Earnings Call Transcript - NU Q2 2025

Operator, Operator

Good evening, ladies and gentlemen. Welcome to Nu Holdings conference call to discuss the results for the second quarter of 2025. A slide presentation accompanies today's webcast, which is available on Nu's Investor Relations website in English and Portuguese. This conference is being recorded, and the replay can also be accessed on the company's IR website. This call is also available in Portuguese. I would now like to turn the call over to Mr. Guilherme Souto, Investor Relations Officer at Nu Holdings. Mr. Souto, you may proceed.

Guilherme Souto, Investor Relations Officer

Thank you, operator, and thank you, everyone, for joining the earnings call today. If you have not seen the earnings release already, a copy is posted in the Investor Relations website. With me on today's call are David Velez, our Founder, Chief Executive Officer, and Chairman; and Guilherme Lago, our Chief Financial Officer. Throughout this conference call, we'll be presenting non-IFRS financial information, including adjusted net income. These are important financial measures for Nu Holdings but are not financial measures as defined by IFRS and may not be comparable to similar measures from other companies. Reconciliations of the non-IFRS to the IFRS financial information are available in the earnings press release. Unless noted otherwise, all growth rates are on a year-over-year FX neutral basis. I would also like to remind everyone that today's discussion might include forward-looking statements, which 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 and could cause actual results to differ materially from our expectations. Please refer to the forward-looking statements disclosure in the earnings release. I will now turn the call over to David. Please go ahead, David.

David Velez-Osomo, CEO

Hello, everyone, and thank you for joining us today. In Q2 2025, we delivered another quarter of strong growth as we continue to strengthen our position as the leading digital bank in Latin America and one of the leading financial technology platforms in the world, our customer base expanding to nearly 123 million customers with over 4.1 million net additions, all while maintaining an activity rate above 83%, underscoring the depth of engagement across our platform. In Mexico, we surpassed 12 million customers now serving approximately 13% of the adult population. And in Colombia, nearly 10% of the population is already choosing Nu as their financial partner. The combination of sustained customer growth and a 34% ARPAC CAGR since 2021 has created a powerful compounding effect, driving revenues to $3.7 billion in Q2, representing an 85% annualized growth rate since 2021. Gross profit has risen 78% annually, reaching $1.5 billion as we capture benefits of scale, cutting our efficiency ratio by more than half to 28.3% in Q2 2025. Quarterly net income has almost tripled in the past 2 years to $637 million. These results come despite our ongoing investments in growth and most importantly, in keeping our customers loving us fanatically. We will continue to invest with focus and intention. This performance reinforces a key message. Growth isn't coming at the expense of sustainable results. Quite the opposite. We're proving that it's possible to scale efficiently with discipline and still generate strong earnings. Taken together, these elements have broadened our platform into a powerful multiproduct, multisegment, and multi-geo growth engine. Today, 104.7 million mass market customers, 3 million high-income clients, and 5.2 million small businesses engage with Nubank through a diverse suite of products ranging from credit and insurance to investments in crypto. This spread is no accident. It is the result of a deliberate cross-sell strategy that expands a single product relationship into a broad ecosystem. By meeting customers' needs at every stage of their financial journey, we don't only deepen loyalty but also multiply the ways we can create value. This broad-based momentum is reflected in Q2. The active unsecured loans customer base expanded 56% year-over-year, while the secured customer base more than doubled and crypto customers increased 41% year-over-year. All segments continue to post solid growth. And in our less mature countries, our core credit card franchise is scaling quickly. Card customers rose 52% in Mexico and 34% in Colombia. We're not only scaling. We're locking new markets, pioneering adoption in underpenetrated segments, and building the foundation for the long term. As we continue to grow and deepen customer relationships, we're doing so with a business model that delivers results and adjusts growth but also in profitability. As we look ahead to this next chapter, having the right leadership in place is more important than ever. We've recently made significant additions to our management team that elevate our ability to execute on our long-term strategy and deepen our leadership bench. Over the past few months, we welcomed 3 truly exceptional leaders to Nubank. Roberto Campos Neto joins us as Vice Chairman and Head of Public Policy. As the former Governor of the Central Bank of Brazil, Roberto brings not only unmatched regulatory insight but also a strategic vision for how technology and policy can shape more inclusive financial systems. Eric Young, our new Chief Technology Officer, brings deep expertise in scaling complex tech platforms and leading high-performing engineering teams at a global scale, having run and led products that reach over 900 million customers around the world. Ethan Eismann, our new Chief Design Officer, is a world-class design leader with a track record of building intuitive human-centered digital experiences that delight hundreds of millions of users around the globe. All 3 are joining Nubank's management team and will report directly to me. They're world-class experts in their craft, and just as importantly, seasoned business leaders with experience and judgment to help guide Nubank through our next chapter of growth. If there's one thing that has defined Nubank since day 1, it's our people. We've always had the right team for each stage of our journey, leaders who are not only exceptional in their domains but who elevate the company around them. That remains true today. These additions reflect our ongoing commitment to having the best possible team in place for the next cycle, a cycle that will require even greater scale, complexity, and ambition. Together, Roberto, Ethan, and Eric represent the kind of talent advantage we believe is one of Nubank's greatest strengths, a dream team for where we're heading next. We're thrilled to have them onboard, and I want to offer a very warm welcome to all 3. With that, I'd like to pass the floor to our CFO, Guilherme Lago, who will walk us through the details of our financial results. Over to you, Lago.

