Nu : Nubank’s President explains the company’s credit strategy

São Paulo, April 17, 2024 - Nubank's credit strategy is characterized by technological agility, large-scale data analysis, customized risk management, innovation, and high levels of satisfaction. This unique combination allows the company to offer competitive rates to its more than 90 million customers and maintain a strong performance in credit, with NPL rates better than the industry average, even in challenging economic conditions.

This is how Youssef Lahrech, President and COO, defined Nubank's credit operation in an interview with Jörg Friedemann, Investor Relations Officer and Senior Director of Market Intelligence, in the second episode of the Nu Videocast. Alongside Ravi Prakash, Vice President of Risk Management, the executive explained that these factors, combined with a risk philosophy guided by data and artificial intelligence, enable real-time credit decisions to be made at an individual level.

"When we think about credit underwriting, our goal is to combine the best of tech and banking. The combination of these components - technology, governance, a very disciplined approach, obsessive focus on the customer, and fostering this fanatical customer love - is unusual but very powerful, and that gives us a unique competitive advantage in the space," says Lahrech.

Technology and data at the core of the strategy

Nu's native digital infrastructure and proprietary technology enable rapid implementation and interaction of credit models, offering a significant advantage in terms of speed and cost savings compared to traditional banks and fintechs.

Nu combines the inherent agility of a tech company with a robust risk management and governance structure that includes credit committees, risk appetite definition, with a constant focus on maximizing Net Present Value and resilience to changes in the macroeconomic context.

"We know of a number of banks that tried moving in this direction, but then they had to take a step back because it was just too hard to execute or it just did not produce the results they were expecting. Even fintechs are struggling. I hardly know any fintech company that has really, truly cracked credit business other than Nubank. They are tech native, but what they don't have is the banking DNA, they take a too tech-centered approach" states Prakash.

"We always assume that the future is going to be worse than the past. We actually are designing this business to be an enduring, long-term resilient business that can deliver

through ups and downs in the cycle," adds Lahrech.

Prakash also highlights Nu's "low and grow" strategy, where customers start their journey with credit limits that gradually increase based on positive payment behavior. "This is a way for us to broaden our offerings and bring in segments which we would have otherwise not been able to bring in as new customers in a profitable and sustainable way," he adds. Lahrech emphasizes that Nu conducts robust structural testing, especially in new markets like Mexico, to gather data and refine models before scaling up.

Ease of renegotiation

Nu registers high satisfaction levels among customers who renegotiate their debts, marked by an NPS in the 70 to 80 score range. According to Prakash, this is due to the effort to empower the customer and personalize their experience, making them capable of managing their financial situation, including renegotiations: "We actually see that more than 50% of our customers in renegotiations are either current or less than 15 days past due. It's good for the customer, it's good for Nubank," he emphasizes.

Open Finance as an opportunity

Lahrech highlights that Nubank views innovations like Open Finance, a system in Brazil through which financial institutions are allowed to share customers' financial data with their consent, as opportunities to offer even better products and services to its customers.

"Open Finance will bring more data available in the system, and we think we have a comparative advantage of being able to use that data to design and offer better products, better pricing, better convenience to customers. The notion of consumers being empowered with their own data, to go share it with different players in the industry and get the best deal for them is incredibly aligned with our DNA. It's completely transforming the way people deal with their money. It's super inspiring and we're super proud to be part of it," concludes Lahrech.

About the project

Nu Videocast is a monthly program where Nubank executives discuss in-depth strategic themes and areas of interest for the company, produced with support from the New York Stock Exchange - NYSE.