Nu Holdings Ltd. (NYSE:NU) saw its stock edge down 0.4% to $13.71 in premarket trading on Monday, following a subdued response to the company’s announcement that it has secured final regulatory approval for its Mexican unit to operate as a full-scale bank. The license, which converts Nu’s Mexican operations from a SOFIPO (popular finance company) to a multiple bank, brings a significant enhancement in customer deposit protection.
Deposit Insurance Boost and Strategic Implications
Under the new license, deposit insurance in Mexico will rise to 400,000 UDIs (approximately MXN 3.52 million based on July 13 UDI values), a 16-fold increase from the previous SOFIPO limit of 25,000 UDIs (about MXN 220,134). This expanded coverage allows Nu to target larger deposit balances and payroll direct deposits, while reducing the amount of uninsured customer funds. The move is a key step in Nu’s strategy to deepen its presence in Mexico, which CEO David Vélez has described as “a key market for Nubank,” with plans to invest $4.2 billion in the country by 2030 remaining unchanged.
Mexico Operations: Key Metrics
Nu’s Mexican business has grown substantially, ending the first quarter with over 15 million customers and $5.9 billion in deposits. These figures represent approximately 11% of Nu’s total customer base of 135 million and 14% of group deposits of $42.4 billion. Notably, average deposits per customer in Mexico stood at roughly $393, about 25% higher than the group average of $314. This suggests that Mexican customers are depositing more on average, making the enhanced insurance limit particularly valuable.
Market Reaction and Stock Performance
The stock initially rose as much as 2% following the license news on Friday but closed with a modest 0.66% gain at $13.76, despite heavy volume of approximately 122.5 million shares—nearly double the recent average. The lack of price follow-through indicates that the market is awaiting evidence of lower-cost deposits and genuine credit growth before re-rating the stock. Shares remain 26.7% below their January 28 high of $18.76.
Competitive Landscape
Nu faces competition from established players. MercadoLibre Inc. (NASDAQ:MELI) filed a banking application for its Mercado Pago unit in Mexico in September 2024, seeking to offer checking, deposits, and mortgages. Revolut started full banking services in Mexico in January of this year with over $100 million in local capital. However, Nu enters with a larger stated customer base in Mexico, which could provide a competitive edge.
Costs and Credit Risks
Despite the license, obtaining cheaper deposits is not guaranteed. As of March 31, Nu’s Mexican “Cajitas” savings accounts paid annual rates between 7% and 13%. Meanwhile, the group’s expected credit loss charge rose to $1.72 billion from $973.5 million a year earlier. Analysts at Citi, including Gustavo Schroden, note that Nu’s use of Oxxo stores for cash services is a positive step but “likely costly” and not exclusive. The risk is that competition keeps savings rates elevated, even as Nu expands payroll lending and credit, potentially pushing its Mexican operations back to break-even or below.
Leadership and Strategic Outlook
Rob Livingston is set to assume the role of CFO on Monday, overseeing capital and liquidity planning as Nu pursues its Mexico investment and a $1 billion share buyback. The key question for investors now is whether the enhanced deposit insurance can lower funding costs without triggering a rise in non-performing loans. The license is a milestone, but the market is focused on execution and financial performance.
