Earnings Call Transcript
Nu Holdings Ltd. (NU)
Earnings Call Transcript - NU Q1 2023
Operator, Operator
Good afternoon, ladies and gentlemen. Welcome to Nu Holdings Conference Call to discuss the results for the First Quarter of 2023. A slide presentation is accompanying today's webcast, which is available in Nu’s Investor Relations website www.investors.nu in English and www.investidores.nu in 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. To access, you can press the globe icon on the lower right side of your Zoom screen, and then choose to enter the Portuguese room. After that, select mute original audio. 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 call over to Mr. Jorg Friedemann, Investor Relations Officer at Nu Holdings. Mr. Friedemann, you may proceed.
Jorg Friedemann, Investor Relations Officer
Thank you very much, operator, and thank you all for joining our earnings call today. If you have not seen our earnings release, a copy is posted in the results section of our Investor Relations website. With me on today's call are David Velez, our Founder, Chief Executive Officer and Chairman; Youssef Lahrech, our President and Chief Operating Officer; and Guilherme Lago, our Chief Financial Officer. Additionally, Jag Duggal, our Chief Product Officer, will join us for the Q&A session of the call. Throughout this conference call we 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. 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 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 Velez, will discuss the main highlights of our first quarter 2023 results and provide an overview of our Brazilian operations. Subsequently, Guilherme Lago, our CFO, and Youssef Lahrech, our President and COO, will take you through our financial and operating performance for the quarter, after which time we’ll be happy to take your questions. Now, I would now like to turn the call over to David. David, please go ahead.
David Velez, CEO
Thank you, Jorg. Good evening, everyone, and thank you for being with us today. Once again, in a quarter marked by general concerns about economic activity and asset quality in the markets we operate, the soundness of effectively all our financial indicators remained very strong, attesting to the resilience of our business model and the execution of our team. So I will show in the next few slides. We continue to deliver a rare combination of strong growth and increasing profitability through the ups and downs of our market. In the first quarter, our numbers continued to demonstrate the compounded effect of our platform's high growth, combined with increasing profitability provided by our business model. Revenue surpassed $1.6 billion, expanding 87% year-over-year. Our gross profit reached $651 million, a 124% year-over-year increase, and our gross margin again surpassed the 40% threshold this quarter, reaching the highest level since 2021. This continued revenue growth with gross margin expansion enabled a significant increase in net income, reaching $141.8 million or a 145% quarter-over-quarter growth rate versus last quarter's adjusted net income. Adjusted net income reached $182.4 million, an increase of 60% quarter-over-quarter. Meanwhile, we also continue to expand our customer base at a strong clip, ending the quarter with 79.1 million clients. Net ads were very strong in Brazil, where we welcomed 4.4 million customers during the quarter. Our activity levels remain robust at 82%, even as we add more and more customers, demonstrating the intense engagement capacity of our platform. This slide offers a high-level overview of our recent financial performance trends, highlighting our ability to increase revenue, while expanding profits. Over the past two years, Nu was able to double the number of customers from 37 million in early 2021 to more than 79 million at the end of the first quarter of 2023 and already surpassed 80 million customers by April. The strong growth of our customer base, associated with the rise in cross-sell and up-sell implied by the high engagement for our platform, resulted in our quarterly revenues multiplying by almost seven times in only two years, a triple-digit revenue CAGR over this period. The next chart of this slide illustrates our resilient underwriting capabilities. Quarterly gross profit, defined by total revenues, deducted by funding costs, transactional expenses, and credit loss allowances, increased by more than five times in the period with gross profit margins expanding accordingly. Even though credit delinquency has increased in the market in which we operate over the past 12 months, we have resumed growth in our unsecured personal lending product in Brazil and expect it to be an important driver of revenue and earnings growth. Last quarter, we also launched our first secured lending product in Brazil. We are very excited about the feedback we're receiving from early customers and expect to see a meaningful acceleration in this segment over the next four to eight quarters. In addition to building our core capability of credit in Brazil, we have also launched innovative products and investments, insurance, and marketplace. Since we already have one of the largest fully digital consumer platforms in Brazil, we're able to bring new customers to these verticals at virtually zero additional acquisition cost and serve them at an extremely efficient cost to serve. This not only allows us to gain market share, but also increases the size of the addressable market as we bring in consumers that have been traditionally underserved by incumbents. We're pursuing a similar roadmap in Mexico and in Colombia over the next few years, supported by internally developed technology platforms providing us both speed and quality. Beyond the significant growth runway we have ahead, the clear trend of the last nine quarters demonstrates the significant operating leverage of the platform and its potential to generate profits. Being the lowest-cost manufacturer in an industry is a very important strategic position, and we believe we are reaching that point in Brazil. The charts on this slide illustrate this fact for our business in Brazil or most mature market. On the left, we show the efficiency ratio for our Brazilian unit over time. In the short time we've been operating in the country, at least compared to incumbents, we have been able to deliver best-in-class efficiency ratios with our cost-to-income ratio running now at mid-30% levels. Meanwhile, the chart on the right provides evidence of the operating leverage of our platform. Our average revenue per active customer expanded by 2.5 times between Q1 ’21 and Q1 ’23, whereas our monthly cost to serve remained virtually unchanged. Impressive enough, but this is only the start of the process. The monthly average revenue per active customer of our mature cohort is already upwards of $20, more than twice our current overall average. And the monthly average revenue for incumbents is about $40. As we grow, we're sharing the profit pools, we're targeting and closing the gap in average revenue per active customer to our peers, all while maintaining a low cost to serve below $1 per customer. We believe our efficiency ratio will set new records and our profitability will continue to increase. To review our performance in the first quarter from a different viewpoint, I would like to highlight the sustainable advantages we are maintaining across four cost pillars. On cost to acquire, we added more than 4 million customers in the quarter with the same low cost per acquisition as in prior periods. On cost to serve, we have maintained our cost to serve below $1. On cost of risk, we successfully managed the risk in our credit portfolio, aiming for a very challenging backdrop, and continue to outperform competitors. Lastly, on cost of funding, we began to unlock the potential of our deposit franchise. We are very excited about what we have been able to achieve and are confident in our ability to develop and scale best-in-class products, expand internationally, and operate at very low costs. Now I'd like to turn the call over to my partner and CFO, Guilherme Lago to dig deeper into the numbers. Go ahead, Lago.