Guilherme Marques do Lago, CFO

Thank you, David, and good evening, everyone. Let me start by reinforcing how our business model creates value. We acquire customers at scale, increase engagement over time, monetize as cohorts mature, and we do all of this on a low-cost, highly efficient platform. On the left side of this slide, you see monthly ARPAC consistently increasing across all cohorts, reaching $27.3 for customers who have been with us for longer. And even among these more mature customer cohorts, monetization keeps expanding. In the second quarter of 2025, our monthly ARPAC crossed the $12 mark for the first time, reaching $12.2, up 18% year-over-year. Meanwhile, as you can see on the right side of the slide, cost to serve remains stable at $0.80 per active customer, reflecting the efficiency of our platform. This operating leverage is one of the most important and competitive advantages of Nubank. It is what allows us to offer better pricing to customers while consistently increasing our earnings power. Moving to our credit portfolio. Total balances reached $27.3 billion in the second quarter, up 40% year-over-year on an FX neutral basis. All segments contributed to this growth. Secured lending grew 200% on an FX neutral basis, unsecured loans 70%, and credit cards 24%. The continued diversification has been a mark of our credit portfolio quarter after quarter. Secured and unsecured loans now represent more than 1/3 of our total portfolio, up from 25% just a year ago. This shift in mix is intentional, and it speaks to our ability to expand our credit portfolio spectrum over time and better serve customers in every single market where we operate. Moving to loan originations. We are operating a retail credit business at scale across Brazil, Mexico, and Colombia. In the second quarter, we maintained a strong pace from the previous quarter, originating $3.6 billion in loans. That marks a 43% year-over-year increase on an FX neutral basis, and it is the highest origination volume we have ever reached. This consistent origination growth reflects both the sheer size of our consumer platform and the maturity of our credit underwriting engine in Latin America. Turning to our credit card portfolio in Brazil. Installment balances remain the primary component of our interest-earning portfolio. This reflects our strategy of promoting more structured and predictable forms of credit, helping our customers finance purchases and transfers in a responsible way. Our mix is fundamentally different from that of the industry. While many players rely heavily on revolving balances, we have been building a more sustainable model centered on lower risk, lower cost interest-earning installments, and this translates into better products for our customers and healthier unit economics for Nu. Now turning to the other side of the balance sheet, funding. We continue to execute our strategy to build a scalable and sustainable deposit franchise across Latin America. Total deposits reached $36.6 billion in the second quarter, up 41% year-over-year on an FX neutral basis. Brazil remains the anchor of our deposit base, but we are also seeing strong progress in Mexico and Colombia, where we have expanded both volumes and attach rates. This deposit growth is a core pillar of our long-term strategy. It is what enables us to become the leading and most competitive retail financial institution in the region. We have been lowering deposit yields in Mexico and Colombia in recent months, with some significant changes implemented only now in early July 2025. As a result, our second quarter cost of funding did not yet fully reflect these adjustments. We expect the full impact to materialize only gradually and over the coming quarters. Now turning to net interest income. We delivered strong growth again this quarter, up 33% year-over-year on an FX neutral basis, reaching a record high of $2.1 billion in the quarter. NIM improved 80 basis points quarter-over-quarter on an FX neutral basis even with a slight reduction in our loan-to-deposit ratio, which went from 44% to 43%. In our most scaled market, Brazil, NIM continued to expand, supported by healthy spreads and growing volumes. In Mexico and Colombia, we continue investing to become the leading and most loved retail financial institution in these countries. While these investments, however, naturally weighed on the short-term margins, we believe they are critical to unlocking long-term value. Looking ahead, we see further room for margin expansions as we optimize the balance sheet, gradually reallocating liquidity from cash into credit and lower our cost of funding in Mexico and Colombia. Now on to credit loss allowances and risk-adjusted NIM. CLA expenses remained relatively stable in the quarter. In early Q2, we began rolling out our major upgrades to our credit models. This will significantly increase credit card limits in Brazil throughout the remainder of 2025. As a result, we recognized provisions this quarter, front-loading expected credit losses, which have not yet been fully offset by the corresponding growth in the interest-earning portfolio and related revenues, naturally creating a temporary timing mismatch. Now excluding this effect, credit loss allowance