20VC Lessons Building Nubank to the Largest Neobank in the World, How AI Changes The Future of Finance, Leadership Lessons from Sequoia's Doug Leone & What European and US Fintech Can Learn From LATAM with David Velez, Founder @ Nubank

In this episode of 20 VC, host Harry Stebbings interviews David Velez, the founder of Nubank, the largest neo bank globally, which serves 50% of Brazilian adults and operates as the primary bank for 30% of them. Velez discusses the innovative strategies that propelled Nubank's success, from embracing a banking license early on to focusing on customer satisfaction and leveraging AI as the next platform shift to democratize financial services. He shares insights on Nubank's culture of epistemic humility, the importance of creating struggle to foster growth, and the company's future plans, including expanding beyond financial services and potentially internationally. Velez also reflects on personal leadership lessons, the impact of AI on banking, and the challenges of philanthropy and parenting in an affluent context.

• Newbank has reached 50% of the Brazilian adult population as customers.
• Approximately 30% of adult Brazilians use Newbank as their primary bank account.
• David Velez emphasizes the long-term vision of Newbank, likening AI to having a bank and banker in every pocket, indicating a shift towards personalized, technology-driven banking.

"50% of the Brazilian adult population is a customer of Newbank. We have the primary bank account for close to 30% of adult Brazilians."

The quote highlights Newbank's significant customer base and market share in Brazil, showcasing its success in the banking sector.

• Harry Stebbings introduces David Velez as a prominent founder and discusses Newbank's status as the largest neo bank in the world.
• Harry credits Leone at Sequoia for contributing to the preparation of the episode with insightful questions.
• Harry also mentions the high rating of Newbank's credit card in Mexico, emphasizing the bank's international impact.

"And today we feature one of the great founders of a generation, David Velez."

This quote serves as an introduction to David Velez, setting the stage for the conversation about his accomplishments and the impact of Newbank.

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• David Velez shares his unique interview experience with Sequoia, which differed from traditional interview processes.
• He was interviewed first by the head of the firm, which left a strong impression on him.
• The interview focused on personal and character questions rather than CV and experience.
• David describes the efficiency and culture of Sequoia, where he was immediately invited to meet with other partners after his initial interview.

"And given the interview process was different, just made me realize how different sequoia is as a firm, ultimately."

David Velez reflects on how the unique interview process at Sequoia made him realize the distinctiveness of the firm's culture.

• David recounts his intensive work schedule while at business school and working for Sequoia.
• He shares memorable trips to Brazil with Doug Leone, where they would meet several firms and sign term sheets within tight schedules.
• David expresses the value of spending one-on-one time with Doug Leone and the insights gained from that experience.

"So it was super intense, but it was incredibly stimulating because I was almost like living these two lives with really amazing people."

The quote conveys the intensity and excitement of David's experience working with Sequoia and balancing it with business school.

• David admires Doug Leone's ability to read people, which he considers a superpower in business and investing.
• He has applied the focus on character traits over career experience in his own hiring practices at Newbank.
• David values building teams with individuals who have strong strengths, even if they also have significant weaknesses.
• He discusses the importance of treating everyone as a partner and giving them a seat at the table, which he has incorporated into Newbank's culture.

"Everybody will be asked, what do they think? And they have to have an important point of view."

This quote emphasizes the inclusive culture at Newbank where everyone's opinion is valued and considered, reflecting the lessons David learned from Doug Leone.

• David describes the moment he learned Sequoia would not be opening an office in Latin America, which was a pivotal moment in his career.
• He appreciated Doug Leone's directness in communicating the decision.
• Faced with the decision to move to California or start his own business, David chose to pursue his long-standing goal of entrepreneurship.

"This is it. Let's go for it. Let's go start a business now."

The quote captures David's decisive moment to embark on his entrepreneurial journey following Sequoia's decision to not establish a presence in Latin America.

• Harry Stebbings questions the depth of the Latam market for a growth fund, citing a lack of venture-scale returns aside from Newbank.
• David Velez disagrees, arguing that the situation has changed significantly since 2012.
• David explains the shift in entrepreneurial focus towards solving larger issues in Latin America, such as financial services, healthcare, and education.

"I think you're wrong now. I think things have changed a ton since 2012, 2013."

David Velez challenges the perception of the Latam market's potential for growth funds, asserting that the landscape has evolved with more significant opportunities now present.

• Latin American markets have long-standing incumbents, some over 100 years old.
• Cultural and capital changes have created a ripe environment for new banks.
• Expectation of new banking entities emerging in the next 5 to 10 years.

"If you look at Ibovespa, Brazil, in Mexico, they're still incumbents that existed 100 years ago. So the opportunity for disruption. A lot of these markets exist today."