Guilherme Lago, CFO
Thanks, David. Good evening, everyone. As David mentioned, we delivered another quarter of strong operating and financial KPIs. We did so by leveraging the same simple, powerful value-generating strategy that we have now employed for a few years. This strategy can be summarized by three guiding principles. First, continue to grow our customer base in the markets in which we operate and quickly converting new customers into active ones. Second, expanding average revenue per active customer through both cross-selling and upselling. And third, delivering growth while maintaining one of the lowest operating costs in the industry. Much like in prior periods, our first-quarter results showcase how we continue to execute against each one of these pillars. Let's dive deeper. During the first quarter, our customer base increased at a solid pace; we added 4.5 million customers for a total of 79.1 million, a 33% increase year-over-year. In Brazil, our pace for monthly net additions continued at almost 1.5 million customers, the vast majority of which still come from referrals, which means lower acquisition costs and faster activation. Our client base in Mexico and Colombia also evolved positively and will likely accelerate even further once we are able to have our checking accounts up and running in both countries. This has already happened in Mexico, where we have just crossed the level of 500,000 checking accounts open in less than a week after our official launch of Cuenta Nu. Once we add customers, our goal is to activate and have them engage with our platforms and love us fanatically. The first quarter was also a success; our monthly activity rate increased to 82.1%, up from 78.0% a year ago. The ninth consecutive quarterly increase. We are seeing positive and increasing momentum in activity in all of our three markets. The second pillar in our strategy is revenue expansion. The first chart is our primary banking relationship chart. It represents the percentage of our active customers who transfer to us every month more than 50% of their post-tax income. Nearly 60% of our active customers are already primary banking relationship customers, and the pace at which our active customers become our primary banking relationship customers has happened faster and faster over time. Driven by both external factors, such as COVID, PIX, and the overall growing adoption of digital banking, and internal factors, such as the launching of new high-quality products and features. The second chart is our product cross-sell chart. As we have launched new products, we have successfully cross-sold them to our customers and earned the right to be the primary banking relationship with them. The third chart is our average revenue per active customer. In the last quarter, our monthly average revenue per active customer reached a record high of $8.6. Yet, the monthly average revenue of our more mature cohorts is already above $20, and the monthly average revenue of the customers who have bought our three core products, banking account, credit card, and personal loans are above $30. We have a long runway ahead of us. On this slide, the chart on the left shows that our monthly average revenue per active customer continues to grow sequentially and was up 30% year-over-year on an FX neutral basis. Our average revenue growth, together with the expansion of our customer base, drove an 87% increase in revenues year-over-year to $1.6 billion, also a record high. This slide provides some more details on our cards. For cards, purchase volumes are seasonal; higher in the fourth quarter and lower in the first quarter of every year. Compared to the first quarter of last year, our purchase volume was up 48% on an FX neutral basis to $23.3 billion, sustaining its strong growth path. The chart on the right shows how purchase volumes expand as cohorts of customers develop and mature. Older cohorts continue to purchase at higher volumes, spanning 3 to 4 times more per month than recent cohorts. As we mentioned before, on average, a customer's credit card expenditure improves when they have been with us for more than 24 months. We expect the compounding effect of adding millions of customers each month along with the maturation of these new customers into historically observed spending patterns, to provide ample support for the growth in future purchase volumes. Looking into reported purchase volumes transferred, Nu ended last quarter with a market share of around 13.6%, adding both credit and prepaid cards, an increase of 40 basis points quarter-over-quarter. This quarter, our consumer finance portfolio composed of credit card and personal loans reached $12.8 billion, a 54% expansion year-over-year. Despite negative seasonality in purchase volumes, total credit card receivables expanded sequentially and increased 64% year-over-year, driven by client growth and the net evolution of our low and grow methodology. More importantly, our personal loan portfolio expanded significantly in the quarter. As you might remember, through most of 2022, we were cautious with originations in personal loans due to the increased risk we perceived in the product during that period. Starting late last year, as Youssef will explain later, our portfolio exceeded our expectations in terms of performance, which gave us confidence to take bolder steps with originations. As a result, our personal loan book increased 18% quarter-over-quarter to $2.3 billion. Let's now move to the breakdown of interest-earning loans in our portfolio. We continue to pursue a strategy of increasing the share of our credit card loans that earn interest. This quarter, our interest-earning installments balance once again gained share, representing a record high of 16% of our credit card loan book. We prefer interest-earning installments, where we see attractive risk-adjusted rates of return that allow us to further monetize our credit card business, over revolving receivables, where we see a less favorable risk-return profile and higher adverse selection. We have intentionally not expanded our share of revolving receivables, which continue at 7 percent of total credit card receivables for the third consecutive quarter. Because of this, we have widened the gap versus the market, where revolving receivables accounted for 18 percent of credit card receivables as of the end of the first quarter. The performance of our personal loans cohorts improved over the last several months, giving us the confidence necessary to increase loan originations. Our launch of payroll lending would add to this strategy, reinforcing our opportunities for growth in originations. We are confident in our ability to drive responsible growth in lending. This belief is supported by our best-in-class underwriting platform, our strong capital base, and our ample liquidity position. Moving to funding, supported by the growth in our customer base, total deposits expanded 34% year-over-year. It's important to note that fourth quarters are seasonally strong for deposit inflows, while first quarters are seasonally weak. Our loan-to-deposit ratio achieved 32% this quarter, showing that Nu optimized the use of those deposits quarter-after-quarter. In the fourth quarter of 2022, our cost of funding dropped to an all-time low of 78% of the interbank deposit rate, driven by three factors: the full impact of the recently launched Money Box; the change in the remuneration of Nu accounts; and the seasonally higher levels of deposits at the end of the year. As we had anticipated previously, our cost of funding should also lay upwards to approximately 80% of CDI over the initial three quarters of the year. In this context, the level of 81% of CDI observed this quarter is in line with our expectation and also shows that we are starting to unlock the value of the strong liability franchise we have been able to build. With the recent launch of Cuenta Nu in Mexico, which in less than a week after its official