would have declined quarter-over-quarter on an FX neutral basis, reflecting the normalization of seasonal dynamics that had impacted Q1. Now despite these dynamics, strong NII more than offset the small increase in CLA expenses, driving our risk-adjusted NIM up to 9.2% in the second quarter of 2025. Next, delinquency metrics for our consumer credit portfolio in Brazil. The 15- to 90-day NPL ratio declined to 4.4% in the second quarter, a 30 basis point improvement versus the previous quarter. This was in line with our expectations and slightly better than the typical second quarter seasonality, which usually shows a 20 basis points drop. Now the 90-plus day NPL ratio increased by 10 basis points to 6.6%, reflecting the rise in early delinquency observed in Q1 and following the usual seasonal pattern. Finally, coverage ratios remained solid and stable. We continue to carry a fairly robust provision buffer, both across the total portfolio and specifically across the 90-plus NPL balances. Shifting to gross profit. In Q2, gross profit reached a record high of $1.5 billion, up 24% year-over-year on an FX neutral basis, a clear reflection of the strong momentum of our business. This performance was driven by strong NII expansion and stable credit loss allowances. Gross profit margin also improved sequentially, climbing now to 42.2%, up from 40.6% in the past quarter. Looking at the composition of our gross profit, we continue to see the benefits of our business model not only in terms of growth and profitability as we have seen in the prior slides but also in terms of diversification and resilience. By leading with credit, we drive stronger engagement and deepen customer relationships over time, which unlocks cross-sell and increases shares of wallet. But fees and float have also become meaningful contributors to our gross profit and have added resilience and consistency to our revenues across cycles. Ultimately, being a credit-first fintech has helped us ignite what we call the principality flywheel. And with that, we have earned the right to cross-sell and diversify our gross profit base. Now turning to efficiency. In the second quarter, our efficiency ratio rose slightly to 28.3%, driven by 2 main factors: number one, RSU expenses from the initial vesting of our 2025 annual grant, which typically happens around March of every year; and number two, higher marketing investments during the quarter. Now as David mentioned earlier today, we are investing with intention to become the largest and the most loved financial institution in Latin America. While these investments may temporarily increase our efficiency ratio in the coming quarters, they are fully aligned with our long-term value creation strategy. The long-term trajectory remains intact. Our model continues to benefit from operating leverage with significant room to unlock additional efficiencies as we scale. Supported by strong revenue growth and disciplined cost management, we expect the efficiency ratio to further decline over the coming years, driving, number one, continued margin expansion; number two, sustainable profitability; and number three, deeper competitive moats. Before we wrap up, it's important to highlight how our business model consistently delivers bottom line performance and does so at scale. Net income reached $637 million in the second quarter, up 42% year-over-year on an FX neutral basis. Return on equity reached 28%, continuing to track well above industry peers. What makes this performance especially notable is how we got here, by charging lower prices and offering better experience to our customers while still delivering strong bottom line results. And we are just getting started, which brings us to Mexico, where we are seeing encouraging momentum and a clear path to scale. Customer growth is accelerating, and our core product, credit cards, is scaling. We reached 6.6 million credit card customers this quarter, up from 4.3 million a year ago. Over the last 12 months, we accounted for more than 1/4 of all Nu credit cards issued in Mexico. This is a clear sign of our early success in expanding access to credit in the country. At this stage in Mexico, our most important KPIs are: number one, growing a solid and engaged customer base; number two, building a large and resilient local currency liability franchise; and number three, continue to improve our credit underwriting models to approve more customers and drive sustainable portfolio growth. On the funding side, our liability franchise continues to show signs of strength. Even after adjusting down our deposit rates, deposits continue to exceed $6 billion, underscoring the value of our brand and the appeal of our products. Our interest-earning portfolio has gained strong traction recently, growing over 70% year-over-year on an FX neutral basis. We will continue to scale credit but at the right pace, accelerating when the signals are clear and consistent with our long-term strategy in Mexico. And we will never hesitate to pull back if and when the situation requires. We are very confident in our opportunity to win in Mexico, and our focus remains on disciplined execution and long-term value creation. With that, we will now open the call for questions. Thank you.

