Q4 2021 Nu Holdings Ltd Earnings Call
At our 2021.
A slide presentation of the company today's webcast, which is available in the new Investor Relations website.
Ww that investors thought new in English and Www Bronco English ability Fontainebleau in Portuguese.
This conference is being recorded and a replay can also be accessed on the company's IR website.
This call is also available in Portuguese to access is impressed icon on the lower right side of his new screen and then choose to enter Portuguese room after that select mute original audio.
<unk> <unk> <unk> cel Portuguese room.
Our society without such fix even with that of our traditional.
Please be advised that all participants will be in listen only mode. You may submit online questions at any time today using the Q&A box on the webcast.
I would now like to turn the floor over to Mr. Federico Sandler Investor Relations Officer, and New Holdings you May proceed.
Thank you very much operator, good afternoon, everyone and thank you for joining our earnings call today.
Have not seen our earnings release, a copy is posted in the results section of our Investor Relations website.
With me on today's call are though at Willis, our founder Chief Executive Officer and Chairman.
Beyond the level, our chief financial Officer.
<unk> <unk>, our chief operating officer.
Additionally, Jack Google, our Chief product officer will be joining us for the Q&A section of the call.
Throughout this conference call the company will be presenting non <unk> financial information, including adjusted net income these.
These are important financial measures for the company, but our non financial metrics as defined by Ifr is broken.
Reconciliations of the company's non <unk> financial information to the IRS financial information are available in our earnings press release.
Finally, before we begin our formal remarks I would like to remind everyone that today's discussion may include forward looking statements. These forward statements are not guarantees of future performance and therefore, you should not put undue reliance on them.
These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from the company's expectations.
Please refer to the forward looking statements disclosure in the company's earnings press release.
Now I would like to turn the call over to Debbie Bailey, our founder and CEO .
Thank you <unk> and thank you all of you for joining us today.
These are our first earnings call as a public company and the first one we speak directly with a number of investors. We very much welcome this opportunity and look forward to from Sterne and constructive dialogue with all of you over many years to come.
While today, we will be discussing our strong quarter with important improvements across key metrics. Many of you on this call may be neutral restored.
So I would like to take this opportunity to talk a little bit more about new including our values and mission or growth strategy powerful ecosystem.
Subsequently Gilead Managua, CFO and use of <unk>, our CFO will take you through our performance in Q4 2021, after which time, we'll be happy to answer your questions.
So let me start by telling you about or IP approach.
Newest burn with a mission to fight complexity to empower people and we've been doing so relentlessly in Latin America. Since we were founded in 2013.
However, how we accomplish our mission is just as important as accomplishing the missionary itself, where <unk> was no exception.
We certainly wanted to accomplish a very successful equity offering raising approximately $2 8 billion.
But we wanted to do so in a way there was some line with our core values aligned with our values of always putting customers first and working backwards from there and align with our value of challenging the status quo.
How have we accomplished closing our IPO.
First we decided that we needed to allow all of our customers to participate in it irrespective of then prevailing conventional wisdom that a public equity offering targeted a Brazilian retail investors was both unnecessary unencumbered.
We structure, our IPO as a concurrent dual listing in both Brazil, and the U S, allowing for all of our Brazilian retail customers through investing new.
It was the first such dual listing in the history of the country.
Okay.
Second we decided to honor the trust placed in us since our earliest days by gifting a piece of the company in the form of one per caelian depository receipt of Edr each to millions of our customers in Brazil.
More than $7 5 million customers joined this program, which will help multiply the number of resilience financial including the investment World.
It was the largest directed share program DSP ever made globally.
And the innovation and capital markets did not step there. We also offer shares to our customers in Brazil, where over 800000 made up paid reservation.
These represented the largest number of retail investors, who participate in our Brazilian IPO ever.
The IPO marked the beginning of another chapter as we mature as a company and most importantly, it will enable us to expand deepening and strengthening our relationships with our customers we could not be more excited with the opportunities ahead of us.
We will continue to pursue these opportunities relentlessly and we will continue to assess these opportunities based on their potential to accrue value to new and its shareholders in the long term.
We are and will continue to be long term focused and if needed we'll put the long term interest of the company ahead of short term results.
Since the very beginning we have seen ourselves as a technology company that happens to be in financial services and not a bank that has a better website or a better up.
Our strategy is focused on four main differentiating pillars we.
We have a mission driven culture, we're on a mission to drive much more inclusion competition and efficiency into financial services in Latin America.
Number two we are customer obsessed company and spend a lot of time understanding customer pain points and working backwards to built phenomenal user experience.
Number three we're technology company at heart, we build our own technology, including our proprietary core banking system using our own programming language and that ultimately gives us the ability to control our destiny continuing to scale, our platform with lower and lower cost and much more efficiency.
And finally since the beginning we have been on AI and machine learning first company.
We initially apply this technology to a very large market unsecured credits in Latin America and.
And now we have applied these capabilities to different areas of the company.
We've always thought the strong competitive advantages in data science machine learning and AI, we're going to be relevant competitive boats and we believe we maintain a niche on these fronts.
This all translates into unique customer experiences that are simple convenient low cost and empowering.
We have built one of the largest detail banking platforms in the world with nearly 54 million customers in Brazil, Colombia, and Mexico and are still growing at a pace of about 2 million new customers per month.
I would draw your attention to three things in the chart on this slide.
First you started with a credit first approach beginning with credit cards.
Starting with credit as hard it requires you to develop proprietary credit underwriting capabilities.
State of the art data platform and local currency funding.
But we believe it was a worthwhile path to take.
Consumer credit is where 70% plus of the profit pool of the industry is since the launch of our company in 2013, we have navigated extremely difficult macroeconomic environments, including the largest recession in Brazil history, and a pandemic. All of this has forced us to develop robust risk systems and a generally conservative.
<unk> approach.
Second most of our customers come to you organically through word of mouth, allowing us to scale very fast while having one of the lowest customer acquisition cost in the industry.
This is a testament of the unique customer experiences with labor or NPS in the Ninety's, which we think is among the highest if not the highest in the financial services industry globally.
And third over 5 million of our customers do not have a bank account or a credit card when they became more customers.
This shows that we're helping grow the size of the market.
We're just not simply gaining market share from a commonplace.
We think of our business model as a two part ecosystem on one end there are 52 million plus consumers in Brazil, Colombia, Mexico. The other and there is 1 million plus small businesses or smbs.
Our products are both parts of this ecosystem and are composed of proprietary solutions that we're building house, so just where credit card or personal loans, where mobile payment platforms.
And also third party solutions provided by first class project partners, such as our insurance secured loan E Commerce and digital products and services.
We expect that these solutions with products and services will expand fast while the two sides of the ecosystem continues to grow in both size and dish.
