Q1 2022 Nu Holdings Ltd Earnings Call
1022.
My presentation accompanies todays webcast, which is available on news investors relations web site Www dot investors not new in English and Www pump English annuities <unk> 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 you can press the icon on the lower right side of vision screen and then just enter the Portuguese room after that select mute original audio.
Part of the sign of the confidence in April to gaze click and equally the Labs, Inc. Video Jay So the thought there wasn't a click and upsell Portuguese room.
I also had another solid such fix it and we'll talk about it as you know.
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. Galanti Theater Investor Relations Senior manager and New Holdings you May proceed.
Thank you very much operator.
Hello, everyone and thank you for joining our earnings call today.
You too have not seen our earnings release, our caucus posting and the results Center section of our Investor Relations website.
With new Ultra base call <unk>, our founder Chief Executive Officer, and Chairman and reliable, our Chief Financial Officer, and user Clark, our Chief operating officer.
Additionally, jagged <unk>, 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 are important financial measures for the company, but are not financial measures as defined by IRS.
Reconciliations of the company's Neu for edge financial information should be <unk> financial information are available in our earnings press release.
Also note that unless noted otherwise all growth rates are on year over year and FX neutral basis.
I would like to remind everyone that today's discussion might include forward looking statements.
These forward looking 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 companys expectations.
Please refer to the forward looking statements disclosure in the company's earnings press release.
<unk>, our founder and fuel that develops we will discuss the main highlights of our first quarter 'twenty training to results and some of the opportunities ahead.
Subsequently <unk>, our CFO and use of Florida, our CFO will take you through our financial performance for the quarter after which time, we will be happy to HR questions I would like to turn the call over to Doug. Please go ahead.
Thank you Glenn Ami wells.
Welcome everybody pleasure to be here with all of you.
I'm happy to announce that Q1 2022 was the strongest quarter in our history.
On the customer acquisition front, we attracted $5 7 million customers, reaching a total of nearly 60 million customers at the end of this quarter.
This growth continues to be primarily fueled by organic channels with very low customer acquisition costs.
Also notably our activity rate improved to over 78% a historical high Mark.
On the business activity front, we saw growing customer count and engagement spring shrunk product upsell.
In cross sell.
This reflected into historical high levels of purchase volume at $15 9 billion.
And deposits at $12 6 billion.
Both posting year on year growth rates close to 100%.
We continue to see significant opportunities to grow and gain share in the unsecured credit market in Brazil, the largest available market in financial services in Latin America.
Our credit portfolio with credit cards, and personal loans grew significantly above market at 126% year on year to a total of $8 8 billion.
While maintaining healthy credit levels and very strong unit economics.
On the international expansion front, we also have great news, we surpassed 2 million customers in Mexico, consolidating our position as the number one issuer of new cars in the country.
And in Colombia, we grew our customer base by 85% sequentially, surpassing 200000 customers and still have a waitlist of nearly 1 million customers.
To fund these growth we secured a three year $650 million drawdown syndicated credit facility to support our expansion in Mexico and Colombia.
Any of these three markets. We operate we continue to maintain one of the highest net promoter scores in the entire financial services industry all of these markets.
We continued to invest in our two sided ecosystem of consumers on one end and small basis in some merchants onto yogurt and expand our product portfolio.
I would like to highlight two notable launches over these past months.
First one is no pay.
We launched new pay to strengthening our position at the intersection of Commerce and payments in the region.
No pay is a more convenient and secure way for northern customers to pay for their online purchases. We just a few clicks on de Novo.
Customers can choose to pay now using their new account balance or pay later interest rates talmage leveraging incremental credit limits.
<unk> will enable no pain, there checkups will benefit from increased sales driven by consumers with higher purchasing power superior checkout experience and conversion and higher approval rates compare to traditional payment methods like credit card.
Also last week, we announced new crypto.
We've seen significant interest in volume for more customers over the past few months are investing in crypto and owning crypto.
And this platform is a state of the art retail crypto trading platform.
Consistent with our mission, we must democratizing creeped in Brazilian rest of Latin America, and our core products, New crypto was created to eliminate the complexity of the market and to make it accessible to anyone who wants to be part of it even if you start with only one asset investments.
The size of the pricing Latin America is enormous and he is enormous for two reasons first Latin America is one of the largest economies globally with 600 million people and a six trillion GDP.
To put this year aside from the economy context. The population is twice that of the U S and GDP is 40% of China's and two times the size of Indias.
In financial services is the single largest industry in the region.
By far its market capitalization is estimated at over one trillion.
Second financial services remain largely underpenetrated in the region banking and credit card penetration is in Latam are among the lowest in the world in Mexico, and Colombia, the markets, where we operate in you see credit card penetration is low as 12%.
But we are helping to catch up first solar.
<unk> today offers not only a large <unk> system addressable market, but one that is poised to continue growing fast over the coming decades, as we are able to take banking services to more and more people.
And as we further develop our businesses in Brazil, Mexico, Colombia, we expect to consistently acquire market share from incumbent players as well as drive market growth by fostering greater levels of financial inclusion to reach.
Now notwithstanding our high growth in Q1, 2022 and over the past quarters, we're still in the very early stages of our journey, we say inside new bank that were still in the first minute of the first half of this game.
Let's start with Brazil, or more mature market or customer base represents already 33% of the population in the country.
And keeps on growing at a pace of one five to 2 million customers per month.
Our market share is nowhere near our potential because we are in the very very early stages with cross sell or.
Our market share in broader consumer finance is below 2% where market share and investments is below 1% in terms of overall AUC.
Our market share in e-commerce marketplaces nearly 7%.
Expect to keep on gaining share quarter after quarter.
And if we're in the early stages in Brazil, We're just getting started Mexican Colombia. The early signs of success in these markets are extremely encouraging and their kpis have largely beaten all equivalent kpis in Brazil.
While the market has seen a fair amount of volatility over the past months or thesis of building the future of financial services in Latin America remains intact and we're excited about the significant opportunity ahead.
And with that let me turn the call to Gilead <unk>, our CFO to go through our operating and financial results in more detail.
Thank you Ravi.
In the first quarter of 2022, we delivered a very strong set of operating and financial Kpis. We did so by leveraging our simple yet powerful value generating formula that we always emphasize.
First growing our customer base across Brazil, Mexico, and Colombia, and turning customers into active customers.
Second expanding the average revenue per active customer or our peck through both product upsell and product cross sell.
And third delivering oldest growth while maintaining one of the lowest cost operating platforms in the industry.
Now, let's take a deep dive into the quarterly results of our business.
We added $5 7 million customers during the first quarter, mainly through organic channels. This brought total customers to $59 6 million by quarter end.
61% year on year increase.
We are also pleased with the increasing contribution of our international operations to our customer base growth, Mexico, and Colombia acquired 800000, new customers in the quarter.
