Most neobanks were founded around ten years ago. Not all of them were success stories. And at the beginning, it wasn't exactly clear what was hype and what the challengers to traditional commercial banks could really achieve. Today we know: sometimes quite a lot.

This is best illustrated by Nubank and Revolut, probably the two most successful neobanks. Both have also gone through difficult times. Today, however, they have successfully turned the corner towards an extremely scalable business model. Good returns on equity could be the result. With an (annualised) return on equity of 30% at the end of September, Nubank has already demonstrated this. Revolut has at least become sustainably profitable.

The starting conditions of the two neobanks were different. While Nubank, managed by David Vélez, initially focused entirely on Brazil, Revolut CEO Nik Storonsky had to undertake the long march through Europe when it was founded in 2015, in order to gradually obtain regulatory authorisations. It started with a licence in Lithuania, from where Revolut spread across Europe by means of passporting and national notifications.

However, as a London-based fintech, the company had been fighting tooth and nail to obtain the British banking licence it had long been applying for. There was a breakthrough at the end of July: Revolut was granted a provisional banking licence, and will be fully authorised upon completion of the so-called „mobilisation stage“ and completion of all internal banking processes, paving the way for expansion into the deposit and lending business.

Nubank, on the other hand, dedicated itself exclusively to tapping into the Brazilian market when it was founded in 2013. Initially, Nubank only had a credit card that was managed via a mobile app. This is how many fintechs started. The range of services was then rolled out from there. Today, Nubank offers everything from current accounts to investment products and insurance. This makes Nubank what is generally understood to be a „super app“, a platform for everything to do with banking with links to other things in digital life.

While the number of customers and turnover only increased moderately in the period up to 2018, over the past five years (with the expansion of the product range to include loans, etc.), the increase has been steady and accelerated: 4 to 6 million new customers are reliably added each quarter, meaning that Nubank had reached an impressive 110 million by the end of September 2024. The turning point towards profitability was reached in the fourth quarter of 2022, when the „efficiency ratio“, which is comparable to the cost-income ratio, fell below 50% for the first time. Today, this ratio stands at 31.4% and Nubank achieved a net profit of 553 million dollars on quarterly sales of 2.9 billion dollars.

Nubank certainly faces strong competition in Brazil – the country is by no means „underbanked“ – but Brazilians have probably not been sufficiently supplied with good digital financial services by the local banking sector. A predominantly regionally active state bank such as Caixa Econômica Federal has 150 million customers. Nubank might soon catch up.

The provisional crowning glory of the Nubank story was the Initial Public Offering on the NYSE at the end of 2021. The listing was successfully completed just before fintech fell out of favour. Warren Buffett's investment in mid-2021 is likely to have served as an anchor of confidence. However, the Nubank share price then plummeted, which did not make the job any easier for CEO Vélez.

The 2021 IPO was priced at 9 dollars per share, giving the company a valuation of 41 billion dollars. In early January the shares were trading at 10.92 dollars, giving a valuation of 52 billion dollars. A late November 2024 peak valued the bank at 67 billion dollars, before a sharp selloff in December.

It has recently been announced that the listed Nu Holding intends to change its legal headquarters: Previously registered in the Cayman Islands, the holding company intends to relocate to London – which could then be accompanied by a push into Europe. For the time being, however, Vélez and his management team are busy tapping into one market after another in Central and South America.

Mexico and Colombia have started up – a home game for Vélez, who was born in Colombia. What Nubank needs as a basis are digital infrastructures, including a top-scale payment transaction infrastructure, such as that which exists in Brazil with the instant payment scheme Pix. Alternatively, in some countries, it can be done via the mobile phone infrastructure. Vélez also wants to grow selectively through acquisitions.

This is not an option for Revolut CEO Storonsky. The machine is running at full speed, reaching 50 million customers in mid-November 2024. More than 10 million new customers were added in 2024 alone. And Revolut is growing increasingly profitable: in 2023, the bank generated a pre-tax profit of 545 million dollars on revenues of 2.2 billion dollars. Last August Revolut conducted a secondary transaction, giving employees an opportunity to sell, at a valuation of 45 billion dollars. Shares with a volume of 500 million dollars are said to have been traded in August 2024. Another secondary deal followed at the end of November, in which existing investors sold shares worth 300 million dollars.

Storonsky has long since announced the next goals. "Aggressive plans“ are being pursued to expand the number of customers to 100 million, the Revolut boss said in November. The launch in India is currently underway, and the leap into the USA is now also on the agenda. The Revolut machine really got rolling in 2024 and the founder is becoming bolder. The Londoners are always working on ten growth projects at the same time, and then launch whatever proves feasible. This pace is barely comprehensible to the naked eye: Investments have been made in payment terminals for retailers, previously the domain of specialists such as SumUp. New types of ATMs are supposed to work via AI facial recognition and withstand attempts to blow them up – a niche that you would never think of at a neobank.

All of these initiatives result in sizeable inflows into the main revenue stream. Revolut and Nubank illustrate how neobanks can grow profitably once they reach critical mass. For Storonsky, J.P. Morgan and Nubank are already competitors, given his global ambitions.