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Nubank Reports Robust Growth and Expands Product Offerings in 2024

Significant Increase in Secured Lending Portfolio

Nubank’s secured lending in Brazil saw remarkable growth, rising 615% year over year to reach $1.4 billion, which now represents 23% of its total lending portfolio. The company inked nine new agreements with collateral counterparties in the public sector, allowing it to expand its payroll loans market to 70% of the segment. Consequently, 12 million customers gained eligibility for payroll loans, complemented by an additional $80 million available for FGTS loans. In December 2024, 16% of INSS originations came from customers who moved their loans to Nubank for better refinancing options.

Market Share and Customer Performance on the Rise

Nubank captured over 30% market share in FGTS originations, showcasing the effectiveness of its strategy and product market fit. The company also expanded its high-income segment with growth in its Ultravioleta customer base, which surged 132% year over year to nearly 700,000. The performance of Ultravioleta credit cards was noteworthy, with quarterly purchase volume hitting $1.8 billion, a 106% increase year over year, accounting for 10% of Nubank’s total credit card purchases in Brazil. Notably, the company enjoys a Net Promoter Score (NPS) of 84, reinforcing its reputation as a favorite among its high-income clientele, alongside a 16% lift in brand consideration.

Expansion of Nu Marketplace and New Offerings

The Nu Marketplace is evolving quickly, attracting over 1 million customers throughout the year. New services like Nu Travel have been introduced, allowing customers to plan trips seamlessly and securely, along with guarantees for the best prices and access to a multicurrency account. Additionally, the launch of NuCel, a mobile virtual network operator (MVNO) service in collaboration with Claro, further diversifies Nubank’s offerings and strengthens its ecosystem.

Positive Outlook and Strategic Expansion

Nubank remains optimistic about future opportunities across its three geographic markets. The company aims to broaden its total addressable market through its Money Platform strategy. This includes diversifying its ecosystem with NuCel in Brazil’s vast telecom market and enhancing Nu Marketplace. There is confidence in these emerging avenues for growth, with Nu Travel and NuPay adding to the excitement. Looking ahead to 2024, Nubank is encouraged by progress across key strategic priorities and sees early indicators of sustained growth.

Insights from the CFO on Financial Performance

Guilherme Lago — Chief Financial Officer

Thank you, David. Good evening, everyone. As David mentioned, 2024 was a standout year for Nubank, marked by significant revenue growth, deeper customer engagement, and solid profitability. Let’s dive into our fourth quarter results and assess how we’ve advanced in strategic areas.

Customer Base and Engagement Growth

During this quarter, Nubank added 4.5 million new customers, bringing the total to 114.2 million, a 22% increase from the previous year. As our customer numbers grow, we are increasingly focusing on retention and engagement. Our active customer base also expanded by 22%, reaching an impressive 83.1% monthly activity rate. However, it’s worth noting that the dynamics in Mexico and Colombia differ from those in Brazil as we tailor our offerings in these key markets.

Revenue Strength and Cross-Selling Success

Revenue growth continues to thrive as we strengthen primary banking relationships, now reflecting about 61% of our active customer base. This performance highlights our capacity for effective cross-selling, reinforcing our role as a primary financial partner. Recent cohorts are achieving primary banking relationships at a faster pace. The average number of products per active customer has climbed to 4.1, further demonstrating our successful engagement strategy.

Impressive Financial Metrics

Average monthly ARPAC stands at approximately $10.7, with more mature cohorts reaching $25, indicating our strong long-term revenue potential. Despite a slight decline of $0.03 in monthly ARPAC, our FX-neutral figures show a 5% sequential increase and a remarkable 23% rise from the prior year. Revenue reached nearly $3 billion this quarter, up 50% year over year, supported by both customer growth and solid ARPAC levels.

Robust Growth in Credit Portfolios

Nubank’s total credit portfolio grew by 45% year over year and 13% quarter over quarter, amounting to $20.7 billion. Both lending and credit cards played significant roles in this impressive growth. The credit card portfolio rose 28% year over year to reach $14.6 billion, while the lending portfolio doubled within the year, reaching $6.1 billion with a 22% sequential increase. This continued upward trajectory in lending underlines our longstanding commitment to these strategies.