This quote highlights the presence of very old financial institutions in Latin America, suggesting a potential for newer companies to disrupt the market due to evolving culture and available capital.

• Liquidity in local markets like Brazil is substantial, with numerous IPOs and exits.
• Above a billion-dollar market cap, New York IPOs become significant for liquidity.
• Active M&A environment, with recent large exits, e.g., Visa's acquisition of Pismo.
• Smaller markets (Chile, Colombia, Peru) face more liquidity constraints.

"There is a fair amount of liquidity locally in Brazil. Mexico should have more. Colombia, Peru, Chile. I think you run a little bit into more in the liquidity constraints."

This quote explains that while Brazil has a fair amount of local liquidity for new banks, smaller markets may face greater challenges in achieving liquidity, affecting their exit opportunities.

• Newbank has not declared victory; the journey is ongoing.
• Nearly 50% of the Brazilian adult population are Newbank customers.
• Success attributed to serving diverse customer segments.

"We're getting to a point where almost 50% of the Brazilian adult population is a customer of Newbank."

The quote signifies Newbank's substantial customer base and market penetration in Brazil, which is a significant achievement for the company.

• Newbank aims to be the primary bank account for customers.
• A banking license requires localization and deep market penetration in fewer markets.
• Focus on customization and segmentation over rapid multi-country expansion.

"We want to be the primary bank. We want to be the primary bank. We don't want to be just a little side wallet."

This quote emphasizes Newbank's strategy to be the main banking solution for customers rather than a secondary option, which influences their approach to product development and market presence.

• Of Newbank's customer base, 60% use it as their primary bank account.
• Newbank holds the highest frequency of primary bank accounts in Brazil.
• Market share varies across financial products, indicating room for growth.

"We have the primary bank account for close to 30% of adult Brazilians, which, by the way, is now the highest among any bank in Brazil."

The quote reveals Newbank's significant achievement in becoming the primary bank for a large portion of the Brazilian population, surpassing traditional banks.

• Complacency and the misconception of having "won" are seen as the biggest threats.
• The focus is on continued growth across different financial service verticals and geographies.

"Thinking that we have won. Your question? Thinking that we made it, thinking that we're good because the opportunity ahead is so big."

This quote identifies the mindset of victory as a threat, as it can lead to complacency and hinder the pursuit of further growth and innovation.

• Hiring the right people with a transformative vision is key.
• The company culture underplays victories to maintain a sense of urgency.
• Newbank's success requires constant vigilance and drive for improvement.

"We work very hard to try to identify the people that want to come to Newbank because they want to have Newbank in their CV, versus the people that want to come here attracted by the opportunity to build something transformational."

The quote discusses the importance of recruiting individuals who are motivated by the company's mission rather than personal career milestones, which is crucial for maintaining a startup mentality.

• Expansion beyond financial services into a broader consumer platform.
• Building on strong brand trust and high net promoter scores.
• Utilizing a large consumer base and data to offer non-financial services.

"The opportunity to really solve complexity for our consumers... we think there is a bigger opportunity to increase the concentric circles and provide more products and services to our consumers by fighting that complexity."

This quote outlines Newbank's ambition to expand beyond traditional banking services and leverage their assets to simplify consumer experiences across various sectors.

• Newbank's marketplace connects customers with a variety of partners.
• The focus is on providing better products, services, and credit facilities.
• Aims to become a platform for commerce, not just a financial institution.

"We have several million daily active users today on our marketplace where our customers are consuming, are buying goods or services from over 180 different partners."

The quote illustrates the early success of Newbank's marketplace, which serves as a hub for various consumer transactions, indicating a successful pivot towards non-financial services.

• Newbank is selective in vertical expansion, focusing on connecting services rather than creating them.
• The goal is to build a resilient model with diverse revenue sources.
• Resource allocation prioritizes fighting complexity and empowering consumers.

"We're not doing all of these different verticals, right? We're not doing right hailing, we're not doing e-commerce. We're a platform that connects with the right architecture through providers of these services."

This quote clarifies Newbank's strategy to act as a connector rather than a producer of various services, which is a key element in their approach to resource allocation.

• US and Europe perceived to have a complacent attitude towards financial services innovation.
• Regulatory environments in these regions are seen as adverse to innovation, particularly in crypto and fintech.
• Emerging markets like India, China, and Brazil have been more welcoming to fintech due to significant lack of access to financial services.
• Latin America had a large unbanked population and high interest rates, prompting regulators to act.
• This created a competitive environment for fintechs, benefiting consumers with better products and alternatives.
• Emerging markets are now ahead in certain financial technologies, with a trend expected to accelerate in the next 5-10 years.

