XP Investments (XP Inc.) case through the lens of Disruptive Strategy

This small case analysis was part of my conclusion project at Harvard Business School on Certificate in Disruptive Strategy with professor Clayton Christensen (RIP)

Founded in 2001 by Guilherme Benchimol e Marcelo Maisonnave who after quitting their jobs in the financial market decided to open it’s our company to help people investing in the Brazilian stock market. At the beginning of the company, they had a problem attracting new customers to invest in stocks because it’s not a common investment in Brazil that time, so they realized that they had to work with a strategy using education as an opportunity for new clients [1].

They created a course about “how to invest in stocks” and after that the people became their clients, so this strategy helped them grow and expand their offices to other cities. Thinking about that time, they had to create their customer base because it wasn’t common for people to invest in stock by themselves [2].

In 2005 they created the XP Gestão de Recursos and 2007 with the incorporation of Americainvest CCTVM LTDA and they started working as a stockbroker to make stock’s investments easier and more attractive to customers.

In 2011 they bought Senso Corretora and InterFloat to acquire their portfolio and also the Infomoney to start their entrance in news related to the financial market, providing good information and market analysis, helping people reaching fast reliable information to make their decisions. Today Infomoney is one of the biggest financial websites in Brazil.

Between 2012 and 2016 they bought 3 more companies to create different strategies inside their portfolio, Prime Corretora, Clear Corretora, and Rico Corretora [2][3][4][5][6]. But they kept Clear and Rico as a separate business with a different focus, acting as independent companies but getting the advantage of the whole structure that XP has already built.

Finally, at the end of 2017 Itau Bank bought 49.9% of the company for R$ 6.2 billion [7].

In December 2019, they go public with an offer at NASDAQ that ended as the 9th world’s biggest public offer in 2019 [8]. Today they have more than 1.2 million clients and more than R$ 250 billion managed by their assets [9] and are operating in Brazil and the USA.

All these movements were driven by their mission of helping Brazilian people having better and profitable investment options with the easiest access as possible. Because in the past decade, investments were a monopoly held by big banks which provided bad financial products to common customers like middle-class people.

XP was always disrupting the financial market since its inception. They started with a strategy that created a New-Market disruption while trying to target non-consumption, clients who were investing in other things but directly with their traditional banks or people who never invested before and their bank never helped them. After all, they hadn’t the profile that attracted the bank to offer these products. They also had the strategy of helping Brazilians leaving their savings account in traditional banks and start with better and accessible investments that were aligned with the growth of the Brazilian unbanking movement lead by fintechs.

Their strategy can be considered also a low-end disruption because they started a model where they could have a low-cost business model in their digital platform. So, they created a big catalog of different funds as an off-the-shelf fund product where you can easily search for funds with different strategies, compare them and choose where to put your money. It also attracted people who were over-served with the traditional banks model that was always unfair regarding providing advantages to the customer.

As their business was growing, they moved their strategy through market growth phases, creating, sustaining and performing efficiently. Since they started creating their own customer base through financial education and recently, they started a big movement where they created and sponsored many digital-financial influencers to bring more people to the Brazilian stock market as a strategy to create again a whole new customer base. Since they started this new strategy, that also involved their information channel (Infomoney) the Brazilian stock market jumped from 500k clients to 1.5 million, 3 times more than 10 years ago [10].

As mentioned before, they acquired many companies to increase their customer base and to fast enter in related business strengthening their strategy and brand. Depending on the acquisition they applied different strategies to each company some of them merging to their core business, growing their customer base (portfolio acquisition), or bringing it as a modular business related to their core structure.

Others like Rico Investimentos, Clear Corretora and Infomoney were kept completely separated from the XP’s core business, e.g. Clear Corretora is a low-cost stockbroker with low fees and a simple platform to investment focused in stocks, Clear Corretora pushed the fees of stock transactions almost to zero while its competitors were charging from R$ 10.00 to R$20,00 forcing competitors to reduce their fees. Even that XP keeps your stockbroker product with its price about R$ 10,00 they have a different broker product to attend a different customer. Rico Corretora also has its strategy away from XP’s core business, Rico is a fully digital broker, also with low fees but with aggregated products related to the stock market and financial analysis, also with some online courses (like XP in this case) helping their customers to make better decisions.

Infomoney’s strategy was focused on providing the best financial information while promoting XP’s products and companies, helping the core growing its profits by presenting all the companies from the portfolio to a fast-growing number of active readers every day.

With the specific job to be done “help me invest easily and profitably” their strategy was passing through enable more information and education helping people making better financial decisions and providing different platforms where people can easily compare and choose the best investment related to their profile and money available. In the past, Brazilian people left their money with banks in their savings account which still are the biggest “investment” made by Brazilians [11] or in products with high fees. They acted focused on bringing these people from traditional banks to their platforms where the use is easier, cheaper (related to costs and fees) and profitable regarding the different products they offered.