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Nu’s Impressive Growth in Credit and Lending: A Deep Dive into Financial Performance

Nu continues to experience impressive growth across its credit and lending operations. This surge is not only attributed to increased customer eligibility but also to rising ticket sizes and extended loan durations, which remain below industry averages. This strategy highlights both the company’s growth potential and its resilience, especially during economic downturns seen previously in Latin America.

Credit Card Portfolio Breakdown

The breakdown of our credit card portfolio reveals that interest-earning installments saw quarter-over-quarter growth. However, this was somewhat overshadowed by a strong seasonal increase in noninterest earnings balance. As a result, interest-earning installments now represent 27% of our overall credit card portfolio. This aligns with our expectations shared last quarter, following a planned slowdown in Pix financing for certain risk bands. Although demand for Pix financing products is robust, we’ve intentionally decelerated eligibility expansions in the latter half of 2024 to monitor performance and assess the long-term value of customer relationships.

As we entered 2025, we began refining our Pix financing offering after extensive testing, tailoring it for various risk bands to mitigate any negative impacts on asset quality or engagement.

Surge in Lending Originations

Looking at our lending business, originations surged by 84% year over year, totaling BRL 18.4 billion for the quarter. Unsecured lending was the key driver, contributing BRL 15.6 billion and demonstrating our commitment to financial inclusion for individuals and SMEs in Brazil.

Secured lending also performed well, reaching BRL 2.8 billion in the fourth quarter of 2024, which constitutes 15% of total lending originations. Notably, these originations were fully generated in-house through our platform, excluding third-party portfolios. FGTS-backed loans have shown promising growth, comprising over 60% of secured lending originations, with Nu having captured over 30% of the market share in this category, reflecting our effective fully digital distribution.

Expansion of Product Offerings

This year also marked considerable advancements towards product parity. We are encouraged by the early indicators of new features for public payroll loans in Brazil, such as portability, top-ups, and refinancings. A significant milestone was reached with the successful integration and launch of operations with Brazil’s armed forces, which broadens our eligibility. Our total addressable market (TAM) for public payroll loans is set to expand further, as we have signed 11 new collateral agreements with several major Brazilian states and municipalities.

Growth in Deposits

Total deposits for the quarter climbed to $28.9 billion, showcasing a 55% year-over-year increase on an FX-neutral basis. This growth was observed across all three of our geographical areas. In Brazil alone, deposits reached $23.1 billion, reflecting an 11% sequential increase. Our deposit rate strategy in Mexico and Colombia has also yielded excellent results, significantly increasing deposits in both regions, thereby enhancing financial resilience and liquidity.

Remarkably, despite lowering the spread over the interbank rate, our operations in Mexico collected $4.5 billion in deposits—a fourfold increase from 2023. Meanwhile, our performance in Colombia exceeded expectations, with deposits totaling $1.3 billion just two quarters after the launch of NuColombia’s checking account, placing us among the top five financial institutions in the country based on demand deposits for individuals.

Financial Performance Overview

Net interest income experienced a significant boost, rising 57% year over year and 9% sequentially, reaching a record high of $1.7 billion. Conversely, net interest margin decreased by 70 basis points to 17.7% this quarter. This reduction was primarily driven by lower credit yields and increased funding costs, largely due to strong deposit growth in Mexico and Colombia.

We anticipate that optimizing our balance sheet will be key to driving future net interest margins. Despite interest rate fluctuations, there’s substantial opportunity for us to enhance originations by reallocating funds from cash to credit, especially given our low loan-to-deposit ratio.

Efforts to Maintain Low Costs

Our platform remains one of the most cost-competitive in our markets, a vital advantage for our operations. We are committed to maintaining a cost to serve at or below $1 per active customer, achieving a cost of $0.80 this quarter. On an FX-neutral basis, this represents an 11% year-over-year rise due largely to seasonal spikes in data and processing usage.

Simultaneously, our ARPAC has seen growth of 23% in the same period, further illustrating the operating leverage of our business model. Gross profit reached $1.4 billion, an 8% increase sequentially and a 44% rise from 2023, both on an FX-neutral basis, with margins nearing previous levels despite higher funding costs.

Throughout the past quarter, we proved our ability to drive operating leverage as our efficiency ratio improved, closing at 29.9%. This 150 basis point enhancement from the prior quarter and 610 basis points increase from last year exemplifies our low-cost operating model, which supports strong growth and product innovation.

