Good afternoon, ladies and gentlemen. Welcome to Nu Holdings Conference Call to discuss the Results for the First Quarter 2022. A slide presentation accompanies today's webcast, which is available on Nu's Investors Relations website. This conference is being recorded and the replay can also be accessed on the company's IR website. Please be advised that all participants will be in listen-only mode. You may submit online questions at any time today, using the Q&A box on the webcast. I would now like to turn the floor over to Mr. Guilherme Vieira, Investor Relations Senior Manager at Nu Holdings. You may proceed.

Thank you very much, Operator. Good afternoon, everyone and thank you for joining our earnings call today. If you have not seen our earnings release, a copy is posted in the Results Center section of our Investor Relations website. With me on today's call are David Vélez, our Founder, Chief Executive Officer and Chairman, Guilherme Lago, our Chief Financial Officer, and Youssef Lahrech, our Chief Operating Officer. Additionally, Jag Duggal, our Chief Product Officer, will be joining us for the Q&A section of the call. Throughout this conference call, the company will be presenting non-IFRS financial information, including adjusted net income. These are important financial measures for the company but are not financial measures as defined by IFRS. Reconciliations of the company's non-IFRS financial information to the IFRS financial information are available in our earnings press release. Also note that unless noted otherwise, all growth rates are on a year-over-year and FX neutral basis. I would like to remind everyone that today's discussion might include forward-looking statements. These forward-looking statements are not guarantees of future performance and therefore you should not put undue reliance on them. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from the company's expectations. Please refer to the forward-looking statements disclosure in the company's earnings press release. Today our Founder and CEO, David Vélez will discuss the main highlights of our first quarter 2022 results and some of the opportunities ahead. Subsequently, Guilherme Lago, our CFO, and Youssef Lahrech, our COO, will take you through our financial performance for the quarter, after which time we will be happy to take your questions. I would like to turn the call over to David, please go ahead.

Thank you, Guilherme. Welcome, everybody. It’s a pleasure to be here with all of you. I’m happy to announce that Q1 2022 was the strongest quarter in our history. On the customer acquisition front, we attracted 5.7 million customers, reaching a total of nearly 60 million customers at the end of the quarter. This growth continued to be primarily fueled by organic channels, with very low customer acquisition costs. Also notably, our activity rate improved to over 78%, a historical high mark. On the business activity front, we saw the growing customer count and engagement spurring strong product up-sell and cross-sell. This reflected into historical high levels of purchase volume, at $15.9 billion, and deposits, at $12.6 billion, both posting year-on-year growth rates close to 100%. We continued to see significant opportunities to grow and gain share in the unsecured credit market in Brazil, the largest available market in financial services in Latin America. Our credit portfolio, with credit cards and personal loans, grew significantly above market, at 126% year-on-year, to a total of $8.8 billion, while maintaining healthy credit levels and strong unit economics. On the international expansion front, we also have great news; we surpassed 2 million customers in Mexico, consolidating our position as the number one issuer of new cards in the country. And in Colombia, we grew our customer base by 85% sequentially, surpassing 200,000 customers, and still have a wait list of nearly 1 million customers. To fund this growth, we secured a three-year $650 million drawdown syndicated credit facility to support our expansions in Mexico and Colombia. In these three markets we operate, we continue to maintain one of the highest Net Promoter Scores in the entire financial services industries of these markets. We continued to invest in our two-sided ecosystem of consumers on one end and small businesses and merchants on the other and expand our product portfolio. I would like to highlight two notable launches over these past months. The first one is NuPay. We launched NuPay to strengthen our position at the intersection of commerce and payments in the region. NuPay is a more convenient and secure way for Nubank customers to pay for their online purchases with just a few clicks on the Nu App. Customers can choose to pay now, using their Nu account balance, or pay later in interest-free installments, leveraging incremental credit limits. Merchants who enable NuPay in their checkouts will benefit from increased sales driven by consumers with higher purchasing power and superior checkout experience. Additionally, last week we announced Nucripto. We have seen significant interest in volume from our customers over the past few months on investing in crypto and owning crypto and this platform is a state-of-the-art retail crypto trading platform. Consistent with our mission, we aim at democratizing crypto in Brazil and in the rest of Latin America. Like other products, Nucripto was created to eliminate the complexity of the market and make it accessible to anyone who wants to be part of it, even if you start with only one Real as an investment. The size of the prize in Latin America is enormous and is enormous for two reasons. First, Latin America is one of the largest economies globally, with 600 million people and $6 trillion of GDP. To put the sheer size of LatAm’s economy in context, the population is twice that of the US, and GDP is 40% of China’s and 2x the size of India’s. Financial services is the single largest industry in the region, with its market capitalization estimated at $1 trillion. Second, financial services remain largely underpenetrated in the region. Banking and credit card penetrations in LatAm are among the lowest in the world. In Mexico and Colombia, the markets where we operate in, credit card penetration is as low as 12%. We are helping to catch up fast. So, LatAm today offers not only a large existing addressable market, but one that is poised to continue growing fast over the coming decades, as we are able to take banking services to more and more people. As we further develop our businesses in Brazil, Mexico, and Colombia, we expect to consistently acquire market share from incumbent players, as well as drive market growth by fostering greater levels of financial inclusion in the region. Now notwithstanding our high growth in Q1 2022 and over the past quarters, we're still in the very early stages of our journey; we say inside Nubank that we're still in the first minute of the first half of this game. And just to start with Brazil or more mature market, where our customer base represents already 33% of the adult population in the country and keeps on growing at a pace of 1.5 million to 2 million customers per month. But our market share is nowhere near our potential because we're in the very, very early stages of cross-sell. Our market share in broader consumer finance is below 2%, and in investments, it is below 1% in terms of overall AUC. Our market share in the e-commerce marketplace is nearly 0%. We expect to keep on gaining share quarter after quarter. If we're in the early stages in Brazil, we're just getting started in Mexico and Colombia. The early signs of success in these markets are extremely encouraging and their KPIs have largely beaten all equivalent KPIs in Brazil. While the market has seen a fair amount of volatility over the past months, our thesis of building the future of financial services in Latin America remains intact and we're excited about the significant opportunity ahead. And with that, let me turn the call to Guilherme Lago, our CFO to go through our operating and financial results in more detail.