Operator, Operator

I would now like to turn the call over to Mr. Guilherme Souto, Investor Relations Officer.

Guilherme Souto, Investor Relations Officer

Thank you, operator. Could you please open the line for Eduardo Rosman from BTG?

Eduardo Rosman, Analyst

Congrats on the numbers. I have a question for David. In recent months, we have seen important changes, right, in the management team, including the announcement of a new CTO this week. So could you please help us understand the significance of these changes for Nubank in this next phase? And please, if you could also connect this topic to the company's kind of international expansion, right, that would be great as well. Specifically, do these new additions suggest also a possible acceleration of the growth outside Brazil, including entering new markets beyond Mexico and Colombia?

David Velez-Osomo, CEO

Thank you for the question. As we've mentioned before, we have made several changes in recent months with a focus on the next 5 to 10 years. We believe we have one of the most exciting opportunities in technology globally. Financial services remain the largest market not significantly affected by technology, with over 95% of market capital, amounting to over $8 trillion, still held by traditional banks. This contrasts sharply with what we've seen in other sectors. As we look towards the future, we are gearing up to compete on a global scale and are assembling a highly skilled team. This may involve recruiting talent from Latin America and other top-tier technology firms around the world. The addition of Roberto is strategically important for enhancing our position in Latin America, where we already have regulated entities in the three markets we operate and anticipate adding more as we expand internationally. Regulatory compliance is a top priority for us and we approach it with seriousness. Public policy also plays a crucial role in our operations as a regulated financial entity. Bringing in Roberto has provided us with not only regulatory expertise but also significant technological and strategic knowledge, making him a vital strategic addition to our team. Working with him and the team over the past month has been exceptional. With Eric and Ethan joining us, we are progressing towards creating a world-class product in financial services. We boast one of the most advanced technology infrastructures in Latin America, and we are in the midst of a serious AI transformation to capitalize on emerging opportunities. The addition of Ethan, with his experience managing products for hundreds of millions of customers, alongside Eric, positions us well for the future. In summary, these new team members enhance our leading position in Brazil and Latin America, elevate our capabilities, and prepare us for significant international growth in the coming years.

Guilherme Souto, Investor Relations Officer

Operator, could you open the line for Jorge Kuri for Morgan Stanley?

Jorge Kuri, Analyst

Congrats on the numbers. Great quarter. I wanted to maybe double click on your Slide 11, your loan origination. You have 1% FX neutral growth, which is a very different number from what we've seen over the last year, where the quarter-on-quarter growth were in the double digits. I appreciate that the year-on-year number is really strong, 43% FX neutral, and that's certainly a better way to look at it. Given some of the things that happened in the quarter, specifically on your credit line increases, your clips on credit cards that you started to implement and reach record levels for the company, given that you are extracting more value out of your Hyperplane acquisition, given that we saw a big acceleration of Pix at the end of the first quarter that we assumed it was going to continue or has continued during the quarter, could you help us understand if some of these things are just not reflected in the numbers and will get reflected going forward? Any other dynamics for us to understand this different half of originations in the second quarter versus what we've seen over the last year?