And we're moving fast and upfront.
<unk> or marketplace initiative as we expand our platform for strategic partnerships. We're pleased to report that we ended the year with over 20 partners across nine different verticals during the fourth quarter, we on boarded a large financial services and non financial services players, including Michael Lou creditors, we are agile and shopping.
We're also reaching important milestones in our international expansion, where new model has proven to be exportable as we continue to beat our most optimistic forecast in or new geographies.
In Mexico. We ended Q4 2021, with one 4 million customers or over 7 million applicants and a record high NPS of over 90.
We believe we have already become the largest new credit card issuer in Mexico at this time.
In Colombia, the third country those are part of our international expansion today their issues are equally encouraging as we have learned to launch in a new country more effectively and efficiently overtime.
Newhouse, many different growth vectors to peerless expansion over the coming decade from continuing to grow our customer base to offering new products to geographic expansion and when.
In the very early innings of the journey there.
There is also a significant opportunity to further monetize our customer base. This will happen through both additional upsell as well as cross sell initiatives, including proprietary and third party products and.
And these monetization will be realized using a low cost operating platform highlighting the operating leverage of our business model.
Now I'd like to turn the call over to <unk> CFO and use of <unk> COO, who will review our performance in the fourth quarter of 2021 in more detail.
Thank you.
Thank you David.
In the fourth quarter and the full year of 2021, we deliver a very strong set of operating and financial Kpis. We did so by leveraging our simple yet powerful value generation formula.
First continuing to grow our base of active customers in Brazil, Mexico, and Colombia second.
<unk> to increase the monetization of our customer base by extending the average revenue per active customer or our pack as we introduce more products and features and our customer cohorts mature and.
And third delivering all of this growth while maintaining one of the lowest cost operating platforms in the industry.
We believe the new has very high operating leverage potential driven by deep cost event that just across the four traditional cost dealers are financial services law.
Low customer acquisition cost low cost to serve.
So cost of risk and low cost of funding.
These cost advantages are expected to deepen as our ecosystem expense.
Now, let's take a deep dive into the quarterly results of our business.
During the fourth quarter of 2021.
We added almost 6 million customers, mostly coming through organic channels and representing over 60% year over year growth.
More importantly, this growth has not come at the expense of customer engagement on the contrary our monthly activity rates grew from 6% to 6% in the fourth quarter of 2020% to 76% in the fourth quarter of 2021 all of this why we added over 20 million customers to our base in the period.
We are not in the business of just collecting social security numbers. We are in the business of becoming the primary banking relationship of our customers both consumers and Smbs.
As you can see from the three charts on this slide.
Compounding effect of higher engagement in our customer base with more products and features in our ecosystem has proven very powerful it has driven the monetization of our customer base as reflected in the expansion of the average revenue per active customer for our back.
During the fourth quarter, we continued to achieve our Pac expansion, our average <unk> reach at $5 $60 per month in the period, but they are pekka for more mature cohorts already exceeded $15 per month, we expect this trend to continue as customer cohorts continue to mature.
And we add new products and features to our ecosystem.
The combination.
Nation of more customers more active customers and higher are PEC enables us to grow revenue at three pulled digit rates in the fourth quarter of 2021, our revenue reached $636 million increasing year over year by 224%.
On an FX neutral basis.
Mainly driven by the increase in transaction volumes and strong growth in our interest bearing portfolio.
Let's move on to purchase volume.
Key kpis to track and understand the progress of our cards business over time.
During the fourth quarter of 2021 purchase volume reach at $14 billion growing almost 100% year over year on an FX neutral basis.
This strong evolution in purchase volumes during the quarter is a result of a growing and engaged user base the continuum operation of our cohorts and the increase in usage across our product portfolio that includes credit card prepaid cards, <unk> cards and the premium ultra.
But I'll let cards.
Let's have a look at our credit portfolio. Another key driver of our revenue growth.
During the fourth quarter of 2021, we continue to post above market growth rates in our core consumer finance products credit cards and personal loans in the three months ended December 2021, our credit card receivables portfolio grew by 21% quarter over quarter.
And 78% year over year, both on an FX neutral basis, we estimate we outpaced the market in Brazil by two types.
Also during the fourth quarter, our personal loan portfolio grew by 58% quarter over quarter and seven times year over year, both on an FX neutral basis, we estimate our market share in terms of personal loan portfolio expanded from less than 1% in December 2020 to.
<unk>, 4% in December 2021.
But I would like to point out that we are still in the very early days in personal loans.
Now, let's take a look at our deposit space, which continues to attract very strong net inflows one of the key pillars of our business model is that we continue to fund our operations.
I'm merely with local currency retail deposits, we believe that having local currency retail deposits at competitive rates.
Key to funding our consumer credit business at scale and superior to other sources of funding such as wholesale funding or securitization.
As we continue to witness this strong trend in people in Smes shifting from branch based banking digital based banking our deposit franchise continued to grow at very steady pace as of the fourth quarter of 2021, our deposits Richard almost $10 billion.
Year over year growth rate of 87% on an FX neutral basis with an average funding cost that is lower than that of the risk free rates in Brazil, our CDI.
Additionally, given the growth in our deposit franchise, we can comfortably cover our interest earning portfolio with retail deposits.
Moving on let's take a look at our cost to serve per active customer a key pillar to appreciate the operating leverage of our business model. This metric has decreased over 20% year on year as we gain operational efficiency, resulting from our <unk>.
<unk> customer base.
It is a guidepost that gives us the confidence that we earned the right track in the pursuit of strong operating leverage as we continue to see our art Peck outpacing cost to serve breakfast.
Yeah.
In the fourth quarter of 2021 and in the full year of 2021, we posted record gross profit of $227 million and $733 million respectively.
While gross profit margins remained stable for the full year, we saw lower gross margins in the last quarters of 2021 as a result of the very strong growth in our interest, earning poor fall in this periods and our loan loss provisioning methodology that front loads the recognition of provisioning.
Under <unk>.
Moving on to adjusted net income let me quickly walk you through the adjustments we made to GAAP net income to arrive at this metric in order to give you a better sense of the recurring profitability of our business.
As we define adjusted net income profit allocated to our shareholders adjusted for expenses related to share based compensation in our IPO as well as the tax effects applicable to those items.
As you can see and as a result of our drawing scale. We are beginning to reap the benefits of operating leverage on an adjusted net income basis.
This is an important data point as it gives us the confidence that we earned the right trajectory with our earnings Formula.
For a detailed reconciliation between net income and our adjusted net income please refer to the appendix of this presentation.
Now I'd like to turn the call over to use of our Chief operating officer, who will walk you through our credit underwriting.
Thank you Michael.
