up. Instead of making Venmo competitive, they focus on launching things like?FastLane?(which sounds more like a WWE pay-per-view than a product anyone wants to use).
From the outside, it always looks to me like Braintree and Venmo have been left to rot despite having outsized potential compared to the rest of the field.
SoFi is showing a possible path forward.?
There could be something very weird going on here that's temporary, or they could be showing that new lending products and a digital-only operating model are here to stay. It's possible both things are true. (Note: I'd throw Dave and MoneyLion into this category of doing esoteric lending and keeping confounding critics.)
Robinhood is the most interesting of the bunch. Their acquisition of the X1 card, promotions for migrating brokerage accounts, and the benefits of Robinhood Gold make a very compelling offer for the affluent segment. This is not the meme stock trading app of 2021; the retirement accounts, debit card, credit card, and high-yield savings combo looks a lot like the ideal digital bank offering.?
Perhaps the biggest challenge Robinhood faces in becoming a bank is that there's actually very little upside for them unless they want to get into lending (beyond what they do for their core product today). Given the user base they're attracting, they're ideally placed to become the top of wallet, but their offering to be the daily driver isn't quite there. Its home in brokerage is still a few zip codes away from being that everyday spending brand.
Chime is gonna do Chime. They're aggressively low-cost, low-margin, and consumer-centric. While that is noble and creates an incredible focus on unit economics, it's also not going to create a Nubank scale player overnight. Any lending product will focus on things that hyper-serve that customer base and no other. The strategy isn't starting at the wallet and working back like Cash App, nor is it starting at lending like SoFi or at a brokerage like Robinhood.?
It's just a really solid Neobank. Perhaps that makes lending the most imperative for them and the path to becoming a bank the most obvious.
But Nubank scale?
Much harder. (Although, I doubt that's the objective).
Big banks are so much better than they get credit for being.?There are still some very large U.S. banks whose entire marketing is about how amazing mobile banking is (banking on the go!). the bar for user experience is?pretty low. But as for their financial products, they offer just about everything. They have low-fee accounts for lower-income populations, rewards cards, Zelle integration, and soon, they'll even have this Paze thing.
It's not exciting, but it's relevant and massive. The biggest among them have 60 to 70 million consumers as customers. Their challenge is that they just won't grow in the way that Nubank or US-native challengers could. However, the incumbents are at the table in a way they just weren't in Brazil.?
Yet there's a giant opportunity hiding in plain sight and it could unlock the Nubank scale.
Each of these players is solving a piece of the puzzle, but they're all missing the bigger picture—the opportunity to become the true financial hub of American financial life. This isn't just another digital bank or payment app. It's the financial nerve center for a new generation of Americans.
The opportunity is to become the "money hub".
There's a killer job to be done that's not well served in the U.S.
The money hub.
The U.S. financial services market is messy. The core value proposition of being able to move money?is still incredibly challenging. Cash App solves this for its user base, Venmo for its, and Zelle to some extent for its. But there's no control center, hub, or anywhere to manage moving money that?works.?
Weirdly. That's the one thing a U.K. bank does really well. Monzo.?
The core use case has one spot to hold money as a joint account for sending to friends and family and paying the one-off bill instead of sending a check for that one weird thing. Monzo's joint account is neatly integrated into its personal account. It supports open banking, so you can see all of your other accounts there. Now, they're launching kids' accounts and stocks, and slowly but surely, they're eating more and more use cases.
It's this experience that makes Monzo my daily driver.?
It doesn't replace the rewards card or the direct deposit to the incumbent. But it's the top of the wallet. It's the default. Therefore, it's front of the line when it comes to taking a loan or anything else finance-related.?
I believe the future of finance is wallets.
Both Cash App and Venmo have done a good job in moving beyond payments as the wedge. Cash App in particular has become a daily driver for a good chunk of its user base as a card and a way of life.?
When we think wallet today, we think about Apple Pay or Shop Pay. These are places where we store many cards and manage delivery, etc. (hence PayPal launching FastLane; it's actually the right idea, just horribly packaged).