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Nu Holdings Reports Strong Q4 Performance: Earnings Surge and Strategic Outlook for 2025

Overview of Q4 Financial Highlights

Nu Holdings achieved impressive results in the fourth quarter, with revenue hitting $553 million. This growth represents a sequential increase of 7% and a remarkable 85% rise year-over-year on an FX-neutral basis. Additionally, net income margins expanded by 300 basis points to reach 18%. Adjusted net income for the quarter rose significantly by 87% from 2023, totaling $610 million. These numbers underscore the effectiveness of Nu’s strategic approach and the robustness of its business model. While pleased with the recent performance, the company remains committed to maximizing long-term value for both customers and shareholders.

Investing in Future Growth

Nu Holdings is focused on short-term investments aimed at unlocking new growth opportunities, enhancing customer engagement, and solidifying its market leadership. The company views these initiatives as essential for sustaining future success.

Youssef Lahrech Discusses Asset Quality

Youssef Lahrech — President and Chief Operating Officer

Hi everyone. As we start, let’s review the trends in non-performing loans (NPLs). Our key indicator, the 15 to 90-day delinquency ratio, improved by 30 basis points, declining to 4.1% this quarter. This decrease is partly seasonal, but it also reflects a shift toward lower-risk customers in our credit card segment and an increase in secured lending within our portfolio. The percentage of 90-plus NPLs also fell by 20 basis points to 7%, illustrating a positive trend that has been evident over the past three quarters.

The upcoming slide illustrates these NPL trends based on interest-earning balances. These consistent improvements highlight our strong credit underwriting and portfolio management practices, as we aim to enhance the lifetime value of our customer relationships.

Stability in Renegotiated Loans

Our renegotiated loan portfolio has shown stability this past year. Most new negotiations occur before customers reach 15 days overdue, demonstrating our proactive strategy to assist customers in managing their finances early. This approach minimizes delinquency risks and lessens the impact on NPLs. We maintain a solid provision coverage ratio of over 200% for 90-plus delinquent balances, reflecting our careful risk management.

As our credit portfolio expands, credit loss allowance expenses have risen by 12% sequentially, reaching $804 million this quarter. However, risk-adjusted net interest margins (NIM) contracted by 60 basis points, influenced by a 70-basis-point dip in NIM balanced by a slight improvement in the cost of risk.

Comparative Performance Analysis

We conducted an analysis comparing our credit card portfolio’s performance to the broader Brazilian market. The visuals on the following slide illustrate how our portfolio consistently outperforms the industry across various risk bands, resulting in lower delinquency rates. This performance stems from our precise customer risk assessment, appropriate credit limit adjustments, and our high engagement level, which enhances overall repayment behavior.

Vision for the Future

David Velez — Founder, Chairman, and Chief Executive Officer

Looking ahead, we recognize that we are only at the beginning of transforming financial services across Latin America and beyond. Since launching Nu, we have enjoyed remarkable growth, yet we capture only a small portion of the global financial services revenue. This context emphasizes the vast opportunities that lie ahead.

Our strategy prioritizes responsible growth and sustainable investments, with 2025 viewed as a key year for expanding our presence in Brazil, Mexico, and Colombia, as well as enhancing our product offerings.

We outline our growth vision in three acts: Act 1 focuses on creating the largest and most beloved retail banking franchise in Latin America, where we currently hold under 4% market share; Act 2 targets expansion beyond traditional financial services, leveraging our strong brand to enter new markets; and Act 3 envisions a global, AI-driven digital banking model that will provide financial access to millions of customers.

As we progress through these acts, our commitment to execution, customer-centric innovation, and sustainable growth remains unwavering. We are eager to harness our technological platform to redefine financial services in Latin America and beyond.

Thank you all for your continued support. We are ready to take your questions.

Questions & Answers:

Operator

We will now start the Q&A session for investors and analysts. [Operator instructions] I’d like to turn the call over to Mr. Jorg Friedemann, investor relations officer.

Jorg Friedemann

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Nubank Discusses Pix Financing and Its Impact on NIM Amidst Recent Financial Performance

Friedemann — Investor Relations

Thank you, operator. Please open the line for Jorge Kuri at Morgan Stanley.

