By Jamie Murray
Digital Banking Growth and Profitability in Latin America
In banking, growth is easy to manufacture. Returns are the harder test.
We first wrote about NU Holdings a year ago following our initial purchase in the Global Equity Growth Fund. The company operates the largest digital bank in Latin America, serving roughly 139 million customers across Brazil, Mexico and Colombia from a platform with no branch network. In the second quarter of 2026, it reported net income of US$1.06 billion, the first-time quarterly profit has exceeded US$1 billion, up 49 percent from a year earlier, with return on equity of 33 percent. For a thirteen-year-old institution, that is an unusual combination of scale and profitability.
Brazil Provides the Blueprint
Brazil remains the foundation of Nu’s business, with approximately 117 million individual customers. With penetration now reaching mature levels, the opportunity is increasingly about expanding the relationship Nu has with those customers. Small business banking represents another meaningful growth avenue, while revenue from existing customers continues to develop as they adopt more products and services.
Nu’s customers in Brazil currently generate average monthly revenue of approximately US$17, with mature customers generating closer to US$30 per month. That difference is significant when applied across a customer base of this size and suggests there is still considerable room to grow within Brazil as Nu expands the number of products and services its customers use.
Mexico and Colombia provide the next major leg of geographic growth. Nu launched as a licensed bank in Mexico in August and now serves approximately 16 million customers there, representing roughly 16.5 percent of the adult population. Colombia has surpassed five million customers, with both markets continuing to build from relatively small bases.
Mexico is particularly interesting because its current penetration is comparable to where Brazil was in 2020, while the economics are developing more quickly. Average revenue per active customer in Mexico is approximately US$12.30 compared with US$5.60 for Brazilian customers at the equivalent stage. With US$5.7 billion in deposits and a loan-to-deposit ratio of just 35 percent, Nu also has significant balance sheet capacity available to extend credit to this growing customer base.
The Advantage of a Digital Banking Model
One of the most compelling aspects of Nu’s business continues to be its efficiency. The efficiency ratio is a straightforward way of measuring how much a bank spends to operate relative to the revenue it generates after funding costs. It includes expenses such as employees, technology, marketing and premises. A 40 percent efficiency ratio essentially means that forty cents of every dollar of revenue is consumed by operating the business, so a lower ratio is better.
Nu’s efficiency ratio was approximately 20 percent in the second quarter, meaning it spent roughly twenty cents for every dollar of revenue generated. The best-run incumbent bank in Brazil spent approximately thirty-seven cents. Nu has also managed to keep its ratio around this level while continuing to invest in its expansion across Mexico and Colombia, highlighting the operating leverage inherent in a digital banking platform without the expense of a traditional branch network.
The longer-term trend is equally important. As Nu has added customers and expanded its product offering, its efficiency ratio has fallen considerably from the levels seen earlier in the company’s development. The ability to serve a substantially larger customer base without a corresponding increase in operating costs remains one of the strongest features of the business model.
Data, AI and the Next Stage of Growth
Nu’s digital model may offer another advantage as the company expands further into lending. With a large and growing base of customers conducting their financial activity through its platform, Nu has accumulated a unique dataset that can help it understand and underwrite borrowers across its markets.
Its AI model, NuFormer, is only about a year old, but the potential is worth watching. Nu’s consumer underwriting data could help the company improve lending decisions and build on its position serving customers who have historically been underserved by traditional financial institutions. As lending becomes a larger part of the business, the ability to assess credit risk accurately will be an important factor in determining how successfully Nu can monetize its customer base.
A U.S. expansion is also in development, although we view this as more of a 2027–2028 opportunity. Customers with ties to Mexico, Colombia and Brazil could provide Nu with a natural initial audience in the United States, particularly among consumers already familiar with the brand or its approach to banking. There is significant growth available across Nu’s existing markets, while the U.S. could provide an additional source of opportunity over the longer term.
Valuation and the Investment Case
The valuation has also become more interesting. Nu’s valuation multiples have compressed since 2024 despite earnings per share roughly doubling over that period. EPS is projected to nearly double again over the next four years to almost US$2, which would leave the shares trading at a mid-single-digit price-to-earnings multiple based on those future earnings.
There are legitimate risks to consider. Nu operates in less-developed financial markets than the major North American banks, while movements in foreign currencies can affect results for investors. Continued expansion into lending also makes credit performance increasingly important. We believe those risks are worth accepting given the company’s growth potential, operating efficiency and opportunity to generate more revenue from a customer base that is approaching 150 million.
We remain encouraged by the opportunities in front of Nu. Brazil provides a large and increasingly valuable established customer base, while Mexico and Colombia offer meaningful room for continued expansion. New products and services provide additional ways to deepen existing customer relationships, and the company’s digital platform allows that growth to occur with a highly scalable cost structure. With a model that will soon serve approximately 150 million customers, Nu remains well positioned for continued growth.