Let me now walk you through a few key indicators that track asset quality and the overall health of our credit portfolio.
In Q4 of 2021 credit performance remained strong with.
With delinquencies normalizing along expected lines, but still below pre COVID-19 levels, when adjusted for portfolio mix between credit cards and lending.
We expect the normalization to gradually continue and reach pre COVID-19 levels for both credit cards and for Linda.
We are underwriting based on these writing loss expectations as a baseline.
And then requiring that every loan that we originate be resilient to risk course on top of that.
Resulting in the cohorts that are able to withstand approximately a doubling of risks depending on the product assortment.
Now before I go further I would like to recap the impact of that expected credit loss or ECL as a loan loss provisioning methodology.
On the consumer finance business with high growth rates as is the case of our credit card and personal loan businesses.
Per ifr's nine loan loss provisions have to be recognized when the loan is granted even before any revenue associated with that loan is accrued.
This results in an intentional timing mismatch between revenues and costs.
For this reason the higher our growth rate is the higher provisions we have to book our.
And as <unk> mentioned earlier this negatively impacted gross profit and gross profit margins during periods of high growth.
And as growth rates normalize vertical gross profit margins are expected to converge over time towards those are mature cohorts.
Moving from the basic concept to our actual experience the charts on this slide show the average evolution of risk adjusted margins around for our credit card and personal loan cohorts.
We define risk adjusted margin simply as revenues minus funding costs and minus cost of risk expressed as a percentage of revenues.
As you can appreciate in earlier months risk adjusted margin is negatively impacted by the accounting recognition of noncash upfront loan loss provisions I spoke about a moment ago.
Then as revenue begins to accrue brand quickly expands and converge towards a 60% level or more for both products with a payback period that is around six months or less.
We are very deliberate in terms of which credit products, we manufacture ourselves versus distributor.
We tend to prefer products that have shorter duration and a more data intensive as this plays to our underwriting strengths.
Having shared these perspectives on credit and asset quality, let me now turn the call back to the village, our founder and CEO for his concluding remarks.
Thank you Youssef.
We have delivered another great year that has seen effectively all of our metrics, improving and accelerating and our successful IPO has given us a strong footing to pursue or strategic milestones in 2022 and beyond.
We believe the secular market trends that are accelerating order growth such a significant migration towards digital financial products and growing financial inclusion across the region remain our strongest ever you will remain focus on disciplined execution against our priorities and continuing to advance our business.
We look forward as always to keeping you updated on our progress next quarter and now wed like to take your questions. Thank you.
We will now start the Q&A session for investors and analysts if you wish to ask a question. Please press the reaction button and then click on raise your hand.
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Yeah.
Thank you operator.
Question is coming from people a lot of that could you. Please open the line.
Hi, Good evening can you hear me okay.
Ken can you hear me.
Hi can you hear me.
Yes.
Okay, great. Thank you.
My computer.
But thank you for the call.
In the presentation and taking my question.
I guess my question is in terms of your.
Revenue per client you saw some good evolution.
In the quarter, clearly <unk> been able to grow the loan portfolio.
Any guidance or color you can give on how that revenue per client.
This year, particularly given.
Some of the macro risk and your ability to continue to grow the loan portfolio.
And.
But behind that like how much of that can come from continuing to grow the loan portfolio and also with fee income growing alongside a healthy pace do you expect any color on how the mix would evolve between the loan fees to the benefit of the revenue decline. Thank you.
Hi, Tito. This is this is lago. Thank you so much for for your question. It's certainly a great one and the evolution of the average revenue per active customer is something that we're monitoring.
Very closely if you go to slide 13 of the earnings presentation, you will see there the evolution of the ARPA or average revenue per active customer and you can see that it is going up across all of the cohorts.
Our average our pack has achieved about $5 $6 per month per active customer.
Coming from about $4 nine less quarter, but more importantly, the more mature cohorts are already operating at over $50 per active customers per month and in fact, if you take a look at the customers who will have our three core products credit car bank accounts and personal loans there.
<unk> are already at above $30 per active customers per month. So we think that <unk> will continue to go up over the course of 2022.
And going forward as a result of two things.
And it's something that is not necessarily fully appreciated by many investors is the maturation of the cohorts as the cohort season as the cohorts mature you can see that we become the primary banking relationship of more and more of those customers and we increase the usage and engagement in the purchase volumes with <unk>.
Core products and then secondly, if the cross sell as we launch new products as we launch new features we actually increased the snow average revenue per active customers in 2022.
We do expect that we will continue to pursue a very strong growth in both credit products as well as non credit products and we believe that credit card personal loans will continue to play a key role there, but other products will start to know kicking more aggressively in their contribution to the RFS.
We are not however, providing guidance on the art Peck levels for 2022 and going forward.
Great. Thank you that's very helpful. Maybe one follow up.
Pointing to slide 13 on the presentation.
In the past, though the cohort can it looks like so.
About 57 months to get to that $15, but I guess the newer cohort two.
Getting there maybe a bit faster is that fair to assume that with time that you can show in the amount of time to reach that $15 our pack.
As you kind of continue to go and maybe showing a period from five years to I don't know three four or any color on the timing that you think it could take to get to $15 <unk>.
Yes, no it's a great question.
Sorry, it's a great question Tito and I think it is it is somehow unfair comparison across the cohorts because the earlier cohorts, we only had <unk> bank accounts and credit cards. So we had a much more limited product.
Portfolio as we launch more products as we launch more features and as we cross sell more of those products as you can see on the slide in the middle of no 13.
Our potential and the LTV of our customers go up so yes. It is I think reasonable to assume that the.
The customers the newer customers of the newer cohorts will be able to mature faster with more products than the earlier customers from the earlier cohorts.
Okay, great. Thank you.
And congratulations on the strong results.
Thank you Pete.
Thank you Peter.
The next question is coming from Jorge <unk> of Morgan Stanley can you open the line. Please.
Hi.
Quarter of equity from Morgan Stanley Hi, Good afternoon, everyone.
Grant's on the great numbers.
A question on.
Your your revenue outlook for this year.
You beat market expectations on revenues this quarter by around 18%.
Is the consensus.
Revenue per active customer beef was around 15% and your net adds were well above what the market was anticipating so.
As we think about towards the towards Q2.
The current consensus on the net revenue is around $2 9 billion.
How do you how do you feel.
VW that number where do you think are the potential upside risks to the number meaning what parts of your business are doing better but do you think you can actually outpace that.
And then the other hand, what do you think are the risks to that number.
Im number may prove to be optimistic what are some of the things you are looking closely at.
That would be incredibly helpful. Thank you.
This is Laura thank you so much for your question.
Unfortunately, we do not provide financial guidance to the market.