Thank you, David. In the first quarter of 2022, we achieved strong operating and financial results by applying our effective value-generating strategy. This involved expanding our customer base in Brazil, Mexico, and Colombia, converting them into active users, and increasing the Average Revenue Per Active Customer (ARPAC) through upselling and cross-selling products, all while maintaining one of the lowest operating costs in the industry. In the first quarter, we added 5.7 million customers mainly through organic channels, increasing our total customer count to 59.6 million, representing a 61% year-on-year growth. We are also pleased with the contribution of our international operations, as Mexico and Colombia gained 800,000 new customers in this period. We have successfully driven customer acquisition while improving our monthly activity rate to 78%, up from 69% a year ago and 76% in the previous quarter, signifying our growing customer engagement. Regarding our customer cohorts, the increasing engagement and number of products per active customer have positively impacted our ARPAC. This growth in ARPAC is clear from the data, showing a monthly ARPAC of $6.7, while mature cohorts reach $16. This strong engagement coupled with more products per user has significantly enhanced our customer monetization. The ARPAC growth has contributed to our triple-digit revenue growth. We recorded a remarkable 226% year-on-year revenue increase on an FX-neutral basis, reaching a high of $877 million, driven by more monthly active customers and increased product upsell and cross-sell. Although we have seen substantial ARPAC growth recently, we believe there is still much potential. The ARPACs of traditional banks are still six times higher than ours. In our card business, purchase volumes grew to nearly $16 billion, a 94% increase on an FX-neutral basis, resulting from our upselling and cross-selling strategies. Purchase volumes have consistently increased with cohort maturation, and despite typical seasonal fluctuations in the first quarter, we observed a constant currency rise in purchase volumes, indicating stronger market share across credit and prepaid cards. Our core consumer finance products, including credit cards and personal loans, grew by 126% year-on-year on an FX-neutral basis, reaching nearly $9 billion, significantly outpacing market growth. Credit card receivables increased by 89% year-on-year, while our personal loan portfolio experienced even faster growth, gaining prominence in our credit offerings. We anticipate that personal loans will become increasingly significant in the upcoming quarters. We are also making strides in establishing a strong local currency deposit franchise, critical for funding our operations. Deposits grew by 94% year-on-year on an FX-neutral basis, totaling $12.6 billion after adding nearly $3 billion in the last three months, while maintaining an average funding cost below Brazil’s risk-free rate. One major competitive advantage is our low operating costs. This quarter, we achieved a 30% year-on-year reduction in the cost to serve each active customer on an FX-neutral basis. Excluding one-off effects, our cost to serve improved by $0.10 compared to the first quarter of 2021, highlighting our scale and operational efficiency as we expand. On the profit side, we reported another record gross profit of $294 million, up 131% year-on-year on an FX-neutral basis, despite high growth in our credit portfolio. Our gross profit margin did see a reduction due to increased credit loss provisioning and rising interest rates, impacting our gross profit margin as more earnings on our cash balance entered the equation. As our credit portfolio stabilizes and interest rates normalize, we expect our gross profit margins to move towards a 60% level. Finally, we reported an adjusted net income of $10 million, confirming our path toward profitability. Adjusted net income accounts for share-based compensation expenses and related tax effects. In December, we raised $2.8 billion during our IPO, enhancing our capital position with a total of $3.4 billion in excess capital at the end of the first quarter. This strengthens our ability to navigate economic cycles and support our business growth while exploring opportunities to expand our ecosystem, including potential M&A activities. Now, I’ll hand it over to Youssef, our Chief Operating Officer, to discuss our asset quality performance and credit underwriting strategy.