launch already surpassed 500,000 accounts open, we are offering a more compelling value proposition for customers in the country and should be able to onboard more individuals month after month, helping to further strengthen our deposit franchise in the country. We expect the same to happen soon in Colombia. The combination of the continued growth of our credit portfolio with the normalization in our funding costs has contributed to the expansion of our net interest income and net interest margin to record high levels. Our net interest income reached $815.3 million this quarter, growing an impressive 138% year-over-year. Our net interest margin increased by 2.2 percentage points quarter-over-quarter and 7.2 percentage points year-over-year to 15.7%. Let's now turn our attention to the last pillar of our overall strategy, maintaining a low cost to serve. We continue to believe our platform is one of the most cost-efficient in serving customers in the markets in which we operate. In the first quarter of 2023, our cost to serve per active customer was $0.80, largely flat year-over-year, while over the same period, our average revenue per active customer increased 30%. This illustrates the strong operating leverage of our business model. Looking ahead, as we said in past quarters, we expect our cost to serve to remain at or below $1 level as the scale gives us significant operating leverage and bargaining power with our suppliers. We recorded $651 million in gross profit in the first quarter. This was up 124% year-over-year, representing an important acceleration compared to the growth posted last quarter. Following a similar trend, our gross profit margin reached 40.2% in the first quarter, almost 7 percentage points higher year-over-year, consolidating the acceleration in the pace of expansion that started in the third quarter of 2022. We achieved this result even with a higher amount of provisions this quarter as a result of the expansion of the originations of our lending portfolio, with upfront provisions and a slightly higher cost of funding in comparison to last quarters due to previously mentioned seasonal patterns. We continue to see operating leverage as a defining feature of our strategy. It is best illustrated by our efficiency ratio, which in the first quarter improved for the fifth consecutive time to reach another all-time low at 39% or 33.5% excluding share-based compensation. This level of efficiency would already rank Nu Holdings as one of the most efficient players in Latin America. That said, we see this as only the beginning as we expect to benefit from the full potential of our platform's operating leverage as we continue to grow our customer base, upsell and cross-sell products, and launch new features while earning flat results in our geographies of Mexico and Colombia, which still run at deficits. In fact, looking into Brazil only, we would already be running at levels of cost to income in the mid-30s, which would likely place us as the most efficient among the big players in the country, although it's still in the early stages of our ramp-up. Finally, moving to net income. We posted yet another quarter of improved bottom line performance. Our adjusted net income and net income amounted to $182.4 million and $141.8 million, respectively. To us, these encouraging results validate our strategy and business model. While we are encouraged by the results in the first quarter, it's important to reinforce that we manage our business with a view towards long-term value creation. This can require additional investments in the short-term aimed at optimizing our long-term opportunities. To review our performance in the first quarter from a different viewpoint, I would like to highlight the sustainable advantages we are maintaining across four cost pillars. On cost to acquire, we added more than 4 million customers in the quarter with the same low customer acquisition cost as in prior periods. On cost to serve, despite persistent inflation in the countries in which we operate as well as two businesses that are yet to reach scale, our cost to serve remains below $1. On cost of risk, we successfully managed the risk in our credit portfolio, aiming at a very challenging backdrop and continue to outperform competitors when comparing apples to apples. Youssef will provide more detail shortly. And lastly, on cost of funding, we began to unlock the potential of our deposit franchise, closing the negative gap we had against incumbent banks and widening the positive gaps against fintechs. We are very excited about what we have been able to achieve and are confident in our ability to develop and scale best-in-class products, expand internationally, and operate at very low costs. Now I'd like to turn the call over to Youssef, our President and Chief Operating Officer, who will walk you through some highlights of our asset quality.
Youssef Lahrech, President and COO
Thank you, Lago, and good evening to you all. Let me take you through some of the key indicators of asset quality and credit portfolio health for the first quarter of 2023. Let's start with NPL trends. Seasonally, the first quarter represents a high point for early-stage delinquencies. Specifically, 15 to 90-day NPLs rise on average by 80 basis points going from Q4 to Q1 based on our historical data and in line with the rest of the market. In Q1 2023, our 15 to 90-day NPL ratio came in at 4.4%, increasing by 70 basis points from the fourth quarter of last year, which is 10 basis points lower than our historical trend. This slightly lower than seasonal norm increase was mainly driven by the improvement in our personal loan portfolio, itself a result of the actions we took last year. Our 90-plus NPL ratio increased from 5.2% to 5.5%, as a result of the normal flow through delinquency buckets. As we discussed in the past, 90-plus is a stock rather than flow metric, so you get this sort of stacking dynamic over time. Since we do not and have not sold any delinquent loans, we do not get the purging effect of asset sales, which would artificially lower NPLs. With respect to loan renegotiations, they remained at around 8% of the book in the first quarter, with approximately half of those coming from customers who are current and not past due at the time of renegotiation. This is a result of us making it very easy for our customers to have active control over their finances. Many of them take advantage of that feature and go directly to the Nu app to edit their loan and payment schedule to make them more convenient and better synchronized. This is counted and reported as a renegotiation, even though it's not necessarily representative of a credit stress situation. The six graphs on this slide show the time series of NPL for credit card loans by income band, where the purple line represents Nu and the gray line represents the industry. Much like in prior quarters, we continue to outperform the industry on a like-for-like basis. For the lower income bands, our comparative advantage continues to be even more pronounced. Provisions have continued to grow, primarily driven by the growth in our portfolio, following the same dynamic as in prior quarters. We front-load provisions when we originate loans based on the expected losses for the life of the credit in accordance with IFRS 9's expected loss methodology. The increase in provisions in the first quarter therefore is directly related to the increased volumes of origination we recorded in the quarter. Despite the higher provision volumes, our risk-adjusted NIM reached another record high of 6.6%, expanding by 120 basis points quarter-over-quarter. Compared to a year ago, the improvement is even more pronounced with risk-adjusted NIM up almost four times compared to the levels of the first quarter of 2022. Having shared these data and perspectives on credit and asset quality, let me now turn the call back over to our Founder and CEO, David Velez, for his concluding remarks.
