New NU thread -- help me understand

[PaulWBryant]

@Aphalite

Section 6, titled “INCOME AND RELATED EXPENSES”, has the year over year breakdown:

So of the 3b increase in interest/gain income, ~2.25b or 75% came from credit card and lending. What’s interesting is that credit card balances has increased only 50%, but income from credit cards increased 150%.

@fish13

When NU extends installment credit to consumers, it is very high APR but often small dollar amounts. The average purchase volume per active customer is around $115/month. That money is going into other businesses, which have employees, which spend money, and circulate into the economy. The question then becomes, how high is too high and people’s preferences might vary.

I wanted to understand this better, and I did some digging – thanks to @fish13 for his help! I will caveat that I still feel like I’m drinking from the fire hose and have more questions than answers with this company, but this slide was pretty helpful:

(This is Brazil only, but since Brazil is most of their business so far, it can be roughly extrapolated to the whole $18.2b credit portfolio.) You can see that their revolving balance (traditional CC balances that are overdue and on which interest is being charged, if I’m understanding it correctly) has hovered around 7% and is actually down to 6% of the portfolio. I see that as a good thing. What’s ballooning is the Installment balance that @fish13 mentions above. My understanding is that this is basically “buy now pay later.” In general I’ve been very against this from a philosophical perspective as I don’t think it’s a good thing to encourage people to buy things they don’t (yet) have the money for. But if it truly is in lieu of increasing revolving CC balances, I’m open minded that maybe it is a viable solution. Certainly it’s better to pay off installments in a short period of time than to keep a balance without an end in sight. IMO, better yet would be to save up and pay for things after you have the money, but that’s easy for me to say, and obviously I don’t have all the answers to how credit “should” look, and this is something I want to learn more about.

In general I think this company is fascinating, and I want to learn more about banking and credit and risk and all of it. I’ve taken a ~1% position. I encourage everyone (especially those with much larger allocations) to ask and seek answers to all the questions that there are to ask about a business this complicated. I’ll be doing so along with you.

Thanks for the lessons in this thread. Esp @Aphalite and @fish13.

Bear

PS

@bulwnkl

With the two key risks, inflation and no credit history for many borrowers, it’s understandable to have interest rates very high. …As the credit and inflation risk for consumers wanes, I think the interest rates will drift down as well. …If this isn’t the case, and we actually are in a Payday loans type of abusive situation, then, yeah, I’d be out too.

Agreed, my friend.