Guilherme Marques do Lago, CFO

Thank you for the question, Jorge. Let me break this down by asset classes. Referring to Slide 11, which illustrates the evolution of originations for loans, I will discuss unsecured, secured, and credit cards, despite the latter not being included here. Starting with unsecured lending, we've experienced solid growth figures over the past quarters, with an exceptionally strong first quarter of 2025. This was partly due to the launch of new models and policies that enabled us to attract customers previously ineligible for unsecured credit lines. Additionally, the first quarter is generally a seasonally strong period for unsecured credit. We anticipate continued strong growth in unsecured lending originations throughout 2025 and into 2026, provided we maintain the asset quality we've observed. Up to the end of the second quarter and today, everything appears to be on track. We believe we now hold over 20% of the origination market share for new unsecured loans in Brazil, a trend we expect to persist alongside new lending products recently launched in Mexico. Now, regarding secured loans, we can categorize this into two sub-asset classes: INSS loans and public payroll loans excluding INSS. INSS refers to public payroll loans for pensioners and retirees. In the second quarter, a significant disruption occurred in the INSS system, leading to an overall industry origination drop of over 50%. Our origination declined by about 50% as well, although we gained market share in a contracting origination environment. We expect this issue to be resolved shortly, anticipating that by the end of August or early September, origination for INSS—both for us and the entire industry—will return to historical growth rates, possibly with a spike in originations to compensate for the previous decline. Excluding INSS, our originations for other public payroll loans, particularly SIAPE, grew by over 50% in the recent quarter. We view this as a significant advancement in our efforts to ramp up public payroll loans, not only by adding customers to existing contracts but also by increasing the number of contractual agreements in our portfolio, many of which will take effect in the second half of this year. If you look at our overall portfolio evolution, as shown on Slide 27, you'll notice that despite the one-time setback from INSS, we continue to see all asset classes expanding at a healthy pace. The portfolio grew by 8% when adjusted for foreign exchange, accompanied by increases in loans and both types of credit cards. Regarding credit cards, we have noticed considerable improvements in our credit underwriting capabilities and in expanding our credit card portfolio. This is due to our adoption of new models and technologies in credit underwriting, utilizing traditional machine learning techniques as well as neural networks and predictive AI. Crucially, the more customers we retain, the more data we gather. We are currently leaders in open finance consent, and this combination of enhanced modeling techniques and comprehensive data collection has enabled us to steadily increase credit underwriting, limits, and utilization rates. Our latest estimate indicates that our market share in Brazil's credit card receivables may have increased by over 100 basis points in this quarter. We are optimistic about the future, both within our existing segments and as we venture into new ones.

Jorge Kuri, Analyst

Lago, that was super clear. And congrats on the quarter and all of the great new hires.

Guilherme Souto, Investor Relations Officer

Thanks, Jorge. Operator, could you please open the line for Yuri Fernandes from JPMorgan.

Yuri Rocha Fernandes, Analyst

Also congrats on the margin, the risk-adjusted margin expansion and the good quarter. I have a follow-up also to Lago just on asset quality. Most metrics, they look good, right, stable coverage over 15 to 90 days improving slightly better than seasonality. The only thing that caught my attention, Lago, was a higher Stage 3 formation, up quarter-over-quarter. I would like to get your view on this because when I go to 2024 and 2023, I also saw some seasonality in the second quarter. Just checking if this is basically seasonal. From your answer to Kuri, I get an impression that you feel comfortable with asset quality but we have many investors concerned with the macro situation in Brazil? It would be good to get your feeling on the formation and also how you see asset fund.

Guilherme Marques do Lago, CFO

No, thanks, Yuri, for the question. So the short answer is yes. I think the increase in NPL formation as well as in Stage 3 formation that you can see on Slide 26 of our presentation is almost entirely explained by the seasonality of basically the spike in seasonal delinquency in the first quarter kind of flowing through the second quarter. Now broadly on asset quality, we are fairly mindful of the macroeconomic kind of situations in the markets where we operate, Brazil, Mexico, and Colombia, also how it may impact credit cycles. This is a concern that has lingered not only with us but also with many investors and other stakeholders since late last year and early this year. So far, and I say so far until now, August 14, we haven't seen kind of that deterioration playing out materially in our asset quality figures. All of our asset quality figures are performing largely as expected. That doesn't, of course, mean that we have to assume that this will stay as it is going forward. We continue to underwrite with kind of largely 2 kind of pillars in our mind. Pillar #1, we always assume that the future will be worse than the past. So irrespective of where any of us here at the company may think we are in the credit cycle, when it comes to credit underwriting decisions, we always assume that there's going to be a deterioration in the credit cycle over the next 12, 24, and 36 months. Above and beyond that, which is Pillar #2, every cohort of unsecured credit that we underwrite has to abide by the following kind of a stress test, which is losses can go up by up to 2x, and that cohort still has to be NPV positive. With that, we built enough credit buffer resilience that will allow us to continue to grow conservatively and with conviction that we can withstand kind of unfavorable economic cycles over time.