David Velez, CEO
Thanks, Youssef. As we wrap up, I wanted to leave you with some thoughts about the future. This week, we're turning 10 years old, and we couldn't be more excited about what's ahead for Nu. In 10 years, we've been able to amass a combination of skills and capabilities that position us at a very differentiated place. As a result of working extremely hard on our mission of fighting complexity to empower our people, we have built one of the most loved and trusted brands in Brazil and increasingly in Mexico and Colombia. We have reached significant scale in Brazil, allowing us to reach a level of operating efficiency that we can now pass on to our customers. We have better and better products at lower prices, enabling an accelerating flywheel. We have gathered significant data and a sophisticated data infrastructure, which is increasingly a key piece of our product design and artificial intelligence strategy. We have built unique capabilities in credit underwriting and financial services, helping us to develop a profit engine that we will use to reinvest in our services, verticals, and geographies. And finally, we believe we have assembled one of the best technology and product teams in the world, unique for a Latin American company. These ingredients are important pieces to what we decide to build over the next 10 years. And as we plan for the long run, we think there is an opportunity to see ourselves more as a consumer platform that enables the optimization of money on behalf of its users. We have named this new category Money platform. The Money platform is a technology platform that has the optimization of money on behalf of its users at its core, just as a social platform has social interactions such as texts or photos or videos as its core. The Money platform's mission is to help consumers and small businesses fully optimize the creation and usage of their wealth across every single financial decision, including investing, lending, and day-to-day spending. Not only do most individuals and small businesses make poor financial decisions, whereby investing in suboptimal products, overspending on goods, or borrowing excessively or unnecessarily, they often bear excessive or unnecessary interest charges and fees to intermediaries. These costs can detract from the economic welfare of an entire society. Just imagine the amount of additional wealth that could be created for every member of society if every money-related decision, including purchasing the right goods at the lowest cost, was always optimized. This is a vision we have been pursuing for quite some time now, but we're very excited about how the advances in generative AI will help us to accelerate reaching this goal, and we intend to make investments methodically to seize this opportunity. Our strategy to get there is to continue building a comprehensive digital financial platform that provides the best financial products fully digitally across five financial pillars: spending, saving, investing, protecting, and borrowing. In parallel, we use the brand, scale, data, process, and talent we have to go beyond financial services and enable our customers to purchase products and services from our marketplace partners. As we think about the next 10 years, we truly feel that it is early days for Nu, and we hope to keep you excited as this vision progresses. We would like to take your questions now. Thank you very much.
Operator, Operator
We will now start the Q&A session for investors and analysts. I would like to turn the call over to Mr. Jorg Friedemann, Investor Relations Officer.
Jorg Friedemann, Investor Relations Officer
Thank you, operator. And the first question comes from the line of Jorge Kuri at Morgan Stanley.
Jorge Kuri, Analyst
Hi, everyone. Good afternoon, and congrats on the fantastic numbers and congrats also on your 10-year anniversary. I wanted to ask about payroll loans, evidently a big product that you are doing either on beta testing or already launched. And I wanted to see if you can share with us some of the results that you're seeing so far, what type of cross-selling are you getting? Is it mostly INSS? Is it mostly government workers? What type of rates and maturities are you seeing your customers take? What is this doing to your ARPAC? If you can share sort of like what the ARPAC would be for a payroll loan? What does it do for your return on equity? So that we understand how that business ramps up, and how it changes your KPIs? Thank you.
Guilherme Lago, CFO
Jorge, thank you so much for your question. This is Lago. Look, I'll try to share some of my thoughts, and then I'll pass it to Jag to complement with the recent experience that we have had. But entering payroll loans to us is a super important venture, not only from a financial perspective, but also from a strategic perspective. I think, first, you have to step back and realize that payroll loans are the single largest asset class in consumer finance in Brazil. It accounts for about BRL560 billion of loans in the country and is one of the largest profit pools that you have in the region. Our customers, if we take the social security numbers of our customers and compare them to the Brazilian Central Bank database, already account for about 31% of the entire payroll loans in Brazil. So that means we don't need to fish outside of our own customer base to tap into one-third of this very large market. We intend to do so without collateral agreements. We started with CRP, which is the payroll loan offer to federal public servants, and we have also announced that we will follow this with INSS, which is payroll loans for pensioners and retirees, and we plan to expand this progressively as we learn more about the product. As for the unit economics of the product for us and how we expect this to impact our overall economics as a company? The APR, or interest rates, of payroll loans are lower than those of credit cards and unsecured personal loans. They range anywhere between 1.5% and 2% per month. Conversely, payroll loans offer one of the lowest, if not the lowest, delinquency levels that we have in the industry and also a very low regulatory capital requirement – it’s about 50% of the required capital for unsecured personal loans. The consequence of this compounding effect and the fact that we will not use loan brokers, we will do direct-to-consumer originations, into a product that we expect to provide us with ROEs at or higher than 30%. Therefore, we expect two outcomes for our overall company economics: one, the acceleration of the personal loan books; and secondly, a progressive reduction in overall delinquencies. But Jag, I will let you comment on our recent experience and how excited our customers are with this product.
Jagpreet Duggal, Chief Product Officer
Thank you, Lago. Thank you for the question, Jorge. I'll compliment a couple of things that Lago said as he laid out the big picture. From a product perspective, it is still early days. We launched the product and are still rolling it out in April. But we followed a pretty classic Nubank formula of launching a mobile product that is very simple to sign up for, direct-to-consumer, with a very transparent set of pricing and terms and conditions. What we are hearing from the early customers who have started to engage with us on the payroll loan product is genuine delight with the simplicity of the sign-up flow and the transparency of the product, how easy it is to understand. We are in the midst of testing a fairly wide range, wide spectrum of pricing, which we will optimize over time. But what we found is a set of customers who are extremely reactive to the pricing and the fact that we can leverage our cost advantage, as Lago alluded to, to give customers a fair price. So, that combination of a fair price, along with a simple mobile product, has given us a response that has exceeded our expectations in the early stages of rollout. We are being very careful and stepwise in that rollout process to get the product, the pricing, and the experience right, but we couldn't be more encouraged after the first month or so that we've put the product out there. As Lago mentioned, the payroll loan for federal public employees is just the first step of nuestro payroll lending roadmap through this year and beyond. INSS and other groups of federal employees are on our roadmap, and we're working systematically through those agreements.
Jorg Friedemann, Investor Relations Officer
And our next question comes from the line of Tito Labarta from Goldman Sachs.
Tito Labarta, Analyst
Hi, good evening, everyone. Thank you for the call and taking my question. Congratulations on the very strong results. My question is on the personal loans, right? We saw a very strong acceleration in the origination this quarter, despite asset quality still deteriorating. I know there's some seasonality there, but just how you think about this going forward? I mean, I think initial signs, you feel comfortable with the asset quality outlook. But is there room to accelerate this product more this year? Just to think about how that will continue to grow throughout the year as potentially asset quality may begin to improve?
