Yet Another Value Podcast - $NU: is Nubank Capital One in 1994 or Capital One in 2006? | Vanshap Capital

Episode Date: August 17, 2026

Nubank ($NU) has 140 million customers, roughly 60% of Brazil's adult population, an efficiency ratio around 20% versus 40-60% at the legacy banks, and ROEs in the 30s. Evan Vanderveer of Vanshap Capital has owned it for four years and thinks the market is still treating it like a risky EM bank instead of what he thinks it is: a tech company that happens to hold deposits, with a founder (David Vélez) who controls it and a runway that runs through Brazil's $100 billion banking profit pool, Mexico, Colombia, and eventually the US.My pushback is the Capital One question. Capital One was the smartest data-science lender in the room, IPO'd in 1994, went up 13x in 12 years, and then spent the next 20 as a mature bank that lagged the market. Nubank was built by ex-Capital One people, so is this 1994 or 2006? We also get into what the right cost of equity is for a Brazilian bank trading at high-teens earnings with a 30% ROE, whether MELI and Kaspi tell you EM fintech never gets a big multiple, the 13,000-customers-per-employee stat, Brazil NPLs at 15-year highs, the wave of senior departures, whether any banking fintech has ever expanded across borders, Vélez joining OpenAI's board, and my bigger worry that AI eventually commoditizes every financial product and competes away the 30% ROE.This episode is sponsored by Trata: https://trata.com/nu. Trata is two sharp buy-siders hopping on an anonymized call to talk through the risks and upside of a stock, and it's the closest thing to this podcast in written form. Go to trata.com/nu for a free Trata transcript on Nubank that I read and used heavily prepping for this call.Chapters:(00:00) Intro and Trata sponsor read(01:55) Evan Vanderveer / Vanshap Capital joins(02:50) What is Nubank: 140M customers, 60% of Brazil, 20% efficiency ratio(06:11) What the market is missing: deepening relationships, Mexico's ARPAC(08:05) The Capital One DNA: QED, Nigel Morris, data science(10:38) My pushback: is this Capital One in 2006, not 1994?(13:00) Brazil's $100B profit pool, payroll loans, David Vélez's control(15:09) Valuation: 30% ROE, high-teens P/E, and the right cost of equity for a Brazilian bank(18:47) MELI and Kaspi: does EM fintech ever earn alpha?(21:59) Fintech or bank? SoFi 2021, lending competition, too big to fail(23:55) 13,000 customers per employee vs 1,300 at legacy banks(26:15) Brazil risks: NPLs at 15-year highs, the Selic, October's election(27:45) How much of the value is Brazil vs Mexico, Colombia, and the US(29:42) Can a banking fintech expand across borders? The Citibank precedent(31:03) Senior departures, the new CFO from Visa, capping US investment(33:47) Buybacks in the low $12s and the risk of losing local expertise(36:32) Valuation bet, business bet, or jockey bet?(38:52) David Vélez joining OpenAI's board(40:46) AI inside Nubank: 60% of inquiries, Devin agents, faster credit models(42:44) Does AI commoditize banking and compete away the 30% ROE?(46:54) The US expansion: God kings or a real niche?(50:35) Closing thoughts(52:07) DisclaimerLinks:Yet Another Value Blog - https://www.yetanothervalueblog.comSee our legal disclaimer here: https://www.yetanothervalueblog.com/p/legal-and-disclaimerProduction and editing by The Podcast Consultant - https://thepodcastconsultant.com/

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All right, hello, and welcome to yet another value podcast. I'm your host, Andrew Walker. Today, we've got a really fun one. I've got Evan Vandervere from Vanshop Capital. We are talking about NU. The sticker there is NU. And it's a really interesting conversation. This is a company that is very, very popular among Finchwit compounder types.

And Evan lays out, oh, really compelling reason why. You know, you've got a fintech that's ROE 30% growing quickly, trading at a reasonable valuation, the much better KPI's founder led like he lays out a really good reason why and we are going to have a really insightful conversation on the risks on the risk to new bank particular the risk of the financial sector in general as you're just going we've got lots of parallels to capital one in the 90s to a bunch of other things so it's a really good conversation I think you're really enjoying it and Evan has an energy and a pace of talking that I think matches mine and I always appreciate that in someone so I had a ton of fun doing it we're going to get there in one second but first a word from

And our podcast today is sponsored by Trada.T-R-A-T-A-A-D-C-A-com. If you've listened to this podcast for the first year, you know that I really enjoy Trada. If you like this podcast, I think you will really enjoy Trada too because it's just like this podcast. It's two sharp by-siders who hop onto a call anonymized and talk about all the risks and all the upsides and all the things that they're thinking about when they're making investments into this company. So if you haven't tried Trada yet, you should. And one easy way to is go to trada.com, T-R-A-T-A-com.com. slash and you and you will see a trotta transcript from just a month or two ago that i actually read

and used heavily when i was prepping and thinking about and getting ready for this call so if you like new if you like this podcast go to trotta dot com slash and you and you will see a free trotta transcript that will show you why i like them so much so thanks trotta for sponsoring this episode go check out the go check out the product and now let's get to evan and and you all right hello and welcome to yet another value podcast. I'm your host, Andrew Walker. And with me today, I'm happy to have on for the first time, Evan Vanderbier from Vanchap Capital. Evan, how's it going? It's going great, Andrew. Thanks so much for having me. I appreciate it. I'm excited to talk about the stock today. Before we talk, disclaimer, remind everyone,

nothing on this podcast is investing advice. There's a full disclaimer at the end of the podcast. There's a full disclaimer on the show notes. So if you can go check that out. Evan, the stock are going to talk about today is pretty popular in Finchwick circles, I would say. When I was, when I was prepping for this podcast, one of the first things I do now is I have it, I have my AI pull all the fund letters that can find from fiscal AI's fund letter database. And it was like, hey, there's 87 different write-ups of this company. But I think you have a really interesting angle on it and you've done a lot of work and thought about the historical parallel. So anyway, the company is New Bank.

The ticker there is NU. And I will just toss it over to you. What is New Bank and why are they so interesting? Yeah. So thank you again for having me. and I'm excited to talk about this company. We've owned and been studying for, I guess, coming up on four years or so, so just as some background.