Importantly, we continue to drive customer acquisition, while increasing the monthly activity rates to 78% up from 69% a year ago and 76% from the prior quarter.
That market the eighth consecutive quarter of higher monthly activity.
<unk> to our ability to continue to drive customer engagement.
Now moving to an analysis of our customer cohorts.
Three charts show hauling trees and engagement of our customer base and higher number of products per active customer continue to drive up our <unk> the increasing monetization of our customer base is evident when looking at <unk> in the chart on the far right why we reached a monthly <unk> of $6 seven.
Dollars per month in the quarter.
Two cohorts are already at $16 per month, and Onemain nodes that earlier cohorts continue to be quite healthy.
This combination of higher engagement and more products per customer has proven powerful in terms of customer monetization.
Our <unk> expansion has helped Hugh are triple digit revenue growth.
We saw another quarter of exceptional revenue growth.
226% year on year on an FX neutral basis.
Reaching a record high quarterly revenue of $877 million.
This growth is the result of the compounding effects of two things.
A growing number of monthly active customers not only customers, but monthly active customers.
Second higher levels of product upsell and proud of cross sell which continues to expand our monthly our pack.
Although our monthly <unk> has expanded strongly over the past quarters as you can see on the left hand side. We believe we are very far from our potential the opex of incumbent banks are skewed six times higher than ours.
Moving on to the progress of our cards business.
<unk> volumes increased to nearly $16 billion up 94% on an FX neutral basis. Again. This is the result of more product upsell and product cross sell.
<unk> on the right hand side shows how purchase volumes grow with him operation of the cohorts and there is no pepto insight.
Despite the seasonality factors in the first quarter, we saw an increase in purchase volumes in constant currency, which reflects strong gains in market share overall, including credit cards and prepaid cards.
Our core consumer finance products credit cards and personal loans.
<unk> to grow at a healthy pace during the first quarter.
Up 126% year on year on an FX neutral basis to a total book of nearly $9 billion.
This was significantly above market growth rates, both for credit cards, and personal loans, which again indicates that we continue to gain market share in this product.
Credit card receivables increased 89% year on year on an FX neutral basis, but our personal loan book grew even faster and therefore has gained more relevance in our total credit portfolio.
We expect the relevance of first the loans to grow further in the coming quarters.
We continue to advance on our strategy of building a robust local currency deposits franchise, which we use to fund most of our operations.
Deposits continue growing at a fast rate during the first quarter up 94% year on year on an FX neutral basis with an average funding costs below CDI Brazil's risk free rate, we added nearly $3 billion in deposits over the last three months closing the quarter with a total deposit.
The balance of $12 $6 billion.
One of the key competitive advantages of our platform rested on its very low cost to serve.
This quarter, we pushed this even further by delivering a 30% year on year decline in the cost to serve per active customer on on an FX neutral basis.
Excluding any one off effects, we see an improvement of <unk> in our average cost to serve compared to the first quarter of 2021 also on an FX neutral basis.
Continued improvement that shows the benefit of scale and operating leverage as we grow.
Moving down the P&L, we delivered another quarter of record high gross profit up 131% year on year on an FX neutral basis to $294 million.
And we did so despite the high growth in our credit portfolio.
It is important to note that our gross profit margin has decreased in the quarter as a result of the following factors.
First growth driving credit loss provisioning.
Under <unk>, we have to Frontload the recognition of our credit loss provisioning whenever alone is booked so the faster we grow our credit book the more short term pressure it brings to our gross profit margin it depends entirely on us and we have chosen to grow.
Second interest on cash balance.
If interest rates go up we earned more money on our large pool of cash balance, even if it's partially or fully offset by higher funding expenses.
But it drives our revenues and leaves us our gross profit largely unchanged.
This pushes down our gross profit margin exiting large as the denominator of the gross profit formula.
However, as our credit portfolio matures and interest rates are stabilizes. The gross profit margins of the business are expected to converge towards a 60% level.
Moving on to the bottom line.
Ill recurrent profitability confirms again that we are in the right path with our earnings Formula.
We reported adjusted net income of $10 million.
As a reminder, adjusted net income is adjusted for expenses related to our share based compensation as well as the tax effects applicable to designers at the payer reconciliation can be found in the earnings release and the appendix of this presentation.
Lastly, I would like to call your attention to business life.
In December of last year, we raised $2 $8 billion with our IPO strengthening our capital position, even further and adding to a total of $3 $4 billion in excess capital that we capped at the holding level at the end of the first quarter.
This provides us with the necessary cushion not only to navigate the cycles and fostered the organic growth of our business for the years to come but also to proactively seek opportunities to expand our ecosystem, including through M&A.
Now I would like to turn the call over to use up our chief operating officer, who will walk you through our asset quality performance and credit underwriting approach.
Thank you Michael.
Let me now walk you through a few key indicators that track the asset quality and overall health of our credit portfolio in the first quarter of 2022.
Let me start with a review of the main outcomes, we optimize and make decisions on when we underwrite which are the return resilience and payback of our originations.
What you see on this chart is the actual risk adjusted margin of our credit card cohorts on the left and that of our personal loan cohorts on the right.
As a reminder, here we define risk adjusted margin as revenues minus funding cost and cost of risk expressed as a percentage of revenues net of funding cost.
And as you can appreciate in the initial months risk adjusted margin is negatively impacted by the accounting recognition of noncash upfront loan loss provisions.
Then as revenue begins to accrue Ram quickly expands and convergence towards the level of 60% or more for both products with a payback period of six months or less.
No.
How do we expect this performance to evolve going forward.
As interest rates rise in delinquency rates normalize we have responded by repricing both products to ensure expected rents at or above the 60% level and even greater levels of resilience and we have been able to successfully implement this repricing across credit cards and personal loans.
The end result is credit cohorts from both credit cards and personal loans that can withstand risk worsening of over 100% above baseline expectations and still be NPV positive.
We believe this positions us well to continue growing going forward.
Moving now to Npls.
In the first quarter, we have seen continued normalization of delinquency metrics in line with our expectations.
On the left hand side of this slide we can see the evolution of 15% to 90 Npls.
In Q1, 15 to 90 Npls increased by about 110 basis points of which roughly 80 basis points can be explained by normal seasonality observed in the first quarter and about 30 basis points, primarily due to a shift in mix.
On the right side of the slide we can see the evolution of the 90 plus NPL metric.
Our 90, plus NPL increased about 70 basis points, most of which can be attributed to a shift in mix adjusting for mix shift our NPL increased by 30 basis points in line with continued normalization expectations.
This slide shows the lagged view of delinquencies to better understand the piece and trajectory of asset quality normalization of our credit card business in Brazil compared to the rest of the Brazilian market.