Youssef Lahrech, President and COO
Hi Tito, thanks for the question. This is Youssef. So yes, with respect to the unsecured personal loan book, as you recall, towards the middle of last year, we decelerated a bit origination. There was a lot more uncertainty at that time around what sort of normalization post-COVID we would see. We didn't have a reference point unlike in credit cards for what pre-COVID looked like, and we were pretty cautious. In the time period since then, we've made several improvements in terms of pricing, models, and the resilience of our originations. We just accumulated a lot more data on more customers across more products. What you see is the combined result of all of those things, whereby we've observed performance of our most recent cohorts to be quite strong and, in fact, actually a bit better than what we expected. This gives us a lot more confidence to reaccelerate and grow quite a bit in this segment. As an aside, the movement on delinquency rates is completely explained by seasonality. In fact, it’s a little bit better than seasonality. So normalized for seasonal patterns, I would say that exceeded our expectations.
Tito Labarta, Analyst
Okay. Great. Thank you, Youssef. That's helpful. If I can ask a follow-up then. So as you continue to accelerate growth both here, I mean, credit cards also had strong growth while you're getting into the payroll lending. You delivered about an 11% ROE in the quarter. As you accelerate your loan growth, as David mentioned, right, to really be profitable, you need to be in lending. Is it fair to assume that the profitability should continue to go up as you grow that loan book, assuming that you manage the asset quality as you've been doing so far?
Guilherme Lago, CFO
Tito, this is Lago. Thanks for your question. We do expect that the profitability levels that we have showcased in the last two quarters in Brazil and overall to be sustainable levels. We don't provide guidance on where they will be precisely, but if you take a look at our Brazilian operations, we are far from being optimal in terms of costs and leverage. There is still way more room for improvement there, and we continue to invest for the future. We continue to invest in costs and expenses related to the development of new products and features. If you look at the three geographies in which we operate, we do expect to have relatively similar levels of returns by leveraging our very advantageous cost structure.
David Velez, CEO
Hi Tito, David here, just adding one more point here. To be frank, it should not come as a surprise as it's very consistent with the view we've discussed with investors for over a decade about the efficiency of the business model. The fact that we can serve 80 million customers with about 8,000 people from one centralized location, with our cost to serve being about 20 times more efficient than traditional banks, without the banking branches, using a lot of data to underwrite and cross-sell effectively at no additional customer acquisition cost – all of those factors ultimately drive into this return on equity that we are finally able to show in more mature operations like Brazil. This is still an operation growing at 100% year-over-year, and we are continuing to invest a lot for growth in Brazil for 2024, 2025, and 2026, investing in a lot of new products and verticals that will generate several revenues for a while. So we see a lot of opportunity ahead to continue driving that return on equity at those levels and potentially higher.
Jorg Friedemann, Investor Relations Officer
And our next question comes from the line of Daniel from Credit Suisse.
Unidentified Analyst, Analyst
Thank you everyone for the opportunity and congratulations on the strong results. These are indeed very impressive to see the high profitability in Brazil after reaching a more material level. In Mexico and Colombia, we are still seeing early stages. It would be very helpful if you could share with us some insights on the 2022 cohorts on average revenue per active customer and asset quality evolution, and maybe compared to Brazil and potential compared to Brazil? And also, if I may, I was curious about Jag's comment on an interview where you mentioned that you should not listen to clients 100%, but ask the right questions to determine their pain points. I wanted to know how this has been playing out in Mexico versus Brazil?
Youssef Lahrech, President and COO
Hi, Daniel, this is Youssef. With respect to benchmarking Colombia and Mexico to Brazil, I would break it into three parts. First of all, just comparing credit card products across the three markets. One of the main differences you see is that in both Mexico and Colombia, consumers tend to use credit cards not just as a means of payment but also as a borrowing vehicle. So, you tend to get in higher rates of revolver usage, which in turn causes both average revenue per active customer to be higher and NPLs to be higher. On a return basis, they produce comparable levels of ROA and ROE. The second point is when we look at our experience so far in the three years since we launched Mexico and a year and a half or so since we launched Colombia, if anything, we're seeing the Brazil playbook work very well in both countries, and we're actually able to capitalize on all the work that's been done in Brazil. We see faster times to market, faster launches of new products and new features, and even higher levels of NPS and penetration compared to Brazil at the same point in time. The third thing I would point out is as Lago alluded to with the introduction of the basic account of the Cuenta, which we just started in Mexico, this is going to be a game changer. It will allow us to say yes to everyone who applies to Nu. It’s going to gather a lot more data to underwrite better on those customers and build a solid local deposit base to grow credit card and other lending products going forward.
Jorg Friedemann, Investor Relations Officer
And our next question comes from the line of Geoffrey Elliott from Autonomous. Geoffrey, your line is open.
Geoffrey Elliott, Analyst
Hello, can you hear me now?
Jorg Friedemann, Investor Relations Officer
Yes, we can.
Geoffrey Elliott, Analyst
Perfect. Thank you. There's been some discussion about changes to the way the credit card market works in Brazil, potentially capping the revolving rates, which I know can be very, very high. What's your take on what comes out of that, if anything?
Guilherme Lago, CFO
Geoff, this is Lago. Thanks for your question. The discussions about reviewing the economics of credit card in Brazil have been ongoing for many years involving both the government and many industry participants. Those discussions are not simple because the topic is indeed highly complex. In my view, there are two reasons why it’s complex. Firstly, the credit card is a very big industry in Brazil; it accounts for about 40% of personal consumption expenditures and over 20% of the country’s GDP. In 2022, the purchase volume of credit cards amounted to over BRL2 trillion. So, any disruption to this industry can have major consequences for consumption in the country. Secondly, credit cards also happen to be a very complex industry in Brazil. Only 25% of the receivables bear interest versus about 70% in most other countries, creating many idiosyncrasies and cross-subsidies. Not to mention that the industry also has many stakeholders such as merchants, acquirers, networks, issuers, and consumers. So it’s a complex puzzle to be cracked. Now, we have had the opportunity to engage in constructive and technical dialogue with the Brazilian government and other industry participants. We believe that the Brazilian government has fully comprehended and assimilated these complexities and the multiple economic levers that exist such as interest rates, interchange rates, and interest fees. They understand that you cannot change one without also changing the others. It is probably too premature at this point in time to draw any conclusions or expectations about when and how those discussions will unfold, but we are confident that they will unfold in a manner that is balanced and will not put at risk the gains in financial inclusion and competition that have been made in the country over the past decade.
Geoffrey Elliott, Analyst
And the 40% or, I think this quarter, 43% ROE in Brazil is clearly a very impressive number. But do you think that could become problematic in those discussions? Sometimes politicians look at returns and think, 'Wow, this is getting really high. Maybe I should do something about that.'