We very much appreciate the arguments in favor of guidance.
Just believe that its costs outweighed the benefits for the company at this point in time, So we will.
We are and we will continue to be a long term focus and if needed. We will put the long term interest of the company ahead of our short term results.
And Thats. The reason why we have not provided no guidance in order to maintain the culture and.
The focus of management team in the long term, having said that we do expect <unk> 'twenty to 2022 to be a strong year for us.
We think that we're going to make good strides across many products.
Credit and non credit and more importantly, I think we're going to make very good strides in new Geos. The operations that we have launched in Mexico, and Colombia have been having very encouraging no signs of success, Mexico is what's the first country that we launched outside of after Brazil.
We now have as you may have seen over one 4 million customers in Mexico as of December 2021, we believe that we have already become the largest issuer of new cards in Mexico in the fourth quarter. So we will be expanding products, we will be expanding to use and we will be we will continue to expand the number.
Number of customers.
And unfortunately, I will not be able to provide.
Provide you with much guidance on whether we think we will or will not beating market consensus and by how much.
You can understand Jorge.
No I understand level. Thank you.
But I guess just to book was I mean, I think it's pretty evident to everyone. What could be the sources of potential upside can you maybe talk about the risks to the 2022 revenue number.
What would you say are the top three risks that management is looking closely at following closely.
And how do you expect those two to play out during the year.
Jorge I think I think on the risks that we have I think what will.
Kind of a move the needle more strongly in 2022.
We will have to continue to see our cohorts mature.
We have seen the cohorts mature and then we have seen the purchase volume per active customers go up I know five to six times.
Over time.
We believe that this will continue but it's a risk going forward. The second risk that is no inevitable that we will be watching very closely and we are hyper focused is on monitoring the asset quality of the portfolio and we are not blind to the.
The duration expectations that exist as of today, we are very optimistic.
The market will prove to be favorable to the expansion that we plan to have especially as we start with a much lower market share, but we will be watching this.
Very carefully and with the hyper focus on short term delinquency indicators.
Alright, David here as well just following up here on <unk>.
Clearly macro it's a source of uncertainty for us and we are like I said, we're taking.
We've taken a very close look into any potential tariff issue for macro and we will adjust any growth expectations. If we start seeing science that we feel comfortable with the risk that we're taking that being said the type of credit products that we predicted shortage remember this is a great day.
<unk>.
Sorry, there was some okay.
These are these are two products that give us very good visibility and theyre very data intensive theyre very short term duration in nature very high return on equity very high return on capital. So what gave us the opportunity to react very quickly if we see any acceleration and there is a lot of buffer in cushion on the profitability of these products.
And at the same time, if the macro does take a turn for the worse. We are entering this year extremely well capitalized.
With.
All of our IPO capital effectively untouched and that should also opened up a number of opportunities that we would expect to see customers as we've seen historically in all of our history, which we've only seen unfortunately, we've only seen Brazilian a recession.
Effectively since we started in 2013.
Customers tend to become even more sensitive to products that charge them less fees. The protos charging less interest in that environment tends to be an environment, where our products are so focused on the customer excel and so that combination of more differentiation with the capital that we have kind of open up a series of <unk>.
Opportunity for us. So net net we are really kind of observing both sides of the trade being very aware of some of the risks that we might be facing over to over to over the next 12 months.
But ultimately very comfortable with the strategy that we're executing.
Thank you the return leg room, which I appreciate it and congrats again.
Thank you for the questions next question is coming from Guillermo <unk> from UBS.
Please.
Sorry can you hear me.
Yes, yes.
Actually Europe and.
<unk> Friedman from from Citi.
I appreciate the opportunity.
No.
My question is related to.
A bit of thought that would be just.
Nation.
When you look into.
<unk> revenues quieter required through expanded by more than 30%.
Gross profit.
Low single digits exactly because of this expected.
<unk> is $1 youre using.
So.
I understand that they are comfortable with this strategy, but.
I also like to understand how comfortable you are with your excess liquidity asset quality I think is well explained.
You have more than 90 billion.
$9 billion of deposits and at this moment $2 billion of interest earning assets. So.
At some extent that could be drop our dies or our ability to continue expanding margins.
And you need to be a bit more aggressive also to be able to capitalize on this difference. Thank you.
No. Thank you so much for your question I think it is a it's a.
Great trip location.
And we do believe that in lots of America for you to play in consumer credit underwriting you need two things you need not only state of the our credit underwriting platform.
You do need to have access to local currency funding at competitive rates and I think as you mentioned, we have a fairly comfortable.
Funding structure today, our balance sheet is very simple, we have no about $9 billion of deposits.
To basically support about $2 billion of interest earning assets.
Therefore, we have lots of flexibility are no loan to deposit ratios as one of the most.
Our conservative debt or we can fight going forward. We do expect that we will fund the majority of our interest earning asset portfolio, our credit portfolio in general.
With our own local currency deposits and I think you were alluding to also the cost of those deposits.
Look we do have for the majority of those deposits, we pay 100% of CDI, which are the deposits for consumers, but for the deposits for Smes, we have already started to pay zero percent of CDI.
And thirdly, I think the credit car working capital structure in Brazil is also very favorable for the issuer because it has a negative working cap to scenario. So as we grow no credit card it increases the floats to which we we expect going forward, we do expect to remain and to pursue no.
The lowest possible cost of funding for us.
And we will be watching carefully the opportunities that we have and the value proposition to our customers as to how we can price the deposits in the coming quarters and years.
No that's perfect.
Allows us to follow up.
D a.
<unk> point about expansion of revenues versus.
Gross profit yield alluded to how you'll see the.
The effects of fire for us.
Slide number 23.
And.
Using this as a reference and also what you just mentioned in terms of Sino cost of funding.
When do you think in your strategy, we are going to see.
The gross profit accelerating more aligned with big revenue profit. Thank you.
John It's a great question I think I would even take advantage of.
Turning your attention to slide 24.
Youssef has highlighted and as you can see there at maturity our products converge towards a 60% plus risk adjusted margin. So we expect that we will converge towards a much higher gross profit margin as the growth rates in our interest.
Ernie assets no stabilizes as long as we can as we have no high growth in interest, earning assets, we should expect to see the expected credit loss provisioning.
Putting pressure on our gross profit margins, even though it is an intentional timing mismatch.
Once they converged at maturity all of the cohorts have converge towards a 60% plus.
The risk adjusted margins.
Your question is probably when are we going to start to pulse much lower growth rates is where we can.
No achieved the 60% or closer to the 60% risk adjusted margin. It is also a function as you may have seen off the ratio between the front book and the back book.
Even as we continue to grow the backboard will gain as a back book, we will continue to gain relevance relative to violence and the more relevance to the back book has the higher the gross profit margin should should should get.