So basically NewBank is a digital bank. It's one of the largest in the world. They have about 140 million customers as of the earnings report yesterday. They're by far, their biggest market is Brazil, although we'll touch on Mexico and Columbia are coming up nicely. It was started back in 2013 by three founders, the largest of which, or the CEO, is a gentleman named David Vales, who's actually from Columbia, who grew up there, and out of a frustration with opening a bank account in Sao Paulo in 2012, there was armed guards and bulletproof doors

and all kinds of months of paperwork and so on. Out of that frustration came New Bank. And basically the idea that he had at the time was a branchless bank with mobile, which was coming up in Brazil very quickly at the time, a zero fee credit card and basically, most importantly, a fanatical customer culture focused on NPS and really pleasing the customer in many different ways. And over the last 13 or so years, we would argue the results have been absolutely staggering. They have about 60% of the adult population as total customers. Most of the referrals that they get about 80 to 90% are organic so that the marketing costs are extremely low versus the competitor incumbent banks. And most importantly, they are extremely efficient.

So we can get into it. But the efficiency ratios are about 20 compared to the incumbent legacy banks, which are more in the 40 to 60 percent. And over the four or so years since we've been studying the company back then, it was barely profitable. And now the company is extremely profitable. So because of the operating leverage, which we'll get into, the ROEs are now, again, as of yesterday, around 30, in the mid-30s or so. So, and then just to bring it forward, I would say particularly this year, earlier in the year, there was some macro concerns, some credit concerns and some transitions that the business has gone through that caused a very significant decline in the stock price, which was why we think it's particularly timely to discuss this company today.

No, look, great overview. I am laughing because you said the founder, he goes, tries to open, one of the reasons he goes, he starts this is he tries to open a bank account in Columbia and there's armed guards and all this paperwork and like look I am what I am one for efficiency and whenever there's something inefficient I hate it and I want to fix it but you know this is just me a mere mortal not a man who started a multi-billion dollar banking uh you start up that's like taking over all of Latin America but when when I go and like oh there's arm guards are part of the problems I'm like okay I'm I'm not touching that right but this guy starts it uh okay so lots of touch on there and lots that we will touch on but

I guess to start let's just frame it high lover you know the market's a competitive place and this is a finance startup, right? They give lots of details. I believe I was reading, I think it was a Trot call that said, hey, this is the company that gives actually out of all the fintechs I've ever followed. This is the company that gives the most disclosure on just all sorts of different KPIs and everything, right? So this is a company that gives a lot of disclosures. As I mentioned, you know, like 70 fund letters that are mentioned. This is a top holding very visible, big company now. What are you, and I suppose the other funds, what are you seeing that you think the market is missing that makes this an alpha opportunity?

Yeah, it's a great question. So again, to your point, that there are all kinds of analysts on the sell side and by side covering the name. I would say still, even though that is the case, I think we still meet quite a few investors out there who are unfamiliar or sort of categorize it as like an EM, you know, sort of more early stage, not as profitable, however you want to say risky banks. So again, acknowledging that it's definitely become more known over the years, now 70-whatever billion market cap. It's still, in our opinion, not maybe understood. But I, I would say to answer your question, most importantly, is the view that we have over the long term. So I would say that there's a view out there, aside from the sort of the short-term noise

that the company, as I said, has already gotten 60% of the customers, or sorry, 60% of the population in Brazil. And so obviously, you know, you're getting to the point of, you know, maturity there in terms of, you know, how many customers you can get. And I think that the market is missing that while they've spent the last, say, five years getting those customers, they're going to spend the next five sort of deepening those relationships. And again, we can get into this, but basically there's a whole maturing of those customers over time. And if you sort of run those numbers out in Brazil alone, you come up with a far more

profitable enterprise. So that's part of it. And then the other part is Mexico, which I think correctly so, the market has been extremely skeptical of, although until recently that that business has the potential, in our opinion, to be a similar size, if not bigger than Mexico over time. And they mentioned yesterday on the call that, for instance, it's sort of benchmarked back to 2020 where Brazil was at that point in time that the revenue per customer, what they call the R-PAC per month, is double where it was at the same time in Brazil. So you have that. And then we could get into Colombia, which is obviously smaller. And then I'm sure at some point we'll touch on the U.S. opportunity. But yeah, I would say to summarize, again, our view, we're taking the sort of 10-year view where

maybe many of these other folks are not taking the same time horizon kind of opportunity. So let me pull onto a few points there, right? And I want people to. keep in mind the deepening of the customer relationship point that you said, you know, look, banking, Robin, all these things. You get the customer relationship and this is why they give you, you know, if you get one of those emails, hey, sign up for this credit card and we'll give you $150 or do a direct deposit, we'll get $200. The relationships tend to be very sticky and that's their customer acquisition costs and they plan on making it back. So as you said, they've grown a lot quickly and I think they're hoping, hey, we spent to grow and all these customers were going to get them,

you know, they took the credit card, we'll get the bank out, whatever. You're right up. So I just want people to keep that in mind. Your write-up and, you know, anyone who's followed this company, there's a lot of parallels to the Capital One story in it. And I think people pointed that positively because Capital One has been a good story in banking. So I'd love for you to maybe go through the parallels and everything. And then I'm going to follow up with some questions on kind of, I think, bare cases that could emerge from that.

Yeah, sure. So I guess a few things there. Maybe it's helpful to give some background on David, if that's all right, because I think it's a core part of the story, David Vlez and the co-founders. So as I mentioned, David grew up in Columbia. He had a very entrepreneurial background. His father, I think, started or co-owned a button factory, as we understand the story, where David worked in quality control, I believe, checking the buttons.

He apparently bought a, I think, one cow and grew the cow to six, the herd of six cows before he sold the cow, or the cows, I should say, and went to Stanford. And I won't bore you at this point with the rest of the story. But the point is that he had very entrepreneurial background. When he was starting New Bank in 2013 or 2012, thereabouts, he brought in, Sequoia was an investor in the seed round. I believe they invested $2 million. And another big investor, to your point about Capital One, to close the loop here, was QED, the fintech firm and Nigel Morris, who was a big backer of the company at the beginning. And so at that point, and from then on, a lot of folks from Capital One came, were involved on the data science side on the

or obviously at the governance level, but also more importantly in the operational side of things. The parallels between the two companies are really, as I say, the focus on data science. So like Capital One, they would start with a credit card and a very low limit and a huge reliance on data and having the algorithms and the models, you know, constantly updating and so on and so forth. And obviously as the customer matured and behaved, that they would increase those limits. So I would say that that's really the genesis of sort of where they came from. and sort of the similarities between the two organizations over time. Okay, perfect, perfect.