Guilherme Lago, CFO
I think two comments I would make. First and foremost, the returns that we have here result from a superior cost advantage that we have. I wouldn't say that the returns we are posting in our operations in Brazil reflect market-level returns, much less are reflective of our standalone credit card operations. The second comment is the discussions we have had with the government have proven to be super technical and constructive. I would be surprised if anyone would anchor on one or two quarters of returns to influence the dialogue.
Jorg Friedemann, Investor Relations Officer
And our next question comes from the line of Pedro Leduc at Itau.
Pedro Leduc, Analyst
Thank you, guys, so much for the call. My question is a little bit on the credit card loan book; you're still growing very fast. If you could help us understand a bit about how much is higher limits or usage per client, and sort of new clients? And perhaps a second question tied to that: an update on anything this quarter that we're already seeing in your effort to move up the higher income clients? Please outline some actions that you're taking there to understand a little bit about your credit card loan book growth. Thank you.
Youssef Lahrech, President and COO
Hi Pedro, this is Youssef. I would say, on the credit card, we’re continuing to see, as you pointed out, really strong growth. We're really pleased with the performance of the portfolio overall and also when we look at cohort by cohort. At the latest cohorts, both on a return on NPV and NPL basis, they have come at or even slightly better than our expectations. So we remain pleased with the performance of that book and really encouraged by the prospects of growth going forward. One thing I would point out which is even if credit card is our most mature and oldest product and we have about 40% of all adults in Brazil as customers, our share of purchase volume on credit cards is only 13%. We just crossed 13% in the quarter. We see a lot of runway to continue to gain share beyond adding customers. I'll let Jag comment on our efforts in the upmarket segment.
Jagpreet Duggal, Chief Product Officer
Thank you, Youssef. Pedro, thank you for the question. Let me first provide a bit of context on how we approach building products. We look at any product – any new product we're building or any customer segment we're trying to address – with a formula: first, we want a strong relationship with our customers; second, work to gain principle; and third, monetize. These don't necessarily happen in sequence; they can happen in parallel. When it comes to the high-income segment focus, particularly in Brazil, we already have about six out of ten of those high-income customers in Brazil who are Nubank customers with credit cards, bank accounts, and other products with us. We already have a great starting point in terms of an established relationship with those customers. In fact, quite recently, Bain published its most recent PRISM NPS report for Q1. What that shows is that the segment of customers where we have the highest NPS is with the high-income customers. Our lead in that high-income segment on customer satisfaction is in the same ballpark. We are encouraged that we are establishing credibility and trust with that customer segment. We are starting to see that in our products, whether it's the credit card product or others, where we're getting increasingly confident based on the activity we're seeing with high-income customers that they're starting to believe and think of Nubank as a bank they can work with. That progress that we are seeing over the last couple of quarters is starting to give us increased confidence that we can address that segment with a full suite of products.
Jorg Friedemann, Investor Relations Officer
And our next question comes from the line of Eduardo Rosman at BTG Pactual.
Eduardo Rosman, Analyst
Hi, everyone. Congrats on the numbers. I have a question regarding your underwriting skills, which is also a follow-up to what Jag just explained. Clearly, you are doing a very good job since you've been able to grow a lot over a long period of time and also with better asset quality, but that's particularly true on credit cards. Here, the way I see you with the best product, particularly for the average Brazilian. Do you think that the quality of your products and the high principality that you have with your clients create a willingness to pay that could be as important to know as the underwriting skills? And also as a follow-up, we're still not seeing the same thing happening on personal loans. We can see a very good performance in credit cards, while personal loans are still catching up. Do you think that is just a matter of time or that the product is just different? Thanks.
Youssef Lahrech, President and COO
Hi, Rosman, this is Youssef. Thank you for the question. When we look at our experience in credit cards and in unsecured personal loans, we see the methodology, playbook, governance process, and data tools we've developed working just as well. Obviously, personal loans are much more recent since inception than credit cards. When we compare to the same point in time, we see a relatively similar level of leverage from all those methodologies and processes. I don't think it's a leap of faith to believe that it would extend to other categories beyond unsecured personal loans in terms of the underwriting advantage it gives us. To your other point on willingness to pay, yes, we do see some evidence that we have a willing-to-pay advantage, particularly when we look at things like principality. Customers that we've reached primary bank relationship status with, as Lago was assuming earlier. That has to be a product of a lot of tangible things – how we service those customers – and some intangible aspects related to brand loyalty and NPS. I think there's a lot of factors that go into that, but we’re confident that such a phenomenon also exists.
Jorg Friedemann, Investor Relations Officer
And our next question comes from the line of Mario Pierry from BofA.
Mario Pierry, Analyst
Hi, guys. Thanks for taking my question. Let me ask you a question on funding costs and deposits. I think Lago mentioned that the funding costs should stay around 80% of CDI in the next few quarters. Just wondering if this number shouldn't be lower in the longer term, given that some of the incumbent banks have funding costs of like 65% of CDI. If your strategy in remunerating deposits would change in a lower rate environment because historically, you're remunerating clients at 100% of CDI. So I don't know the reason why you think that 80% is the right number. Does it mean that you'll be willing to remunerate clients higher if rates come down? When I look at your deposit per client, it has been trending down. So I don't know if that is a function of the change in remuneration? What do you think explains the lower balance for clients?
Guilherme Lago, CFO
Hi, Mario, this is Lago. Thanks for your question. Let me address them in turn. First, with respect to the cost of funding, we expect that for the coming quarters, the cost of funding will remain at around 80% of CDI. We can be precise on this because it largely depends on customer behavior. We do not offer exactly 80% of CDI. We basically offer a combination of products composed of Money Box and demand deposits that, compounding with the customer behavior we have observed, result in an average around 80% of CDI. We do expect this to remain as such. Fourth quarters see a seasonal drop in funding costs. We expect to observe that in the fourth quarter of 2023. But by and large, we expect to remain about 80% of CDI throughout the next four quarters. We believe there is an opportunity for us to continually reassess and reflect on the value proposition for our customers regarding their savings and investments. Currently, we don’t have short-term plans to change those features that will lead us to lower funding costs, although we acknowledge that there is a value lever there. If we find a proposition that will be net positive to our customers, we will certainly consider it. You should not expect any material change to the funding cost over the next four quarters. As for the second part, we observed a slight drop of about 5% to 6% in deposits per customer in the first quarter of 2023; that is largely seasonal based on what we have seen. In fact, if you look at the Brazilian market, the demand deposits in the whole system during the first quarter of 2023 dropped about 10%. So, Nubank's average demand deposit per customer dropping about 5%, 6%. We have gained some market share and we do not see any critical impact from the remuneration changes we made with the introduction of Money Box.