Thank you, Lago. Let me now walk you through a few key indicators that track the asset quality and overall health of our credit portfolio in the first quarter of 2022. Let me start with a review of the main outcomes we optimize and make decisions on when we underwrite, which are the return, resilience, and payback of our originations. What you see on this chart is the actual risk-adjusted margin of our credit card cohorts on the left, and that of our personal loan cohorts on the right. As a reminder, here we define risk-adjusted margin as revenues minus funding cost and cost of risk, expressed as a percentage of revenues net of funding cost. As you can appreciate, in the initial months, risk-adjusted margin is negatively impacted by the accounting recognition of non-cash upfront loan loss provisions. Then, as revenue begins to accrue, RAM quickly expands and converges towards a level of 60% or more for both products, with a payback period of six months or less. Now, how do we expect this performance to evolve moving forward? As interest rates rise and delinquency rates normalize, we have responded by repricing both products to ensure expected RAMs at or above the 60% level and even greater levels of resilience. We have been able to successfully implement this repricing across credit cards and personal loans. The end result is; credit cohorts from both credit cards and personal loans that can withstand risk worsening of over 100% above baseline expectations and still be NPV positive. We believe these positions us well to continue growing going forward. Moving now to NPLs. In the first quarter, we have seen continued normalization of delinquency metrics, in line with our expectations. On the left-hand side of the slide, we can see the evolution of 15 to 90 NPLs. In Q1, 15 to 90 NPL increased by about 110 basis points, of which roughly 80 basis points can be explained by normal seasonality observed in Q1, and about 30 basis points are primarily due to a shift in mix. On the right side of the slide, we observe the evolution of the 90+ NPL metric. Our 90+ NPL increased 70 basis points, most of which can be attributed to a shift in mix. Adjusting for mix shift, our NPL increased by 30 basis points, in line with continued normalization expectations. This slide shows a lagged view of delinquencies to better understand the pace and trajectory of asset quality normalization of our credit card business in Brazil, compared to the rest of the Brazilian market. For us, Q1 2022 has been a relatively stable period from the credit risk perspective, with no signs of macro worsening or upward momentum in risk beyond the expected seasonal patterns. From a 15 to 90 NPL perspective, we have continued to operate a bit below the 2019 levels. But from a 90+ NPL perspective, this difference is a little bit more pronounced as 90+ tends to lag 15 to 90. In contrast, as you can see in the bottom half of the slide, the Brazilian credit card market has experienced a more pronounced deterioration and has already been operating above pre-Covid levels on both 15 to 90 and 90+ NPLs as of January 2022. Now, let me step back and remind you of the impact that Expected Credit Loss or ECL as a loan loss provisioning methodology has on a consumer finance business with high growth rates, as is the case for Nu’s credit card and personal loan businesses. Per IFRS 9, loan loss provisions must be recognized when a loan is granted, even before any revenue associated with that loan is accrued. This results in an intentional timing mismatch between revenues and costs. For this reason, the higher our growth rate in consumer credit, the more provisions we have to book upfront. As mentioned earlier, the growth of our portfolio has been the dominant driver of our provisions formation. Having shared these perspectives and data on credit and asset quality, let me now turn the call back to our Founder and CEO, David Vélez, for his concluding remarks.

I would like to wrap up this presentation by reinforcing to you a few points, some of which may sound familiar to those with whom we have interacted for longer. Since our IPO in December 2021, the world has changed significantly with additional volatility coming from Ukraine, Russia, increased inflation in the US, chokes in global supply chains, et cetera. These factors have created a lot of noise in the market. But ultimately, when we take a step back and take a new look at our thesis or thesis of the largest providers of financial services in the world five years from now will be newly-created, digitally-native technology companies has remained unchanged. As seen here today, our fundamentals are extremely healthy and continue to accelerate. We believe we are the best positioned company to lead this transformation in Latin America, one of the largest regions in the world. Number one, with nearly 60 million customers, we have already become one of the largest financial institutions in the region by a number of customers, giving us the significant scale benefits of the incumbents and the agility, speed, and innovation culture of a start-up. Number two, we have been able to maintain one of the highest, if not the highest Net Promoter Scores of any consumer company in the world as we scale. Number three, we have developed and maintained a cost advantage of over 85% versus incumbent competitors. We are 20 times more efficient at serving consumers than traditional banks, and this advantage allows us to compete in price and provide the best products at lower costs. This advantage only increases with additional scale as we grow. And finally, we have continued to have best-in-class unit economics, given the low customer acquisition costs, increasing average revenue per active customer, and decreasing average cost to serve, allowing us to have an LTV to CAC of over 30 times and already generating significant profitability in our first core product, Brazil credit cards. These advantages do not diminish with all of the macro volatility, and in fact, they might actually increase, as in adverse economic environments, the market leader tends to benefit disproportionately, and a few segments of our target customers are counter-cyclical. As we have seen throughout our history since 2013, we have been building Nubank effectively in the middle of recessions and really adverse macro conditions in Brazil. Unfortunately, bad macro is the only macro we know as a company, but the trends that continue accelerating our growth are structural, and they also create opportunities. Thanks to our IPO, we are extremely well-capitalized to seize this opportunity. We ended Q1 2022 with approximately $3.4 billion in excess capital on our balance sheet, which gives us also the opportunity to continue taking share in our respective markets while being mindful that the world has changed and maintaining a close eye and discipline in all our decisions, particularly when it comes to consumer credit and cost discipline. Over the past weeks, we have received questions about our main shareholders selling or distributing a significant percentage of their holdings. There have been a lot of rumors in the market about an avalanche of shares being available in the market post lock-up. I'm happy to say that we have recently talked to the majority of our shareholders that have been with us for a long time, and they have reinforced to us their expectation to be long-term holders of our stock, and as such, they do not intend to sell or distribute any material portion of their shares in the near future. This positioning is consistent with the way we have always thought of Nubank as being a very long-term opportunity and we continue to optimize, to build a great company in the long run. Now, I’d like to open for Q&A. Thank you everyone.