So, you know, for those, I'm sure most of my listeners are domestic, most of people know Capital One, right? But the Capital One story is these were like the smartest guys in the room, right? They start in the 80s and they figure out segmentation credit cards and having people, I mean, it's credit card business and they figure out direct mail. If you have somebody switch their credit card balance, like that's actually a really undervalued thing. Credit cards are super profitable.

That's how Capital One gets started. And the reason I think is. new bank is interesting is because Capital One is a killer stock. The IPO in November of 1994, the stock is up like 13x over the next 12 years, right? It crushes the market. It's a great stock. In 2001, I'm just kind of looking at my Bloomberg glancing at it. They're approaching 4x price to book value, all this sort of stuff, right? So this is a great growth company trading for a huge profitability. And then what happens? You know, they find this loophole, but two things happen.

You know, a lot of company, a lot of the companies they're competing with, because you're offering a financial product, they start doing balance transfers too, right? Chase all these guys. So it gets a little bit more competitive. People start hiring the capital one execs and saying, hey, come over here and bring all that data science to us. So the market gets a little more competitive. And they kind of grow, start taking so much of that market.

They have to expand, right? They buy a bank. They start doing deposits. What happened since 2006? The stock, I'm just looking at it. You know, this stock, 2006 today, it does fine. It's up like 3x over 20 years, fine, but the market's up like 8x over that time, right? So crushes the market the first 12 years, but then it kind of grows into a mature fintech,

and it doesn't really do that well, right? It's kind of trading around tangible book value today, and if you held it, like, you're kind of disappointed. So I'm sure people can see where I'm going with it, but when I look at Newbank, I see this company and 30% ROEs, great growth over the past few years, but say, hey, in Brazil, I can't remember but I think they're hitting like 60% of the population has relationship with them. They're into the teens in terms of market share. And I say, hey, that all sounds great. And let's put international side for a second.

But when I look at that, I say, hey, they're Capital One in 2006 at this point, right? And the future is a lot slower growth. ROE is coming down, expanding a lot. So that's kind of my first worry when I look at the story. So I threw a lot out there. Hopefully it was a fun little story and fun little trip down memory lane for anyone who remembers Capital One. But I'd love to hear what you kind of think of that as the point.

pushback. Yeah, no, it's a fair pushback. And again, obviously, you know, our thesis going forward does not rely on so many more customers, particularly in Brazil. Again, Mexico, U.S. and Columbia are different stories. But I would say to sort of frame it up, I think we look at sort of the Brazilian profit pool. And again, I'll somewhat answer your question by touching on Capital One, but I'm not as deeply familiar with that business as I am with new. So I'll sort of touch on and try to answer your question. But the profit pool generally in Brazil is about $100 billion. of gross profit in the banking system. And today, New Banks at like 7% of that. If you sort of look by by a different product type, for instance, they just got into the payroll, which is actually

the largest part of the credit business in Brazil payroll loans. And they are now like 1% of that, for instance. And so if you go down the different verticals, as I say, different product lines, not only in Brazil, but then the other countries, it's hard for us to see how they don't grow materially from here, frankly. Even, and again, I'm sure we can get into it, some barring some downturns and crises and so on, there will be competition. There is, and again, we can get into that, you know, from other fintechs. There's a few thousand, I think, FinTechs in Brazil alone. So there are other players.

I would argue that at the end of the day, Newbank has reached the point where they are, they are so well known and that the brand and reputation is so strong that when they go into these other verticals, they have a distinct competitive advantage. And again, we can touch on the data advantage that they have. I would say there is no question that obviously that they've, in some ways, they've picked the lowest hanging fruit in Brazil. But our argument is that there's not only in Brazil, the other countries where they're just getting started, there's tremendous opportunity. And I think that maybe most importantly on our thesis is David Veles. And the fact that he and his co-founder still control the company and own about 20% of the stock, I think particularly in banking, as Munger used to say, I think you really need to trust the banker. The insurance company or the bank, you really need to have someone you can trust. And so him still being in his mid-40s and controlling the company and making sure that culture and growth is intact, it gives us tremendous comfort and optimism going forward.

I mean, that is just wild. And you know, you look at this. Like you mentioned, this is a 70 billion market cap company that he started after Capital One. Capital One is the model. I mean, Capital One today is, I think it's less than $70 billion in market caps. So like they started later like this is just, it's an incredible, incredible growth story here. But let me go to valuation, right? So they reported this morning.

The stock is up about 10%. So that's probably pretty nice for you. And, oh, Captain One's Market right now is $140 billion. I was looking at, I had their 2007 mark kept my head. They reported this morning. Stock's up about 10%. Probably pretty nice for you. We've planned this before.

But obviously you still think there's a long way to go. People can listen to the whole podcast. Hear that. As we're talking, the stocks trading about 15. That puts them at high teens to about 20 times price to earnings on an LTM basis. this is a business that earns a 30% ROE, right? My worry is I talk to a lot of investors who are U.S. domestic-based, and they'll, whether it's a bank or a tower company or whatever,

they'll point in and say, hey, look at this great company I found. You know, peers in the U.S. trade at 10 times EBDA. This trades at nine times EBITDA, and it's growing faster. So it should trade for a higher multiple. And I always think to myself, well, maybe you're right. but like domestic, you know, I had this with Von recently. Emerging market companies should have like a higher cost of capital. So what is the right answer?

So here you have a company that's earning a 30% ROE trading for 18 times, 20 times earnings that's growing quickly. I mean, if this was the U.S. you'd be like, hey, this should trade for infinite price to book with those metrics, right? We're talking about how much the TAM can they hit before they start slowing down. Brazilian banking? I don't know. Like what's the right cost of equity for a Brazilian bank? if it's 15, they're still earning a ton, but that's way higher than a U.S. bank.