Jorge Kuri — Morgan Stanley — Analyst

Hi, everyone. Congratulations on the numbers. I wanted to ask about a comment made by Lago regarding Pix. Can you clarify what “not expanding Pix in the short term” means? Are you referring to its share within the overall portfolio, or is it about absolute balances decreasing as a percentage of the total credit card portfolio? Thank you.

Guilherme Lago — Chief Financial Officer

Hi, Jorge. This is Lago. Thanks for your question. By not expanding Pix financing substantially in the short term, I mean it will not increase as a percentage of the overall portfolio, although it will grow in absolute terms.

Essentially, while Pix financing will continue to increase, it will do so in alignment with the overall growth of our credit card portfolio in Brazil. As we mentioned in the previous call, we’ve reduced the eligibility for Pix financing among lower credit bands to address some negative effects we observed on user engagement and satisfaction. The profitability of the Pix financing portfolio remains strong, but we want to ensure a better customer journey to minimize any potential negative impacts. Our teams have been focused on these improvements for months.

Currently, we are testing about 12 enhancements in the market, showing promising results. I believe we will resume growth in percentage terms in upcoming quarters, but I do not want to set expectations that this will necessarily happen in the next one or two quarters.

David Velez — Founder, Chairman, and Chief Executive Officer

Jorge, let me add to this because it highlights a key cultural aspect. This situation illustrates how profitable products can lead to decisions between short-term gains and enhancing user experience. If we prioritized immediate profitability, we would continue to grow Pix quickly. However, we choose to invest in improving the user experience for long-term success.

As we have stated before, we aim for sustained consumer appreciation. We want to address the secondary effects on user satisfaction and will proceed cautiously until we are satisfied with the improvements.

Jorge Kuri — Morgan Stanley — Analyst

Thank you for clarifying. I have a follow-up question regarding how Pix has influenced your NIM and risk-adjusted NIM. Can you explain the various elements affecting your risk-adjusted NIM? Lago, you mentioned the rising funding costs in Mexico and Colombia, creating a temporary drag on NIM as you have shifted toward riskier clients, plus the impact of foreign exchange rates. Could you break down how these factors contributed to the decline in risk-adjusted NIM from 11% to its current level of 9.5%? What has been the impact of each component?

Guilherme Lago — Chief Financial Officer

Great question, Jorge. In Q4 2024, our NIM fell by about 70 basis points. You’ll find the specifics in the earnings presentation slides. Of that decline, approximately 44% was due to foreign exchange effects. We use different rates when translating local currency into dollars; the numerator usually employs an average FX rate while the denominator uses end-of-period rates, leading to this discrepancy.

The remaining 55% of the decline can be attributed equally to two factors: a decrease in yields in our credit portfolio in Brazil due to a shift towards more secured lending, and the increase in deposits in Mexico and Colombia, where rates remain above interbank deposit rates. These two developments justify the contraction in NIM.

As for risk-adjusted NIM, it has the same 70 basis point decrease, plus a positive impact of 10 basis points from an unexpected improvement in cost of risk. Looking ahead, several factors will influence NIMs and risk-adjusted NIMs, including our product mix and geographical performance. We’re confident that optimizing our balance sheet remains crucial. Currently, our loan-to-deposit ratio is below 40%. As we expand our loan book and shift liquidity from treasury bonds to credit, we expect NIMs to grow in the medium term.

Jorge Kuri — Morgan Stanley — Analyst

Thank you, Lago. That was precisely the breakdown I was looking for. Thank you, David, as well.

Jorg Friedemann — Investor Relations

Our next question comes from Eduardo Rosman from BTG Pactual.

Eduardo Rosman — BTG Pactual — Analyst

Hi, everyone. I have a question about one of your slides, specifically Slide 26. Youssef, you showed that Nubank has been outperforming peers in credit card underwriting. I think this is connected to your loan growth strategy. What about unsecured personal loans? Do you see the same level of outperformance in that area? Is it different from credit cards, and how should we approach comparing the two? Your insights would be appreciated. Thanks.

Youssef Lahrech — President and Chief Operating Officer

Hi, Rosman. This is Youssef. Thanks for the question. While the analysis on Slide 26 focuses on credit cards, I expect similar trends to occur with unsecured loans. The analysis tends to be clearer for credit cards, but I believe we’re on a positive trajectory in unsecured loans as well. Typically, unsecured loans can be less straightforward to analyze, but the dynamics remain comparable.