For US Q1, 2022 has been a relatively stable period from a credit risk perspective, with no signs of macro worsening or upward momentum in risk beyond the expected seasonal patterns.
From a 15% to 90 NPL perspective, we have continued to operate a bit below the 2019 levels, but from a 90 plus NPL perspective.
<unk> is a little bit more pronounced as 90, plus tends to lag 15% to 90%.
In contrast, as you can see in the bottom half of the slide the Brazilian credit card market has experienced a more pronounced deterioration and has already been operating above pre COVID-19 levels on both 15% to 90 and 90 plus npls as of January 2022.
Now, let me step back and remind you of the impact that expected credit loss per ECL as in loan loss provisioning methodology Hasnt of consumer finance business with high growth rates as is the case for news credit card and personal loan businesses.
For Ifr nine loan loss provisions must be recognized when the loan is granted even before any revenue associated with that loan is accrued.
This results in an intention of a timing mismatch between revenues and costs.
For this reason the higher our growth rate in consumer credit the more provisions we have to book upfront.
And as LIBOR mentioned this negatively impacts 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.
Now with that context, let's turn our attention to how much our growth has affected NPL provision formation in the quarter.
Our NPL provisions grew by $236 million on an FX neutral basis or 35% during the first quarter.
80% of this increase was the result of our consumer finance portfolio growing.
The remaining 20% was a combination of risk normalization and seasonality the majority of which coming from the ladder.
As discussed previously the growth of our portfolio has been the dominant driver of our provisions formation.
Having shared these perspectives and data on credit and asset quality. So let me now turn the call back to our founder and CEO , David <unk> for his concluding remarks.
I would like to wrap up this presentation by reinforcing to you a few points some of which may sound familiar to those with whom we have interacted for longer.
Since our IPO in December 2021, the World has changed significantly with additional volatility coming from Ukraine, Russia increased inflation in the U S chokes and global supply chains et cetera.
These factors have created a lot of noise in the market, but ultimately when we take a step back and take a new look at our thesis or thesis that the largest providers of financial services in the world five years from now will be newly created digitally native technology companies has remained unchanged I've.
I've seen here to date or fundamentals are extremely healthy and continue to accelerate.
We believe we are the best positioned company to lead this transformation in Latin America, one of the largest ramps into work.
Number one we nearly 60 million customers, we have already become one of the largest financial institutions in the region by number of customers, giving us a significant scale benefits of incumbents and the agility speed and innovation closer if a stark.
Number two we have been able to maintain one of the highest if not the highest net promoter scores of any consumer company in the world as we scale.
Number three we have developed and maintain our cost advantage of over 85% versus incumbent competitors.
The 20 X smart efficient at serving consumers and traditional banks and this advantage allows us to competing price and provide the best products on lower costs.
This advantaged oil increases with additional scale as we grow.
And finally, we have continued to have best in class unit economics, given the low customer acquisition costs, increasing average revenue per active customer and decreasing average cost to serve.
Allowing us to have an LTV to CAC of over 30 X and alrighty generating significant profitability in our first core product, Brazil credit cards.
These advantages do not go away with all of these macro volatility and in fact, they might actually increase as an adverse economic environments. The market leader tends to benefit disproportionately.
A few segments of our target customers are counter cyclical.
As we have seen throughout our history. Since 2013, we have been building new bank effectively in the middle of recessions and really adverse macro conditions in Brazil.
Fortunately bottom accurate the only macro we know as a company.
But the trends to continue accelerating our growth are structural and they also create opportunities.
And thanks to our IPO, we are extremely well capitalized to seize this opportunity we ended quarter, one 2022 with approximately $3 $4 billion in excess capital and our balance sheet, which keeps us D opportunity to continue taking share.
Markets, while obviously being very mindful that the world has changed and maintaining a close eye on discipline in all of our decisions, particularly when it comes to consumer credit and cost discipline.
Over the past weeks, we have received questions about our main shareholders selling or distributing a significant percentage of their holdings.
A lot of rumors in the market about an avalanche of shares coming in and being available post lockup.
To say that we have recently talked to the majority of our shareholders that have been with us for a very long time and to have grain forced to other expectations to be very long term holders for stock and.
And as such they do not intend to sell or distribute any material portion of their shares in the near future.
This decision is consistent with the way, we have always sort of Novak.
Been a very long term opportunity.
And as we continue to optimize to build a great company in the long run.
Now I'd like to open for Q&A.
Thank you everyone.
We will now start the Q&A session for investors and analysts.
Wish to ask a question. Please press the reaction button and then click on Liza.
Is there a question is answered you can exit the cubic please put your head down.
Please limit yourself to one question and a follow up if you have further questions. Please reenter the queue.
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. Haden Investor Relations senior manager and New Holdings.
Thank you operator, the first question coming from Tito <unk> from Goldman Operator, Please open the lines.
Hi, Good evening, everyone. Thank you for the call and thanks for taking my questions and congratulations on the strong results.
My question just in terms of your growth.
How you manage that very strong growth on the loan portfolio.
Yet you arent increasing provisions I know it is.
Standards expected loss methodology.
What gives you comfort.
So so quickly.
And growing faster than the market.
Npls deteriorating.
What is that Youre seeing that gives you that comfort.
These loans won't become nonperforming in the next 12 months or beyond that.
Help us think about how you're managing that growth.
In this environment and what gives you comfort from that and if you can give any color in terms of.
I think gross margin can evolve from here I know long term, 60% just kind of in the short term. If you continue to grow the SaaS do you think there'll be some some pressure in the short term on that gross margin. Thank you.
Sure.
Tito Thank you very much for your question.
So on growth I guess, the first thing to consider is that we we might have already.
30% of that population in Brazil as customers, but we still have a very small percentage of their business. So in credit card. We have I think around 7% market share in lending, we have something like around 2% market share. So we're still are small and as we grow we're effectively share repeating or growth within the base that we have and be.
Very selective about who gets created and who.
We get through especially in the personal loans, we get to consistently see transactional information and as we get comfort about there.
About their performance, we're able to provide limits generally starting with very low credit limits that after 15 30, 60 90 days, we get so much more cross sectional information that allows us to expand the credit underwriting. So the first thing to consider is we are effectively able to fish in a very large PON.
And Cherry pick the number of customers and the type of customer that we want to bring inside <unk> and theres still a lot to growth given how small percentage of our market share is vis vis the base of consumers. The second aspect is we started as a company in 2013 for team doing credit as a core competency.
And this forced us to develop credit as that ultimately is a competitive advantage, where our credit first company.
Currently from a lot of digital banks, starting to pace that went to credit and then as we started growing we have to face really adverse macro conditions throughout our entire history. We saw in 2015 16, Brazil contracting at over 7% GDP. We saw several recessions we saw it in patients who show up on <unk>.
Nick.