We will now start the Q&A session for investors and analysts. Please submit your questions now.

The first question is coming from Tito Labarta from Goldman. Please open the line.

Hi. Good evening, everyone. Thank you for the call and taking my questions, and congratulations on the strong results. My question just in terms of your growth and then how you manage that. You have very strong growth in the loan portfolio, yet you are increasing provisions. I do understand it's from an expected loss methodology. But what gives you comfort to grow so quickly, growing faster than the market with NPLs deteriorating? Just to help us think about how you're managing that growth in this environment? And what gives you comfort from there? And if you can give any color in terms of how that gross margin can evolve from here? I know long-term, 60%, but just kind of in the short-term, if you continue to grow this fast, do you think there will be some pressure in the short-term on the gross margin? Thank you.

Great. Tito, thank you very much for your question. So on growth, I guess the first thing to consider is that we might have already over 30% of the adult population in Brazil as customers, but we still have a very small percentage of their business. So in credit cards, we have I think around 7% market share. In lending, we have something like around 2% market share. So we still are small. And as we grow, we're effectively share repicking our growth within the base that we have and being very selective about who gets credit and who doesn't. In particular with personal loans, we get to consistently see transactional information. As we get comfort about their performance, we're able to provide limits generally starting with very low credit limits, allowing us to expand credit underwriting after 15, 30, 60, or 90 days as we gather more data. The first thing to consider is that we are effectively able to fish in a very large pond and cherry-pick the customers that we want to bring into Nubank. There is still a lot to grow given how small a percentage of market share we have relative to the base of consumers. The second aspect is that we started as a company in 2013-2014, focusing on credit as a core competence. This forced us to develop credit as a competitive advantage. We were a credit-first company, differently from a lot of the digital banks who started by paying customers. Throughout our history, we faced really adverse macro conditions. We saw in 2015 and 2016, Brazil contracting at over 7% GDP. We saw several recessions, and we've developed a conservative bias in our credit decision-making across all our models that assumes future conditions will be worse than past conditions. Today, we have resilience built into every decision we make, allowing us to sustain worse credit performance and still be making the right decisions. As we grow, we are able to use this combination of methodology and cherry-picking to continue growing and taking share in a market that may start facing macro adverse conditions. I'll let Youssef add anything else he wants on the credit side and Lago can answer your gross margin question. Thank you, Tito.

Yes, Tito, I would say a couple of additional things that are giving us comfort to continue to grow. Number one, in terms of actual performance, everything we have seen has been in line with our expectations. You've seen some of that in the earnings presentation regarding what drove NPL. It's been mostly a story of seasonality and mix. We've successfully increased pricing and margin for both credit cards and personal loans in response to increasing interest rates, and we've continued to see strong demand. We believe that despite that repricing, we remain competitive. Additionally, we always underwrite for profitability and resilience, meaning that we have ample room for things to worsen in the environment while still delivering above-hurdle returns. Our credit card and personal loan cohorts can withstand more than double the risk of the baseline and remain positive in NPV, which provides us confidence to keep growing. However, if we find ourselves in a more adverse scenario, we will act quickly and decisively.

Finally, Tito, regarding your question about gross profit margins. Although we don’t provide forward-looking guidance per se, we do expect to see the gross profit margins of the business converge towards a 60% level. In the next few quarters, we expect the strong growth in our credit portfolio will drive expected credit loss allowance expenses, alongside the increase in interbank rates in Brazil which will elevate our revenues while also raising our cost of funding. Thus, we anticipate margins will be temporarily lower compared to those of our more mature cohorts.

