The economics of neobanking have been slowly improving as the boom matured into large-scale digital banks. Chime, for instance, was quick to inform the market that it was EBTIDA-positive, in contrast to less profitable European neobanks.
Although technically Nubank's IPO is technically a public offering, we will refer to it as Nubank because Nubank provides more detail and information about the operations of a neobank at large thanks to its recently filed public filing.
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The numbers Nubank shared are a good sign for other banks that might be interested in going public. They seem to make good business sense.
We will be adding more information about the company, its shareholders, and its various business lines as we go. We will be focusing our attention on the economics of Neobanking this morning and ending with an analysis of Nubanks overall financial health. We will take a moment at the end to compare our findings with a few valuation marks.
It is expensive to build a neobank on a large scale. To get to the top, leading startups and unicorns have raised huge amounts of capital. What did all that capital buy them? In Nubanks case, quite a lot, it appears.
The economics and ethics of neobanking
Nubank, which has over 40 million users in Brazil, Mexico, and Colombia, is one of the most valued startups in the world.
Like any consumer product, Neobanks can be seen through the lens of customer acquisition costs and customer monetization. Long-term revenues can also be considered. We would like to know how Nubank charges customers to attract new customers, what their product usage and rates translate into income, and how long the fintech giant can squeeze users for.
Acquisition costs for customers
Nubank is proud to boast its customer acquisition costs (CAC). In its F-1 filing, Nubank states that its CAC was US$5.0 for each customer. Paid marketing accounted for about 20% in the first three quarters 2021. This is lower than what we expected.