If it's 45, which if this was, I don't know, some emerging market beyond Brazil, they'd actually be destroying capital. Like, what's the right cost of equity? How do you kind of frame that valuation? How do you think about all of that? Yeah, it's a great question. I think at the core, maybe somewhat is philosophical, right? So when you're, in my opinion, when you're investing on one of these leading edges of a sort

of a disruptive business model, as we believe, do is not that's not only in Brazil in these other countries. I'm not sure anyone has the right answer to the question. So I would say we would argue that this is more of a tech company than a bank. Obviously, if you go back and look at, you know, at the history of banking with branches and, you know, they're not even in mortgages, basically. If you look at traditional what a bank balance sheet looks like, it almost looks not much like, although obviously there's loans and deposits.

Otherwise, it doesn't look like that like new bank. So I think it depends how you frame it up. The way we frame it up is we sort of look at 2029, 2030. We think the company can make about $2 in earnings. are, to answer your question on multiple, which is roughly 16 times multiple, which I think is fair. You can also look at, for instance, Ittahu in Brazil. I think it's, so Ittahu coming back to today, which is one of the five legacy banks, which has an ROE, I think, about something about half or less of new banks and is trading also seven times 2029 earnings. So I guess to go back to your

question, again, I don't think anyone knows exactly the answer. The company and ourselves would say It's more of a tech company than a bank. I think time will tell how true that is so far. I think it's been a fair argument. And I think your question about Capital One, and if they can continue to grow at this rate and produce these kind of returns, I think that their argument will be more true 10 years from now

than it is than it is now. But we shall see. No, it's interesting because every other word you say there, I find myself either nodding on like, yep, I agree. Or going, no, I think that's crazy. Like, it's just to emerging market bank, like that is the, the key debate here, right?

Let me try to frame it a different way. You know, the, the two public market companies that come to mind when I hear this as loose parallels, aside from Capital One and like, you know, the, hey, is this Capital One in 94, 2006, comps. The two that come to mind would be Melly, M-E-L, Markely Libre, and Caspi, KSPI. And Melly, I think, is a little bit of a different business. I think they have more retail focused as well, but they do have a fintech segment here. And Caspi, obviously, like, owns.

Kazakhstan. And both have been kind of catnip for investors in a similar way to this. You know, you can look at fund letters and people. And I think smart investors there. And both haven't worked out as well as I think they would have. You know, both are still growing nicely. The ROEs on both are nice. And I think the answer there has been, A, there's always this regulatory acts that people are worried about with an emerging market. And we can talk about the Brazil specific new bank one in a second. But I do think there is something to, hey, people just aren't going to give you a big multiple. They're always going to worry about that because of this cost capital issue and everything. So how would you look at New Bank? You know, if you're investing today,

you're doing it because you think it's going to be Alpha. And Cassidy and Mellie, they haven't performed poorly over the past five years. They just haven't like generated tons of alpha. So what do you think is different here versus those two peers? And if you can also say, hey, man, I haven't done any work on those. But I do think the framework is at least helpful. Yeah, well, coincidentally, the two companies you mentioned are other two large holdings. So I know them well. I guess if I can, in the most respectful way, push back on on your assertion that they haven't done. I'll done well. Just ask some questions.

No, no, no. Absolutely. Man, it ain't me. On Mercado Libre, I think just to touch on that, we again think that's a phenomenal business. You know, I think that in that case, you mentioned the five-year sort of look back, and that is absolutely true. I would say that the valuation in our opinion back in the, during the COVID-201 time

was extremely rich. And now we would say it's undervalued. So I think if you go back to the IPO, what is there, 27 years ago, I think it's compounded in the 20s. I had to stop it at five years because if you go to like 10 or 15 for me, Melly, it looks really damn good. There we go. So, yeah, our view is that the next five or ten will be back, back on track.

As it relates to Caspi, I would say somewhat similar, that the valuation got quite high just prior to the Ukraine-Russia war. And so the multiple also has contracted from, I think, was at a peak of 19 times down to, you know, bottom kind of six times. So in our opinion, both of those businesses, including new, are firing on all cylinders. there have been short-term issues that we could get into another time on Caspi or something like that. But I would say those business models over the long-term are remain intact. And our view is that Newback has a similar, you know, competitive advantage with the data that they have, the scale and so on, you know,

just basically constantly pleasing customers, adding more and more products going into more and more geographies and so on. So, so, yeah, the short, summarized that the short term is a question mark. but our view is that all of the three businesses that we're discussing that you mentioned should have a tremendous opportunity over the next five to 10 years. Let me go back to one more thing you said earlier. You said, hey, New Bank in our mind isn't a financial company so much as a FinTech, right? Like internet. And look, again, people can go look at the metrics they publish and they polish and they

polished lots of metrics more than most companies. You can look at their, they've got better loan underwriting, all this sort of stuff. A frequent thing I hear from people is, hey, just in researching this, a frequent thing I hear is, hey, these guys are actually too conservative on their loan underwriting. They would be more profitable if they actually increased their loans and did some more bad loans, which is not something you hear a lot, right? But I did hear you say, hey, these guys are branchless, better technology. And it does remind you, you know, of you mentioned about LA in 2021, and remind you of the

SOFI in 2021, a bunch of these branchless banks, fintechs that were coming along that said, hey, we've got better tech. Consumers love us. We're simpler. Robin Hood's probably worked out, okay, probably the best of them. But that was the pitch, right? And what happened? Well, you know, the really young people flocked that. But then guess what? It's really competitive when you're giving out a loan because what do people want when they want loan? Yeah, they want a sleek interface and all this sort of stuff. But they kind of just want the lowest rate. And if you're lending at 30% ROE, maybe it's because you're more efficient, but there's always going to be incentive for some guys to undercut you to stay in business. So, you know, I guess my question is with their market share, why isn't this right now kind of at the path of, it might come back to Capital One in 2006, where it's, hey, they're so big, they can't take much more share without the banks really pushing back aggressively.