These forced us to develop a lot of discipline and a conservative bias effectively every credit decision that we make in all of our models every underwriting decision assumes that the future is going to be way worse than the past and that every decision that we're making on the credit aspect has to have significant cushion.
Be wrong on the macro and still be NPV possible today.
Today, we have very significant resilience on every single one of those decisions and we can sustain.
Much worse.
Credit performance in the future for customers and still be making the right underwriting decisions.
And so as we grow we're able to use that combination of methodology and cherry picking to continue to grow and taking share in a market that at the margin may start suffering.
A little bit more about more of a macro adverse selection, let Joseph here add anything else once on the credit side and then <unk> can answer your.
Gross margin question. Thank you Peter.
Yeah, typically I would say a couple of additional things that are giving us comfort to continue to grow our number one is.
So far in terms of actual performance everything we have seen has been in line with our expectations you've seen some of that in the earnings presentation in terms of what drove NPL, it's been mostly a story of seasonality and mix.
And we also have been able to successfully increase our pricing and the margin for both credit cards and personal loans, mostly in response to <unk>.
Increasing in interest rates, but we've seen continued strong demand in the face of that and we believe that despite that repricing, where we continue to be competitive.
We've said, we we always underwrite for profitability and for resilience and there is ample room.
For things.
Things to worsen in the environment and for us to still deliver above hurdle returns, namely our our credit card and our loan personal loan cohorts can withstand more than doubled the risk of baseline and still be above hurdle and BNP deposit so that gives us quite a bit of confidence to grow but that said if we find ourselves in.
In a much more adverse scenario.
We will not hesitate to act quickly and decisively.
Because of that.
Okay.
And then maybe finally Tito to your question about gross profit margins.
We don't provide forward looking guidance per se, but as you as you mentioned, we do expect as we have seen in our actual performance. The gross profit margins of the business to converge towards the 60% level in.
In the next few quarters as the strong growth in our credit portfolio continues to drive the expected credit loss allowance expenses.
Two the increase in interbank interbank rates in Brazil increases our revenues and our cost of funding. We expect the margins will be temporarily lower compared to what we see as the margins of our more mature cohorts, which are in the 60% range.
Great. Thank you Yosef and Michael that's very helpful.
Can I ask just one follow up.
Each point about Cherry picking.
The clients.
Any color you can provide on when you're extending credit.
These clients have loans with other banks.
Youre, taking them away from other banks or are these more kind of like on bank lines that don't have any credit, but you are still selecting some of the best ones in there just to get a sense of.
Who these clients are and what are the loans. They may have outstanding in and how you are able to carry it.
To pick the best ones.
Tito This is Youssef, let me, let me address that and thank you for that question. So I would say, it's definitely a mix of both we have.
A number of clients for whom <unk> is the first financial services provider that they have a relationship with.
Either on the credit card side of the personal loan side.
And also all the way to clients.
Who have a lot of credit experience and already had been managing both credit cards and loans and other.
Financial instruments.
We obviously adapt the product we offer the credit limits, we extend the personal loan terms and particularly the amount to each individual borrower's circumstance and we tend to be very careful for people who are new to credit.
Have a lot of experience.
By offering very small credit limits at the outset, and then letting them show a good ability to handle credit and repay and pay down before we extend more credit over time, so just sort of start low and grow over time is something that we've done for several years.
Successfully in a lot of comfort and experience with the other thing I'll mention here is in terms of how we offer personal loans.
It is exclusively a cross sell product.
So that's how we cherry pick.
We take basically the best lowest risk of our credit card customers and.
Selectively offer them personal loans.
To be able to manage the risks.
And the profitability from that perspective, so just just to add one one final point there I think we get this question a lot distribution for clear the majority of our customers already had credits and they are effectively changing their credit relationships to vote in a moment.
Which is different than giving credit to people that never had access to credit before we have a small percentage of customers in that segment that we generally start, especially on the credit side credit cards side with limits as low as $10 and so thats one wafer to start slowly, creating a credit history seemed at $10 50 to one.
100, helping to customer billed AR positive credit profile, but the majority of our customers today in both credit and lending are customers that had other credit card or personal loans and are deciding to effectively transferred there remained relationships all to <unk> and so that means we're able to get a lot of information from the market from credit for us from the Central Bank.
And a lot of the time from our own internal information since these customers get to us via a number of different products could it be from from a savings product for critical product or investment product.
Great. Thank you.
Congratulations again on the strong results.
And the next question is coming from Josh with Autonomous operator, Please open the line.
Hello can you hear me okay.
Yes.
Okay.
Perfect.
The market seems to be increasingly rewarding companies that can demonstrate profitability today.
Expense of those who are.
Not showing significant profitability to date might have the potential to look at that profitability down the line.
In that context is there anything that you're thinking about doing differently.
Specifically you've spoken in the past about the opportunity.
Not to offer 100% of CGI CDI until all of your retail deposit individual deposit customers.
Is that something you might think about bringing forward to unlock some of the earnings potential that would bring thank you.
Sure. Thanks, So yeah as you say theres been a shift in what the market is.
<unk>.
He is wanting to look at is today for us it would be extremely easy to show profitability. We decreased our growth rates, we don't even have to stop the growth rate.
We grew over 220% last year.
Could significantly increase the growth rate and immediately there is profitability available a lot of profitability available. So.
We don't decide to do that because I think for US has been very important to continue optimizing for the value of the company in the long run and we continue to optimizing for a very long run.
Do not run out suddenly really optimized for the short term. However, obviously the market is more volatile there is more risk than there was about six months ago. So I think this has forced us to.
Increase the level of resilience in our credit underwriting decisions. These are forced us to push harder on cost control and be much more.
<unk> in an attempt to the way, we're spending our money and really push harder for efficiency, that's absolutely something that we're doing right now but at medley. We think that we will optimize the value of new banking frequency to optimizing for the long run and this is really the early days of a new category that is being created.
Across the world, especially in Latin America. So we think it would be a strategic mistake to subtly shift that that vertical.
That being said I think as I said I won't comment necessarily on what you mentioned on on.
On newco.
<unk> I think we're all actively looking at understanding what drives net promoter score what are the values and drivers that consumers. Appreciate at times. There are values in products that are less appreciated than others and there are some switch in strategy that can happen and we're actively looking at that.
That really across the board.
Asking ourselves is the best allocation of resources. So I will just answer your question more general basis. We're doing that question. We're asking ourselves that question every single time, as we understand better capital allocation and resource allocation.
One artist here.
No I think we have this.
Tremendous ability to lock in operational operating leverage here in the business. So as you have seen how our cost to serve and operating cost evolutions. You have noted that we have been able to extract a lot of operating leverage out of the business and as we continue to grow we expect to know <unk>.
A bit even higher operating leverage in the coming quarters and in the coming years.