Mario Pierry, Analyst
Great, Lago. Just briefly then stay on deposits. If you can talk about the duration of the deposits and how you could change this going forward, especially as you go into longer-term products such as payroll loans?
Guilherme Lago, CFO
Absolutely, that is a great question. We do expect to continue increasing the average duration of our deposits as we decrease the average duration of our credit assets. That will be largely tied to the ramp-up of our payroll loan book, and we can do so primarily through the offering of time deposits to our own retail customers.
Jorg Friedemann, Investor Relations Officer
And our next question comes from the line of Rafael Frade from Citi.
Rafael Frade, Analyst
Hi, guys. Good evening. Congrats on the results. I have a follow-up on your credit card book. You had a huge increase in the receivables paying interest, right? This was a relevant portion of the increase in profitability of the quarter. So I just would like to understand a little more about the initiatives that you have been taking to increase the receivables with interest in this portfolio? And if you think that we are close to a level that should be sustainable, or is there still more room to go? So just trying to understand what's going on there.
Guilherme Lago, CFO
Yes, absolutely, that is a great question. On page 16, we provide the breakdown of the interest-earning portfolio within the credit card. Our non-revolving interest-earning portion of our credit card book has grown from about 8% of the total book to 16% of the total book in a year, so a relevant increase which we are pleased with. What is the source of that performance? I think we are managing to develop new financing products and features through which customers can actually gain financing capabilities through their credit cards, primarily related to PIX and Boleto financing. Those two features now account for the majority of this increase. While our non-revolving interest-earning portfolio went from 8% to 16%, the revolving part remained largely flat. What we've learned over the past four to five quarters is that those additional financing features have resulted in no incremental credit risk to our book, which is very pleasing for us.
Rafael Frade, Analyst
Thank you, Lago. Just to understand here, what's very curious is that when I look for the interest rates on credit cards, they're close to 9%, if I'm not wrong, according to the Brazil Central Bank, while the personal loans have a lower rate. I'm curious why a client is taking credit card installments instead of personal loans? Maybe part of the question you already answered, because it's a product that probably is not available on personal loans.
Guilherme Lago, CFO
Yes, I think it's important to note that the interest rates of those financing features within credit cards, what I'm calling PIX financing or Boleto financing, are closer to 5% to 6% per month, so more aligned with unsecured personal loans.
Jorg Friedemann, Investor Relations Officer
And our next question comes from the line of Gustavo Schroden at Bradesco.
Gustavo Schroden, Analyst
Hi, good evening, everybody. Thanks for the opportunity and congrats on the strong results. I'd like to switch the discussions to the operating expenses or the cost side, which cost quite a lot about the revenue generation. Indeed, the main beat versus our numbers here was on the operating expenses. I'd like to understand, because we finalized the evolution of especially the non-revenue-linked expenses, I'm talking about SG&A and marketing expenses. We could see a nominal decrease year-on-year and also quarter-on-quarter despite the fact that the bank is growing very fast in the core. So my question is: Is it sustainable to keep or to continue decreasing the non-revenue linked expenses in the coming quarters? Or was this some adjustment that the bank did in the quarter, especially on, as I said, SG&A and marketing expenses? It draws our attention in this quarter, and I think it's very important to understand the investment thesis.
Guilherme Lago, CFO
Absolutely, Gustavo, this is Lago. Thanks for your question. For those who have not yet seen, I would draw your attention to explanatory note number eight of our financial statements that probably bring a very detailed breakdown of those operating expenses. If you look at those statements, you will realize that within operating expenses, which grew by only 12% over the period, you have two items. You have customer support and operations, which over the past 12 months grew by 75%, and you have G&A, which stayed flat. Within G&A, if you consider the main components there are payroll and share-based compensation, and to your point, there are a few things that are non-recurring and a few things that are recurring. One of the main impacts of the largely flat decrease in G&A is the cancellation of the contingent share award that took place in the second half of 2022. That caused the company about $70 million to $75 million per year, the elimination of which brought us no significant savings. That level of saving is non-recurring. It happened from 2022 to 2023. We do not expect to see those deltas over the coming years, but we continue to see the elimination of the liable share awards. The second level is that we have largely capped headcount flat, if not slightly down over the past six to twelve months. That part, I think, is recurring. If you take a look at our overall cost base, between 50% to 60% of our cost base is payroll-related and about 20% is technology-related. We do expect that we will grow the headcount over the next 18 months at a fraction of the velocity at which we grew headcount over the past 18 months. Is this sustainable? We believe it is sustainable, especially with the adoption of best-in-class processes and technologies that will materially increase the efficiency and productivity of the company overall, as we have seen over the past 12 to 24-month period.
Gustavo Schroden, Analyst
Okay, very clear. Just a follow-up here, Lago. It's very clear on the G&A expenses and about the marketing expenses. It also draws our attention that $19 million in the first quarter this year was much higher than last year in the last quarter. Is it also likely that the bank will keep this lower level of marketing expenses? Also, it’s a soft guidance regarding the percentage of total operating expenses versus the total revenue. This quarter was 25%. Do you think that it’s a reasonable level or should it increase to something as we saw in the past?
Guilherme Lago, CFO
So, Gustavo, marketing expenses are a relatively small portion of our operating expenses and they have been since the inception of the company. Most of our customer acquisition happens through referrals, so we have had a relatively low investment in marketing. The 2022 numbers have also been inflated by the investments that we made in the World Cup, which we do not expect to see in 2023. You should expect marketing to be between 5% to 7% of our total operating expenses, as was the case in 2022 and in 2023. We don't think the levels that we have landed in overall efficiency ratio are non-sustainable. In fact, we think that we are nowhere near the efficiency frontier. There is more efficiency to achieve over the course of the coming quarters.
Jorg Friedemann, Investor Relations Officer
And our next question comes from the line of Neha Agarwala from HSBC.