"US seems to think that, Europe seems to think that, that there is no need to really try more. And as a result, you end up with a regulatory environment that seems pretty adverse to innovation."

This quote highlights the perceived complacency in US and Europe's approach to financial services innovation, and the resulting regulatory challenges faced by fintech companies.

• Early fintechs embraced the banking space, including obtaining banking licenses, which differed from strategies in developed economies where entrepreneurs avoided becoming banks.
• Regulators may not see the opportunities for improving efficiency in financial services, even in sophisticated markets like the US.
• Fintechs could help fill gaps in access to good financial services, but regulators often appear to protect traditional incumbents.
• David Velez advises founders to embrace the banking space and regulators to recognize the potential of fintech to improve financial services.

"We embraced the banking space. With all the pros and the cons, we went and wanted that banking license."

David Velez reflects on the strategic decision to fully embrace the banking industry, which contrasts with the approach of some entrepreneurs in developed markets who avoided becoming banks to maintain higher valuations.

• Disruption in banking starts with simpler products that don't require personal bankers, such as credit cards and personal loans.
• AI could be a catalyst for further disruption, potentially replacing human private bankers with digital alternatives.
• Over time, AI may offer better advice and product access without conflicts of interest, challenging traditional high net worth banking models.
• Disruption may not happen immediately but is plausible within the next 5-10 years.

"AI, and this vision around AI, really private banker, could become the catalyst for accelerating the migration towards a fully digitalized private banker."

David Velez suggests that AI could transform private banking by providing services that are currently only available to the high net worth segment, democratizing access to sophisticated financial advice.

• The shift to digital banking and smartphones increased financial inclusion by reducing service costs.
• AI represents a second platform shift, potentially enabling complete democratization of financial access.
• AI could act as both a bank and banker in everyone's pocket, allowing all population segments to make informed financial decisions.
• Financial education has limits, and AI could overcome complexities that impede broader democratization.

"AI is the bank and the banker in every pocket."

This quote encapsulates David Velez's vision for AI in financial services, where AI serves as both the institution and the advisor, enabling universal access to financial services.

• Newbank's strategy revolves around customer satisfaction, aiming for customers to "love us fanatically."
• The company is organized to build products and services that achieve this goal, with AI being another platform to enhance customer satisfaction.
• AI is being integrated into every aspect of Newbank's operations without necessitating a corporate reorganization.
• There is an ongoing debate about the role of AI in cross-selling versus maintaining neutrality to optimize customer loyalty.

"We are organized in a way that we can build products and services to get customers to like us."

David Velez describes the customer-centric structure of Newbank, which is designed to foster customer satisfaction, a principle that will guide the integration of AI into their services.

• The incentives programmed into AI are critical to align with long-term consumer satisfaction.
• Newbank focuses on avoiding conflicts of interest to build loyalty with consumers.
• The debate about AI in financial services also pertains to the ethics of AI recommendations and actions.

"The same right of incentives need to be programmed inside the AI."

David Velez stresses the importance of aligning AI incentives with customer satisfaction to maintain trust and loyalty, similar to the ethical considerations in human financial advising.

• Base infrastructure like OpenAI provides data and models, but companies need to define the behavior of their AI.
• Newbank sees the need to own the programming of AI behavior to ensure it aligns with their objectives and customer satisfaction goals.
• Owning the model is not necessary, but owning the incentive structure and objective function programming is essential.

"I don't think you need to own the model, but I do think you need to own and be very thoughtful around what are the incentives and what is the objective function of that algorithm when you start actually programming it?"

David Velez clarifies that while the underlying AI models can be sourced externally, the crucial aspect is how a company programs the AI's behavior to meet its strategic objectives.

• David Velez emphasizes the importance of listening, especially given his background as an outsider starting a bank in Brazil.
• Listening and asking questions are foundational to Newbank's culture and product development.
• Newbank hires people who approach problems with a beginner's mind and questions rather than answers.
• Good listening has shaped Newbank's culture and contributed to its success.

"Me personally, given my background, I had to listen a lot. I had to ask a lot of questions because there was a lot that I didn't know."

This quote reflects David Velez's personal approach to leadership and learning, highlighting the value of listening and inquiry in overcoming knowledge gaps and driving innovation.

• David Velez cites the deliberate setup of Newbank's culture and team in the early days as the best decision.
• The focus on consumer obsession, diversity, idea meritocracy, and organizational flatness has been key to making good decisions as the company scaled.
• The worst decision was entering investments via a big acquisition rather than organically, underestimating integration challenges.

"We were very deliberate around the type of people that we attracted, my co founders, and how we picked them and how I spent a lot of time trying to find them."

