Nubank May Surpass Itaú's Retail Profit by 2025

Nubank is on the verge of surpassing Itaú Unibanco in net profit within the retail segment. According to estimates from JP Morgan, the digital bank's results already account for 98% of what the largest private bank in the country delivers in this division. The projection is that this turnaround will happen as early as 2025.

This data is remarkable because Nubank operates with a significantly smaller asset base. While Itaú's retail credit portfolio totals around R$ 614 billion, Nubank's is approximately R$ 137 billion, equivalent to only 25% of its competitor. Even so, the digital bank is nearly as profitable.

Nubank's ROA is Up to Three Times Higher than Itaú's

The central explanation for this phenomenon lies in the return on assets (ROA). Nubank's ROA fluctuates between 5% and 6%, while Itaú's retail ROA is close to 2%, according to JP Morgan's estimates. In other words, each real on Nubank's balance sheet generates a proportionally much higher return.

This difference is largely sustained by operational efficiency. Nubank's efficiency ratio in Brazil is approximately 17%, while Itaú's retail efficiency ratio is 41%. For those following the banking sector, this gap is almost unprecedented between two competitors of this size. As we analyzed in our coverage of the financial sector, digitalization has been the main driver of cost compression in banks.

The ROE tells a similar story. Nubank Brazil delivers a 42% return on equity, compared to 29% for Itaú's retail. These figures reinforce the thesis that the digital model, born without branches and with a lean structure, can extract more value from each customer.

Nubank Has More Customers, Itaú Has More Products

When looking at the active credit-exposed customer base, Nubank already leads: 65 million compared to Itaú's 47 million. The scale of the digital bank is undeniable. However, Itaú still dominates in revenue diversification.

The largest private bank in the country is a leader in the high-income segment, has a 21% share in credit cards (compared to 17% for Nubank), and operates in verticals where Nubank has just begun: mortgage financing, vehicle credit, acquiring, and servicing small and medium enterprises.

This diversification acts as a fortress. Even if Nubank surpasses Itaú in retail profit, the traditional bank still has revenue sources that the digital competitor will take years to replicate. The question, as we highlighted in previous analyses of Brazilian fintechs, is whether the market will price Nubank based on what it already delivers or what it can still achieve.

What Explains Nubank's Recent Profit Surge

In the second quarter, excluding operations in Mexico, Nubank reported a net profit of $1.054 billion. Itaú's retail reported $1.087 billion in the same period. The difference is only $33 million.

Part of Nubank's result was driven by the Desenrola program, which contributed about $60 million. Operations in Colombia, on the other hand, still weigh negatively, with a loss of $9 million in the quarter. However, JP Morgan analysts consider these factors "rounding errors" in light of the macro trend: the profit gap is consistently closing.

The reading is that Nubank no longer depends on one-off factors to compete with Itaú in results. The cost structure, customer base penetration, and monetization capacity already sustain a level of profitability comparable to that of the largest bank in the country.

Challenges That May Hinder the Trajectory

Despite the favorable moment, the path ahead is not obstacle-free. To continue growing, Nubank needs to advance in segments where it is still small. JP Morgan analysts point to three priority fronts: middle-income customers, payroll loans, and SMEs.

Expansion into new geographies and the maturation of older customer cohorts will also be decisive. The point of concern is that higher-income customers, while moving larger volumes, tend to generate lower returns. This means that the ROA of 5% to 6% may not be sustainable as the customer mix changes.

As we discussed in our analyses of competition in the banking sector, Nubank's dilemma is classic in hypergrowth companies: grow without diluting the profitability that the market has learned to price.

What This Means for Investors

Nubank's potential surpassing of Itaú in retail would be an important symbolic milestone. Not because it fundamentally changes the investment thesis for either bank, but because it confirms a structural shift in the Brazilian financial sector.

A bank with 15 years of existence, without physical branches, is about to earn more in retail than a century-old institution with the largest distribution network in the country. This says something about the direction of the market.

For those investing in the sector, the practical question is: can Nubank maintain this operational efficiency as it enters more complex and lower-margin products? And can Itaú accelerate its digital transformation enough to close the efficiency gap? The answers will determine which stock will deliver more value in the coming years.