Profitability & Cost Management Shared Interest Group

Why aligning your cost structure with capabilities that truly matter—like UX, analytics, and scalability—can reduce burn rate and accelerate profitability from 6 to 3 years.

Introduction

According to recent studies (Investglass, 2023), less than 5% of neobanks worldwide have achieved profitability. This trend is even more acute in Latin America, with PwC Interaméricas (2024) data showing that only 2 of the region's 41 most relevant neobanks have reached operational break-even. Meanwhile, the region's average customer acquisition cost (CAC) has escalated to US$42, 38% higher than in 2021, according to Finnovista data.

In an ecosystem abundant with ERP initiatives, CRM solutions, "frictionless" onboarding apps, and cutting-edge dashboards, many neobanks are falling into a dangerous trap: They're building cost structures worthy of a unicorn without having yet proven their real competitive advantage.

This article explores why profitability isn't achieved by cutting costs indiscriminately. Still, by strategically intentional cost management. Using the Profitability Playbook framework developed by PwC's Strategic Finance Center of Excellence, and examples like Nubank, Ualá, and Clip, we'll show how aligning business model costs with truly differentiating capabilities—UX, data, culture, operational speed—can reduce burn rate, improve return on tangible equity (RoTE), and above all, accelerate the path to sustainability.

Contextual Framework: From General Efficiency to Strategic Coherence

At the heart of the approach promoted by our experts lies an uncomfortable truth: the problem isn't how much you spend but what you spend it on.

Indeed, profitable companies do three things:

1. Focus their strategy on a few truly differentiating capabilities.
2. Align their cost structure to enhance these capabilities.
3. Organize their operating model and talent around profitable growth.

In their book Strategy That Works (Leinwand & Mainardi, 2016), the concept of the "coherence premium" is introduced, where companies that successfully align value proposition, capabilities, and portfolio consistently show better sustained financial results, including greater efficiency, profitability, and shareholder returns.

The Profitability Playbook: A Framework for Strategic Profitability

The Profitability Playbook is a methodology developed by PwC that transforms the traditional approach to cost efficiency. This framework consists of four interconnected pillars:

1. Strategic Coherence Diagnosis: Assessment of alignment between value proposition and cost structure
2. Differentiating Capabilities Identification: Determination of which organizational skills generate real competitive advantage
3. Strategic Resource Allocation: Redistribution of capital toward high-impact activities
4. Operating Model Transformation: Organizational redesign oriented toward enhancing differentiating capabilities

In Nubank's case, this framework allowed them to identify that their true differentiating value wasn't in having more products but in three critical capabilities: exceptional user experience, sophisticated analytical engine, and rapid execution culture. Consequently, they redesigned their cost structure to enhance these capabilities.

1. UX and Onboarding: Customer Experience as a Strategic Asset

Having a smooth app isn't enough. The user onboarding experience must be designed to activate value from the first click.

From its inception, Nubank understood that a radically simple UX was more than aesthetics: it was a way to activate customers efficiently and emotionally differentiate. Their onboarding process became an industry benchmark: few steps, zero friction, and close communication.

Regional Comparative Case:

Source: PwC FinTech LAC Index 2024 Analysis

This investment in UX led Nubank to reduce its effective CAC by 34% and shorten the payback time for new customers from 13 to 8 months, significantly accelerating its path to profitability.

💡 Applied Profitability Playbook Lesson: Investing in UX isn't just a branding matter. It's an investment in profitable conversion and sustainable growth. According to PwC analysis, each additional second in the onboarding process increases abandonment by 5.7% for digital businesses.

Self-assessment:

• Is your onboarding process optimized for conversion or data capture?
• Have you measured the financial impact of each UX improvement?
• Does your cost structure reflect the strategic importance of UX?

2. Advanced Analytics and Data Governance: From Big Data to Big Financial Impact

Data doesn't generate value on its own. What matters is having actionable models that directly impact the business: reduction in non-performing loans (NPL), better risk decisions, and personalized campaigns.

Analytics Maturity Framework for Neobanks

Level 1: Reactive

• Basic reporting
• Intuition-based decisions
• No unified data structure
• Analytics ROI: negative

Level 2: Informative

• Operational dashboards
• Basic segmentation
• Centralized data lake
• Analytics ROI: 1.2x

Level 3: Predictive

• Proprietary credit scoring
• Personalized campaigns
• Propensity-to-buy models
• Analytics ROI: 3.4x

Level 4: Transformational

• Dynamic pricing
• Regulatory capital optimization
• Predictive fraud prevention
• Analytics ROI: 7.8x

Latin American neobanks that have invested in advanced analytical capabilities (Level 3-4) show a 22% reduction in delinquency and a 36% increase in wallet share per customer, according to PwC's Strategic Finance Center analysis (2024).

Case Study: Clip (Mexico)

Clip dedicated 18% of its operating budget to building advanced analytical capabilities when most competitors allocated only 7%. This allowed them to:

• Reduce fraud by 43% vs. competitors
• Optimize pricing by segment, increasing average margin by 8.5%
• Accelerate profitability per account in 14 months vs. the industry average of 26

🧠 Profitability Playbook Lesson: It's not about having more data but asking better business questions. For every dollar invested in basic analytics (descriptive), a neobank should invest three in predictive and prescriptive capabilities.

3. Lean but Powerful Organizational Model

Many neobanks start with inflated structures to "look tech." However, the leaders in profitability and value understand that each position must have a strategic purpose or shouldn't exist.

Nubank structured its organization to scale with simplicity: small teams, customer focus, and data-driven decisions. Less hierarchy, more autonomy.