That is partially seen in cost to serve which is as you may have seen in our presentation has dropped by about 30% on a year on year basis.
And I think Theres also a slide in the appendix of the presentation jobs that you may see that also draws.
Your your attention to higher operating leverage in terms of G&A.
Which has moved from 27% of revenues to about 20% of revenues that trend is expected to continue in the coming quarters and years.
Thank you.
The specific question about <unk> and about the really high interest rates that people are getting.
Getting now.
Day to day balances I mean is there any change there kind of predicated on rolling the new invest functionality into the main new bank cap is on how youre thinking about things.
Certainly, having a broader investment portfolio would provide more options to consumers and would give us additional.
Additional degrees of response into product setup.
We don't really want to comment specifically on that change, but as I said as we have a broader portfolio and as we ask a question what is being valued highly by consumers then.
That might drive us to changes in the number of different products.
Configuration that we have.
Great. Thanks very much.
Thank you.
Thank you. The next question is coming from your own liquidity from Morgan Stanley . Please open the line.
Hi, Hi, everyone.
Congrats on the great results.
I wanted to see if you can talk a little bit about the profile of clients that are getting personal loans.
What percentage of the new loans are going to clients that have been a new bank for several years. So you have good underwriting and behavioral data.
What percentage are going to relatively new clients, where the person alone is maybe the first risk products that they have with you is it fair to say that given the still very low penetration of personal loans.
Personal loans among your clients that the bulk of loans are going to.
Quarter on quarter, the best Lash low risk clients.
And also related to this.
Can you. Please talk about the connectivity between the NPL ratio of credit cards and personal loans are you seeing clients that are gaming credit card delinquency by trying to get a personal loan in order to catch up and is that sort of like a niche.
With you.
<unk>.
Okay. Thank you for the question, let me address it in turn starting with the last piece.
In terms of.
So called the gaming.
Credit card delinquencies through loans.
No.
Categorically the answer is no that is not happening in fact.
We.
Block.
Any customer who are delinquent on a credit card from being eligible for alone.
Not only that but to your earlier part of your question.
We are very selective in terms of who we offer personal loans too so we target.
Personal loans as a cross sell its exclusively a cross sell to the best ROI.
Credit card customers.
And that way, we're able to create.
Our really good profitable resilient originations of personal loans.
And we benefit from having.
The experience and the value of credit car actual credit card performance repayment et cetera.
To be able to underwrite.
So again.
This is something that we're very selective about and there is no such thing as connectivity between credit card Npls and personal loan Npls. In fact, there is no commingling whatsoever.
We do.
In credit cards and personal loans.
Great. Thank you very much.
My follow up question would be.
If there is disclosure of the growth in clients by by country is that something that you provided I haven't been able to seed.
We actually have provided that.
In our earnings release.
You will note that we provide and that we have out of the.
$59 six medium customers that we have in total 50 357 three comes from Brazil to one comes from Mexico, and the remainder of 200000 from Colombia.
Great. Thank you level.
So go ahead.
So much.
The next question comes from James Friedman from Susquehanna. Please open the line.
Hi, Thank you for taking my question congratulations as well on the results.
So I guess first question for you soon.
I think it was maybe slide 18, but could you talk about the payback.
When you compare personal loans versus credit cards.
Yes, Jamie so thanks for that question. So as you can see.
On.
Page 20 of the earnings presentation that shows the actual risk adjusted margin.
On a cohort basis.
You may notice if you look closely at that.
Although both payback periods are in the sort of four to six months.
Average personal loans tends to be a little bit faster payback and then credit cards.
And Thats just a dynamic of.
Upfront provision and then revenues that kicks in for loans.
We get levels of pricing that enable payback around three to four months give or take.
Thank you and then for my follow up could you talk a little bit about the move up market specifically with the.
Introduction of ultra Violet.
Sure. So we have pretty significant base of high income customers already in that 57 million customers. When we look at income we have.
Several million dollars that will be considered very high income too.
To go after those customers, we launched <unk> last year, we're in the process of finalizing the product itself and we have a waitlist, we havent waitlist and have been inviting customers to benefit the product.
And in the process really.
Finalizing a number of different features so far we've seen really really good response, we have a very large witness of customers just waiting for the customer.
Product and there are certain features like for example, the cashback.
On point that currently is generating is it provides 200% of the risk free rate. So it's probably the best investment to date in the market as having cashback English.
Atlanta, So we should expect to see that product being rollout much more aggressively over the rest of the year.
We really have been finalized and kind of the last points and we're very excited about.
Bringing in increasing engagement of those several million customers that are considered high income in Brazil today.
Got it thank you Tobey thank.
Thank you.
And the next question comes from <unk> <unk> from UBS. Please open the line.
Hi, guys. Thanks for the opportunity.
My question is about the.
<unk> calls off new to get a full banking license, especially considering the increase in capital density that you Didnt <unk> Bank announced some months ago do you believe it would make sense for <unk> to get a formal bank license at least in Brazil.
Hi, Charles Thanks, So much for your question.
We have today operate with three main licenses in the country right we have.
Financial institution license also known as <unk>.
We have.
Broker dealer license and we have a payment institution license with those three license we have all permissions necessary to run our two sided ecosystem and serve both consumers and Smes.
And so there is practically nothing that we cannot provide to our consumers then we would be able to provide if we are if we work to own a license of a bankable.
And to be very precise also if we had our financial institutions licensed convert to today from that unfortunate citizens for bumper multiple.
The impact on our Reg capital would be essentially zero right. So there's really not much kind of approvals nor there are many calls on actually making that conversion and maybe something that we explore down the line, but we are under no pressure.
Pressure or hurry to make such a transition.
Although likely at a level if we can do a follow up question.
What is in your view the impact of the open banking for new tenders.
Much better should.
<unk> become with after the open bank implementation.
Yes, it's a great great question. So we are very excited about open banking as I said earlier, we have a very large consumer base over and.
Over a third of the alpha <unk> for customers, but we still have a small share of their credit portfolio. Even in personal loans, we have around 2% of a market that has over 200 billion reais of market.
We start.
Every other fintech, we start a significant disadvantage fixing comments because we don't have all of that historical information we've already been around for about nine years building a lot of information building a lot of credit models, and we are able to do that cherry pick for a sub segment of customers, but for all or part of customers. We're just not able to underwrite yet and as I said, we have a <unk>.
Very conservative bias, we tend to operate with lower credit limits and so we're still on a bit of a disadvantage vis vis the banks that have much more information. So we think that what the central bank in Brazil is driving towards which we agree is effectively a market where the best product wins, there is no narrow shaft or sitting in your <unk>.
<unk> account whoever offered the lowest loan or divest product should get all of the business and right now that doesn't happen because of this our.
Symmetry of information that exists in the market between Fintech and the cause and back so open banking.