Great. Thank you, David, Youssef, and Lago, that's very helpful. If I could ask just one follow-up on David's point about cherry-picking clients. Can you provide any color on when you're extending credit? Do these clients have loans with other banks and are you taking them away from those banks? Are these more unbanked clients without any credit? I would like to get a sense of who these clients are and how you're able to cherry-pick the best ones.

Yes, Tito. This is Youssef. I'll address that question. It’s a mix of both. We have clients for whom Nubank is their first financial services provider, either on the credit card side or personal loans. Conversely, we also have clients with extensive credit experience who manage credit cards, loans, and other financial instruments. We adapt the products we offer, the credit limits we extend, and personal loan terms based on each borrower's circumstances. We tend to be very cautious with new credit users, starting with very low limits, then gradually increasing those limits as we observe good repayment habits over time. For personal loans, these are offered exclusively as a cross-sell product. We cherry-pick our best risk credit card customers for personal loans to manage risk and profitability effectively.

To add one final point, the majority of our customers already had credit with other institutions before coming to Nubank. They are essentially shifting their primary relationships to us. We have a small percentage of customers without prior credit relationships, and we generally start them off with limits as low as $10 to help build their credit history. So the majority of our customers today in both credit and lending come from existing credit holders, allowing us to source significant information from the market and credit bureaus. This data aids our internal assessments since these customers typically access us through various products, whether savings, credit card, or investment products.

Great. Thank you, David, Youssef, and congratulations again on the strong results.

Thank you, Tito.

The next question is coming from Geoffrey Elliott, Autonomous. Please open the line.

Can you hear me okay?

Yes. We hear you fine.

Perfect. So the market seems to be increasingly rewarding companies that can demonstrate profitability today at the expense of those who are not showing significant profitability today, but who might have the potential for profitability down the line. In that context, is there anything that you're thinking about doing differently? And specifically, you've spoken in the past about the opportunity of offering 100% of CDI to all of your retail deposit customers. Is that something you might think about bringing forward to unlock some of the earnings potential that would bring? Thank you.

Geoffrey, thanks. For us, it would be extremely easy to show profitability. We would simply decrease our growth rate. In fact, we could significantly increase our growth rate and immediately have profitability available. However, we think it's important to continue optimizing for the long-term value of the company and we do not want to optimize solely for the short-term. The market is more volatile and there is more risk than there was six months ago. This has forced us to increase the level of resilience in our credit decisions. We are pushing harder on cost control and being more definitive in our spending to increase efficiency. But ultimately, we believe that we will optimize Nubank’s value if we continue to prioritize long-term growth and this is still very early for the new category being created across the world, particularly in Latin America. It would be a strategic mistake to suddenly shift that goal. That being said, we are actively looking at what drives our Net Promoter Score to understand which values consumers see as crucial, and we ask ourselves if resource allocation is the best fit. So, we are examining that across the board.

We are in a position to lock in operational leveraging in our business. As you have seen from the cost of serving on an operating basis, we have been able to extract a lot of operational leverage. As we continue to grow, we expect to exhibit even higher operating leverage in the coming quarters and years. As you may have noted, we've seen a downward trend in G&A, moving from 27% of revenues to about 20% of revenues, and that trend is expected to continue.

Thank you. And on the specific question about NuConta and the high interest rates for day-to-day balances, is there a change predicated on rolling out the new investment functionality into the main Nubank app?

Certainly, having a broader investment portfolio would provide more options for consumers and would give us additional flexibility in product setup. We don't want to comment specifically on the changes regarding that. But as we expand our portfolio and answer questions about what consumers value highly, it may cause us to rethink how we configure different products.

Thank you. The next question comes from Jore Kuri from Morgan Stanley. Please open the line.

Hi everyone, and congrats on the great results. I wanted to see if you can talk a little bit about the profile of clients who are receiving personal loans. What percentage of new loans are going to clients who have been with Nubank for several years, giving you strong underwriting and behavior data? And what percentage are going to relatively new clients where the personal loan may be their first risk product? Is it fair to say that, given the still very low penetration of personal loans among your clients, the bulk of loans go to low-risk clients? Also, can you comment on the connectivity between the NPL ratios of credit cards and personal loans? Are you seeing clients with credit card delinquency trying to get personal loans to catch up? Is that an issue for you?

Jorge, thanks for the question. The connectivity between credit card and personal loan NPLs does not exist. We block any customer who is delinquent on their credit card from being eligible for a loan. To address your earlier question, we target personal loans exclusively as a cross-sell to our best risk credit card customers. This allows us to originate personal loans that are both profitable and resilient. We are very selective and do not mix the connectivity between credit card and personal loan NPLs.

Great. Thank you very much. And my follow-up question would be whether there is disclosure on client growth by country?

We actually have provided that; Jorge. In our earnings release, you will note that out of the 59.6 million customers that we have in total, 57.3 million comes from Brazil, 2.1 million comes from Mexico, and the remainder is around 200,000 for Colombia.

Great. Thank you, Lago. Congrats again.