We don't think of the app that makes the pain go away.
The app that works with any rail helps me manage loans, rewards, and all of my other accounts, manage subscriptions, manage tax filing, save for retirement, and send money to friends.
There's too many apps.
Too much fragmentation.
Not enough hub.
The new American demographic needs a Money Hub.
The demographic in 2024 looks wildly different to 2016. Since 2016, 20m baby boomers have died, and now more than 33m identify as racially mixed (the fastest-growing segment by far). Millennials are now entering their 40s and thinking about money and retirement, and migration, both legal and illegal, has changed the demographic of the average taxpayer.
They're more likely to have multiple Fintech apps and wallets, more likely to remit money home, have multiple subscriptions, be struggling with inflation, living in an uncertain world where interest rates just got high and potentially even remitting money home.
There's no app for that.
There's no wallet that makes the pain go away.
The perfect wallet would attract affluent consumers like Robinhood does, with retirement accounts, high yield savings, and a great rewards card. It would lend like SoFi does to manage student debt but have a competitive fee structure like Chime. It would move money as easily as Cash App does in its ecosystem, manage cards and deliveries like Apple Pay does, and support tap-to-pay.?
That could (and probably is) be a driving focus for countless product teams.
You don't have to be a bank for that. In fact, in the current regulatory environment, being a bank would be counterproductive in many cases.
But the opportunity is there.?
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That smells to me like a disruption in the business model is needed.
In the way Robinhood made "commission" a thing, or Chime made no fees a thing, what's the business model that makes the pain go away?
I think it’s a subscription.
An all-you-can-eat payments easy button.
That works via any rail at any time for zero fees.
If you could just move money without pain that would be such a giant unlock that all of the other stuff would be bricks you could lay on this foundation.
The default used to be cards, ACH, and wire, but now we have Venmo, Zelle, Cashapp, Crypto, FedNow, push-to-card, and push-to-check. Checks are still hanging on. There are also cross-border remittance apps (which will be crucial as the demographic shifts to migrants remitting home).
Summary
The USA doesn't have a Nubank because it isn't Brazil.?
It has a much more complex regulatory landscape and the competition is 100x more intense than Brazil had in 2013. These competitors all show promise but they're chasing different pockets of the market with different motivations.?
The world of Fintech user experience has gotten stagnant in the past decade.
The opportunity is to become the money hub, the everything app but building that feels like an impossible task. I think the trick is being willing to innovate on the business model. If we recognize that the future is multi-rail. It's not just ACH, Wire and Cards. It's Venmo, CashApp, Zelle, push to the card, Crypto, and international (Pix, UPI). This permits you to build all of the delightful subscription management, retirement, rewards, and account aggregation features that would make a proposition really exciting.
Saying that is easy.
Executing it is way harder.
But if I were to hand one thing to Nubank.
Damn their execution is on point on a global stage. They might be the most well-run technology company I’ve ever encountered.
That's inspiring.
Nubank is listed in the U.S. because it's America home to the world’s largest and most liquid capital market, where investors are willing to bet on the future.?
My bet on the future is that there are product teams, entrepreneurs, and investors that will make this happen.
Heck.?
What would happen of Nubank launched in the U.S.?
That would be fun.
S.T.
4 Fintech Companies ??
1. Rillet - An ERP for the 21st Century
Rillet powers invoice recognition, accounts receivable (getting paid), multi-company accounting, and currency conversions. It features the ability to "speak to your data," like asking, "Has my ARR dropped last month?"
?? SAP Ariba and Netsuite are awful. Neobanks are slowly turning into ERP + bank accounts. This suggests that the opportunity is wide open for a pure-play ERP for companies with multiple bank accounts and legal entities operating in multiple countries. However, just as banks rarely replace their core, corporates almost never replace their ERP (maybe they upgrade). Instead, a new generation of companies will never select SAP Ariba or Oracle Netsuite; they'll jump directly to something like Rillet. It's ERP season.