The banks look at that and say, all right, it's existential for us now. We need to cut costs or even the regulators step in and say, New Bank, you're the fifth largest bank in Brazil. We just need to cap your lending because you're becoming a, you know, a so-fi, significantly. financial significantly institution that is kind of too big to fail. So there's a lot of actually there, but I'd love to just ask about like kind of that forward look. Yeah. So I guess I'm trying to pick it apart. I would say as it relates to focus, I guess you mentioned so fine, some of the other fintechs in the U.S. and Robin Hood. Obviously those have done fantastic well. I would point out, obviously, in my opinion, that they are not nearly as focused as New Bank, having all different kinds of businesses

and transforming and so on, which is obviously work for them. But in my opinion, is not the same focused economic model that New Bank has. As it relates to, you know, push back by the regulators and so on, it's important to keep in mind that New Bank has brought a lot of their customers sort of out of the unbanked population. So as you can imagine in Brazil, and it's also the case in Mexico and Colombia, and actually here, even in the Latino population in the U.S., many folks have no credit score, no access to the banking system, and their ability to use their data to be able to underwrite, even in a small way, those folks at the beginning is, excuse me, is very powerful. And I, they really,

for that reason, well, for many reasons in Brazil in particular, have a very sort of fanatical following. So the idea of the regulators or the population going against them anytime soon seems unlikely, but anything is possible. I would also say that it was it relates to the loans. You know, you mentioned the efficiency, that the fact that they are, you know, however you want to frame it at least twice as efficient, if not more. For instance, I don't think I mentioned, they have something about 13,000 customers per employee at New Bank, where the legacy banks have about 1,300. So again, on that metric, it's almost 10 times as more efficient. So what that allows them to do is underpriced, not on every product, but as it relates to the private

legacy banks in Brazil, they're able to underprice them because of that efficiency. So again, over time, I'm sure there will be competition. You see it in the different markets, but our argument would be even that competition, it's going to be difficult for them, but more likely that those folks will be eating out of the legacy banks or the, you know, the legacy banks both in Brazil, Mexico and the other geographies. That is crazy. Thirteen thousand, there are 13,000, there are 13,000? Though you also don't know, like, you know, is there mortgage servicing on one or the other, but that is just wild on the Facebook? Let me ask, Brazil is their largest market? Yep. Let's put the other markets to the side for a second. Just, are there any risks around

Brazil, macro, regulatory, anything that you worry about with this company? Absolutely. So, yeah, just to be quite clear about that it's Brazil, as you and many of the listeners know there's, I think, a crisis there. Normally, every few years or whatnot, there has not been in a handful of years. And so obviously, you know, we'll see over time. I would say a few concerning things. One would be, for instance, that the plus 90-day NPLs in the banking system are at 15-year

highs. And part of the reason for that is the sell rate, the interest rate in Brazil was up in the mid-teens. And just recently, they've started to drop it down. But as you can imagine, that stretched the customer to a large extent. The average customer in Brazil is heavily indebted. And so if you speak to Brazilians, they're getting credit card offers in the mail every five seconds and calls and so on for new credit cards. And so there is an element of there's no question that the consumer in Brazil is stretched from, as I say, from a leverage level. So there's that there's a presidential election more short term coming up in October.

Our view is that the market is pricing in another Lula win. Again, obviously Lula is the president now. So things have been going just fine for New Bank. But obviously to the extent that there's political turmoil of any kind later in the year, that that could cause a problem. So we could go into, I guess I've touched on some of the mitigants as to why we think even in a more macro stress situation that New Bank should do just fine. but yes, for sure, it's, you know, it's an emerging market at the end of the day that has a history of some very volatile periods. No, that's perfect. If I, and I want to start talking about some of the emerging markets, Mexico, where I think they're furthest long than Colombia, maybe even the U.S.

But if I just put those emerging markets and everything to the side, you know, how we, you kind of mentioned, hey, when I run this out to about, I think you said 20, 30, I look at, you valued at like 17 times, 20, 30, even. which does not assume any multiple expansion, right? So you're valuing it all on growth. But when you talk about that 2030 number, how much value are you baking in for Brazil versus the expansion markets? We don't count the U.S. and obviously the company thinks that there's a pretty decent shot that they can earn significant market share. I have to go back in the numbers, but Brazil is obviously still a very, very large part of it. We are assuming that Mexico sort of continues on the trajectory. Columbia is a small part, but again, earlier stage similar to Mexico. So, you know, we sort of continue the, the, uh, assent of all three companies at the sort of the current rates. It's not like one becomes more

outweigh. I would say on a profitability, obviously Mexico just crossed over the break even here in the last few quarters. So obviously that will, will in terms of profitability for the company that will start to increasingly, uh, become more meaningful as the operating leverage starts to shine through. But if I was kind of, it sounds like Brazil, I mean, obviously Brazil is the scaled one. It's the largest Mexico's growing, but it sounds like, like the vast majority of your forecast. Maybe you're not even doing it by geography at this point, but the vast majority of your value is still coming from the core Brazil. Yes, that's right, particularly under the assumption you're mentioning, we have sort of the R-PAC, again, which is

a contribution margin effectively per customer per month. We have that going from roughly 17 up to, I believe, in the high 20s. The mature cohorts in New Bank are already in that range. And the incumbent legacy banks are more in the 40s. And there's some good reasons why they structurally should be hire because they have other additional services that Newbeck doesn't currently offer. But yes, that's correct answer and summarize your point. Let's go. So they've got three expansion areas, Mexico, Colombia, and the U.S. Mexico just crosses profitability.

The other two are drags because they're investing to get the startup businesses. If you want to say anything specific about any of the geographies, you're welcome to. But I guess my overarching question when I look at this is like, hey, fintech, banking focus fintech, if that's fine, fine for me to. say banking focus fintech going into separate geographies. Like I know their whole thing is, hey, we're going to be the first one that actually does this all on a core technology platform. But I can't remember a single banking focus fintech that has successfully gone from their geography to any other geography, right? Because every other geography has unique rules, unique relationships, unique regulatory regimes and stuff.

So I think that's served as a massive barrier. Like like Citibank is famous for this, right? In the 90s, they say, hey, we're going to be the. the global banking center. Terrible. Underpreference for 25 years, right off, right off, right off, right off, right up. And you can take it forward to pretty much any fintech you want, all the 2021 buzzy ones. I can't remember a single one that was successful in the expansion. So my question would be two-fold, I mean, Mexico is already a past break-even, but like, why do you think this should be successful? And given the upside that they have in the Mexico, in the Brazil market, like, does it even make sense for them to spend time kind of diversifying away from this?