The next question comes from James Friedman from Susquehanna. Please open the line.

Hi. Thank you for taking my question. Congratulations as well on the results. I guess the first question for Youssef, I think it was maybe slide 18. But could you talk about the payback when you compare personal loans versus credit cards?

Yes, Jamie. So thanks for that question. As you can see on page 20 of the earnings presentation, this shows the actual risk-adjusted margin on a cohort basis. While both payback periods are around the four to six month mark, personal loans tend to have faster paybacks compared to credit cards. This is a result of upfront provisioning and revenue accrual. For personal loans, we gain pricing levels that ensure payback occurs around three to four months, give or take.

Thank you. And for my follow-up, could you talk a little about the move up market, specifically with the introduction of Ultra Violet?

Sure. We have a significant base of high-income customers already in our current 57 million customer base. When we analyze income levels, there are several million who would be considered very high income. To target those customers, we launched Ultra Violet last year. We are finalizing the product and have a waitlist of customers that have been invited to beta-test it, and we are optimizing various features. So far, the response from customers has been very positive. We have a substantial waitlist of customers eager to access the product. Certain features, such as cash-back on points, currently offer 200% of the risk-free rate, making it one of the best investments in the market. We expect to roll out this product much more aggressively in the coming months as we finalize the last details, and we are excited about engaging the high-income customers in Brazil.

Hi, guys. Thanks for the opportunity. My question is about the pros and cons of Nubank obtaining a full banking license, especially considering the increase in capital density that the Brazilian Federal Bank announced a few months ago; do you believe it would make sense for Nubank to acquire a bank license at least in Brazil?

Hi, Thiago. Thanks so much for your question. We currently operate with a broker-dealer license and a payment institution license. With those three licenses, we possess all the permissions necessary to run our two-sided ecosystem and serve both consumers and SMEs. Essentially, there’s nothing we cannot provide for our consumers that we would be able to offer if we owned a Banco Multiplo license. To be very precise, if our financial institution license were to convert today from its status to Banco Multiplo, the impact on our regulatory capital would be negligible. Therefore, we are under no pressure to make such a transition at this time, though we may explore it down the line.

Very clear. If I can do a follow-up question. What is in your view the impact of open banking on Nu's capital standards? How much better should NPLs become after the implementation of open banking?

Yes, it's a great question. We are very excited about open banking. We have a large consumer base; over one-third of our clients. However, we still capture a small portion of their credit portfolio, even in personal loans. We have around 2% market penetration of a market that exceeds BRL 200 billion. Like we and other fintechs, we started off with a significant disadvantage regarding information because we lacked historical data. We've built our models over nine years and can cherry-pick a segment of customers. For other customers, we’re unable to underwrite yet. With conservative underwriting and careful standards on credit limits, we find ourselves at a disadvantage compared to banks with larger data pools. However, we believe that open banking, which the Central Bank in Brazil is pushing for, will enable better products to thrive and combat inertia among customers sticking to their banks. This will allow new entrants like Nubank to establish market loyalty. We made an interesting acquisition last year with a company called Olivia, which brings a lot of machine learning capabilities including the open banking information. As we take on the Central Bank data, the future will open more markets for us to benefit from the reduced inertia among bank customers.

Additionally, it's crucial to highlight that open banking, or better termed open finance, will provide insights into both the asset and liability sides of customers. It will not only improve credit underwriting and customer segmentation, but it will also materially and positively affect our investment franchise, allowing us to identify assets customers hold in various financial institutions and advise them on how to invest their money effectively.

Next question comes from Ashwin from Citi. Please open your line.

Thank you. I was wondering if you could help us disaggregate the growth in ARPAC into the contributing factors, perhaps usage and engagement, looking at the more established products versus the traction you've seen in some of the newer products introduced in the last 12 to 15 months, and higher interest rates, things like that?

Absolutely, Ashwin. To illustrate this, I would draw your attention to Slide number 10 of our presentation, which outlines ARPAC evolution over the past years, alongside the key factors influencing it. You can see that our average ARPAC has increased from about $3.5 per month last year to $6.7 per month as of now. This is an increase of over 60%. Additionally, the more mature cohorts show ARPAC figures of around $19 per month. The increase in earlier cohorts primarily originates from our bank account product and the credit card product. The credit card penetration is about 60%, while the bank account penetration is approximately 85%, but personal loans have yet to reach even 5%. Most ARPAC growth is currently coming from the maturation of credit card and bank accounts. Once we cross-sell and upsell personal loans, ARPAC will rise significantly. Users who've adopted all three core products, including bank accounts, credit cards, and personal loans, show ARPAC figures ranging from $35 to $40. This implies substantial ARPAC potential moving forward from both personal loans and other products such as investments, insurance, and our marketplace.

Okay, so it sounds like many of the newer products have not contributed significantly as of yet, and you're seeing more from older products?