Guilherme Souto, Investor Relations Officer

Operator, could you please open the line to Geoffrey Elliott from Autonomous.

Geoffrey Elliott, Analyst

Could we talk about the mix of credit card balances? The last 5 quarters, interest-earning installments have been between 27% and 29% of total balances. Are we now in a range which is normalized and where you'd expect to stay? Or is there scope for that to move higher with increased originations of Pix credit?

Guilherme Marques do Lago, CFO

Thanks, Geoff. Look, I think I would say they should stay more or less where it is, maybe kind of small variations up or down, maybe a little bit upside risk here depending on how pronounced Pix financing and other transaction financing products may unfold. But I wouldn't suggest that there is a lot of room for us to go materially beyond the 29% that you alluded.

Guilherme Souto, Investor Relations Officer

Operator, could you please open the line for Neha Agarwala from HSBC.

Neha Agarwala, Analyst

Congratulations on the numbers. I want to touch on the deposit side of the franchise, where there are two notable trends. First, in Brazil, there was a significant increase in deposits sequentially. What drove that? Are you being more proactive in trying to gather more deposits in Brazil? Can you explain that? On the Mexico side, you've reduced the rates significantly, narrowing the gap versus the target. What have been the initial reactions from customers? Are you experiencing an outflow of deposits in July and early August, or has that been relatively stable?

Guilherme Marques do Lago, CFO

Thank you for the question, Neha. Let me break it down. In Brazil, we are seeing an ongoing increase in deposits, mainly due to higher customer engagement and share of wallet. I wouldn't attribute this primarily to any initiatives aimed at increasing deposit rates, even though we have introduced new features to reward customer loyalty over time. When we look at the cost of funding in Brazil over the past two quarters, it has remained relatively stable in the low 80s. The rise in deposits can be attributed more to enhanced customer engagement and incremental gains in wallet share, especially as we make inroads into more affluent segments, which naturally leads to a gradual increase in deposits. Regarding Mexico, we made significant changes to the design and pricing of our deposits in early July, which is expected to lower our funding costs there. However, these changes are not yet reflected in the second-quarter numbers, and we anticipate their impact to be seen throughout the remainder of 2025. We've been monitoring the situation closely since making these adjustments, and everything has been progressing as expected. By offering the money box capped at MXN 25,000, we are able to provide better service and a strong value proposition for nearly 90% of our customers. We believe we can maintain customer engagement in the key segments we focus on. While there's a risk of yield seekers potentially moving their money elsewhere, any outflow has not been significant so far, and we are keeping a close watch. Thus far, everything looks good. If the current trends continue, we expect to maintain a solid base of low-cost local currency retail deposits in Mexico, which has already significantly reduced our funding risk in the country while gradually lowering funding costs.

David Velez-Osomo, CEO

I would like to add one more point regarding Mexico. When we launched our savings account product there, it was quite basic and primarily online with limited features. We didn't have options for customers to make offline deposits or withdrawals, which is crucial in the Mexican market. Essentially, it was a minimum viable product at launch, requiring us to offer a higher yield. As we introduced more products and made the offerings more comprehensive, we added OXXO as a distribution channel, allowing customers to withdraw cash. We've also incorporated several self-service banking features in our app, which enhanced the value proposition. Consequently, we've been able to reduce the yield without experiencing significant changes in deposit inflows. This same strategy has also been implemented in Brazil and Colombia.

Neha Agarwala, Analyst

If I could ask a follow-up on a different topic, could you clarify the Hyperplane expansion and the credit limit you mentioned? Is there a specific segment of your customer base that this is aimed at, such as higher income, mass market, or your core segments? Understanding this could indicate potential stronger loan growth in the latter half of this year or in 2026 for your loan portfolio.

David Velez-Osomo, CEO

So far, the focus has primarily been on the mass market, but we anticipate that many of these new AI-enabled architectures will be used across various models. The unique opportunity with Hyperplane is that it offers not just modeling capabilities but also a completely new platform that enables us to develop and implement multiple models simultaneously. This was the initial model, and we expect additional models to emerge for different segments, countries, and applications including collections, fraud, and cross-selling. We're very enthusiastic about this, and it's still early in the process of utilizing this new technology for various decision-making processes at Nubank. We expect to see significant changes in all areas.

Guilherme Souto, Investor Relations Officer

Operator, could you please open the line for Pedro Leduc from Itau?

