Executive Summary / Key Takeaways

• Nu Holdings is rapidly establishing itself as the dominant digital banking platform in Latin America, driven by a relentless focus on customer acquisition, engagement, and a highly efficient, technology-first operating model.
• The company's "principality flywheel" strategy, leveraging AI-driven credit underwriting and a diversified product suite, is translating into robust financial performance, including significant revenue and net income growth, alongside industry-leading efficiency and return on equity.
• Strategic expansion in Mexico and Colombia, coupled with a disciplined approach to deposit growth and credit scaling, is de-risking funding and laying the groundwork for future margin expansion and profitability in these nascent markets.
• Nu is actively diversifying beyond core financial services into new verticals like telecom and e-commerce, aiming to build a comprehensive digital ecosystem that enhances customer loyalty and provides more resilient, fee-based revenue streams.
• While macroeconomic headwinds and the measured pace of new product rollouts present near-term considerations, Nu's long-term vision for an AI-driven global banking model, supported by strategic leadership hires and a proprietary technology platform, underpins a compelling investment thesis.

The LatAm Digital Revolution: Nu's Foundational Strategy

Nu Holdings Ltd. (NU), founded in 2013 in São Paulo, Brazil, embarked on a mission to disrupt traditional financial services by proving that a digital-first banking model could serve the vast, often underserved, populations of Latin America more effectively and efficiently. This foundational hypothesis has guided its journey, transforming it into a leading digital bank and a significant financial technology platform globally. The company's overarching strategy, encapsulated in its "Three Act Story," centers on building the largest and most loved retail banking franchise in Latin America, expanding beyond financial services, and ultimately evolving into a global AI-driven digital banking model.

The financial services landscape in Latin America remains ripe for disruption, with over 95% of the global financial services market capitalization, exceeding $8 trillion, still dominated by traditional banks. This structural opportunity is amplified by the ongoing shift from cash to digital payments and from offline to digital banking, trends that Nu is uniquely positioned to capitalize on, particularly in underpenetrated markets like Mexico and Colombia.

Central to Nu's competitive edge is its proprietary technology stack, which underpins its ability to deliver a superior customer experience at a significantly lower cost. The company's core technology leverages advanced machine learning models, neural networks, and predictive AI, significantly enhancing its credit underwriting engine. This technological prowess allows Nu to make more precise risk assessments, responsibly expand credit access, and offer tailored financial products. For instance, in Mexico, these enhancements have led to an approximately 50% improvement in the first payment default rate over the last three years, while simultaneously increasing credit approval rates by 10%.

The acquisition of Hyperplane further bolstered Nu's AI capabilities, providing a new platform to develop and deploy a multitude of models for various applications, including collections, fraud detection, and cross-sell initiatives across different segments and geographies. This technological differentiation translates directly into tangible benefits for investors: lower operational costs, improved risk management, and the ability to scale rapidly without compromising asset quality. Furthermore, Nu is actively developing a multi-country, proprietary core banking platform designed to enable efficient expansion into new international markets with relatively low investment, a strategic move that sets it apart from traditional global banks. This technological foundation is not merely an operational advantage; it is a strategic moat that allows Nu to offer better pricing to customers while consistently increasing its earnings power and driving deeper competitive moats over the long term.

Competitive Positioning and Market Penetration

Nu operates in a highly competitive environment, primarily contending with established incumbents like Itaú Unibanco and Banco Bradesco , as well as fintech players such as MercadoLibre's financial arm (MELI). Nu's digital-first approach and focus on customer experience provide a distinct advantage over traditional banks burdened by legacy infrastructure and extensive branch networks. While Itaú (ITUB) and Bradesco (BBD) benefit from immense scale, diversified revenue streams, and deep regulatory relationships, Nu's agility and lower cost-to-serve enable it to capture market share rapidly, particularly among younger, digitally native populations.

