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Market
LATAM
Industry
Fintech
Area
Innovation
Date
Sept 16, 2024
Authors
Ignacio Margulies
CPO
Julián Krupka
Head of Business Design
Startupeable
The Nu formula for creating a blue ocean
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How Nu used the Blue Ocean Strategy to revolutionize Banking in Latin America

Introduction

In recent years, Nu (formerly Nubank) has emerged as the largest digital bank in the world, amassing over 100 million customers. This Brazil-based company achieved what once seemed impossible: competing with and surpassing traditional banking giants across Latin America. But how was this exponential growth possible in such a competitive and saturated market? The key lies in its ability to apply the Blue Ocean Strategy, significantly reducing operating costs while increasing perceived customer value.

The Blue Ocean Strategy, popularized by authors W. Chan Kim and Renée Mauborgne, proposes that companies should not fight to stand out in crowded markets (red oceans), but rather create unexplored market spaces (blue oceans) where competition becomes irrelevant. In this analysis, we explore how Nu applied these principles to design a disruptive business model that forever changed the banking industry.

Blue Ocean Strategy

Nu’s Business Model Analysis

To understand how Nu revolutionized banking, we analyze its business model from two key perspectives: cost reduction and increased customer value.

We used a Business Model Canvas to analyze all the key components.

1. Reducing Costs

One of the pillars of Nu’s success has been its ability to reduce the most significant operating costs in the banking industry. This was made possible through technological innovations and the elimination of processes that no longer added value in a digital environment.

This approach is known as the “Cost Differentiator,” which aims to create a competitive advantage by lowering costs:

“The Invincible Company” - Cost differentiator strategies

Two areas, in particular, stand out:

  • Key Resources: Nu decided to eliminate physical bank branches, one of the main expense drivers for traditional banks (historically representing 50% of costs). Instead of maintaining a network of offices, Nu invested in top-tier technology, enabling it to offer fully digital financial services. This decision not only significantly reduced operational costs but also removed the need to charge high fees, making it accessible to a larger customer base.

    Physical branches are expensive and limit banks’ ability to serve low-income customers. By eliminating them, Nu positioned itself as an accessible and efficient bank.

  • Key Activities: Another innovative aspect of Nu’s strategy was the creation of a self-managed credit scoring system, based on users' spending history. This allowed customers to obtain a credit card without going through the cumbersome procedures required by traditional banks. Additionally, by relying on technology and data rather than manual evaluations, Nu automated this process, further reducing costs and avoiding third-party credit systems.

    The automation and digitization of credit assessment allowed Nu to scale its offering rapidly without increasing operational costs.

How Nu applied the strategie on costs

2. Increasing Value

While Nu reduced costs in key areas, it simultaneously increased customer value through an innovative value proposition and a user-centered approach.

In this case, Nu adopted the “Democratizer” approach, which aims to bring value to a mass market that previously had no access to a particular product or service:

“The Invincible Company” - Democratizers strategies

Here are the key aspects that drove its success:

  • Value proposition: Nu’s value proposition was clear from the start: to be a 100% digital bank offering credit and debit cards with no fees and an intuitive user experience. For consumers tired of high fees and traditional banks' bureaucracy, this was a refreshing change.Nu decided to eliminate physical bank branches, one of the main expense drivers for traditional banks (historically representing 50% of costs). Instead of maintaining a network of offices, Nu invested in top-tier technology, enabling it to offer fully digital financial services. This decision not only significantly reduced operational costs but also removed the need to charge high fees, making it accessible to a larger customer base.

    The promise of a simplified banking experience, free of fees and cumbersome procedures, made Nu stand out in a saturated market.

  • Customer Relationships: Nu adopted a customer-first approach, prioritizing the customer experience in every interaction. The experience was designed to be personalized and transparent, leading to high user loyalty. By offering fast and efficient customer service through digital channels, Nu improved perceptions of banking services and built a relationship of trust with its customers.

    Nu transformed the traditional relationship between banks and their customers, providing a more friendly and approachable experience, in contrast to the coldness of traditional banks.

  • Channels: All of Nu’s services are offered through a single mobile app, making life easier for customers. This "all-in-one" strategy eliminates the need for physical branch visits or unnecessary paperwork and allows customers to manage their finances from the palm of their hand.

    By consolidating all services into an easy-to-use app, Nu simplified banking for millions of users, especially those unfamiliar with traditional financial procedures.

  • Customer Segments: Nu focused on serving a group largely underserved by traditional banks: low-income, unbanked customers. By offering a fee-free account accessible through an app, Nu was able to capture this customer segment and provide significant value to them.

    Nu created an accessible solution for unbanked individuals, breaking down barriers in a segment previously ignored by traditional banks.

How Nu applied the strategie on costs

Impact of the Blue Ocean Strategy

The Blue Ocean Strategy allowed Nu to find an untapped market niche in Latin America’s banking industry, creating a space where competition was practically irrelevant. This was achieved by eliminating entry barriers that had previously made banking services inaccessible to large segments of the population.

In this chart, we can clearly see how merging the Blue Ocean Strategy with the Business Model Canvas (where the left side contains cost-related activities and the right side focuses on value) allows us to identify which aspects of our business can be rethought to apply this strategy.

Merging Blue Ocean Strategy with Business Model Canvas

Eliminating Barriers

Eliminating physical branches not only reduced costs but also allowed Nu to serve customers across Brazil, regardless of their geographical location. Without relying on physical infrastructure, Nu was able to provide services to millions of people who previously lacked access to traditional banks.

Reflection: By removing one of the biggest barriers in traditional banking, Nu opened access to a broader audience, proving that a bank can be entirely digital and still remain efficient.

Increasing Value

In addition to eliminating barriers, Nu increased perceived customer value by offering a simplified, fee-free financial experience. This proposal attracted customers dissatisfied with traditional banks and built loyalty among a new segment of users looking for a more transparent and accessible alternative.

Reflection: Nu identified a key need among low-income customers and responded with a solution that was not only innovative but also created real value for them.

Creating the Blue Ocean

The combination of eliminating barriers and increasing value resulted in the creation of a blue ocean in Latin America’s banking industry. Instead of competing directly with traditional banks, Nu created its own market space, capturing over 100 million customers and positioning itself as one of the most valuable companies in the region.

Reflection: Nu’s ability to implement a Blue Ocean Strategy allowed it to avoid fierce competition in the traditional banking sector and create its own market, where it could dominate without obstacles.

Nu's Q1 2024 Investors report

Conclusion

Nu’s case is a clear example of how a company can transform a saturated industry by implementing the Blue Ocean Strategy. By drastically reducing costs and increasing value for customers, Nu not only managed to compete with traditional banks but surpassed them in terms of customer numbers and valuation.

Companies looking to innovate can learn from this case and apply similar principles in their own industries.

Nu vs Itau valuation

Coming soon

In the next post, we’ll discuss how Nu used its brand to generate FOMO at its launch and create a MOAT based on CAC.

If you're interested in learning more about how to apply these strategies in your company, let’s talk!

At Paisanos, we help companies of all sizes innovate, develop products, and create disruptive business models.

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