Yeah, all great question. So we could spend an hour just on, sorry, just on the philosophical part of that. But I would say one point I would make, and it's an important one that I didn't touch on earlier, as part of the reason for the underperformance recently, the stock is that there was a handful of management departures and particularly people that were very highly regarded by investors, and including the CFO. And so one of the reasons in our opinion, or maybe the main reason those folks left is that David has, is, is, is, is, is, is, is, is, is, is, is, is, is, is, is, is, is, is, is, is, is, is, is, is,

trying to take the company in a more global direction. And part of that is obviously finding folks that have built global businesses. So Rob Livingston, the new CFO who just joined the company recently, for instance, Bill was running, or was the CFO, excuse me, a visa North America. He had spent a lot of time, I think, 18 years or so, Capital One. There's folks like that. The new product officer, chief product officer, just came from Shopify. So I would say to answer your question, that the risk there is not lost on the management team, number one. as it relates to the U.S. and going past where the current geographies, they have mentioned that they're going to cap the investment for the next few years at 100 basis points, the efficiency ratio.

So they are very aware that they are not going to, they don't want to spend the golden goose going into all these geographies and risking the company. I would say, though, at the same time, you know, you look at Mexico investors, you know, five or whatever years ago, we're saying the same thing about that. So I guess that comes back to the hour discussion about, you know, philosophically, you know, going back to Citibank, as you mentioned in the 80s or 90s, how was that managed and admitted to Lina being an expert on what happened there. But I would say, again, a big part comes back to the management team here, the thoughtfulness. I would say at the end of the day, they acknowledge, you know, the chief product officer acknowledges, for instance, that the app will be different in, you know, each market and so on and so forth. And not only that, the credit metrics themselves, the data is going to be different. you have different, all kinds of different, you know, coming from the government, not coming from the government, so on and so forth. So the answer is that I think that they are going to do it in a very thoughtful, calibrated way. And if it's not working, they will stop doing it, is our hope, and deploy capital or return it to shareholders. But I do believe that at the end of the day, the business model of going into a given geography and having a far more efficient, far more attractive product to the customer is still, although it's, you know, now been around, for 12, 13, whatever years is still relatively underpenetrated. The digital banks around the world

are still a small minority of the banking system. And our opinion is that over time, they should be the whole thing. So that's really the question. The nice thing about, I believe they bought back shares in the first half of the year. And it looks like, you know, given we talked about the stock is up to 15, and I think they bought them into like low 12s. Like the nice thing about having ROEs of 30s, if your stock is trading for 15 times price of earnings, ROE is. REO is. 30, you have enough capital to your profit enough. You can buy back stock. You can grow the core business and you can grow in emerging markets. Like you can invest in everything when you're always 30. It's kind of nice that works. Let me pull them one thing you mentioned there. Again, I'm just trying

to think, but if I told you, hey, I've been looking at this bank that's doing great ROEs and they're letting go of all their people with local market expertise and banking background and they're hiring people with global fintech background. You know, that sounds nice. We're in a we're going to take over the world sense. But I'm also worried about, hey, that I've seen this before. You know, you hire the people and say, oh, we're making this big push and say, oops, we lost control of our core business, writing off a bunch of loans. So how do you think about managing that when, as you said, the reason the stock might have been weak in the first half of the year is a lot of the core gosh, nobody likes to see the CFO leave at any type of fintech or banking platform. A lot of the core

people are leaving for people who, yes, might be more well-known globally, might have more global experience, but they don't have the local banking core Brazil experience. Yeah, great question. I would say, and I didn't mean to overstate that the folks who left were at the very top and we don't get any sense that through the ranks that the core business, you know, the actual operating people or even the people below them were departing. I would say, so in that sense, it's not like the whole Brazilian team is walking out the door or something like that. They've restructured it so that I believe now there's a CEO of each country that is a local or at least intimately familiar with the business. And then there's a Latam

CEO. So it's more of a reshuffling, a restructuring. And one could argue on the other side that, as I understand it, there were direct reports that there were too many layers in David's opinion coming up to him from the different businesses. And now that has actually been streamlined. So I think the direct reports have actually shrunk down. So his argument would be now he's closer to the business and keeping a closer eye. And again, those folks that are, for instance, doing the credit underwriting in Brazil are still doing the credit underwriting in Brazil.

It's not like they've hired some, you know, team from Iceland to do that or something like that. So I guess time will tell. But, you know, I think what so far, what we've heard. And again, you know, in the last podcast that the company put out with Rob Livingston, the new CEO, his, David mentioned, you know, what are you going to be focused on? And we very much like Rob, answer,

which is I'm going to continue to focus on Brazil, you know, make sure the focus of the company is on Brazil. and not, you know, to the next 10 markets where we're going. So again, I think time will tell, but we're optimistic that this is being done in a thoughtful, prudent way. Slightly pivot. David is a very, I mean, look, he started a $70 billion bank, you know, in mid-40s, very highly regarded executive, right? Owns a ton of this stock. He just joined the board of Open AI. So I guess I would ask you two questions about how much of new bank, in your opinion, is a valuation bet?

we mentioned, you know, high teens multiple for a 30% ROU business that's growing quickly and has a lot of room to grow versus a business bet. We mentioned KPI's off the charts versus all their Brazilian competitors way more efficient, probably the right to win versus a jockey bet. David, you know, super well regarded, started this business, deep ties throughout a lot of the text circles. Like how do you kind of think about this overarching? Yeah, it's a great question. So the way we frame up the world is we're always looking around for what we call customer fanatics. So I guess The simple answer to your question is we like to think that every investment we make is at the end of the day a jockey bet. I would say in the case of New Bank, it's particularly jockey bet, I think not only because of his control of the company, but the way he treats shareholders a few years ago, he had a cop package that I think would have added another few percent to his ownership if he had hit certain metrics.

And he decided to get rid of that, I believe, for more or less free because he didn't think it was at the end of the day fair to shareholders. There's other similar moves that he's made that support, in our opinion, that view. I would say on the multiple, you know, as we touch on it, I don't think you really need multiple help here. I think that, you know, David just continuing to execute, you know, in the way that he has, as we mentioned, he's still quite young. And, you know, the longer we're in the business of investment, the more important, I would say that the jockey makes. So questioning the jockeys every single move. And, you know, I think it's worthwhile doing that, obviously, as it relates to going into certain countries and other geographies.

