The meteoric ascent of Brazilian neobank Nubank has sent shockwaves through the Latin American banking industry. In just over a decade, Nubank has amassed upwards of 100 million customers across the region, becoming the largest fintech company in Latin America. As digital banks in the Asia Pacific (APAC) region aim to replicate this success, there are valuable lessons to be learned from the unconventional Nubank approach to banking and to decode why Nubank is profitable.

Founded in 2013, Nubank has expanded beyond Brazil into Mexico, with around five million customers, and Colombia, where it recently received approval to operate as a financing company. The Brazilian digital bank turned a net loss in 2022 into a US$1 billion net profit in 2023, with revenues exceeding US$8 billion. Nubank added nearly 20 million customers in 2023, reaching a total of 94 million, up from 54 million two years prior.

Embrace Financial Inclusion as a Key Driver Nubank’s Profitability

One of the key drivers behind why Nubank is profitable has been its unwavering commitment to financial inclusion — a major focal area for APAC digital banks as well. Across Latin America, a staggering 70% of the population is either unbanked or underbanked, with limited access to credit and basic financial services.

By offering simple, affordable banking solutions through mobile and e-commerce channels, Nubank has been able to serve customers and populations that traditional banks have been unwilling or unable to reach.

Digital banks in the APAC region should take note of this Nubank approach. According to a 2021 report by the Asian Development Bank, an estimated 1.1 billion adults in the region remain unbanked, with the majority residing in developing economies such as India, China, and Indonesia.

This presents a massive untapped market for digital banks willing to prioritise financial inclusion. By focusing on developing innovative solutions to serve the underbanked, such as mobile-first banking apps, low-cost accounts, and microfinance products, digital banks can not only drive social impact but also unlock significant growth opportunities.

For example in the Philippines, UnionDigital Bank, a subsidiary of Union Bank of the Philippines, has partnered with the digital health and wellness platform mWell to enhance financial inclusion, integrating UnionDigital’s banking services into the mWell app, providing users with a comprehensive health and financial wellness experience.

The partnership aims to make healthcare more affordable by offering digital banking products like medical emergency loans and flexible payment terms.

Leverage Data and Technology

At its core, Nubank is profitable because it is a technology company that happens to operate in the banking sector. The company’s competitive advantage lies in its ability to leverage data, proprietary machine learning algorithms, and agile cloud infrastructure to make better credit and underwriting decisions than traditional banks.

For digital banks in the APAC region, investing in robust data management and analytics capabilities like Nubank has done, is crucial. By harnessing the power of alternative data sources, such as mobile phone usage, social media activity, and e-commerce transactions, these banks can gain a deeper understanding of their customers, develop tailored products and services, and make more informed lending decisions.

According to a 2022 report by IDC, the big data and analytics market in the Asia Pacific region is expected to grow at a CAGR of 19.6% from 2022, reaching US$42.2 billion in 2023. Digital banks that can effectively leverage this data explosion will be well-positioned to gain a competitive edge in the market.

Partnering with leading technology providers, as Nubank has done with AWS, NetApp, and RealCloud, can help Nubank be profitable. By adopting cloud-native technologies and implementing comprehensive data management solutions, digital banks can improve operational efficiency, reduce costs, and scale rapidly to meet growing customer demand.

In China, Alibaba Group’s MYBank is an online-only bank that serves SMEs as well as underbanked rural and urban customers by leveraging analytics on real-time payments data and risk-management systems, to analyse more than 3,000 variables when issuing loans.

Build Credit “On-Ramps”

One of Nubank’s most impactful initiatives has been its credit “on-ramp” program, which helps customers with little or no credit history build their creditworthiness over time. By extending small loans and gradually increasing credit limits as customers demonstrate their ability to repay, Nubank has been able to serve a segment of the population that is often overlooked by traditional credit bureaus.

This in turn has seen remarkable returns in Nubank’s customer acquisition base, rising significantly every year — a major contributor to why Nubank is profitable.

Digital banks in the APAC region should consider implementing similar programs to help the unbanked and underbanked population build credit and access financial services. According to a 2021 report by the World Bank, only 18% of adults in low- and middle-income economies in East Asia and the Pacific have borrowed from a formal financial institution or used a credit card in the past year.

By starting small and leveraging alternative data sources to assess creditworthiness, digital banks can not only drive financial inclusion but also cultivate long-term customer relationships.

XW Bank, the third digital-only bank in China to acquire a license and backed by New Hope Group and Chinese smartphone maker Xiaomi Corporation, has a loan system that automatically grants loans based on analysing credit history — accelerating credit access to worthy individuals and small business customers.

Optimise Costs and Efficiency: Nubank’s Path to Profitablity

Nubank’s success has been underpinned by its relentless focus on cost optimisation and operational efficiency. By leveraging cloud-based infrastructure and partnering with NetApp and RealCloud to implement a comprehensive cloud data management solution, Nubank has been able to scale rapidly while maintaining lean operations.

For digital banks in the Asia Pacific region, adopting a similar approach to cost optimisation and efficiency is essential to remain competitive in an increasingly crowded market. According to a 2022 report by McKinsey, the cost-to-income ratio of banks in the APAC region is expected to rise from 40% in 2020 to 44% by 2025, driven by increasing competition and the need for digital transformation.

To combat this trend, digital banks must leverage cloud-native technologies, automation, and data-driven decision-making to reduce operating costs, improve agility, and deliver better customer experiences at scale.

In Hong Kong, WeLab Bank stands out as a digital-only bank that operates on multiple clouds simultaneously, which increases operational resilience and disaster recovery capability. This multi-cloud strategy allows WeLab Bank to be more agile, improve speed to market, and lower operating costs.

Moreover, the bank’s focus on data-driven decision-making enables it to offer personalised customer experiences and make more informed strategic decisions.

Embrace Agile Innovation

Another key factor in Nubank being profitable is its ability to embrace agile innovation and continuously adapt to changing customer needs and market conditions. By fostering a culture of experimentation, rapid prototyping, and continuous improvement, Nubank has been able to stay ahead of the curve and maintain its competitive edge.

Digital banks in the APAC region should take a similar approach to innovation as Nubank. According to a 2022 report by Accenture, 60% of consumers in the Asia Pacific region are now more likely to use digital banking services than before the pandemic.

To meet this growing demand, digital banks must be able to quickly develop and launch new products and services, iterate based on customer feedback, and continuously improve their offerings.

One way to achieve this is by adopting agile development methodologies and leveraging low-code/no-code platforms to accelerate application development. By empowering cross-functional teams to work collaboratively and iteratively, digital banks can reduce time-to-market, improve customer satisfaction, and stay ahead of the competition.

Singapore’s digital-only Trust Bank leveraged agile technologies including making use of the Vault Core banking platform from Thought Machine to quickly handle the upsurge in its users, acquiring over 100,000 users in its first 10 days of operations, which quickly surged to 300,000 users in just two months.

The meteoric rise of Nubank in Latin America offers valuable lessons for digital banks in the APAC region. By embracing financial inclusion, leveraging data and technology, building credit “on-ramps,” optimising costs and efficiency, and embracing agile innovation, these banks can position themselves for success in a rapidly evolving market.

As the world continues to shift towards digital banking, the opportunity for growth and impact in the APAC area is immense. According to a 2022 report by Boston Consulting Group, digital banking revenues in the APAC region are expected to grow at a CAGR of 13% from 2021 to 2025, reaching US$1.8 trillion by 2025.

Digital banks that can effectively learn from the unconventional Nubank approach and adapt to the unique challenges and opportunities of the APAC market will be well-placed to drive innovation, financial inclusion, and economic growth in the years to come.