Related to their business structure, one important component of their profit formula, the component responsible about their growth was the model of Autonomous Investment Agent, a person or office who can be an independent partner of XP, having its customers and providing financial advice, offering all the products from XP’s portfolio. It’s somewhat like UBER’s model, but focused on financial market, a partnership where both sides win, the agent because they’ll be responsible about their customers portfolio and earn from XP’s fees, and XP which obtain granularity and can easily be in regions where the market isn’t profitable to create a whole structure, but profitable enough to have people representing them as an autonomous agent. In this case, they must provide a whole structure to support these partners and offices that help them grow their customer base. And the strategy of autonomous agents has to provide a clear and simple process to everyone who wants to enter in the financial market and be a partner of a big player like XP get into the business as soon as possible as our market has a deficit about to people specialized in investments.

Although part of XP companies are coupled to the core business and others don’t, the strategy they should keep applying is to keep everything as a big financial ecosystem where what is coupled can be offered as a modular product inside who are decoupled. Thus everything that can be seen as a separated business unit keep the focus in a different customer segmentation or product, and also can offer things from the core, helping core growing and making the business unit more attractive like Rico who offer a good platform with education and reports completely different from Clear Corretora that has a cheap and simple platform to make trades.

So, as the deliberated strategy is to grow this ecosystem where everything that can be related and plugged to embrace the whole financial needs of customers, as mentioned before, has the simple job of making better, easier and cheaper investments no matter if you are an experienced investor or a completely strange to the world of investments. Everything in this ecosystem will help you through the journey of learning, absorbing, deciding and planning your financial future.

Regarding the next steps about the future of XP’s investment ecosystem, recently they received a license to act as a banking institution that will open an entirely new world of possibilities. Although XP’s already recognized as a successful fintech they aren’t still involved in banking services, things that could be done in partnership with Itau Bank but thinking about XP’s strategy of providing everything from its core or related companies, an strategy of providing initial banking services could emerge to make people see the conglomerate as the place where you can deal with everything of your financial life, from banking accounts, loans, investments, insurances and whatever you need from a digital bank.

With a “hybrid strategy”, being vertically deliberated at the top keeping the ecosystem growing to embrace all the financial services, mainly focused on investments through digital channels with the help of autonomous agents but horizontally growing modular and emergent with the portfolio companies for new opportunities that arise to be explored as a separated business unit will keep XP as a market leader and a hard player of being disrupted.

The presented points related to the theory of Disruptive Strategy suggests that there are many opportunities to XP explore and grow the business with low-end disruptions like digital banking/wallets, online payment methods where we already have big fintech’s fighting for the market but without the XP’s ecosystems advantage. On another hand, the big banks should run because their customer base, currently well served with good and traditional products will move to companies like XP who are disrupting the financial market providing easier, cheaper and better products to all kinds of customers.

References

[1] Na raça: como Guilherme Benchimol criou a XP e iniciou a maior revolução do mercado financeiro brasileiro. Author: M aria Luíza Filgueiras

[2] Guilherme Benchimol, o professor de finanças que criou a XP, https://exame.abril.com.br/pme/guilherme-benchimo-o-professor-de-financas/

[3] XP Investimentos anuncia absorção da Senso Corretora, www.valor.com.br/impresso/financas-e-investimentos/xp-investimentos-anuncia-absorcao-da-senso-corretora

[4] XP Investimentos compra Infomoney e reforça braço online, https://valor.globo.com/financas/noticia/2011/09/08/xp-investimentos-compra-infomoney-e-reforca-braco-on-line.ghtml

[5] XP Investimentos incorpora a corretora prime, do rio, https://valor.globo.com/financas/noticia/2012/01/30/xp-investimentos-incorpora-a-corretora-prime-do-rio.ghtml

[6] XP maior corretora independente do país compra a Rico vice no mercado, https://www1.folha.uol.com.br/mercado/2016/12/1837647-xp-maior-corretora-independente-do-pais-compra-a-rico-vice-no-mercado.shtml

[7] Itau compra XP Investimentos, https://economia.ig.com.br/empresas/2018-08-10/itau-compra-xp-investimentos.html

[8] IPO da XP é o 9º maior do mundo em 2019, veja ranking, https://www.infomoney.com.br/mercados/ipo-da-xp-e-o-9o-maior-do-mundo-em-2019-veja-o-ranking/

[9] XP Alcança a marca de R$ 250 bilhões de investimentos sob custódia, https://www.seudinheiro.com/2019/xp/xp-alcanca-marca-de-r-250-bilhoes-de-investimentos-sob-custodia/

[10] Bolsa brasileira atinge a marca de 15 milhões de invetidores, https://exame.abril.com.br/mercados/bolsa-brasileira-atinge-a-marca-de-15-milhao-de-investidores/

[11] 65% das pessoas que guardam dinheiro escolhem a poupança por medo e costume, https://g1.globo.com/economia/educacao-financeira/noticia/2019/06/17/65percent-das-pessoas-que-guardam-dinheiro-escolhem-poupanca-diz-pesquisa-medo-e-costume-estao-entre-as-justificativas.ghtml

Engineering Manager at XP Inc. | Head of Technology | MBA Professor