Comparative Organizational Structure:

Source: PwC Strategic Finance - Organizational Benchmarking 2023

An analysis of Latin American neobanks shows that those with flatter structures and greater decision delegation manage to reduce operating costs by 24% and accelerate time-to-market by 58%.

🧠 Profitability Playbook Lesson: If your structure doesn't accelerate decisions and execution, you're building inefficiency from design. Operational speed is a competitive advantage in itself.

4. Accountability Culture: Beyond "Startup Cool"

Innovation isn't about playing ping-pong or wearing hoodies. It's about courage to make difficult decisions, measure impact, and be accountable.

At Nubank, culture is designed with intention: open feedback, metrics-based decisions, and leadership that models behavior. Accountability is an advantage, not a threat.

High-Performance Culture Metrics:

Regional Case: Mercado Pago

Mercado Pago implemented a "metric contracts" model where each team has clear indicators of financial impact. This led to:

• 27% reduction in initiatives without clear ROI
• 42% improvement in product velocity
• Reduction in time-to-profit for new features from 18 to 9 months

🧠 Profitability Playbook Lesson: Without accountability, every strategy becomes aspirational. 67% of strategic initiatives in neobanks fail not due to a lack of vision but due to the absence of clear accountability mechanisms.

5. Disciplined Divestment: Saying "No" Also Pays

Zombie expenses slowly kill profitability. Features no one uses, eternal pilots, loyalty programs that don't increase customer lifetime value (LTV).

Being Fit for Growth means having the courage to cut what doesn't generate value—not when crisis arrives but as a structural practice.

Initiative Evaluation Methodology:

1. High impact / high strategic alignment: Invest aggressively
2. High impact / low alignment: Contain or outsource
3. Low impact / high alignment: Optimize efficiency
4. Low impact / low alignment: Eliminate

Case Study: Ualá Argentina After implementing a Strategic Expense Review (SER) process, Ualá achieved:

• 27% reduction in non-differentiating costs
• Reallocation of $4.2M to critical data and UX capabilities
• Acceleration of operational break-even by 9 months

💡 Key Tools:

• Zero-based budgeting.
• Initiative evaluation according to capabilities.
• Governance that rewards focus, not dispersion.

🧠 Profitability Playbook Lesson: Every dollar without return is a dollar that doesn't enhance your advantage. Neobanks implementing formal divestment processes show a 34% greater probability of achieving profitability in the first 5 years.

6. Navigating the Complex Latin American Regulatory Environment

The regulatory dimension, especially variable across countries in the region, is a critical factor in the cost structure of Latin American neobanks.

Comparative Regulatory Costs by Market:

Source: PwC RegTech Monitor 2024

Neobanks that strategically optimize their regulatory costs manage to free up between 6% and 9% of their opex to reinvest in differentiating capabilities. For example, Nu Mexico used a partnership model with a local bank that allowed them to reduce regulatory costs by 40% compared to a direct license, significantly accelerating their path to profitability.

Regulatory Optimization Strategies:

1. Modular Architecture: Design core systems that adapt to different regulatory regimes
2. Compliance by Design: Integrate regulatory requirements into product design from the beginning
3. Integrated RegTech: Automate compliance processes to scale without a linear increase in costs

💡 Key Lesson: Regulatory compliance should not be seen as a fixed expense but as a strategic capability that, when well-designed, can become a competitive advantage.

7. The New Investment Paradigm: From Growth to Profitability

The fintech investment ecosystem has experienced radical change. According to LAVCA and CB Insights data, the valuations of Latin American neobanks in 2023-2024 are directly correlated with profitability metrics, not just growth.

Evolution of Investor Expectations 2020-2024:

"The market no longer rewards growth at any cost. Today we look for neobanks that demonstrate a clear and sustainable path to profitability, with a cost structure aligned to their true competitive advantages." - Hernan Kazah, Co-founder of Kaszek Ventures

Fundraising Strategies Aligned with Profitability:

• Raise capital with clear unit economics milestones
• Demonstrate capacity for CAC optimization and LTV improvement
• Present focused investment plans on differentiating capabilities

💡 Profitability Playbook Lesson: The neobanks with the best capital market performance aren't those that grow the most but those that show greater coherence between their strategic narrative and cost structure.

Conclusion: Focus, Cut, and Grow — In That Order

A neobank's success isn't in growing fast but with strategic coherence. That means knowing where to invest, what to eliminate, and how to organize to scale without losing profitability.

The approach of the PwC Strategic Finance Center of Excellence teaches us that profitability isn't a financial result but a consequence of well-aligned strategic decisions.

Profitability Playbook Implementation Guide

1. Month 1-2: Strategic Coherence Diagnosis
   • Map current capabilities vs. real competitive advantages
   • Analyze cost structure by capability
   • Identify alignment gaps
2. Month 3-4: Operating Model Redesign
   • Redefine organizational structure around key capabilities
   • Implement metrics contracts with teams
   • Establish impact-based prioritization governance
3. Month 5-6: Cost Transformation
   • Implement zero-based budgeting in non-differentiating areas
   • Reallocate capital to strategic capabilities
   • Establish continuous review mechanisms

Typical results include:

• Burn rate reduction by 30-40%
• Acceleration of the path to profitability from 6 to 3-4 years
• Operational efficiency improvement by 25-35%

"True innovation isn't in launching more features, but in building a business model that withstands time, competition, and investor pressure. And that is only achieved with focus, discipline, and financial courage." — Pedro San Martín.

Pedro San Martín is Principal at Asher PwC Interamericas. He can be contacted at psanmartin@asheranalytics.com