It makes a lot of sense. But so far, the way they've built this business and clearly the results lead us to believe that, you know, he is an exceptional talent. And while one can question, you know, each move, it's probably best to, at the end of the day, unless one reason, one has a good reason not to believe him to let him continue to build the business. I'm not sure if I fully answer your question there, but no, no, I think that's great. Let me ask one more question on him. And I don't know anything about him.

He obviously is super highly regarded. People can hear that throughout the podcast. There's one interesting. He just joined the board of Open AI. Yes. Correct me if I'm wrong. Yeah. I thought that was interesting because, A, talk about being plugged in, talks about being

connected. Like, I'm sure there are boards that are more prestigious to join right now. But I mean, I don't think there are many, you know, like that's a really cool thing. And it speaks to connections. Obviously, you mentioned the Sequoia connection, all that sort of stuff. But on the other hand to say, hey, you know, you've got this growth fintech that you've got this growth fintech, you're the CEO, you own a ton of it.

When I look at a lot of the customer fanatic founders, you mentioned, you know, Mark Zuckerberg or Jeff Bezos, I think Mark Zuckerberg and Jeff Bezos do not sit on outside boards, right? And Jeff Bezos, he's retired and he still doesn't sit on any boards outside Amazon. And I'm sure anyone would want him. Steve Jobs sat on a few, but I don't think many. I think most of them were like direct compliments to Apple when he was there or Pixar when he was there. So how do you think about him joining Open AI in the context of it seems like that might be a little bit of distraction? I just think it's a weird thing for like a fanatic with all of his net worth tied up in this business.

Yeah, I would agree that there's a risk of that. So yesterday, one of the analysts asked him on the conference call about that and he basically said that it's the benefit of New Bank. And I think that there's probably a large element of truth to that. I think obviously being on, you know, on the board of one of the largest, you know, LLM's AI businesses in the world, I would think would provide a lot of insight. The other thing, and we could dig into it now is how much AI is helping new bank become far. Yeah. So when you're competing with legacy players and you're like the fintech enabled player, you have to think that AI, if you exclude the, hey, the government is making sure that five players get cybersecurity projects. You have to think AI is going to be mass for them because they're just going to be so much.

fast or so much more. Sorry to cut you off, please. No, no. So, so yeah, maybe to transition, I guess you're right. Normally, if we saw what we as a fanatic and to your point, his vast majority of his wealth is in the business and, you know, he's obsessed with pleasing the customer and so on. So then the question is, well, why would he be spending whatever hours per month on this? And, and again, I guess just to touch on some highlights, you know, something like 60% or more now of the customer inquiries are handled by AI. So without human interaction and on the, the first pass. So there's a tremendous cost savings there. David, David has talked about sort of this becoming an AI business in the sense of the AI helping on the financial advisory side on

all kinds of things. They talk about just because you have a bank account doesn't know what you mean to, you know, you know what you're doing as it relates to that. So there's a huge value of AI just helping the customer. And then as I said, on back on the business side, I think they're using cognitions models. And they've talked about the Devon AI agents and basically apparently over over, they put out a blog about this recently. There was like a 12 times efficiency gain in engineering hours and a 20 times cost savings on on the implementation of, you know, what is going on inside the business. They also talk about how the credit scoring and the data used to take months so they would

update their model every few months. Now it's down to like something like a handful of days. So basically, AI is changing all parts of the business, the customer service, the credit, they can obviously therefore, to an earlier point, write much more credit with you know, with much more security in terms of understanding the risk of that. And so, again, to bring it back, we would normally be skeptical, but I would say in this case, the amount of impact that AI is having on the business is so incredible that I think that my guess is that he heard this opportunity and said, you know, this would be silly to pass down.

This is going to have a huge, my insight that I'm getting from this relationship and this integration as part of the board would be of huge value to new bank itself. Let me ask you a broader question on AI as it relates to fintech, because there is nothing to me that is more commodity than a financial product, right? Like, I have a credit card. If I'm looking for a credit card loan, you offer me 19%, you offer me 18%. Cool, I go with the 18%. Like I don't really care about anything else.

Checking account, all this sort of stuff. Now, maybe that's a little bit too far because, like, you know, if I need an ATM, I want ATMs close by or something. but really financial products are about as commoditized as you can get mortgage. You really don't care as you want the lowest mortgage as long as you can send a check-in. I have worried for all, like I've thought about the U.S. banking system. I've worried for all of them like the U.S. banking system is built a lot on zero cost deposits, right? And people probably remember back when in March of 2023, there was the regional banking crisis

and there was the whole sorting of cash, right? everybody who's worried all the cash was going to sort to high yield money markets and destroy the entire business model. That didn't really happen, but I have worried with AI, like the best place I can think of AI in terms of if consumers start using it to maximize their lifestyle would be AI, optimize all my finances, right? Get me all of my checking accounts into the most high yield things with, you know, in the U.S. FDIC insurance. Any place where I'm paying interest on a credit card or mortgage, go find me a cheaper one if you can. and do that constantly.

So I've worried about that. And so if I brought it back to New Bank, in the short term, I bet they are going to be so much faster than a lot of their peers at adopting the AI. But in the long term, like that results in super normal profits for six months, a year, two, three years.

I'm not sure. But in the long term, if everybody adopts them, like I'm worried the profit pool is going to zero. And that 30% ROI, we talked about everybody just competes it away because AI does everything. So that is like a more high-minded,

maybe longer term. thought, but it's something I've thought about with U.S. banks. And as you said, it made me think with new banks. So I'd love to ask how you kind of think about that. No, it's another excellent question. I would say there's a lot of points there. So I'll try to remember some whole at some sometimes. Discussing AI's impact on the entire financial system, is it a two-minute soundbite? Exactly. So I guess number one, to your point, your first point about commodity, and I would agree at some level that's true. I would say then if you want to make that assumption, then the most important point in a commodity business is to have the lowest cost, right, to be the

the most efficient is the last guy standing. As we've discussed, I think, at least as of now, and in my opinion, they'll look foreseeable in potentially very long-term future new bank. No one is going to be more efficient than new bank in the efficiency and therefore being able to, to your point about the credit cards, you know, at 1% lower, they should be able to offer the most efficient rate because of the, you know, the scale that they have and branchless. And, you know, again, that's all another conversation about how hard it is to close these branches and so on and so forth and change these layers. legacy banks and how slow that that process can be. But I would say, yes, so I think the number

one is the, is the, just the fact that they are so efficient, therefore the lowest cost. Again, if you want to make the assumption of a commodity industry, I would push back on the pace of change, right? So many folks in the U.S. there's what five banks that control massive whatever percentage of the banking system and they pay almost nothing to your point on deposits and yet still the people keep including myself, keep money at these banks. And as it relates to AI suggesting that they pull it out, again, I think if you are offering the best rates, so on and so forth, there is an element, and I don't think that this will change probably even in our generation where even FDIC backed and so on, where you want security, you want obviously a good customer service. And

if those things are being achieved, so the low cost and customer service, I don't see why you would change or, you know, even with someone's, you know, AI suggesting that you do so, I don't see any time in the future or in near future where that would change. So I would say those combination of variables, again, with the customer service that, you know, and the low rate, I don't see why someone would go somewhere else. Let me ask one last question then. Probably need to run to the bathroom, to be honest with you. We mentioned Mexico, I get it.