Seems to be happening is the catalyst to remove all of that inertia that is still keeping a lot of customers from the big banks and let them choose wherever they want to go and let them choose the best.
Loans in the best credit conditions as a side note, we're still we're pricing or personal lending at over 20% lower interest rates than incumbent and so that also will ultimately forces us to be picking a safer type of credit performed so welcome Natalie we're very excited about what is happening in open banking we did.
A very interesting acquisition last year of a company called Olivia that brings a lot of the machine learning associated with.
Including a lot of the open banking information for underwriting and AI and.
And we expect to as the open banking faces of the Central Bank that instituted we expect to start.
Seen that much more open market available in Brazil, benefiting from that lowering their shack that will come as a result.
And if I may just add one thing to be Chuck you mentioned about the benefits of open banking for all or no credit consumer credit business.
But open banking or better said open finance will bring those insights into both the assets and the liability side of the consumers. So it's not only how to do better credit underwriting or customer segmentation, but it will also materially and positively impact our investments franchise because.
We will be able to identify one of the assets of the customers have to finish institutions and influence the best way for them to invest their money.
Very clear thanks Al Gore.
Next question comes from <unk> from Citi. Please open the line.
Thank you.
I was wondering if you could help us.
This aggregate growth in our pack into the contributing factors, perhaps you'll take an engagement maybe a bit more.
Legacy products.
<unk> is the traction that you might be seeing in some of the.
Newer products introduced in the last 12 to 15 months versus just higher interest rates things like that.
Sure Ashwin <unk> to walk to walk you through this I would actually draw your attention to slide number 10 of our presentation.
That probably gives an idea of how the art Peck of evolution.
<unk> performed over the past years.
But also what actually moves the needle in there. So if you take a look on slide 10 of the presentation on the right hand side you see the cohort views of the of the Opex and you can see two things here first you can see that our average Opex is no six seven it came from about three five.
Dollars per loan for a year ago. So that's an increase of over 60%.
But you can also see that the more mature cohorts are already at $19.
Most of this increase from the earlier cohorts the more mature cohorts are primarily driven by our bank account process product and our credit card product.
Because of the penetration of no bank account is about 85% the penetration of credit card is about 60%, but the penetration of personal loans is still less than 5% right. So most of our pet growth so far.
<unk> the rises from the maturation of credit card and bank accounts now once we do cross sell and up sell of other products such as personal loans, you can see <unk> going up very significantly in fact consumers who have adopted our three core products bank accounts.
Credit cards and personal loans already have opex of about 35 to 40 adults.
Personal loans as we increase the penetration both upsell and cross sell is expected to bring material our pack to the equation. In addition to personal loans. You also have investments insurance marketplace that are expected to also contribute to the expansion of the <unk> in the future.
Okay. So it sounds like many of the newer product.
Yet to contribute and what Youre seeing is more.
Okay.
Other products.
Yes.
And just to give you a perspective.
Our pack of incumbent banks today, we feel in some of the banks if you take only the retail operations.
The first quarter of 2022 at about $40 four zero, so lean or six times higher than our average <unk>. So there is a material no gap to close over the coming quarters and years.
Got it got it.
And then I kind of see the anticipating.
Card receivables total car ratio the ratio ticked up it was in that.
10% to 12% change ticked up to 16%.
Is that more sustainable level, what is driving that.
He can comment maybe on the change in consumer behavior underlying that perhaps.
Yes, no absolutely.
I think there is no walking towards a more sustainable level, but if you take a look at our IBD interest bearing balances divided by our receivables we still have a below average ratio. So we have less <unk> than the average of the market for the same volume of credit card receivables.
We have been introducing more credit card financing products that gives you the ability to basically finance bullet those which are banks needs finance views and that has increased the percentage of IBD into the credit card journey of our customers.
So you should expect this to be a more normal recurring levels. In fact, you should expect this to actually go slightly up in the coming quarters and years.
Understood. Thank you for that and.
Good quarter.
Thanks, so much.
Thank you.
The next question comes from the from HSBC. Please open the line.
Hi, congratulations on the southern border.
Kind of related May have.
I have one additional question on asset quality.
How much how far they are from normalization of MD&A.
Sure.
If I look at the vehicle with 90 day NPL ratio.
It was roughly about 5%, but at that time did not have cliff Sydney. So now.
Taking into account the change in mix that you have.
What is the normal 90 day NPL ratio.
We should expect.
And how fast do you think in the coming quarters, I would likely get to that level.
Now thank you for the questions. So.
Perhaps the best way to.
Think about this and looked at this normalization.
Take a look at page 22 in the earnings presentation.
Page what you see is the lagged npls, but 15 to 90 and 90 plus.
For our credit card business, where you can compare.
Where we are today versus where we were.
Pre pandemic as you pointed out.
Pre pandemic our loan portfolio.
Very small just in test and test mode. So there is no basis for comparison, there, but what you can observe in page 22 is weak continued to be slightly below.
2019 levels on both metrics a little bit more on 90, plus because it tends to lag, but pretty close on 15% to 90.
So while it's hard to quantify exactly when we're going to get back fully.
Our baseline expectation is we'll continue to see that normalization through the next months and quarters.
As we go forward.
And I understand it's a bit hard to predict.
I'd say, yes.
The 90 day NPL ratio.
So five and <unk>, 6% that sounds reasonable to you.
Given the.
Change in mix and a more normal Tonight.
And early.
Early next year.
And that's the lever the <unk>.
Our expectation so let me see.
Yes so.
To be clear, we don't provide guidance on npls.
But if I were to guide you quantitatively.
There's a few drivers that are happening this ongoing normalization that.
Nearing the end up given the data I just pointed to.
There is.
Shifts in mix with the higher growth in our personal loans portfolio, which are all else equal pushing the npls up and then you have normal seasonality and you can see in the appendix of our presentation habit drives npls up and down through the quarters. So those are the main drivers that that would pick up.
One last question are there was a considerable increase in the activity rate despite strong net adds.
Could you give us a benchmark on that is too. Despite the strong that that's how you manage to intermediate acting a debate every quarter and what is a good level that we should expect from me and maybe any any specific factors, which led to a strong pick.
Pick up in activity data.
What is the normalized level that we should.
And how sustainable are these net adds of almost 6 million in the quarter.
Thank you so much.
Thanks Dana.
I'll comment on the activity rates.
We'll be able to give you specific guidance on numbers, but on the activity rate really what's driving it.
We began with effectively one credit product that offer very low credit limits and so obviously for a lot of people that wanted to do business with US. We didn't have an account we did have loans, but they have investment with they have insurance and that ultimately create a number of people that will open will get their credit card and they would just not be using that much.
As we launched credit card savings lending investments insurance marketplace, you start seeing these flywheel accelerating where more people find more reasons to bring more of their business and we become the default primary bank accounts in fact, we measured these very clearly where.