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Uncovering Growth Potential: Nubank’s Secured Lending Strategy

Understanding Early Customer Loans and Future Growth

Nubank showcases a meticulous approach to lending. Initially, new customers receive very small loans until they demonstrate repayment reliability. As clients continue borrowing and we gather more performance data, the company can confidently increase the amount available to them. More data means better risk assessments, applicable to both secured and unsecured loans alike.

Eduardo Rosman — BTG Pactual — Analyst

Thank you.

Jorg Friedemann — Investor Relations

The next question will be from Tito Labarta with Goldman Sachs.

Tito Labarta — Analyst

Hello, good evening. Thanks for the call. I want to discuss secured lending. You mentioned $1.4 billion in secured loans, which is significantly larger than we anticipated. This seems to be your first disclosure on this matter. Can you share details on how you foresee continued growth, especially with FGTS and payroll loans? Given Brazil’s current challenging economic climate, do you see secured lending becoming a major driver for growth and profitability this year?

Guilherme Lago — Chief Financial Officer

Thank you for your question, Tito. We’re quite optimistic about the growth trajectory of our secured lending portfolio. This segment is not only vital for our profit and loss but also strategically important due to its correlation with customer retention. To clarify, our secured lending encompasses three main asset classes: public payroll loans, FGTS, and investment-backed loans.

In the past year to 15 months, we’ve enhanced our public payroll loan products, with a focus on the minimum collateral types like INSS and SIAPE. We anticipate achieving product parity by the end of 2024, allowing customers to secure first loans, refinance, and utilize portability options. We expect a noticeable acceleration in originations within our loan portfolio throughout 2025.

Furthermore, we have established over ten new collateral agreements, including partnerships with the Brazilian Armed Forces. This should significantly enhance our growth potential. Notably, in January 2025, we recorded an all-time high in originations for public payroll loans.

Regarding FGTS, we’ve made strong inroads, now accounting for over 30% of FGTS financing in Brazil. This area reflects not just profitability, but also the strength of a direct-to-consumer model in a digital landscape. We aim to carry these insights into our public payroll offerings.

Lastly, investment-backed loans, contributing around 10% to 15% of our originations, will continue to grow along with our customer base. We foresee substantial expansion in these areas throughout 2025. Additionally, the emerging private consignado market could shape a new consumer credit landscape, promising improved terms for Brazilian consumers. We’re actively collaborating with the government and other stakeholders to leverage this opportunity for our client base and increase Nubank’s market presence.

Tito Labarta — Analyst

Great insights, Lago. I’d like to follow up focusing on profitability within the payroll sector.

Guilherme Lago — Chief Financial Officer

Correct, Tito. It’s true that the profitability of secured lending, measured by return on equity (ROE), is lower than our unsecured lending and credit card operations. However, I disagree about secured lending diluting our overall ROE. We are not pursuing secured loans at the expense of credit cards or personal loans.

Instead, we’re utilizing our excess liquidity and capital to fund this area. To illustrate, we’re reallocating part of our bond portfolio to support secured lending, which here yields more substantial net interest margins. Thus, while secured lending may show a lower ROE, it is not detrimental to our overall profitability. In fact, it should enhance our balance sheet efficiency and profitability across the organization.

This initiative also fortifies our customer relationships, further enhancing engagement with over 110 million Nubank users in Brazil.

Tito Labarta — Analyst

That’s very clear, thank you, Lago.

Jorg Friedemann — Investor Relations

Next, we have Thiago Batista from UBS. Thiago, your line is now open.

Thiago Batista — UBS — Analyst

Can you hear me?

Jorg Friedemann — Investor Relations

Yes, we can hear you.

Thiago Batista — UBS — Analyst

I have a question about the credit card market in Brazil. Looking at the numbers, your market…“`html

Nu’s Credit Card Strategy: Analyzing Growth Potential in Brazil

In recent discussions, Nu has been assessed for its growth prospects in the Brazilian credit card sector. Some analysts suggest that the company may be nearing a product saturation point, while others think there are still avenues for expansion. Let’s explore the insights provided by Nu’s financial leaders.