In Brazil, Nu has consolidated its position as the third-largest financial institution by customer count, serving approximately 58% of the adult population. Despite this significant customer base, its gross profit market share in Brazil remains at an early stage of monetization, indicating substantial room for growth. In Mexico, a market characterized by lower bank and credit card penetration, Nu has surpassed 12 million customers, serving approximately 13% of the adult population. Nearly half of Nu's credit card customers in Mexico had no prior credit card, underscoring its role in financial inclusion. Similarly, in Colombia, Nu serves almost 10% of the population.

Nu's competitive strategy is evident in its product offerings. Its credit card mix in Brazil, centered on lower-risk, interest-earning installments, differs fundamentally from the industry's reliance on revolving balances, leading to healthier unit economics. In unsecured loans, Nu holds over 20% of the origination market share in Brazil. For FGTS-backed loans, a product born digital, Nu has achieved over 30% market share in new originations, demonstrating the power of its low-cost, direct-to-consumer digital distribution channel. The company is also strategically entering the private payroll loan market, a segment historically dominated by incumbent banks, aiming to leverage its low-cost manufacturing advantage to gain significant market share once the collateral system matures.

Financial Performance and Operational Momentum

Nu Holdings delivered another quarter of robust financial performance in Q2 2025, showcasing the compounding power of its business model. Revenues reached $3.7 billion, representing an 85% annualized growth rate since 2021. Gross profit rose 78% annually to $1.5 billion, reflecting benefits of scale and an efficiency ratio that has been cut by more than half to 28.3% in Q2 2025. Quarterly net income nearly tripled in the past two years to $637 million. This performance demonstrates that growth is not coming at the expense of sustainable results, but rather through efficient scaling and disciplined execution.

Customer engagement remains a key driver, with the customer base expanding to nearly 123 million, including over 4.1 million net additions in Q2 2025, and an activity rate consistently above 83%. The monthly Average Revenue Per Active Customer (ARPAC) crossed the $12 mark for the first time, reaching $12.2, an 18% year-over-year increase. Critically, the cost to serve per active customer remained stable at $0.80, highlighting the significant operating leverage of Nu's digital platform.

The total credit portfolio reached $27.3 billion in Q2 2025, growing 40% year-over-year on an FX-neutral basis. This growth was broad-based, with secured lending surging 200%, unsecured loans growing 70%, and credit cards expanding 24% on an FX-neutral basis. Secured and unsecured loans now constitute over one-third of the total portfolio, up from 25% a year ago, reflecting an intentional diversification strategy. Loan originations hit a record $3.6 billion in Q2 2025, a 43% year-over-year increase on an FX-neutral basis.

Funding remains a core pillar of Nu's strategy. Total deposits reached $36.6 billion in Q2 2025, up 41% year-over-year on an FX-neutral basis, with strong progress in Mexico and Colombia. Net interest income (NII) grew 33% year-over-year on an FX-neutral basis, reaching a record $2.1 billion. Net Interest Margin (NIM) improved 80 basis points quarter-over-quarter on an FX-neutral basis, even with a slight reduction in the loan-to-deposit ratio to 43%. While investments in Mexico and Colombia temporarily weighed on short-term margins, these are considered critical for unlocking long-term value.

Asset quality metrics show a disciplined approach. The 15- to 90-day NPL ratio declined to 4.4% in Q2 2025, a 30 basis point improvement quarter-over-quarter, outperforming typical seasonality. The 90-plus day NPL ratio increased slightly to 6.6%, reflecting seasonal patterns from Q1. Credit loss allowance expenses remained relatively stable, with front-loading of provisions in Q2 due to major credit model upgrades and increased credit card limits in Brazil, creating a temporary timing mismatch. Excluding this effect, credit loss allowance would have declined quarter-over-quarter. Risk-adjusted NIM rose to 9.2% in Q2 2025, as strong NII offset the increase in CLA expenses. Return on equity reached 28%, tracking well above industry peers, a testament to Nu's ability to deliver strong bottom-line results while offering competitive pricing and superior customer experience.