For customers that have been with us for over six months over 50% of those we become their primary bank account.
And that provides a lot of activation that drives as we give them higher credit limits and the credit card because we get to know them better.
Bringing their salaries every month, then to start getting their loan and they bring their savings and they are starting besting within our app and the store shopping in our marketplace and so ultimately the value proposition that we can offer customers become way stronger than these drives a lot of activity of any type from investing to savings.
Two payments paint picks receiving payments and ultimately being domain domain back account financial relationship with that customer, which is what we want to drive so hard to give you a full estimate of where that Lance. We're obviously working we shift a significant opportunity to increase that when we see such a slow still.
But the point I mentioned, we have a large customer base by low market share in lending or credit card or limits are still small as we increase the penetration of those products within those base that will come with more activity right as we become the more kind of an effect of the primary bank account that activity goes up and and we're working very hard to bring more and more products and <unk>.
For customers to really uses of their primary <unk>.
<unk> relationship.
Thank you David Thank you so much thank.
Thank you ma'am.
The next question comes from Italy to keep growing.
Please open the line.
Yes, Okay I hope you guys can hear me.
Yes, yes, all right. Thank you.
For me such subjects a little bit.
On the services side service revenues continue to expand at a very solid pace, but mostly on the card from others.
Others with success from delay moving but others of us.
A bit of a bit shy of what we expect on a fix on insurance investments.
Comment a little bit about this but maybe just seasonality on the side as well and back into cards.
Can you remind us when the new lower even if a self imposed prepaid interchange cap will start for you guys in.
It continues to gain share just so.
Explore a little bit overall the service revenue evolution. Thank you.
So maybe I can take the.
The interchange cap question, and I think Jack Ken can comment a little bit more on the product roadmap for the services business.
Our pivotal but I think on the interchange cap one on prepaid.
Just a brief recap so in March.
This year Mastercard released the public consultation proposing the reduction of interchange rates on prepaid cards about 80 bps from 120 bps.
I understand this public consultation is still being analyzed by both Mastercard and it still has to go through the approval process of the Brazilian Central Bank and if that was to be implemented it would actually cause a decrease in our revenues of about two 4% prepay.
Interchange revenues accounted for give or take 8% of our revenues in 2021 and also in the last 12 months. So that is something that it would have a fairly marginal impact on our on our topline and bottom line.
It is very hard for me or for us to give guidance on the.
The timing for those who are just no watching this very closely with both Mastercard and the Brazilian Central Bank and it's something that we expect to have the.
Definition throughout 2022, but it's very hard to say, if it's going to be in the second quarter third quarter fourth quarter to fourth quarter.
Chuck Q1.
Comment a little bit on visitors questions with respect to <unk>.
Insurance.
Investments in all of our services businesses.
Sure. Thank you Lago hi, everyone.
A few a few thoughts.
First of all I think importantly, the performance of those businesses more service based businesses as you mentioned.
Has.
Has been largely in line with our expectations as we rollout new products Davita and others have referenced this earlier.
We look first to sign.
A product that our customers love that there's real resonance with.
And and that involves a a process of rolling out a minimum viable product, but then optimizing it and iterating.
Sometime for sometimes for several quarters, while we find the parts that really resonate and we find the parts that require more work.
So we are quite comfortable having a product that is growing growing relatively rapidly from a small base, but not becoming a material part of our business for quite some time while.
We focus on optimizing the product and we focus on optimizing the product well before.
We will not scale of products explosively and aggressively until we get to that point, where we're really comfortable that the product is truly resonant with our intended customer base and I would say that for a number of our new products. Some of them are services some of them are.
Our other new products that aren't service space.
We are working through that product, we are working through that process and we are quite.
We're quite pleased.
And basically every case.
With with the progress, we're making and we measure our progress at this stage more by customer love and progress towards that than we do by the scale of adoption just yet and that follows once we once we're confident that we've got a path that really works that was by the way the formula We followed.
For example, with.
With our account product for.
For many many many quarters.
Also a process very similar to what we did with personal loans that are still in some ways doing with personal loans and it's and as you get into the rest of the portfolio.
That's a pretty good summary of where many of our products still are and but generally we're pleased with their traction.
Thank you so much both of you.
Just one final piggyback on this.
Revenues that are.
Our generated by you are generating credits to other parties like the ones in real estate.
Is that already here somewhere and the service line and just also review on where those products are in terms of rollout.
Yes.
And Dave would be in the fee part of the revenues.
Yes.
Yes, any color on how the rollout has been there already.
Yes, we haven't yes, here's to working on a full integration with <unk>, which is the partnerships, which I believe you alluded.
So just as one off we believe the best in class manufacturer of Alco equity and home equity loans.
We have started to do experimentations with their products and our customer base. They have been quite encouraging they will only actually starts kind of gaining more traction in a way that will probably be more relevant in terms of P&L towards no fourth quarter of this year first quarter of next.
Year based on our on our expectations, we are still working with them on what's the best way to create the best possible experience for our customers to access their products and to increase the conversion of default before we have a broader rollout in our in our customer base. So something more towards I would say six months from now to have a more relevant.
Our meaningful impact in our in our revenue.
Good morning.
Thank you so much level.
Thank you Pedro.
The next question comes from.
Alexander <unk> from Keybanc. Please open the line.
Hey team. Thanks for taking my question and nice to speak to you all.
Wanted to ask about the addition of crypto trading to the new platform.
Just curious your take on the primary motivation for retail consumers across Brazil to own crypto.
And whether or not you plan to introduce functionality beyond trading to kind of increase utility of that crypto on the platform.
One follow up thank you.
Sure so.
We've seen.
Really significant interest over the past year, and our consumer base for owning crypto and investing crypto.
Alright.
We're able to see the type of transfers out of our bank account into trading platforms and so as we talk to our customers and try to build the products. Our customers want we felt it was important to offer a full crypto trading platform right. Now we are beginning obviously would be just a bitcoin and ethereum they use case tends to.
A combination of.
Frankly trading and investing on their on the crypto as well as long term save NFL hedged stores inflation you.
You'll see both type of use cases, you also see that the kind of hedged source inflationary devaluation of the currency youre starting to see it that much more clearly in our Latin American markets than Brazil, but that's a big.
Use case that people tell us to us so we're happy to be able to offer that option to customers and we're just kind of really at the beginning of the journey of building that platform for for our customers.
Yeah.
Super helpful. Thank you.
And then just as it relates to compensation expense are you thinking about the mix of cash versus share based compensation going forward.
As you strive to continue to be competitive in the talent market.
So look we have had historically relatively low let's say net burn rate so even before the IPO. Our net burn rate has been substantially below 2% I think going forward, we don't expect to get anywhere close to those.
Those 2% and we should expect to operate lower.