That's perfect.
And Europe .
Youre, just adding a bit of even a little bit more of additional context I think it is worth.
Taking into context that we by now we have something like 30% of the entire adult population in Brazil as customers.
But we only have something like 1% market share in the consumer lending portfolio, which is the largest.
Paul in the banking sector in Brazil, and when we go and talk to our customers. We are seeing us getting the highest net promoter score in depth product consistently.
And so it would.
It would take us to conclude that over a period of time, we should be able to see.
All of our customers refinancing a little bit of existing loans with nobec and those getting a proportionally much higher market share similar to the market share that we have from a customer perspective. So there is all of this to say that there is a significant amount of growth ahead.
And the size of the customer base is a bit of a leading in the customer base.
Multiplied by the NPS is a leading indicator to future market share gains in some of the financial products that we have.
So we really are in the very very early stages of that growth projection of growth trajectory in some of these products.
That'd be makes sense. Thank you very much for the explanations.
Thank you Josh next question is coming from Donald at Easter UBS can you open the line. Please.
Yes.
Hi, guys.
For the opportunity.
I have two follow ups. The first one is about the most recent cohorts of <unk> Bank.
When you look for the new clients do believe that they have the same potential for that part of the old clients or no decline.
I'm not so good as in the past so I want to understand you said new clients to have the same quotation of the old ones.
And also the second question and the second follow up is about asset quality.
You had mentioned that NPL ratio should return to the pre COVID-19 level.
Noise is still well below this level.
Our fans.
Second to happen, even they chew or no. This should take a couple of years to return to pre.
Frequency level.
Yeah. Thanks. Thanks, so much for your question, let me, let me address maybe the the revenue potential.
You alluded and then I'll invite to use up to address the asset quality question that you said you you Paul So look in our new customer are marginal customer has proven to be no S. Prost.
Profitable as the older ones, especially if you look at the slide 13, you can see that as we launch more products and as we launch more features you will basically you have been able even for the earlier cohorts two half.
Growth curves that are at par if not better than the growth curves of the older cohorts as I mentioned before it's not only because of the faster maturation of the customers, but also because we now have much more products and features and we can offer a much more comp.
Perhaps the value proposition to the customers in terms of overall potential if you take a look at the our pack off no incumbent banks in Brazil.
They are now about $35 $38 per active customers per month.
No about $5 per active customers per month at the more mature cohorts already of 15. So we believe that we still have a gigantic gap to close.
In both no.
Appropriate theory products as well as third party products. Your question also alludes to but what about the new customers. The marginal customers are they asked no profitable and as promising as the older ones and I think we are basically we have made very good strides into the younger and middle class and <unk>.
<unk> as we evolved we are converging towards snow. The average demographics are Brazil, and we are making very good strides into the upmarket as well as good strides into no reaching deeper into the on bank. The balance of those two things. So far has proven to be very promising and as you can see in the cohorts, which show kind of a cohort clients.
That are even better than the older ones.
Yes.
Would you also be able to shed some light on the asset quality question that Chunghwa post, yes, I'd be happy to Joe with respect to asset quality in the.
The trajectory there and the outlook.
So as I've said before.
We expect.
The credit environment to normalized no back to pre COVID-19 levels.
And if you look at.
What's happened over the last two years as we entered the pandemic.
We've seen extraordinarily low levels of delinquencies and Npls.
But they started to normalize back in the last few quarters in fact, our expectation was that normalization would take place.
<unk> all along.
And if anything it's been normalizing slower than we expected.
Felt this process would take maybe six to 12 months 24 months into the pandemic.
Still slightly below pre pandemic levels.
In terms of delinquencies, but we expect that to continue to normalize going forward. So that's our baseline scenario.
Now as I've said before.
Our.
As part of our credit underwriting philosophy, we expect every loan every credit card grants every credit limit rent that we do.
To go through a downturn. This is the level of risk that we underwrite to.
And so as a result, it gives us.
Really strong levels of resilience.
<unk> on aggregate are able to take in roughly a doubling of risk and still be NPV positive and so we feel very comfortable with level of resilience that we have inherent in our portfolio.
Very clear, thank you Sachin and Michael.
Thank you next question is coming from Darren Peller Wolfe.
Thank you.
Hey, guys. Thanks, when I look at the user growth numbers. Obviously it continues to have strong we've seen a lot of our a lot of other digital companies that had a pull forward in the pandemic, maybe you could just walk through the main driving forces of that strength, we are seeing whether its geographic or new product and then just to underscore the underlying customer acquisition.
It seems to still be strong.
As you grow into those new geographies and products or anything we should expect about that could change in terms of your attack that we've been able to see.
Someone industry, leading thanks.
Thanks, guys.
Sure. Thank you. Thanks, a lot for your question.
So we think the market has gone through several stages and is not that different from any other technology adoption curve, where you begin really addressing the early adopters and in fact, we started very much focused on those early adopters can basically as early adopters of where their traditional early millennials.
<unk> must eager to adopt digital solutions.
I'd say somewhere around 2017, 18, 19, you start kind of breaking away from those early adopters to really grabbing the main the main market and I would say, that's probably where we are today. This has become the digital banking solution has become embraced by I would say a very significant percentage of Brazilian so.
Ready.
Pandemic accelerated that adoption among certain segments that were historically a bit more.
Be more skeptic segments, such as people are above 60 years old.
Segments that really were very much heavy into offline branches. Since all those branches were closed people had no other option than starting to using all of the digital channels and since we were the category leader. We are the category leader in the digital banking solutions, they tend to flip to us.
<unk> they go to consider any other options. So that's mainly the reason why we announced are seeing actually our core growth accelerating and we start seeing or segments expanding beyond their core millennial population and this gets accelerated by our ability to launch new products. So three years ago.
We had one product a credit card and then we launched a savings account now we go to market with our credit cards savings accounts personal loan insurance marketplace for consumers since market and small businesses. So the value proposition is much more robust and complete.
That helps us get steel does skeptical that we're saying no it's very painful to have different banking solutions.
Never you launch.
A.
Personal loan I will go through <unk>, and we see that a lot of customers that says I am still waiting when are you launching the following product when our new launching with Boeing product.
So I'd say those combination of forces sort.
The market embracing fully digital banking combined with our ability to provide our products.
<unk> versus the growth adoption and ultimately customers are coming why are they coming they're coming because it's a better experience a lower cost almost very simple kind of equation.
Our experience is the combination of.
Fully digital products, great customer service very easy to use very simple interfaces.
At a lower cost, we charge no fees and especially on the personal lending, but in certain segments in credit card. We are also trying to bring.