Assessing the Credit Card Landscape

Guilherme Lago — Chief Financial Officer

Thank you for the question. To understand the recent decline in Net Interest Income (NII) for our credit card segment, it’s crucial to note that this trend has stemmed from two main factors. First, our strategy to attract more affluent clients through our Ultraviolet (UV) credit cards has resulted in lower average pricing, leading to a slight decrease in yield. As we onboard these UV customers at lower rates, we’ve noted that their growth is outpacing that of less affluent customers, influencing our overall portfolio.

Second, since early Q3 2024, we’ve faced pressure on credit card yields due to the impacts of Pix financing. By tightening the eligibility requirements for potential clients, we have created some challenges for yield performance. Despite these challenges, our credit card product continues to deliver solid returns on equity and maintain robust credit resilience. We’re optimistic about further developments in this area.

Opportunities for Growth Still Exist

Jag Duggal — Chief Product Officer

To build on Guilherme’s points, I believe there’s still considerable potential for growth in Brazil’s credit card market. Our existing efforts focus on re-engaging previously inactive customers in the mass market. In the coming years, we aim to see significant incremental progress in customer activity and purchase volumes.

Moreover, we’ve made substantial advancements in the high-income segment. Over the course of 2024, our number of Ultraviolet customers has more than doubled, along with a significant increase in purchase volume. Additionally, we’ve begun to see promising results within the small business customer segment, known as pejotas.

Currently, Nu holds a modest 14% market share in purchase volume, indicating that we have ample room for growth in both the mass market and new segments, particularly as we expand our offerings and refine our strategies.

Understanding Credit Cycles

Thiago Batista — UBS — Analyst

Thank you for the clarity, Lago and Jag.

Gustavo Schroden — Citi — Analyst

Hello, good evening. I appreciate the opportunity to ask my question. I’m concerned about the potential deterioration in the credit cycle influenced by inflation metrics, especially for food, and its correlation with asset quality. I’m noticing a more conservative stance from banks regarding credit concessions, yet Nu appears optimistic about ongoing credit growth, aside from the adjustments needed for Pix financing. Can you clarify this situation and address any concerns about adverse selection?

Youssef Lahrech — President and Chief Operating Officer

Hi Gustavo, thanks for your question. While we remain watchful of macroeconomic concerns, we continue to maintain a positive outlook on credit growth. It’s important to remember that we prioritize a conservative approach in our underwriting process. We consistently prepare for tougher market conditions by structuring our model to expect future challenges.

Our extensive experience over the past decade, including navigating recessions, has equipped us with a resilient portfolio. As a result, we adopt a forward-looking perspective when determining risk, ensuring our credit offerings remain viable across various economic cycles.

We keep our provisions adjusted based on the changing economic outlook in Brazil, maintaining a cautious stance while confidently pursuing growth opportunities across all Credit products.

Gustavo Schroden — Citi — Analyst

Thank you, Youssef, for your clear explanation.

Jorg Friedemann — Investor Relations

Next, we have a question from Mario Pierry at Bank of America.

Mario Pierry — Bank of America Merrill Lynch — Analyst

Good evening, everyone. I appreciate you taking my question.

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Nubank’s Global Expansion Plans: Understanding the Costs and Markets

Investments and Market Entry Strategy Explained

David, on your last slide, you discussed taking critical steps to build a global franchise and scale this year. Can you elaborate on what this entails regarding investments and costs? Which markets are you targeting—are you more enthusiastic about entering the U.S., expanding into Southeast Asia, Africa, or other Latin American countries? Additionally, what will be the financial implications for 2025?

David Velez — Founder, Chairman, and Chief Executive Officer

Absolutely, happy to elaborate. Since starting in 2013, Nubank has operated under the belief that the digital banking model we are developing will serve a significant portion—80% to 90%—of the global population. In 20 to 40 years, conventional bank branches may become rare.

We’ve spent the past decade in Brazil, Mexico, and Colombia, validating our model, particularly in Brazil. Our Brazilian business demonstrates that we can reach and include more people in financial services, while also ensuring a higher quality experience, reflected in our Net Promoter Score. Our model operates at lower costs while achieving greater profitability, benefiting consumers, investors, and employees alike.

We’ve seen promising results in Mexico and Colombia, which, despite market differences, are following Brazil’s successful trajectory. Looking ahead, we plan to apply our successful model beyond Latin America over the next decade. However, this shift is complex; we aspire to be our customers’ primary bank account and not just a digital wallet, necessitating deep market engagement and strategic partnerships.