Columbia, I get it. You know, the one expansion where I look and I say, ooh, is this kind of. kind of too much too. Moving into the U.S., you know, if you just told me, hey, there's a emerging market player that's moving into the U.S. in FinTech, but like, they're too, they've got too much of inflated ego, right? Like, the U.S. is very, very well served. I'm not saying there aren't underbanked people, but there are lots of very juicy startups that are really attacking these problems a thousand times, lots of really good banks with great tech stacks and just kind of like, hey, why are they moving in here? Like, they've got so much on their

they've got so much opportunity to expand. And when I, I think that's the thing where I see, hey, we're moving to the U.S., it kind of brings me back to the question earlier where I said, hey, I haven't seen Fintech expand successfully, say, I might believe it if you told me Mexico and Columbia, but when they move into the U.S., I kind of say, oh, maybe these guys just think they're God kings and don't understand the competition they're going from. Because I know people have mentioned Banco Santero moving into the U.S. I don't think that's been a screening success.

Barclays, they're in, they're out. like the US is just really competitive. And there's really good banks whether it's at the large scale with relationships. And you know, people say, oh, I'm going to move in. Like it's not easy. You have to hire a team. You have to go acquire all those customers. And maybe if you're in a very inefficient market like it seems like Brazil was or maybe Mexico,

okay. But if you're in a market that's as deep as the US with this many competitors, like man, it just, it seems like you're asking for failure. So I just want to get your thoughts on that expansion because they talk about a lot too. They do. Yeah. And again, I think that is a source of what's called anxiety for the investors today. I would say a few things.

One, as I said, they've decided to sort of cap correctly or incorrectly for the next two years their investment. So it's not like that they are betting the company. And I also should note that, as I said, in our valuation and our view of the future, we're not counting anything, nor are we subtracting anything to your point. So obviously, if the management team decides to dump billions of dollars here and not get a return, then obviously that would be a, a reduction in our valuation estimate.

But I would say so a massive, something like one in three Hispanic folks in the U.S., citizens in the U.S. are unbanked, basically. And so they are not just going to the average person in the U.S. They are going to a very specific part being here in Miami. The co-founder, Christina, moved here in the last year or so. They're making a huge push here, I believe, in probably Texas and California, where you have a huge immigrant population from Brazil, from Mexico, and so on. many of these folks are familiar with new. And so I think that's part of it. The other part is that,

you know, I don't know about you, but again, a chase bank across the street or one of the others, you go there and you have to wait in line and so on and so forth, these branches and takes forever to do this and do that. And while maybe the customer service is better than it was, you know, five years ago, I think New Bank thinks that they can provide even a far better service digitally with much better user interface and so on at potentially over time a more attractive cost. So we shall see. Again, I think the verdict is out. They seem to be doing it in a very thoughtful way, bringing in people who know what they're doing. And it's a very, very large market.

I think they've said that they're, you know, over time, targeting five to ten million customers would be a good scenario. So, again, they're not assuming that they're going to become, you know, a 10% market share bank. So we shall see. It will be a very interesting experiment to your point. Others have tried, and it has not necessarily gone well. And we shall see. But I would say high level, we're quite optimistic about how they're going about it. And if you sort of dig into the niche that they're focused on, I think there's a

a pretty good shot that they can, you know, make some progress here in the U.S. No, look, I certainly hear you. You know, I just like, the Robin Hood app is really damn good. Now, I, I remember looking at Robin Hood when they were really down. I was like, oh, man, I don't know. But the Robin Hood app is really good. Like, for all the stuff that chase, you know, the ATMs hit, the Capital One. I mean, NewBanks model, I have Capital One.

Like, these apps are pretty darn good. So, yes, if you go in person, it's slow. But the in person is like, it's also there for when you need to approve your identity or when you need like cold hard cash like most of the other stuff can be done online so if you're saying hey i wouldn't compare new bank to the in-person i would compare new bank to the app and i say the apps are pretty damn good across the board so anyway uh i am getting old and i had it's friday so i had some diet diet dr pepper today so i i have to go hit the rush but any last thoughts you have on new bank or anything you want to leave listeners with uh no i i think um you know we've done a good job covering the

highlights i think it you know it's a it's a name that uh i think a lot of people recognize has has grown a lot And our view is that it has a lot more room to grow by deepening the relationships in Brazil and Mexico and so forth. And then as we discuss, we'll see here about the U.S. But I would say considering the valuation, you know, has come down materially here. We think you're buying into a sort of situation with a customer of fanatic at a very attractive price that over the, you know, five, five or next 10 years that could and should produce very attractive returns going forward. But time will tell. Perfect. Well, Evan, thank you so much for coming on.

I really enjoyed this conversation. Great discussion on both New Bank and the overarching. FinTech Journal thing. This has been a really fun conversation, so we'll have to have you on again, and we'll chat soon. Thanks, Andrew. I look forward to it. Have a great weekend. A quick disclaimer. Nothing on this podcast should be considered an investment advice. Guests or the hosts may have positions in any of the stocks mentioned during this podcast. Please do your own work and consult a financial advisor. Leading insurers know that fragmented operations don't cut it anymore. Policyholders expect more, and modern insurers meet those expectations with Adion.

From effortless premium collections to instant claims payouts, Adion's single platform automates the entire policy life cycle. One platform to manage how money moves, control claims fraud, and automate operations. Adion, fintech built for your next move. Thanks.