And interest rates, lower and lower and lower so it becomes almost effectively a no brainer solution why would you stay with the big incumbent the charges you more makes you wait to the big major wait and go through a refresh when you have a <unk>.
A better solution. So we expect this really trend too.
To just accelerate across all of the different demographics and be even magnet.
Increased and augmented by the product roadmap that we have ahead over the next few years.
I appreciate the customer acquisition costs do you think can be stable and just one quick follow up is on partnerships. I know that's also been a great source for you guys to add incremental offerings.
Probably attract customers is there progress on incremental company partnerships in different verticals, such as insurance are trading like you've done before thanks again, guys nice job sure. Yes. So this is what we mentioned is that where we call the marketplace that we really launch towards the end of Q4. So it's very early but we're ready.
Have over 20 different partners from a number of different E. Commerce's businesses that are offering their products to our customers via our app.
We have secured lending products, such as credit does that offer secured lending.
For home equity and auto equity and such like that we have a number of different partnerships that we're announcing now that we have the right product architecture and technology platform. It becomes much easier to launch the second third 10, 15 20 different partnerships, we want to do it in a way that maintains the simplicity for the customer and we.
Absolutely do not want to pollute the entire experience and <unk> customers end up with 10000.
Skus, we want to be very deliberate and very careful about the type of products that we offer our customers and the type of partnerships that we have so we're taking our time to do it right, but ultimately we think this is a huge opportunity because we're able to use the scale that we have to bring better solutions and offers to.
And our customers.
And accelerate the flywheel of.
The hired about our proposition is the more customers come to more customers come the more they invite their friends and they maintain the lower customer acquisition costs.
And reinforced that mattered reputation. So we're very excited about the marketplace early marketplace moves.
Thank you guys.
Thank you. The next question is coming from the higher Wallach from HSBC.
<unk> please.
Hi.
It can do.
Congratulations team on the inaugural quarter of ankle coupons.
My question is more on asset quality.
Good to see the asset quality trends that you showed in the presentation.
Thank you for taking numerous announcements about <unk> right now, but if we expect it to go to pre COVID-19 levels, let's say propane painful from getting to scale.
What does that mean for your customer from a.
The cost of risk for this year has been going up two months of the quarter, let's perpetually minivan was about 10%.
David Robinson model requires them to provision upfront.
Would it make sense for the cost of this to go up because they are turning to <unk>.
Do you think.
Makes sense. Thank you.
Yeah.
Hi, Nick this is use of thank you very much for the question.
So first off.
As Michael mentioned earlier, we don't provide financial guidance.
Around this metric.
If you were to say quantitatively about the trends that have been playing out and we expect it to play out that impact.
Pls and cost of risk I would say there is two main things at play one is the continued normalization to pre COVID-19 levels as you rightly pointed out.
We expect that to continue to put.
Upward pressure.
On Npls and translate into.
Slightly higher coverage ratios and slightly higher cost of risk. The other one is just the mix of credit assets that we book.
Our lending portfolio has been growing relatively faster than our credit card portfolio.
And it also comes with.
Both higher margins.
Higher risk levels. So we expect that to put also upward pressure.
On things like Mpls cost of risk. So qualitatively I think those would be the two main drivers going forward do we expect.
Thank you so much if I could just follow up.
I know you don't provide any guidance regarding loan growth.
Given given the macro environment today.
Would your preference be more inclined towards growing loan book faster.
Maybe building on that platform focusing more on the fee side of the cyber gamba interesting comparable group.
What level of growth should we expect especially in the Permian loan book.
No specific numbers, but I mean should it be similar in terms of nominal and could even malone looks like will be similar to what we saw the same for any one.
You expect to slow down growth, especially in the personal loan book for this year. Thank you so much.
Great questions so on <unk>.
<unk> growth levels.
Look as I mentioned earlier is for this continued normalization to pre COVID-19 levels.
That's our baseline scenario.
And under which we would we would continue to grow at a healthy pace, both credit card and lending.
And we feel very comfortable with that baseline scenario, because theres a lot of resilience built into our cohorts does.
Come with very short paybacks very high margins as you saw in the slides.
And they are very short duration.
Average duration is around six seven months for loans so.
And we feel very comfortable with that short duration and should conditions materially deteriorate, we feel good about our ability to access and to act faster.
Jack first.
Pull back if needed.
We're taking any other resilience building actions around pricing around collections intensity et cetera. So we're prepared to action.
Seem to deviate from from our baseline.
Well thank you so much.
Thank you next question is coming from Geoffrey Elliott from autonomous.
Hello, Thanks, very much for taking the question.
Yes.
The fourth quarter is always a strong one for spending and called TPP in Brazil.
Can you give us a flavor of how much seasonality is there in the numbers how much should.
Strength in revenues persist versus being part of it and the impact of the fourth quarter being strong and then likewise any kind of seasonal impacts in expenses or anywhere else in the P&L, but we should be aware of.
Sure Jeff.
Thanks, So much for your question.
It's a great one I think he can take a look a little bit about seasonality.
On slide 15.
Where you can see the evolution of our purchase volume and yes, the fourth quarter of each year has historically been a strong quarter in terms of purchase volume.
But overall you should take a look at our growth.
The overall growth of the company in terms of number of customers in terms of purchase volumes and in terms of cards.
Has outweighed the volatility going forward. So we don't expect.
That we will have in 2022, a behavior that is materially different than the one that we have seen in in 2021.
It is also the case that there is some normal seasonality in terms of cost of risk throughout the year. We also expect that 2022 will follow a relatively similar trend as we see in the Brazilian market.
Okay could you remind us on that seasonality and cost of risk how does that play through.
Yes, I think historically you can see the delinquency are usually lower in the fourth quarter and higher in the first quarter of each year. That's normal season trend that we see in Brazil, and quite honestly that we see elsewhere in the world.
That is something that we are also.
Expecting to see going forward.
Thank you.
Thanks, Jeff.
Thank you Jeff next question is coming from shredding from Bradesco.
Okay.
Yes, Hello can you hear me.
Yes.
Yeah and I'll. Thank you for taking my question and thanks for the presentation. It's a very simple question I thought I just would like to understand how was the impact from the higher cash position due to the proceeds from IPO.
Your interest income, especially because we could see the trading gains.
<unk> gains were.
<unk> this quarter I, just would like to understand how was being backed and what should we expect in terms of a consumption of these proceeds. Thank you.
I can start with this is lager. Thanks, so much for your question.
The contribution of the proceeds of the IPO to our revenues in 2021 or in the fourth quarter of 2021 has been very very small.
We basically IPO.
<unk>.
The financial settlement of the transaction happened towards no mid December and.
Exercise of the Green shoe actually happened in the first week of off January . So there has been little impact off no of proceeds in terms of trading gains. It's a great opportunity first to clarify if you take a look at our.