Yes, and to give you a perspective, Ashwin, the ARPAC of incumbent banks today, specifically their retail operations, ended the first quarter of 2022 at approximately $40. That’s around six times higher than our average ARPAC. Therefore, there’s a significant gap to close over the coming quarters and years.

Understood. Thank you for that. And good quarter.

Thanks so much, Ashwin.

Thank you. The next question comes from Neha from HSBC. Please open your line.

Hi. Congratulations on the strong quarter, and thank you for the detailed disclosures. I have one additional question on asset quality. How far away are we from normalizing NPL ratios? If I look at the pre-COVID 90-day NPL ratio during 2018, it was roughly about 5%. But at that time, you did not have personal loans. Considering the change in mix you now have, what is an expected normalized 90-day NPL ratio given your expectations? How fast do you think we are likely to reach that level in the coming quarters?

Neha, thank you for the question. The best way to think about this normalization is to look at page 22 in the earnings presentation. On that page, you see the lagged NPLs for both 15 to 90 and 90-plus for our credit card business, comparing our current status to pre-pandemic levels. As noted, we have seen continued operation below 2019 levels. On the 90+ NPL front, the difference is pronounced as 90+ ratios lag behind 15 to 90 metrics. The Brazilian credit card market itself has seen more severe deterioration, now operating above pre-COVID levels on those measures.

I understand it’s challenging to predict, but would you say that a 90-day NPL ratio of, say, 5.5% or 6% is reasonable given the change in mix? Might we expect to reach that level by the end of the year or early next year?

To clarify, we don’t provide guidance on NPLs. Qualitatively speaking, normalization is ongoing; we’re likely nearing the end given the data shared earlier. Mix shifts and the growth of our personal loans account for some of the upward pressure, and there is the typical seasonality to consider. These are the main drivers to think about on this topic.

Thanks, very clear. One last question. There was a sizable increase in activity rates despite strong net add growth. Could you explain how you managed to enhance this activity rate with such net adds, and what's a good level to expect going forward? Has there been something specific driving this activity rate increase? What would you consider a normalized level? And how sustainable do you find the $6 million net adds each quarter?

Thanks, Neha. I won't provide specific guidance on numbers. Regarding activity rates, we started with just one credit product that offered low credit limits. Many who signed up did not utilize it much. As we launched products such as our credit card, savings, lending, investments, and insurance, we found more reasons for customers to engage. Our goal is to become their primary financial relationship. In fact, we've measured this, where over 50% of customers who have been with us for over six months, consider us their primary bank. This enhances engagement across services, including payments, investments, and loans, as well as enhancing activity rates significantly. There’s still substantial opportunity for us to increase our activity levels, particularly as we see our customer base grow and penetrate market share in lending and credit products.

Very clear, David. Thank you.

Thank you, Neha.

The next question comes from Pedro Leduc from Itaú. Please open the line.

Yes. Okay. I hope you guys can hear me.

Yes.

Yes. All right. Thank you. For me, I wanted to switch to services a little bit. Service revenues continue to expand at a very solid pace, mostly on the card front. We see fees from delays moving but others appear a bit shy of expectations in areas like insurance and investments. Can you comment on this? Perhaps it’s just seasonality? Also, can you remind me of when the lower prepaid interchange cap will start affecting you, and how you’re gaining share overall?

Perhaps I can address the interchange cap question, and Jag can comment more on the product roadmap for our services business, Pedro. On March of this year, Mastercard released a public consultation recommending a reduction of prepaid interchange rates from 120 bps to around 80 bps. However, that consultation needs approval from both Mastercard and the Brazilian Central Bank, and if it were implemented, it would reduce our revenues by about 2.4%. Prepaid interchange accounted for essentially 8% of our revenue in 2021 and has remained the same over the last 12 months. It's tough to provide a timeline for when that will occur; we are closely monitoring with Mastercard and the Brazilian Central Bank, but it’s hard to say if that will be implemented in Q2, Q3, or Q4. Jag, do you want to comment on the services aspect?

Sure. Thank you, Lago. Hi, everyone. Regarding performance in service-based revenues, as you mentioned, things are in line with our expectations. When rolling out new products, our approach is to find what our customers love and resonate with, starting with a minimum viable product, then iterating. It’s essential to optimize a product before scaling it aggressively. For several new products, we focus on customer satisfaction before prioritizing adoption levels. We're pleased with the progress on these new services and measure success through customer approval and feedback rather than just adoption metrics. This was our approach with our core account over many quarters and also with personal loans.

Thank you so much for both of you. Just one final question. Regarding revenues from credit generation for others, such as in real estate, is that included somewhere in the service line? And can you provide any updates on the rollout?

Yes, they are included in the fee section of revenues.

Got it. Yes. Any color on the rollout for those products already?

We are still working on a full integration with Creditas, whom we believe is a best-in-class provider of auto and home equity loans. We've started experimenting with their products within our customer base, which has shown promising results. However, we expect to see meaningful impact on our P&L toward the end of this year or early next year as we finalize the customer experience and improve conversion rates.

