Nu: The radical upstart bank of Brazil

According to Terry Tanaka, Nu is upending the status quo in Latin America by taking on a banking industry that is dominated by indolent, expensive incumbents

Transformative firms are uncommon in the banking industry. However, they can have a significant effect when they emerge. Nu Holdings is one such company. It is challenging the banking industry in Latin America, which is controlled by a cartel of large banks that mistreat their clients. Nu's success is a result of its unwavering pursuit of efficiency and its fervent commitment to the customer.

The company, which its 127 million clients simply refer to as Nu, is an unlikely tale of an outsider defeating a banking oligopoly and, in the process, establishing a model for the future of financial services in Latin America and possibly the entire world. In order to fully appreciate Nu's accomplishment, one must comprehend the environment it entered.

Brazilian banks were infamous for decades for viewing their clients as nothing more than a source of revenue. Nearly one-third of adults did not have a bank account. Protectionist measures allowed five politically connected banks to expand and take control of almost 90% of the Brazilian market in the middle of the 20th century. A culture of indolent profitability resulted from this. Net interest margins, a crucial indicator of banking profitability, were maintained by Brazilian incumbents at about 14% as opposed to about 3% in the US and Europe. They imposed exorbitant fees and interest rates on credit cards, often reaching hundreds of percent annually. Account opening was notoriously difficult and could take days. Many were excluded by the atmosphere in branches, which was characterized by armed guards and suspicion. 60 million adults lacked bank accounts by 2013.

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Start your trial David Velez, a Colombian-born investment professional who relocated to So Paulo in 2012 to head the Latin American office of venture capital firm Sequoia, was the inspiration behind Nu. Months passed while he tried to open a local bank account. Velez saw his opportunity when Sequoia pulled out of Brazil due to a perceived lack of investable technology talent. He realized that incumbent banks' costly, sluggish models made them vulnerable to assault.

Velez put together a small founding team consisting of himself as the strategist, Edward Wible, an American engineer who created the bank's technology from the ground up, and Cristina Junqueira, a seasoned banker who was familiar with the Brazilian banking system. Since many large, established banks use outdated software that makes innovation and cost-cutting challenging, this was possibly Nu's biggest advantage. Building from the ground up with state-of-the-art technology gave Nu a huge advantage over competitors.

The monthly cost of customer service for a traditional Brazilian bank is between £12 and £15, whereas Nu's cost is approximately £0.90. Its cornerstone is this saving. It enables it to profitably serve the unbanked, whom the incumbents considered too costly to deal with.

The price of Nu Holdings shares.

Nu's radical strategy.

Due in large part to word-of-mouth and its radical approach to customer satisfaction, Nu's first producta straightforward credit card with no feesbecame extremely popular very quickly. Nu's Net Promoter Score (NPS) skyrocketed into the 90s in a market where banking was associated with abuse (an NPS can range from -100 to +100, so a score in the 90s is extremely high). In addition to offering a service, the business developed a movement centered on justice and helping the underprivileged segment of society. Because of its organic growth, it was able to attract clients for a small portion of what its rivals spent on marketing.

The biggest worry of the skeptics was credit risk. Nu came up with the "low and grow" strategy. It would give unknown borrowers micro-limits, which could be as low as 10 at times. This was essentially a test-and-learn approach. Nu may be able to predict defaults more precisely than conventional credit bureaus by monitoring real-time payment behavior and smartphone data. In late 2025, Nu's return on equity (ROE) hit a record 31 percent, which is a very high figure in the banking industry, where ROE is typically closer to 12 percent. This demonstrated that Nu could lend to the underprivileged more profitably than the incumbents could lend to the elite.

How Nu exports its model.

Nu Bank's headquarters.

Now, the Nu model is being exported. The next chapters of the narrative are represented by Mexico and Colombia. Nu reached 13 million customers in just two years in Mexico, where cash is still king and banking penetration is even lower than in Brazil. It has overcome its lack of a branch network by collaborating with retail behemoth OXXO, which has more than 23,000 locations throughout Mexico, to permit physical cash deposits.

In an effort to advance the cash remittance corridor between North and South America, Nu was granted conditional approval for a US National Bank charter at the beginning of this year. Nu is expanding throughout the continent and is no longer merely a new bank in Brazil.

The shares of Nu are not inexpensive in the conventional sense. Compared to banks like JPMorgan, which normally trade at about 1.2 to 2.5 times book value, they command a substantial premium, trading at more than seven times. However, it would be incorrect to compare Nu to a conventional bank. It operates more like a high-margin software company given its effectiveness and revenue growth. It is a best-in-class operator because of the caliber of the management team and the structural cost advantage. Given its rapid growth trajectory, the stock may be priced for perfection at its current levels. Any notable decline in the share price, however, would be a tempting opportunity for the patient investor to enter what is perhaps the world's most effective banking system.