2. Axle - Compliance A.I. Agents
Axle offers A.I. agents that manage manual workflows for compliance tasks like sanctions screening, transaction screening, and onboarding (for KYC and KYB). Users "hire" the A.I. agents, send them alerts, and the A.I. reviews them and sends them back to the company, which can either auto-approve or have a human check the output.
?? No matter how good your onboarding, KYC, or transaction monitoring automation is, there will always be some exceptions that fall into a manual work queue. The default here was human oversight, but having a step-up where an A.I. agent reviews and then a human can be in the loop makes sense. I like how they've packaged specialized agents for these tasks. Their marketing says the choice isn't growth or compliance; it's both. Against the backdrop of the Synapse disaster, this is well-timed marketing.
3. Adfin - Embedded finance for micro-merchants.
Admin helps small businesses offer simple payment acceptance solutions that they can send via SMS, email, or Whatsapp. Adfin claims there's no ideal way for a small business to get paid, with bill payment, invoices, and cards all requiring complex integrations with bigger platforms like Stripe.
?? Adfin's small business focus could be well-timed in Europe. Adfin is filling the gaps left between SMB-focussed terminal companies like Square or PayPal's iZettle and the bigger e-commerce, embedded-finance companies like Stripe. It's not obvious who I'd go to in Europe to get bill payments all in one place, with various options. (cue, every PSP filling up my inbox, but my point is there's definitely a Go To Market here that's filling a void)
4. Ambrook - Accounting and Embedded Finance for Agriculture
Ambrook helps farms, farmers' markets, and logistics companies manage their finances with specialized features like USDA tracking and schedule F compliance. Its platform also lets companies manage their finances, make payments with cards and receive them. Users can also manage invoices and funding.
?? Every industry has a Vertical SaaS operating system. Every Vertical SaaS is defaulting to embedded finance. I think whoever said, "Every company will be a Fintech company," was kinda right. When you think about embedded finance, you don't immediately think of agriculture, but this typifies a trend for me.
Things to know ??
"Stripe's Revenue and Finance Automation suite is on track to exceed $500 million in annual revenue run rate in the coming months."
?? There's a category of companies doing Billing and automation nowhere near $100m. Stripe got 5x there.
?? It helps that they have early adopters as clients. Stripe's client portfolio is ideally placed to use this product. And if they already have processing this is an easy cross-sell
?? What's more interesting is that Billing and automation are becoming standalone. Some fairly large companies are now using just that.
?? It positions Stripe neatly in the layer above processing. They become the operating system for Payment Ops and finance Ops. This is very different to Adyen, who's recent move to partner with PayPal's Fastlane shows the opposite approach.
?? It's also a way to play in enterprise, where merchants want to be multi-PSP. Want to use the Stripe dashboard on someone else in Korea? Okay, you got it.
?? As long as they keep winning the next unicorn they have a moat. Open AI will process $3.4bn through stripe this year. Stripe is first in line for the next big enterprise.
?? The unbundling of Stripe is coming. But Stripe is an active participant in that, which I didn't see coming. They're pushing up the price and pushing up the stack. Adyen is pushing down into the infrastructure and getting more efficient at pricing. Neither is wrong. It's just different.
Bolt told investors it is finalizing a $450m investment from UAE and UK-based investment firms, pushing the value to $14bn. Ryan Breslow will return as the CEO. 200M+ comes from an unnamed Abu Dhabi-based fund, and $250 m from The London Fund in "marketing capital and dollar credits."??
The terms are wild. A Pay-to-play" Structure: Investors must participate, or Bolt can buy back 66.67% of non-participating investors' shares at $0.01 per share. Bolt invests $10M into The London Fund at a post-money of $95M. Ryan Breslow gets a?$2M cash bonus and can sell up to 10% of shares through secondary sales.