Interest revenues it is basically compounded by three things the interest that we earn on credit card interest that we earn on personal loans and the interest that we earn on our cash.
The financial statement no.
Describes this as gains and losses on financial instruments, but they are nothing more than the evolution of our very large investments in treasury bonds. So we have a very conservative.
Cash policy in Treasury management, and we expect to continue to have very conservative policies.
Going forward.
Your third question was on the use of proceeds of the IPO.
I'm not mistaken.
And we do expect to use this for working capital and general corporate purpose in general, but I would say that primarily to expand in Q, our international growth in Mexico and Colombia.
We are very bullish on the potential of those two countries. If you take a look at just the sheer size of no.
<unk> Mexican Columbia combined those three countries account for about 60% to 62% of the GDP and population of Brazil.
And Mexico, Columbia combined have a population that is.
Almost the same size of Brazil.
We have about 30% of the adult population of risk youll be inactive customers of new we have less than 1% of the combined population of Mexico, Columbia and customers of new So I think a relevant portion of the IPO proceeds will be directed towards our international expansion in industrial conference.
Very clear logger Linda.
Just a follow up on the interest income it was very strong indeed in that I would like to understand how have you all haven't seen the re pricing process.
Given the high interest rates.
When you talk to the other banks are seeing that there's some competition in that when you compare with the last left.
Interest rate interest rate.
Hi.
This cycle has been more difficult to reprice.
To this end how do you see that and how <unk> bank has been able to reprice.
No. It's a great question to start and we have historically seen in the asset classes in which we play.
Credit card and personal loans that reprice and has been.
Faster than what we have seen in many other asset classes. In fact, once we see the reports that have been put out by the Brazilian Central Bank over the course of the last six months you have seen the marketing general and with respect to credit card and personal loans has been able to reprice relatively fast and not one.
Defend net interest margin, but also even expand marginally then adding through margin in general.
We have new bank. However, we expect that we will always be very competitive in terms of pricing primarily in personal loans, but we will and we have kind of been very fast and swift in repositioning repricing our products. Accordingly, we have not seen and we do not.
Experience.
I would not expect to see any material challenging repricing short term credit products going forward.
Thank you very clear thank you.
Thank you next question is coming from Alexander Mcgrath from Keybanc.
On the line please.
Yes, hi team. Thanks for taking the question and nice to speak with you all a couple of questions just first around credit.
Just more qualitatively in your baseline scenario.
Do you anticipate taking a more conservative approach to credit underwriting in 'twenty two versus 21.
If so are there certain segments of the retail market that you might see is more affected by this kind of change in underwriting standards and if not do you see an opportunity.
With customer segments.
To the extent that some of your peers are maybe pulling away from and a more challenging environment.
Hi, Alex Center. This is useful thanks for the question.
So again.
Our <unk>.
Basic underwriting stance is always to underwrite to future risk worsening like I said, we expect and we underwrite every loan every credit card.
<unk>.
Grant.
To an expectation that it will go through a downturn and it needs to be NPV positive.
In a downturn so given that we feel.
Comfortable.
Continuing with our with our growth trajectory.
But that being said.
We keep that we're keeping a very close eye on monitoring our various segments and products.
Looking at leading edge delinquencies looking at the general macro environment.
And we.
We feel prepared to both pull back if needed in places, where we see degradation that.
That is faster and more severe than we assumed.
Or to take advantage of opportunities, Conversely, and where we see a competitive window.
To grow our market share faster, we'll provide more competitive offers to customers.
Thank you and then just quickly on marketing expense came in a bit lower than we had anticipated maybe just.
Again kind of qualitatively speak to priorities with respect to marketing expense in 'twenty, two and how do you plan to balance more top of funnel type efforts versus targeted spend to drive adoption of some of the newer products that you called out this quarter.
Yes.
Hello.
Like are you there.
Yes, sorry.
And then I quit out here.
Can you repeat the question. Please I apologize yes, yes. This is Alex sorry about that just with respect to marketing expense came in a bit lower than we had anticipated. This quarter. Just wondering if you can speak to again qualitatively priorities for 'twenty, two and how you plan to balance some more top of funnel type marketing spend versus perhaps more targeted.
To drive adoption of some of the newer products that were called out this quarter.
Yes, that's a great question would you would you expect that we will continue to have no serious strategic.
Marketing spend, especially on paid marketing I think our customer acquisition cost as we mentioned at the beginning of the call has been among the lowest that we have seen in the market. We have a customer acquisition cost of about $5 per customer of which paid marketing accounts for only $1. We expect that as we going forward that no. This will go up.
<unk>.
And we will lean in more aggressively on customer acquisition is not only Brazil, but primarily Mexico, and Colombia, but we should not expect to see any material deviation from the LTV to CAC equation that we have shown to the market going forward. So I would expect that node marketing will slightly go up but it will.
Stephanie.
Change to what we have seen in the past.
We do see an opportunity and we will we'll probably be investing a little bit more marketing in repositioning the product better in certain segments, where we're not that well known so we launched with regulator, which is our product our regulatory to high income population in Brazil last year, we're very excited so far with what we've seen.
There is an opportunity to build more of that brand in that segment and we will that we will be doing that we also announced to be one of the sponsors of the FIFA World Cup that will there will be some marketing investments surrounding that as well.
<unk> event. So we are actively asking ourselves. The question is are we actually spending too little because when you look at the LTV CAC calculation that we've been discussed a lot during the during the <unk>.
During the IPO.
The market is more competitive with the type of capital that we have and the type of returns that we're seeing that LTV to CAC, there's opportunity to actually be even a bit more aggressive. So that is sort of the question that we're always balancing but in general you could even double pack and still not really move the needle in terms of the LTV to CAC that we're seeing in <unk>.
Some of the some of the customer segments.
Great. Thank you for the popular response.
Thank you Alex next question is coming from better levels for Mcdonald's.
Thank you for taking the question a.
A little bit on <unk>, sorry on the Npls.
It's shown a good behavior and shrunk both credit cards and.
In personal loans on that chart.
If we could try to dig in here a little bit maybe how each of these lines behave <unk>.
Our recent note.
And if you could remind us if you have a relevant renegotiated book and what your strategy is for for recoveries.
Both in terms of internal efforts insurer engaged on plan on doing selling our portfolios as a strategy for mitigating risks.
You're picking your brain here. Thank you.
Hi, Andrew This is used to thank you for the question. So let me try to address them one by one.
You are right in terms of both credit card and lending.
Both products have generally performed as expected.
In terms of <unk>.
<unk> and delinquencies we've.
We've seen the same gradual.
Return to pre Covid levels in both they are actually slightly below those levels.