Neha Agarwala, Analyst
Hi, thank you for taking my question. Mostly follow-ups on the questions previously asked. So first, on the cost. The cost to income ratio is about 36%. Do you see room for reducing it further in the short term? Or is this a good level at which you could operate? Should we see an increase as you get your licenses in Mexico and Colombia and launch more products in Mexico? Should we expect an increase in the cost-to-income ratio as the Nu geographies may require more investments upfront and monetization will come with a lag? My second question is about the high-income segment. Your comments about having the highest NPS in the high-income segment were surprising because there are not a lot of products to offer for the high-income segment. What are we missing here? What are the main things that are allowing you to capture the high-income segment in your view? Is it the ultraviolet card? Is it some other offerings that you have or just the overall experience? I would imagine the requirements for high-income segment are much broader; they require many more products and more personal attention. If you could shed some light on that, that would be great. Thank you.
Guilherme Lago, CFO
Great, Neha. Let me take your first question on efficiency, and I'll ask Jag to help with the high income question. So on efficiency, we reached a level of 39% on a combined basis and if you take a look on page seven of the earnings presentation, of 37% in Brazil only. Brazil is not surprisingly more efficient than the consolidated basis. We expect additional efficiency to be achieved in both Brazil and the consolidated basis. We don’t expect that 37% in Brazil or 39% at the holding company is the best-in-class we can achieve. In fact, many costs in Brazil and certainly in Mexico and Colombia are related to products or features that are not yet generating any revenues. Once they start generating revenues, they will contribute to efficiency ratios. Regarding Mexico and Colombia, we will have to increase operational expenses once they become fully regulated. But the additional revenues will more than offset those costs and contribute positively to the overall efficiency ratio. Jag, would you share some thoughts about high income?
Jagpreet Duggal, Chief Product Officer
Yes, happy to. Thank you, Lago. Great question. When we offer products targeted at the high-income segment and as we optimize those, we certainly see improvements in NPS as we measure them product by product from that high-income segment. We've seen that with our ultra card. We expect to see that in the future as we launch more products targeted at that segment. We've talked today about the payroll loan product for federal employees, which also tends to skew high income. We expect that trend to continue as we go forward. The NPS measurements we see today also relate to the fact that our core products, whether it’s the credit card product or bank account product, have features and ease of use and simplicity, transparency of pricing – all these key pieces of value resonate with high-income customers as well as the mass market. That, combined with the investments we've always made in customer experience and service, are contributing to our NPS position with high-income customers just as it's leading to our NPS position with other segments. As we increasingly focus our product development efforts to build products designed specifically for high-income customers, we expect NPS with them and our traction and principality with them to further increase. It’s still relatively early days of those dedicated efforts on our part.
Jorg Friedemann, Investor Relations Officer
And our next question comes from the line of Domingos Falavina from JPMorgan.
Domingos Falavina, Analyst
Hello, guys. Thank you for taking the question as well. First, congrats on the trends, very surprising costs and top line. My question just to shift a little bit more into Mexico – when I look at the operation in Mexico, we see basically loan ballpark numbers stabilizing around $650 million to $640 million actually. You did not grow in January and February, but provisions have come in at a similar basis of about $20 million. My question is: Are you doing the same kind of provisioning levels in Mexico for expected losses, in which case growth should be the main driver for that expense? So that's the first kind of more accounting question. The second one is what's your thinking process in Mexico? How long do you plan on holding this stable? What’s the average duration of that portfolio to learn from that vintage before re-accelerating?
Guilherme Lago, CFO
Dom, thank you for the question. We launched Mexico just a step back about three years ago and it has been phenomenal growth. Last year, we became the number one issuer of credit cards in the country. Mexico is beating Brazil across every KPI we have. We did grow credit cards and we did see a steep growth in customers over the coming months, primarily after the launch of Cuenta Nu, which reached over 500,000 customers. We are pleased with what we're finding in Mexico so far. With respect to provisioning, you will only see the expected credit loss provisioning in the consolidated books that we report. In the local books, you will see Mexican GAAP, so you will not see IFRS expected credit loss provisioning, which you would normally see. The second point is that once you look at the NPL ratios we have in Mexico, we usually present our results in terms of 60-plus NPLs, whereas the banking industry in the country usually presents at 90-plus. This may not provide a true apples-to-apples comparison. So the underlying question is what are the economics of credit in Mexico? What is the overall credit loss in Mexico? How do we expect this portfolio to behave and unfold over the coming quarters? We do not expect Mexican delinquency levels to be par with Brazil, especially in the early stages of ramp-up for the business for a few reasons; we are systematically launching foundational tests as we enter a country, assessing customer behavior and repayment profile across various bands. Customers in Mexico typically use credit cards primarily as financing, which results in revolving rates that are much higher than they are in Brazil, hence we expect cohorts to have higher delinquency levels at some point, and higher delinquency levels in the future. However, the unit economics of credit cards in Mexico are as compelling, if not more compelling than in Brazil. The return on assets and equity expectations for credit cards in Mexico are at par or higher than those we expect in Brazil. As we earn more customers through Cuenta Nu and more data for underwriting, we expect to see significant growth in credit cards. We will resume growth in credit cards in Mexico throughout the second quarter and throughout the third quarter of the year. There is absolutely no slowdown in Mexico, and we expect to continue to increase product penetration in the country.
Jorg Friedemann, Investor Relations Officer
And our next question comes from the line of Craig Maurer from FT Partners. Craig, your line is open.
Craig Maurer, Analyst
Sorry about that. Thanks for taking the question. To follow up on earlier discussions about pursuing more high-end consumers, the question is, to what degree do you think your customer base now and in the medium-term will overlap with small business owners in Brazil? How can you expand your product offerings to cross into the small business market?
David Velez, CEO
Hi, Craig, David here. Thank you for the question. We actually have already a very significant base of small business owners. We have over 2.3 million SMEs in our customer base. This is very much related to what you were saying – many small business owners end up being internally identified as high income. We began with small business owners because our consumer base was expressing dissatisfaction with the service being provided by traditional institutions in Brazil. We recognized an opportunity and began cross-selling the small business product to them. These businesses have a lot of potential, and we probably haven't given as much focus as we should, but we see significant growth ahead. We have still a reduced product portfolio, but we have savings accounts, a detailed account, and we are starting to roll out a credit card product for small business owners. We see really significant product-market fit. We've also launched payments receiving features, and overall, we're very excited about the opportunity there.
Jorg Friedemann, Investor Relations Officer
And this concludes the Q&A session of the call. I would like to thank you all for participating in this session today and learning more about our path of growth and profitability. I welcome you to access our Investor Relations website and follow up with us if there are any pending points. Thank you very much for being with us today.
Operator, Operator
The Nu Holdings conference call has now concluded. Thank you for attending today's presentation. You may now disconnect.