?? Bolt has a reported $28m run rate making this valuation and deal look very wrong. This the deal seems highly unethical. Remember, this is a CEO sued by investors for a $30m loan he took from the company and encouraged staff to take out loans to buy options. Now existing investors are getting crushed in this deal.
?? Who are these funds? Silverbear capital and The London Fund. The London Fund is investing in Ryan Breslow's other company Love. Bolt and Love will enter a partnership. From what's reported, this looks like classic insider dealing. And if it's not, I'd love to understand why or how.
?? I'd love to know the source of funds for this capital. There are many pissed-off investors, and this is a CEO who encouraged staff to take out loans to buy options.
?? Regulation and the law isn't working. It seems perfectly fine to raise incredible sums of money in strange deals, but you cannot offer Earned Wage Access without the CFPB breathing down your neck. The priorities seem all wrong.
Major h/t to Eric Newcomer for this find.
Several headlines this week led with "Klarna getting into banking" with its new "Save now, Pay Later" product. Klarna Balance lets users transfer money from their bank to spend from and offers higher rewards and cashback on purchases. In the US, it does not attract yield, but in the 11 other markets where it lives, it offers 3.58% APR using the bank’s Swedish banking license.
?? In the US this is a stored-value "card" for multiple stores. The service doesn't offer yield, and its bonuses only come when you spend in its ecosystem.
?? It's a clever way for Klarna to fund its balance sheet. The float value of customers storing money at Klarna in a massive market like the US for zero yields will be high. If Klarna is making 5% on funds stored that will quickly add up.
?? This is primarily a mechanism to drive more Klarna app usage. The rewards, cashback, and yield (where applicable) make Klarna more of a shopping experience and wallet over time.
?? This is a great thing to point at to say, "Look, we're not like high risk lenders," as regulatory pressure on BNPL comes. When lobbying with regulators and pre-IPO, it's helpful to have a story about how ethical you are. The "Save Now, Pay Later" will be the first thing to point at.
?? Klarna could get into banking, but there's no rush. They're a shopping, wallet and lifestyle service. Their value add comes from driving more shopping activity. Everything works back from that. If banking serves that aim, they'll add it in time.
PS (yes I know Klarna is technically a bank).
Good Reads ??
Over the past 10 years the U.K. has granted full banking licences to 37 new entities since 2013. While 9 didn't survive and some remain small, banks like Monzo now have more than ￡13bn in assets and 3,000 staff. In the past two weeks, the largest entity that has yet to get a license, Revolut, has received conditional approval. With 9m U.K. customers and 45m globally, it is by far the largest to receive approval.
Marc estimates they have about 25 million active customers. Although 29% of revenue comes from the U.K., it's exceptionally strong in Ireland, Romania, and Poland (among some of Europe's fastest-growing economies). Marc estimates shifting the U.K. deposits could generate ￡100m of incremental revenue for Revolut.
?? Being a bank could have downsides. Revolut won't be as efficient in its F.X. business and will have to adhere to much stricter regulations. However, it had a taste of these in Europe and now Mexico, where it has licenses. I'm not going to bet against them getting this right.
?? Revolut will need local CEOs who have strong relationships with regulators. Francesca Caresi has been crucial to their success in the U.K. Regulators look for credibility in management teams.
?? Revolut is becoming the Nubank for everywhere else. Strong across Europe, growing in LATAM, and pushing into some APAC markets, it's executing on many fronts.
That's all, folks. ??
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Still here?
Ok here’s a fun fact.
Nubank has an 82% Monthly Active User base.
Let that sink in.
Chief Innovation Officer at SWIFT
1 个月Very insightful and interesting. Thanks
The USA has a number of digital banks just starting up. Nubank scale is coming.
7x Proven Entrepreneur | 3 Exits | Keynote Speaker l Relationship Capital Builder | Battle Cry: BUILD Brick by Brick?
1 个月Great share
2x Your Lead Revenue at Half the Cost in 30 Days | Ex-Facebook | Top Meta Agency Partner in US
1 个月Awesome update! useful info in one post