International expansion has been cautious and deliberate. We’re developing a robust technology platform—a multi-country core banking system—that will allow us to expand with lower investment and greater efficiency. This development has been in the works for 18 months, with another 18 to 24 months to go.

Straight to your question, we are continuing to build this technology infrastructure through 2025, with expense changes not being significant compared to previous investments. Last year, we noted that 30% to 40% of our employees are working on initiatives that do not yet generate revenue. This investment in future growth will continue through 2023, 2024, and into 2025.

When we select new markets, we adopt a cautious, incremental approach. For instance, we launched in Brazil and Mexico with an initial investment of around $1 million each. We avoid large-scale market entries; instead, we test hypotheses carefully, leveraging our technology as we gain confidence in these new opportunities. Thus, you shouldn’t expect substantial changes in expenses; they are embedded in our long-term investment strategy.

Mario Pierry — Bank of America Merrill Lynch — Analyst

That’s clear. However, you mentioned that currently, you only hold a 4% market share of the revenue pool in your operating countries. Doesn’t it make sense to focus on growing in these markets before considering a global strategy? Mexico, in particular, presents a highly competitive landscape, and it may take time for profitability to materialize. There’s also the risk that senior management might become distracted by pursuing global ambitions.

David Velez — Founder, Chairman, and Chief Executive Officer

Your question is insightful and aligns closely with our thinking. Our primary focus remains on Brazil, Mexico, and Colombia, which we refer to as Act 1. These countries account for over 90% of our attention as we believe they offer immense potential.

We share your view that there’s substantial room for growth in these three markets—accounting for 60% of Latin America’s revenue share—before expanding further. While we recognize the need for profitability, preparing for internationalization is a multi-year effort that necessitates early investments, albeit small, to set the groundwork for future growth.

Thus, we cannot take a fully sequential approach. A degree of parallel execution is necessary to ensure that we’re ready to scale significantly in the coming years.

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Insights from Recent Analyst Call Reveal Financial Strategies and Future Growth Potential

90% of Resources Focused on Core Operations

Most of our resources, over 90%, are dedicated to core operations. Currently, the 40% of employees engaged in areas that do not generate immediate revenue are part of Act 2, focusing on expanding financial services as we navigate today’s market.

Small Steps Towards International Growth

International expansion remains a minimal focus for us at present, which limits our capacity to explore new growth opportunities in this sector.

Mario Pierry — Bank of America Merrill Lynch — Analyst

Understood. Thank you.

David Velez — Founder, Chairman, and Chief Executive Officer

Thank you for the insightful question.

Jorg Friedemann — Investor Relations

Next, we have a question from John Coffey from Barclays.

John Coffey — Analyst

Thank you for the opportunity. I noticed your “principality” metric is now at 61% of active customers, up from 60% last quarter. Can you provide an overview of the implications of this 1% increase on your financials? For instance, if this figure were to reach 62%, what would that mean for revenue, margins, and net income?

Guilherme Lago — Chief Financial Officer

Thanks, John. While a small change in the principality metric can be informative, I wouldn’t place too much emphasis on a 1% shift. Seasonality plays a role in how we measure this metric, particularly during the fourth quarter when purchasing activity tends to spike.

Focusing more broadly, the primary banking relationship is a pivotal operational KPI for us. We believe it is vital for digital banking globally because a primary banking customer generates 3 to 4 times more ARPAC than a non-primary customer. Additionally, delinquency rates are notably lower—48% less—among primary banking customers compared to others.

As David already mentioned, our vision is not to be a secondary wallet or just involved in foreign exchange services. We aim to become the primary banking relationship for our customers, particularly as Brazil expects positive developments in open banking in the coming quarters. Thus, establishing a primary relationship not only aligns with our long-term strategy but also promises immediate benefits for our P&L.

John Coffey — Analyst

Thank you. As a follow-up, your loan-to-deposit ratio (LDR) has decreased from 40% to 39%. What do you see as the main bottleneck preventing this ratio from reaching, say, 45%? Is the situation primarily in Mexico, where your sizeable deposit base might not yet translate to credit deployment?

Guilherme Lago — Chief Financial Officer

That’s a good question, John. To address this, let’s consider two points. First, with an LDR of 39%, some might wonder why we don’t lower deposit rates or accelerate our loan growth to optimize our balance sheet. However, we believe that to be the primary banking relationship, we need to be a platform where customers can make and receive payments, as well as store value. Our deposit franchise is crucial for achieving this, not only for client relationship purposes but also for benefiting from the data collected.