But trending gradually towards that which has been our baseline expectation.
Youre asking about.
Renegotiation, so we do do.
<unk>.
Provide that that option to customers.
We take a.
It's a pretty conservative approach to renegotiations.
Loans.
And we follow regulatory guidance around that in provision accordingly.
If you look at our renegotiation volumes something we monitor it because of the volume and the performance of renegotiated loans. It has been remarkably stable in the last I would say 12 months or so.
Even more than that.
So there has been no no real change.
And that approach.
Over the last several quarters.
You were also asking about.
Asset sales.
This is not something that.
We have done in the fourth quarter.
But it is a lever that.
It would be part of things we might do in the future should.
The conditions are confident.
And if I may just add to this and falling.
Maybe a discussion that we may have had in the past just given the refinancing on restructurings and we do in credit card.
Our entailed within our credit card delinquency and provisioning numbers and they do not.
No affect or influence our business and personal long so super important for us to keep those two products completely separate and we don't use personal loans too.
Effect positive or negative the delinquency or credit card.
That's very useful.
And especially in the earlier comments on the level of the book being stable.
Very good thank you.
Thank you Peter.
Next question and last question is coming from Mario <unk> from Bank of America and a lengthy.
Hi, guys.
Thanks for taking my question, let me ask you two questions both follow ups.
One the first one is when you mentioned that you have a very high NPS scores on your retail loans.
I wanted to understand a little bit better what gives you high NPS is it that you are charging a lower interest rate youre, making more credit available.
Or what exactly drives a high NPS score and a retail alone.
And if I can tie that in a previous question in terms of the repricing of these loans right.
You mentioned.
Your deposits retail.
Retail deposits to individuals basically linked to CDI.
So as the CDI has gone up.
You are repricing your portfolio as you mentioned, but are you able to fully pass on these higher funding costs to your clients or our U S brands.
<unk> seen a little bit.
So that's the first question and then I'll ask the second follow up.
Hi, Mario.
For your questions first on the NPS on loans it ends up being always a bit of a combination of better product a better quality and lower costs. We tend to operate our products on both ends and on the personal loans, specifically, the higher quality or better product is a function of the user experience.
In fact that consumers can get alone is a very easy process to get you could get it immediately depositing your bank account.
Have.
Real time algorithms that are understanding consumer patterns and every time, our algorithms are able to approve alone the consumer gets a message that that alone now.
Is available.
And showed that person needs any support it's very easy to reach our customer support.
Team and really answer any questions. So thats kind of on the user quality side is the digital aspect and the consumers report and we generally also offered that at a lower cost. So we try to price today at something about 30% below the market average.
And we tend to be very well to maintain that aggressive kind of pricing to maintain this equation and ultimately driving to a very high NPS. So that doesn't MTS side on the cost of CDI, we actually.
If I can pass all of our able to pass 100% of that CDI increase the consumers without a bit of.
Benefit in there.
Account for small businesses, where we do not offer a 100% of CDI as part of the value proposition, we're not offering any yields so we actually benefit net benefit on increasing CDI environment from that perspective.
<unk>, if I may just add to what <unk> said on the interest rates.
It usually rise in interest rates is very positive for our consumer banking and I think it is no exception for us it's neutral to net positive for us, but I would just highlight our the structure of our balance sheet, which is very simple rights on the right side of the balance sheet, we have $9 billion of interest bearing liabilities for which we pay 100% of CDI as we mentioned.
6 billion of non interest bearing liabilities and 4 billion of equity totaled $19 billion.
On the left hand side of the balance sheet, we have $13 billion of cash and equivalents to build enough interest, earning credit portfolio <unk> 5 billion of non earning credit portfolio, which is the credit card receivables also forced totaling $19 billion. So when interest rates go up the cost on our 9 billion interest.
Bearing liabilities go up but the revenues on our 15 billion interest, earning assets go up so it's a net positive for US just wanted to highlight kind of the overall structure of the balance sheet and therefore, the impact of interest rates to our business.
Okay now Thats helpful. And then my second question is related to your client base in Mexico right. As you mentioned you already have $1 4 million clients is about two 5% of your client base. So just help us think here.
At what percentage should Mexico be of your total clients by the end of next two years.
How should we think about the profitability of our Mexican customer versus a Brazilian cost mark.
Do you see any significant differences in our parts between Mexico and Brazil.
Hi, Mike.
It's a great question. So I think in terms of population to thinking in terms of number of customers. Overall, we would expect that in the long term.
Percentage of our customer base in Mexico could basically represent or mirrors, the population in Brazil and Mexico.
Thankfully with the upside case to be made in Mexico, which is.
Where no banking penetration card penetration is so much lower than Brazil.
Our relative market share in Mexico can eventually prove to be even greater than than it is in Brazil.
In terms of no profitability of the customers in Brazil and profitability of the customers in Mexico. They are pack of the of the customers in Mexico, we expect to be as likely no lower in the short term than they are pack of our customers in Brazil, especially because we are going to be launching deer, no with credit card and banking.
Counts in the coming two to three years now the flip side to that is that the credit card is a much more interest bearing balanced heavy product in Mexico compared to Brazil, and therefore, the unit economics, there can be even healthier in general. However, we expect that there are pack off of Mexican consumer will be anywhere.
One 2% to 30% lower than the <unk> of our Brazilian consumer in the long term.
And this difference in our pack.
Again does it reflect then.
Our lower disposable income on lower income, Mexico or does it mean that your ability to cross sell products in Mexico should be lower than in Brazil.
I think the ability to cross sell products in Mexico should be as good as it is in Brazil. So I don't think it is a matter of AV product cross sell potential is a matter of timing it will take us no.
More time to achieve.
The product portfolio that we have in Mexico. So if you take a look over the course of the next five years, we think that they are pack off the Brazilian consumer will still be slightly higher than they are pickoff on average no Mexican consumers that our customers off new back if you take a look in fact in terms of disposable income and maybe the best proxy for that is no average GDP per capita GDP plus.
Capped off know Mexico is about 25%, 20%, 25% higher than Brazil. So there is a case that in the very long term.
The Mexican consumer could it be as profitably talk more than the Brazilian consumer that is not what we have in our mind for the next three to five years because of the stage of maturation of the operations in those two countries.
Guys. Thank you very much very clear.
Thank you Mario I think some of the questions I'm just going to pass the floor to Debbie for closing remarks, and we can wrap the call.
Yeah.
Everyone. Thank you very much for your time was a pleasure to.
Ill talk about our results were very excited about what's coming ahead for new and we look forward to continue delivering.
That customer obsession and those financial results that come together with that thank you very much for your time.
The New Holiday Conference call has now concluded. Thank you for attending today's presentation you may now disconnect.