Thank you so much, Lago. Thank you. The next question comes from Alexander Markgraff from Keybanc. Please open the line.

Hey, team. Thanks for taking the question. Nice to speak to you all. I wanted to ask about the addition of crypto-trading to the new platform. What’s your take on retail consumers in Brazil owning crypto? Do you plan on introducing utilities beyond trading to increase that crypto utility on your platform?

We've seen strong interest over the last year among our consumers in owning and investing in crypto. We monitor transfers out of our bank accounts to crypto trading platforms. Understanding of customer needs is key, and we thought it was crucial to offer a complete crypto-trading platform. Right now, we’ve started with Bitcoin and Ethereum. The use case generally encompasses trading and investing as well as protecting against inflation. This perspective is becoming more apparent in Latin American markets than in Brazil itself, but it is a significant consideration.

Super helpful. Thank you. As it relates to compensation expenses, how do you think about the mix of cash versus share-based compensation going forward as you try to maintain competitiveness in talent acquisition?

Historically, we had a relatively low net burn rate. That has been substantially below 2%. Going forward, we don't expect to increase our burn rates; in fact, they may continue to remain stable or decrease. Our compensation structure is uniquely designed; people receive their monthly salary in cash, but all variable compensation comes in shares. This incentivizes long-term alignment across the organization and is something we don't plan to change. We don't expect our net burn rates to increase despite compensation structures.

Thank you. The next question comes from Eugene from MoffettNathanson. Please open the line.

Hey, guys. Thank you for taking my questions. Can you give me some comments on your international expansion? We are seeing significant growth in Mexico. What are you observing regarding cohort behavior in Mexico? Is it aligned with what you observed in Brazil while scaling up the business? What differences exist, if any? And how does this impact our expectations for growth trajectories in new markets compared to Brazil?

Great question, Eugene. You're correct. Concerns about replicating Brazil's rapid growth were prevalent when we scaled into new geographical markets. Fast forward to today; in Mexico, we're currently outperforming Brazil in every metric, including Net Promoter Score, which is at an impressive 95. This score reflects significant consumer need. The distinction lies in the relatively low credit card penetration in Mexico, at 12% compared to Brazil's 35%. It results in a more considerable market opportunity for Nubank. Our customer growth in Mexico is driven heavily by word-of-mouth referrals rather than paid channels, leading to lower CAC. We are also seeing quicker increases in credit limits driving further engagement. The momentum leads us to believe we will establish ourselves as a leading credit card issuer in Mexico more rapidly than in Brazil. We're witnessing similar positive indicators in Colombia as well, and we remain very optimistic about both markets.

Got it. Thank you. Regarding international expansion, for small businesses, I believe you mentioned 1.6 million small businesses are now on your platform. Can you speak about the products you're rolling out in that segment? What key milestones should we be excited about as we move forward?

Certainly, Eugene. We have spent considerable time nurturing small business products to meet the specific needs of our customers. Over the last couple of quarters, we've gained confidence in our primary account product and begun to focus on various pain points voiced by our rapidly growing small business clients. Acceptance of payments often feels difficult and costly for them. It's a frequent transaction pain point, and we hear the word 'loss' from them as they express disappointment with the rates they pay for these services. Small business credit cards are also a substantial area we are working on. We've started experimenting with new products to ensure we're providing what resonates best. We are pleased with early trends involving our small business suite, aiming for satisfied customers and high NPS.

To build on this, our SME division is one of our most underappreciated assets. With 1.6 million to 1.7 million customers, we have already become a major SME financial service provider in Brazil. The profit pool for SMEs is enormous, and the service quality in the market is low. Our ability to grow this segment is very optimistic because we've tapped into a substantial profit pool, likely accounting for around 30% to 40% of consumer finance profits. Thank you for your questions, Eugene.

Thank you, Eugene. Thank you, everyone, for your questions. This concludes the Q&A session. I will now turn the call back over to David for some closing remarks.

Thank you, Gui, and thank you, everybody, for participating in this call. I just wanted to highlight again how excited we are about the moment that we are navigating in. We believe we're the best positioned company to lead the digital banking transformation in Latin America, which is one of the largest riders in the world. With nearly 60 million customers, we have already become one of the largest financial institutions in the region by a number of customers. We have been able to maintain one of the highest, if not the highest Net Promoter Score of any consumer company in the world in other regions we operate, which we think is a leading indicator to grow in product market fit. We have also developed the lowest cost retail banking platform in the region, very low-cost acquire, very low cost to serve, very low cost of funding, and especially important in the current environment, very low cost of risk. We remain excited about all the opportunities in front of us and we appreciate your support. Thank you for making the time to attend today's call, and if you have any further questions, please feel free to reach out to our Investor Relations team. Have a great day.

The Nu Holdings conference call has now concluded. Thank you for attending today's presentation. You may now disconnect.