How fintechs performed in Q3 2022: Nubank, SoFi, MoneyLion

We’re halfway through the fourth quarter of a turbulent 2022, and financial results from Q3 have been coming in. Financial services providers, big and small, have been affected by poor macroeconomic indicators, shrinking consumer spending, and nosediving VC investments. 

Despite this, revenues and customer bases for some of the leading challenger banks have continued growing. In this report, we are going to review the Q3 2022 results for three neobanks: Nubank, SoFi, and MoneyLion.

A growing trend we’re seeing in the industry is that firms are now focusing more on returning customers, and less on new ones. This is for two interconnected reasons: first, acquiring new customers is costly and risky – the creation of fraudulent accounts surged across platforms. Secondly, as firms have more data on existing customers, it is now more profitable and safe to cross-sell and upsell to them. This is particularly true for lending products.

This helps fintechs to continue expanding their products while decreasing risk and increasing revenue. The phenomenon was reflected across all three fintechs that we are reviewing in this report.

Nubank

Nubank reported a strong quarter, with growing revenues, users, and products across its multiple markets. Its growth outside of its home market was quite impressive – becoming the biggest new card issuer in both Mexico and Columbia. Just in these two markets combined, the firm has added around 500,000 customers this quarter. 

Across markets in Q3 2022, Nubank grew its customer base by 5.1 million, showing a 46% growth YoY, taking its total up to 70.4 million customers. Nubank has been following a product-led growth model, and hence, has gained these users at a very low customer acquisition cost. 

However, it’s not enough to just get more users on the platform – it is important to ensure that they’re also using it, and Nubank has managed to balance the two. The company has successfully flexed its cross- and upselling muscle, driving customer engagement.

The average activity rate on their platform this quarter was 82%. That’s up almost 10% from last year, and 3% from the previous quarter. In terms of active users, the bank estimates that it has now become the fifth largest in its home market of Brazil and the sixth largest in Latin America.

Furthermore, the bank has increased its average revenue per customer to $7.9. Controlled for the change in exchange rates, that's a 61% increase YoY. To put that in context, their cost to serve each customer came to $0.8. Nubank has driven usage and revenue per customer on the back of expanding product offerings while keeping customer acquisition costs low with a product-led growth model.

The firm offers a variety of products that include:

• Credit cards, which now have 32 million active customers.
• Checking accounts, called NuAccounts, which currently support 50 million active accounts.
• Personal loans, which now count 5 million customers.
• An investment platform, called NuInvest, with 6 million users.
• A crypto trading platform, called Nucripto, which was launched in May 2022 and now has 1.3 million active users.
• SME products, which have attracted 2.3 million SMEs.

Analysts noticed the firm’s loan origination volume decelerated in Q3, and NuBank attributed this to a decrease in personal loan origination volume. For lending products, they’ve decided to focus on cross-selling – only handing out loans to consumers for whom they have sufficient transaction data available. This helps make their portfolio less risky and reflects their appetite to lend in the current economic climate.

Source: Nu Holdings

Nubank expects an uptick in its personal loan portfolio in Q4 2022. And going into 2023, they’re looking to introduce secure loans, which may serve to expand the portfolio altogether.

“In 2023, we do expect to begin the ramp-up of our secured personal loans business composed of investment-backed loans, payroll loans, and FGTS loans,” Guilherme Lago, Nubank’s CFO, said in the firm’s earnings call. “It is quite hard to foresee how fast this ramp-up will happen. But we are super excited with the prospects of complementing our unsecured consumer credit portfolio with secured credit portfolios starting in 2023.”

On the holding level, Nubank reported a break-even in the quarter, posting a net income of $7.8 million and $1.3 billion in revenues, up 171% YoY, adjusted for changes in foreign exchange. The company also posted its highest-ever gross profit at $427 million, up 90% YoY.

Going into next year, a key focus for the firm will be the high-income segment. As they stand, around 8% of the firm’s customers, or 5 million users, fall in the affluent segment – that’s a sizable amount. However, Nubank still doesn’t claim the biggest share of wallet for that market, with aspirations to do so. 

The firm has been unable to cater to that market more due to lacking technology and products. For example, the firm sees its low account limits as a strong factor.

“A lot of the time [the limiting factor] is missing limits, so we tend to have too low of a limit for this customer segment. Or the product is missing certain attributes, either the credit card product, or we’re missing products in the investment side or the insurance side,” said David Vélez, Nubank’s CEO.

Over the past year, the firm has had a strong focus on increasing limits on its platform.

Overall, Nubank, the only profitable neobank on the list, fared well – beating both revenue and EPS estimates. The stock price, though, has fallen from $4.57 on the day they announced their results – November 14th – to $4.32 at the end of November 18th.

SoFi

SoFi reported a strong quarter across multiple metrics. In terms of usage, it saw active users on its platform increase by 424,000 this quarter, up 61% YoY. This brings the fintech’s total customers to 4.7 million. Additionally, they sold another 635,000 products to these customers, showing a 69% increase YoY, taking their total to 7.2 million products. 