We don’t view a low LDR as a weakness. Instead, it reflects our growing focus on customer principality and engagement through our platform. While we aspire to grow our credit portfolio more rapidly, it’s essential to adopt a disciplined approach, especially with unsecured credit, and not to scale irresponsibly based solely on deposits.

Over the last two quarters, we have seen growth in deposits in Mexico and Colombia, contributing to the lower LDR. We are confident that by 2025, we will witness a significant increase in our loan book growth, especially in Mexico, where credit metrics are performing in line with or better than our expectations.

John Coffey — Analyst

Thank you very much.

Jorg Friedemann — Investor Relations

Next, we’ll hear from Yuri Fernandes at JPMorgan.

Yuri Fernandes — JPMorgan Chase and Company — Analyst

Good evening, everyone, and thank you for letting me ask a question. I’d like to know more about your strategy for unsecured personal loans, especially in Brazil. This product is growing quickly, even faster than secured lending, which is still maturing. How is this growth happening? Is it about reaching new customers or perhaps linked to lower loan yields? Moreover, unsecured personal loans are often seen as riskier compared to fixed finance; why is your approach different for these products?

Jag Duggal — Chief Product Officer

Thanks for your questions, Yuri. Regarding your last point, we have observed a stronger credit quality in our lending portfolio. We analyze trends on a product-by-product basis to ensure sound growth.

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Nu Holdings Reports Strong Growth in Unsecured Lending

Nu Holdings has shared an overview of its lending decisions and growth strategy in unsecured personal loans, reflecting significant growth patterns over the last quarter and through 2024.

Focused Approach Enhances Lending Strategy

Nu Holdings has adopted a detailed approach to its lending decisions, particularly regarding unsecured personal loans. The company has experienced impressive growth, largely due to increasing the proportion of loans extended to customers who are already familiar with Nubank’s services. This shift allows the company to better assess risk, as they can now prioritize second loans to active customers rather than lending to new clients. In earlier years, many loans were offered to first-time borrowers.

Understanding Customers Leads to Better Loans

This strategy has enabled Nubank to proceed with greater confidence. By focusing on customers who have previously borrowed and successfully paid off loans, Nubank has been able to optimize its lending process. The company is now offering larger loan amounts and lower interest rates, thanks to improved insights into customer behavior and robust investments in credit modeling. These enhancements are expected to continue producing positive results throughout 2024.

Expanding to New Segments

In addition to better serving existing customers, Nubank is also adjusting its products to appeal to new market segments, targeting high-income individuals and small businesses. Historically, most of Nubank’s loans were directed to mass-market consumers. However, customers in these new segments require larger loan amounts and typically expect lower interest rates due to their superior credit risk profiles. After over a year of testing different strategies, Nubank is successfully catering to these clients and seeing encouraging responses.

Future Plans for Loan Duration

During the call, Yuri Fernandes, an analyst at JPMorgan Chase, asked about Nubank’s strategy regarding loan duration. Jag Duggal, the Chief Product Officer, confirmed that Nubank plans to gradually extend the average duration of loans, which has historically been around six months. Although changes will be modest and incremental, the firm is optimistic about moving towards longer loan durations suitable for customers.

Closing Remarks

As the earnings call concluded, Jorg Friedemann from Investor Relations extended appreciation to the participants. He reiterated Nubank’s excitement about future developments and the continuous improvement of its service offerings in 2024. The team will address any additional questions from participants in the coming days, underscoring their commitment to transparency and engagement.

Call participants:

Jorg Friedemann — Investor Relations

David Velez — Founder, Chairman, and Chief Executive Officer

Guilherme Lago — Chief Financial Officer

Youssef Lahrech — President and Chief Operating Officer

Jorge Kuri — Morgan Stanley — Analyst

Eduardo Rosman — BTG Pactual — Analyst

Tito Labarta — Analyst

Thiago Batista — UBS — Analyst

Jag Duggal — Chief Product Officer

Gustavo Schroden — Citi — Analyst

Mario Pierry — Bank of America Merrill Lynch — Analyst

John Coffey — Analyst

Yuri Fernandes — JPMorgan Chase and Company — Analyst

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