Pedro Leduc, Analyst

Both on cards, please. First, regarding Pix financing, it appears that the number of clients using it for transactions has decreased slightly from 17.3 to 17.1 this quarter. In your last call, you mentioned that you were becoming more comfortable with gradually resuming the product in certain clusters after successful tests. Can you provide an update on the Pix financing process, including how you envision its rollout and when it might gain more traction? The second question is related to the decline in the number of active credit cards. We see that you are increasing limits, which is somewhat unexpected given the decrease in active cards. Could you help clarify this situation for us?

Guilherme Marques do Lago, CFO

Thank you for your question, Leduc. I will address each point separately. Regarding Pix financing, which is part of a broader range of transactional financing products, its growth continues to be strong. In the last quarter, we demonstrated that growth had resumed, and by the end of the first quarter, our Pix financing and transactional financing portfolio was larger than it was in the second quarter of 2024, when we decided to reduce our efforts. This upward trend is ongoing, and we are currently performing even better than in the first quarter of 2025. The portfolio's performance remains solid, and our customer base has widely embraced it. You may notice some fluctuations in seasonality between quarters, but overall, it has been a significant success for our customers. As of the end of the second quarter, over 40% of our credit card customers were also utilizing some form of transactional financing, primarily through Pix. The engagement rate is very high and healthy, not just for first-time transactions but also for repeat business. We anticipate continued growth in this area, which correlates strongly with the overall use of Pix in the economy. We have no concerns about this, as discussed during the presentation of our third quarter results for 2024. Now, regarding credit cards, the number of active credit card customers in Brazil has remained relatively stable, depending on the measurement criteria, whether by purchase volume or revenue. One measure might show an increase of about 100,000, while another shows less, but overall, the trend has been flat. Moving forward, we expect that the main driver of earnings growth in our credit card business in Brazil will come from increased utilization and ARPAC per product, rather than simply an increase in the number of credit cards. While the number of credit cards will still grow, the most significant leverage will be in ARPAC and utilization. You questioned whether increasing credit limits should lead to a rise in active customers. Currently, that isn't the case, mainly because our credit limit policies have been focused on existing customers rather than new ones. As we gather more data and enhance our models, the scenario you envision is likely to occur.

Guilherme Souto, Investor Relations Officer

Operator, could you please open the line for Mario Pierry from Bank of America.

Mario Lucio S Pierry, Analyst

Congrats on the quarter. Lago, I wanted to discuss a little bit the private payroll product. It doesn't seem like Nubank is too excited about the product or at least I haven't heard you guys talk too much about the opportunity. When we talk to other industry players, they think this is one of the best products to come to Brazil in the last 20 years. Can you discuss a little bit about your strategy in the private payroll product? Like looking at origination data, we haven't seen Nubank being very active yet. When do you think you're going to be more active? Why are you holding back? Are you seeing this product as an opportunity? Or do you think this is a threat to your business?

Guilherme Marques do Lago, CFO

Mario, thanks for the question. Look, we are very excited about the private payroll loan product. We think that has been a fairly important and thoughtful product innovation that has been added to Brazil. I think Nubank has much more to gain than to lose with this product by a wide margin. Let me share a few thoughts on this. Differently from the more established kind of incumbent banks, we don't have a B2B2C distribution channel to compete for corporate payroll loan business in Brazil, which is a fairly important one. The private payroll loan product allows us to break into this segment in a very profitable manner. I don't need necessarily now to have a B2B contract with company X to be able to access all of the employees of this company and also enjoy the benefits of the payroll flow that goes through the bank account. I can have access to tons of data that, so far, we have been precluded from having access to. We expect that this product will improve collaterals across the board, lower data asymmetry, and therefore, help the overall economy lower spreads and materially increase the size of the pie. So far, so good. Why have we not been as aggressive at the inception of this product? The product was announced in late March. We launched the product right after this in early April. However, we have not yet raised our comfort levels to adequate levels concerning the quality of the collateral. Some of the collateral that is structural to this product have not yet been fully tested and implemented. The first data points we have seen in the industry have suggested that the risk has not yet been fully addressed. First payment defaults are set to be between 10% and 18%, which I think is higher than what at least we would expect so far. We are not yet fully comfortable with the quality of the collateral, number one. Number two, we don't see necessarily material first-mover advantages there. I think if we are the lowest cost manufacturer of this product, we will be able to secure a very meaningful market share position when the collateral system is more tested and solidified. But Mario, you've been doing this for a long time like many of us, and you may recall that at the beginning of the public payroll loan systems, the consignado publico, the collateral was not working super well in the first months or even in the first quarters. It took some time, but the product ended up being a remarkable success. We expect that private payroll loan will follow suit, and we believe that as the lowest cost manufacturer of the industry, with no more than 50% of the target market for this product within our customer base, we will have a fairly relevant ability to win there when the product is more mature.