The firm credits the growth of its products to have gained a banking charter. Total deposits on its platform grew to $5 billion, growing 86%. SoFi has done well here considering these deposits are generally high-quality, as 85% of them come from direct deposits, with a median FICO rating of 750.

Source: SoFi

In the financial services division, in particular, the firm has shown a general increase in products across its multiple functions. Year-on-year, SoFi Money grew 72% to 2 million products, while SoFi invest grew 68% to around 2.1 million products, and SoFi Relay grew 113% to 1.6 million products. Lending products, the firm’s core business, struggled and only grew by 24% YoY this quarter, as against 22% last quarter.

SoFi’s original business, that of student loans, continues to see a decrease in demand. In comparison to Q3 2021, the firm originated 53% less of these loans in Q3 2022. Home loans fell too, by 73% YoY. These were offset by an increase in the demand for personal loans, which saw a 71% uptick to $2.8 million this quarter.

“Student loan refi continues to be negatively impacted as federal borrowers await the end of the moratorium on federal student loan payments. Home loans face macro headwinds from rising rates, while we continue the process of transitioning to new fulfillment partners,” said CEO Anthony Noto during the firm’s earnings call.

SoFi’s total revenues this quarter came down to $424 million, up 56% from $272 million in Q3 2021. However, net losses this quarter were up to $74 million from $30 million in Q3 2021. The firm says this is because in Q3 last year, they benefited from a $64.4 million change in the fair value of warrant liabilities. Had that not been the case, they would’ve seen a $20.2 million improvement in their net losses YoY.

SoFi marginally outperformed industry estimates, and though their stock fell initially, it is now hovering slightly in the positive. From November 1st, when they released their reports, their stock has gone up by $0.55 to $5.18 at the end of November 18th. 

Investors are alarmed, though. They find SoFi management’s plans for transitioning into a full-blown bank insufficient and vague and are also concerned about the prolonged duration for which loans are held on their balance sheet. 

Chris Lapointe, SoFi’s CFO, recognized that the firm has been holding loans onto its balance sheet longer in the previous quarter and this one, enabled by the acquisition of Golden Pacific Bancorp, grants them additional ways of accessing funding.

The firm has also made some of its forward flows such that it has the first right of refusal when a buyer seeks to sell.

“We're starting to see more and more of that where, from time to time, we see a whole loan buyer come to us with the first refusal to purchase loans, and given the credit quality and loss profile and return of the loans that we originally underwrite, we strongly consider that. So, that's something we'll also take into consideration,” Lapointe said.

The fintech also revised its earnings guidance for the year 2022. It now expected revenue between $1.517 billion to $1.522 billion, up from previous estimates between $1.508 billion to $1.513 billion.

MoneyLion

MoneyLion recorded a good quarter too, with Q3 2022 becoming their 7th straight quarter of three-digit growth in adjusted revenue and in line with their guidance.

They showed a 101% YoY growth in their customer base, which is now 5.4 million strong. In the same time frame, their total products grew 63%, standing at 11.3 million now, while total originations also grew 63% to $446 million. 

The growth in customers and products can be attributed to a bigger total addressable market following the acquisition of the consumer finance platform Even Financial. This also reflects in their revenue, where diversified streams have helped garner a good result.

Source: MoneyLion

Furthermore, the firm’s acquisition of the media platform Malka Media Group has helped further its customer acquisition and retention efforts. 

The firm’s really doubled down on marketing. They entered into a marketing partnership with NBA G League team Ignite, and also produced a docuseries called ‘Money Like a Girl’, which tells the stories of women who have developed their passions into careers.

“We continue to see our investments in content and culture translate into higher levels of engagement through our consumer ecosystem, including our mobile app, our website, and all for social media properties and shows,” Diwakar Choubey, MoneyLion’s CEO, said in the earnings call. “As we noted last quarter, we saw a strong increase in day zero customer engagement driven by the expansion of our content feed.”

The fintech reported adjusted revenue of $82.5 million, up from $42 million this time last year. Their adjusted gross profit rose too, by 82%, to $49 million. In terms of adjusted EBITDA, the firm is still loss-making, though its losses have decreased from $20.4 million in Q3 2021 to $14.3 million this quarter. 

Monleylion expects its adjusted revenues to continue on an upward trajectory. In 2020, they reported $80 million, in 2021 they reported nearly $165 million, and at the end of 2022, they expect to report between $320 million and $330 million.

Moneylion’s Q3 2022 results didn’t fall far from the firm’s guidance; however, their stock price has since been on a downward trend. It started on November 10th, the day of the result, trading at $1.00 a stock, and was down to $0.68 at the end of November 18th.

According to the firm’s guidance for 2022, it expects adjusted revenue between $320 to $330 million. Furthermore, their Adjusted Gross Profit margin guidance is between 55% to 60%, while their Adjusted EBITDA is between $70 to $65 million.