It is super important to note that the compensation structure that we have.
In new bank.
Which is a little bit different from most of the other peers.
People get there no monthly salary cash, but 100% after variable compensation is paid in shares within business.
Enormously important for the long term alignment of the business and it's not something that we expect to change our ships.
And then we expect to continue paying an appropriate compensation around us and we don't expect net burn rates actually go up from their historical levels. If anything this should be stable or going down with things that this will still provide us with adequate level.
<unk>, two coupon attracting and retaining the best talent.
Great very clear thank you.
The next question comes from Eugene CRO market Knutsen. Please open the line.
Hey, guys. Thank you.
Yes.
Yes can you hear me.
Yes, we cannot go ahead.
Excellent. Thank you. Thank you for taking my questions I have.
Wanted to come back to international expansion very nice to see rapid growth in Mexico. I'm curious if you can comment on what are you seeing from the behavior of your cohorts in Mexico is it similar to what you saw in Brazil. As you were building out this business what are the main differences, if any and kind of what is it telling us about.
Shell trajectory of growth in those new markets as compared to what we've seen in Brazil.
Jamie Thanks, Thanks for that question, so you're right I think one of the one of the questions are one of the conversations we had a lot in the early days with investors was.
Our growth in Brazil was so.
Were so significant driven by member get member and gravity and by a very very healthy cohorts that there was a real question of where we could replicate this model into our countries beyond Brazil, and so we're very curious about what would happen when we launched these new jeers and fast forwarding.
Two years after the launch of Mexico, Mexico for US today is effectively bidding Brazil at every single metric starting from our net promoter score, which is 95 I think is probably the highest NPS of any consumer company in any category in the world you hear of anybody hired a 95. Please let me know very curious.
But that is driving then you start with a high NPS, which is a function of the huge consumer pain, you got to remember that Mexico has a credit card penetration of 12%.
Brazil, 35, so 88% of Mexicans have not access to credit card that creates higher consumer pain and by the time, we launched that will be mainly.
Configuration, better product market fit, which then starts to driving the flywheel of customer acquisition most of our growth today in Mexico is coming through word of mouth referrals, we do not paid anything for those referrals.
So our CAC that is very very low comparable to Brazil.
We grow with low credit limits, then we start driving higher credit limits that drives engagement.
And ultimately we took we were able to get to that pulp position of being the largest credit card issuer in Mexico. Today every months faster than what took us to get to Brazil in that.
To that pace. The other part of that is that is just different in Brazil, and it's much more positive.
Is in the early days in Brazil, there are still a lot of skepticism about what a digital bank wise why we didn't have any branches. It took us about two or three years to start building that friction if they are building a brand by the time, we get to Mexico. It is clear that the kind of concept of digital banking a fintech is much more understood. The market is ready for US there is higher.
Internet and smartphone penetration and we have a brand that actually traverses regions. We can go back to Mexico in day. One we can say we are the largest digital bank in the world. We have over 57 million customers in Brazil, you can trust US now, it's obviously very hard to do in the early days in Brazil, when we had nothing so we think that.
The sort of the size the reputation the bran radio market and our consumer pain are all the factors that are getting us really really excited about the opportunity in this market and we are obviously earlier in Colombia.
We're also seeing very similar leading indicators to that growth. So overall, we feel very excited about the opportunity in these two new markets.
Got it got it very interesting and then my follow up is that perhaps been another important new market for you guys small businesses. I think you provided a status $1 6 million small businesses in your platform now can you talk a little bit about the products that you're introducing in that market and that kind of what should be.
On the look out for in terms of your strategy there what milestones.
Sure absolutely, let Jack Jaguar.
Don't forget that this one does your baby. So go ahead.
I missed the part of which market you are referring to the small business today estimate is yes, yes, yes.
Little bit of context on small businesses and then we can talk about the path and the path forward.
We have spent the last 12 closer to 18 months at this point nurturing that product making.
Basically following the process I referenced in my earlier answer to.
To make sure that the core account itself met the fundamental needs of our target customers. These these small merchants.
Over the last.
Couple of quarters now we have started to gain real confidence in the traction of the core account product.
And started to focus on.
Additional pain points that our customers experience and that they tell us about often in no uncertain terms.
I'll highlight two.
The acceptance of payments.
Is an area, which they feel is difficult it's inconvenient.
Is expensive the words they use when they talk about payment acceptance is very telling.
They used the word a loss when they refer to the rates they pay.
On payments acceptance the other large need that they are quite vocal about.
Is around.
Credit card small business credit cards and so.
These are areas that we have started.
Looking into experimenting with.
So that again, we can nurture a product that like our core accounts.
Is is truly resonant with our rapidly growing base of customers.
We are excited to see the rate of engagement that they have that small businesses have with our with our.
Emerging suite.
Our products for them.
And the high degree of.
NPS and <unk>.
And again the product resonates with them. So we're very very excited about.
About the dynamics, we're seeing there even in the relatively early stages of that of that product suite.
Got it got it. Thank you very much and if I may just add 30 seconds to us know Jud mentioned the SME business that we have is probably one of the most.
Underappreciated assets.
Assets that we have within our product portfolio with 161 7 million customers. We have already become one of the largest SMB financial services provider in Brazil.
<unk>.
The profit pool of Smes in Brazil.
So substantial.
The quality of services that is provided by the market in general is so low that we are very excited with the ability to continue to grow there.
Getting to a profit pool that can be as big as 30% to 40% of the profit pool of the consumer financing general based on the last estimates that we have been provided so thank you. So much again for asking the question.
Got it thanks Scott.
Thanks Jean.
And coaching at the end of the Q&A section I would like to turn the floor over to Pat.
To close the call.
Thank you Keith and thank you everybody for participating on this call.
I just wanted to highlight again, how excited we are about the moment that we are navigating in we believe we're the best positioned company to lead the digital banking transformation in Latin America, which is one of the largest producing the world with nearly 60 million customers. We have already become one of the largest financial institutions in the region by number of customers we have been able.
To maintain one of the highest if not the highest net promoter score of any consumer company in the world. The regions, we operate which we think it's a leading indicator to growth and product market fit. We have also developed the lowest cost retail banking platform in the region very low cost to acquire very low cost to serve very low cost of funding in <unk>.
Especially important in the current environment very low cost of risk.
And finally, we have continued to have best in class unit economics, allowing us to have an LTV of CAC, which is best of class over 30 times. So we remain just as bullish on the long term prospects while at the same time confident in our ability to withstand short term volatility. Thanks to the high resilience of our originations and extremely strong capital and liquidity position. Thank you.
For making the time for today's call and if you have any further questions. Please do not hesitate to reach out to our Investor Relations team. Thank you everyone have a great night.
The new holidays conference call has now concluded. Thank you for attending today's presentation you may now disconnect.