Guilherme Souto, Investor Relations Officer

Operator, could you please open the line for Tito Labarta from Goldman Sachs?

Tito Labarta, Analyst

Congratulations on the strong results. A little bit of a follow-up, but just how do you think about your loan growth along with your deposit growth? Loan growth seems to be accelerating. You're doing well there, but deposit growth remains very strong. On the one hand, it's a headwind to earnings. On the other hand, it's good for client engagement and client addition. Are you comfortable just continuing to grow that deposit book and get these clients even if it is a bit of a headwind to earnings? At some point, would you want to try to slow down the deposit growth to match the loan growth? Just how do you think about the assets and the liabilities growing in conjunction?

Guilherme Marques do Lago, CFO

Tito, thanks so much for the question. Look, a few thoughts there on how we are thinking about deposits from both a financial standpoint and a strategic standpoint. From a financial standpoint, we are very comfortable with the loan-to-deposit ratio that we see in Brazil, Mexico, and Colombia not only with respect to the quantum but also with respect to the duration and resilience of the retail deposits. If anything, we have buffer to either grow credit more rapidly, but growing credit more rapidly just because you have more funding is not the most wise approach to this, or we would have the ability to lower prices and bring deposits down. That's from a purely financial standpoint. However, from a strategic standpoint, especially in markets where information asymmetry is lowering very fast, including in Brazil with open finance, we do believe we need to be the best place for our customers across Latin America to receive payments, make payments, and store value. To that extent, having a very competitive and compelling deposit design, which includes, but is not limited to, price is paramount to our primary banking relationship customers. We don't expect that we will play down our deposit rates in Brazil anytime soon. In Mexico and Colombia, we expect to actively reshape the size and the price of the deposits to optimize the value proposition for the customers, loan to deposit, and liquidity resilience there. I think Mexico and Colombia, you should see increases in NIM as a result of that optimization. In Brazil, I think you should see a relatively stable NIM with respect to deposits only.

Tito Labarta, Analyst

Okay. No, that's great. Very helpful. If I can, just a quick follow-up, I guess. When you think of client monetization, I'm looking at Slide 18, gross profit breakdown. Credit is still a big component. Fees have been around this 30% level for some time, and the rest is float. Do you think that's an optimal level? Is there an optimal level that you would like to get to? Just how do you think about that breakdown between lending, fees, and other sources of monetization?

Guilherme Marques do Lago, CFO

So Tito, the one thing that I would point out is I would respond to this by sending you to another slide, which is Slide 9. If you take a look at this slide, which is a very clear comparison between the revenues per active customer that we have and the cost per active customer that we have. Today, we have a weighted average ARPAC at about $12.2. The more mature cohorts are already at $27, $28. The ARPAC of incumbent banks are largely at $45. We do expect over time that we will take ARPAC from 12 to 15 to 20 and onwards towards the levels of incumbent banks, while our cost to serve will remain at or below $1. That is the power of the operating leverage of our digital banking model. What are the main levers for us to bring ARPAC from $12 to $30 to $40? If you take a look at the profit pool of retail banking in Latin America as a proxy, about 65% to 70% of that is credit. Credit is expected to be kind of the bulk of that growth going forward. That does not mean, however, that all credit is created equally. You will have more secure credit, more unsecured credit, so the mix of credit will shift. I wouldn't be surprised if credit accounts for a substantial part of the ARPAC expansion. It's one of the reasons why we are so excited with digital banking models that are able to provide competitive solutions and resilient solutions for credit at scale because that is really where the profit pool is not only in Latin America but across many other markets in the globe.

Guilherme Souto, Investor Relations Officer

Thank you, everyone. We now have approached 60 minutes of the call. So we are now concluding today's call. On behalf of Nu Holdings, our investor relations team, I want to thank you very much for your time and participation on Nu earnings call today. Over the coming days, we'll be following up with questions received tonight but we are not able to answer. Please do not hesitate to reach out to our team if you have any further questions. Thank you, and have a good night.

Operator, Operator

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