David Velez reflects on the importance of the initial team and culture setup in Newbank's success, emphasizing the strategic and deliberate approach to founding the company.

• Nubank faced challenges with an equities product due to rushed decision-making.
• The decision was influenced by the rapidly declining interest rates in Brazil, pushing a shift towards equities.
• The team felt pressured to enter the market quickly to keep up with competitors.
• In hindsight, David Velez suggests a preference for slower, organic growth rather than rapid, acquisition-driven expansion.

"We did everything we could to due diligence that, and I remember we being comfortable enough, but it ended up being harder than we expected."

This quote indicates that despite their due diligence, the actual process was more difficult than anticipated, highlighting the challenges of entering a new market segment.

"In hindsight, I probably would have decided to be a little slow, build it organically from now on."

David Velez reflects on the decision, suggesting that a slower approach to market entry might have been more in line with the company's long-term vision.

• David Velez's definition of success revolves around the journey rather than the outcome.
• Success is defined by the adventure, learning, and challenge rather than just winning or achieving a goal.
• Nubank's decision to enter the banking sector was driven by the desire to undertake a challenging journey.

"To me, success was going to be having the journey and adventure of my lifetime."

This quote reveals David Velez's personal measure of success, focusing on the experience and adventure of building Nubank.

"From that perspective, if I define success that way, I thought I was going to be successful because it was going to be a great adventure, no matter if we made it or if we didn't."

David Velez emphasizes that the pursuit itself, regardless of the outcome, constituted success in his eyes.

• David Velez is contemplating the most impactful approach to philanthropy.
• The foundation focuses on education and leadership to maximize impact per dollar and create systemic change.
• There is a tension between creating long-term, systemic impact and addressing immediate needs.

"It's a bit of a contradiction that we are in the middle right now."

David Velez acknowledges the dilemma between long-term philanthropic strategies and the urgency of immediate needs.

"And if you make one person today directly better off, that might have actually more impact than coming up with these systemic models that ultimately, as a philanthropist, you're not even touching people's lives."

This quote highlights the internal debate about whether direct or systemic philanthropy is more impactful.

• David Velez is concerned about instilling humility and ambition in his children despite their affluent upbringing.
• It's important to create a sense of struggle and responsibility to develop self-confidence and a drive to succeed.
• The goal is to prevent complacency and entitlement by ensuring children face challenges.

"There's got to be a little struggle. We cannot remove everything from. They cannot be too comfortable because otherwise they lose the need to separate themselves and to prove themselves even more."

David Velez believes that experiencing struggle is essential for children to develop ambition and self-confidence.

• Bringing experienced people into a startup can be as important as having fresh perspectives.
• Nubank's near-death experience in 2017 highlighted the importance of quick action and community support.
• Timing and preparation were crucial in Nubank's public offering before the market correction.

"The importance of bringing people with more experience sooner."

David Velez recognizes the value of experience in a growing business, suggesting a balance between fresh ideas and seasoned insights.

"But that was very close."

This quote refers to Nubank's brush with a potential crisis, illustrating the volatility and risks in the financial industry.

• David Velez is considering the benefits and drawbacks of remote work.
• Nubank operates in a hybrid model to access global talent while maintaining the benefits of in-person collaboration.
• The company measures various metrics to ensure that the hybrid model remains effective.

"So for now, we are operating hybrid."

David Velez explains Nubank's current approach to balancing remote and in-office work, highlighting the necessity of flexibility in their business model.

• David Velez would invite Steve Jobs, Karl Marx, and Nietzsche to dinner.
• He is curious about their perspectives on the legacies of their work and philosophies.
• The dinner would provide intellectual stimulation and insights into entrepreneurship, political philosophy, and existential thought.

"Steve Jobs, because I think he's the most incredible entrepreneur in history, and I would want to get into his head."

David Velez expresses admiration for Steve Jobs and a desire to understand his entrepreneurial mindset.

"I would bring Kyle Marx, because I really want to get into his head and said, look at what your Marxism has done or did in the 20th century."

This quote indicates David Velez's interest in discussing the real-world implications of Marx's theories with the philosopher himself.

• David Velez enjoys singing opera despite not being skilled at it.
• He envisions Nubank expanding beyond Latin America and financial services into AI and consumer platforms.
• The company aims to be the leading financial institution in its markets and to innovate in customer interaction.

"I like to sing opera. You do? I do. And I'm a very bad opera singer."

David Velez shares a personal hobby, showing a willingness to engage in activities for enjoyment rather than proficiency.

"Then I think we would have become the leading financial institution in Latin America."

This quote outlines David Velez's ambitious vision for Nubank's growth and expansion over the next five years.