Strategic Outlook and Growth Drivers

Nu's strategic outlook is firmly anchored in its "Three Act Story." Act 1, the continued expansion and deepening of its retail banking franchise in Brazil, Mexico, and Colombia, remains the primary focus, absorbing over 90% of the company's resources. Management expects unsecured lending originations to grow strongly throughout 2025 and 2026, contingent on favorable asset quality. The recovery of INSS loan originations, disrupted in Q2 2025, is anticipated by late August/early September 2025, potentially leading to a spike in volumes. In Mexico, Nu plans to scale credit at a disciplined pace, accelerating when market signals are clear and consistent with its long-term strategy.

Act 2 involves expanding beyond traditional financial services. Nu has launched initiatives like NuMarketplace, NuTravel, and NuCel, a mobile virtual network operator (MVNO) in partnership with Claro (AMX). NuCel, in particular, targets the telecom industry's low customer satisfaction and complexity, leveraging Nu's low customer acquisition costs and efficient service model through a revenue-share contract. These ventures aim to create a broader digital ecosystem, enhance customer loyalty, and diversify revenue streams with more stable, fee-based income.

Act 3, the long-term vision of a global AI-driven digital banking model, is being prepared through foundational technology platform development. While this involves ongoing investment, the financial impact on 2025 expenses is expected to be minimal, as these efforts are already factored into existing investment levels. Recent key management additions, including Roberto Campos Neto as Vice Chairman and Head of Public Policy, Eric Young as Chief Technology Officer, and Ethan Eismann as Chief Design Officer, are explicitly aimed at strengthening leadership for this next chapter of growth, which demands greater scale, complexity, and ambition.

Management anticipates further margin expansion as it optimizes the balance sheet by reallocating liquidity from cash into credit and gradually lowering funding costs in Mexico and Colombia. The full impact of recent deposit yield adjustments in Mexico and Colombia, implemented in early July 2025, is expected to materialize gradually over the coming quarters. Nu is committed to maintaining its cost-to-serve at or below $0.80 per active customer, a critical factor for realizing operating leverage.

Risks and Challenges

Despite its strong growth trajectory, Nu faces several risks and challenges. Macroeconomic volatility in Latin America, particularly in Brazil, could impact asset quality and consumer spending. While Nu's credit underwriting philosophy assumes a future worse than the past and stress-tests cohorts for losses up to twice the observed rate, sustained economic downturns could still pose headwinds.

The company's deliberate decision to temper the pace of PIX financing eligibility expansion, prioritizing long-term customer experience over short-term revenue, highlights the complexities of balancing growth with customer satisfaction. Similarly, while excited about the private payroll loan product, Nu is proceeding cautiously due to initial industry-wide first payment defaults being higher than expected, emphasizing a preference for tested collateral systems over first-mover advantage.

Investments in new geographies like Mexico and Colombia, while strategic, temporarily weigh on consolidated margins and efficiency ratios. The successful integration of new collateral agreements for public payroll loans and the ramp-up of the loan book in Mexico require continuous execution and adaptation to local market dynamics. Competition from both traditional banks and other fintechs remains intense, necessitating continuous innovation and efficient operations to maintain market share and profitability.

Conclusion

Nu Holdings stands as a compelling investment opportunity, embodying the transformative power of digital banking in Latin America. Its journey from a disruptive startup to a regional financial powerhouse is marked by exceptional customer growth, a robust and diversifying product portfolio, and a disciplined approach to profitability. The company's technological leadership, particularly in AI-driven credit underwriting and its proprietary multi-country platform, provides a durable competitive advantage against both traditional incumbents and emerging fintech rivals.

With a clear "Three Act Story" guiding its strategic initiatives, Nu is poised for continued expansion within its core markets of Brazil, Mexico, and Colombia, while simultaneously building out a broader digital ecosystem and laying the groundwork for global ambitions. The consistent financial performance, characterized by strong revenue and net income growth, expanding margins, and industry-leading efficiency, underscores the effectiveness of its long-term value creation strategy. While macroeconomic uncertainties and the inherent challenges of scaling in dynamic markets persist, Nu's proven ability to execute, adapt, and prioritize customer love positions it favorably to capture a significantly larger share of the vast financial services market in the years to come.