Operator
Good evening, everyone. Thank you for standing by. Welcome to StoneCo second quarter 2024 earnings conference call. By now, everyone should have access to our earnings release. The company also posted a presentation to go along with its call. All material can be found online at investors.stone.co. Throughout this conference call, the company will be presenting non-IFRS financial information, including adjusted net income and adjusted net cash. 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 appear in today's press release. Finally, before we begin our formal remarks, I would like to remind everyone that today's discussion may include forward-looking statements. These forward-looking statements 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 that could cause results to differ materially from the company's expectations. Please refer to the forward-looking statements disclosure in the company's earnings press release. In addition, many of the risks regarding the business are disclosed in the company's Form 20-F filed with the Securities and Exchange Commission, which is available at www.sec.gov. I would now like to turn the conference over to your host, Roberta Noronha, Head of Investor Relations at StoneCo. Please proceed.
StoneCo
Thank you, Operator, and good evening, everyone. Joining me today on the call is our CEO, Peter Zinner. our Chief Financial and Investment Relations Officer, Mateus Scherer, and our Chief Strategy and Marketing Officer, Lia Matos. Today, we will present our second quarter 2024 results and provide an updated outlook for our business. I will now pass it over to Pedro so he can share some highlights of our performance. Pedro?
Pedro
Thank you, Roberta, and good evening, everyone. After reviewing our second-party results and our performance at mid-year, I am pleased with our progress across our strategic priorities and believe we are on schedule to meet our 2024 goals. In payments, we continue to win in the MS&B market and take more market share. Our client base grew 30% year-over-year, TPV grew 25% and Card TPV increased over 17%. We are also executing on our pricing and bundling strategies to enhance client engagement, as we discussed during our Investors Day. As a result, our MSNB take rates also continue to expand. year over year to reach 2.54%. We believe these strong results arrive from our competitive advantages in distribution, superior service, and our growing ability to provide more comprehensive solutions to our clients. In banking, we are making similar progress. Our client base grew 62% year over year, and client deposits increased 65% as our team continues to cross-sell effectively. We now have 2.7 million active banking clients and 6.5 billion reais in deposits, which are approaching our 2024 targets. We have also started to pilot interest-bearing projects, such as time deposits, which I believe is being well received by our clients and could be an exciting new area for us. In credit, we're also evolving well towards our goals, even above set targets. Our total credit portfolio increased 32% quarter over quarter to reach 712 million reais. Within that, our working capital portfolio grew over 28%, reaching 682 million reais this quarter, with strong quality, as shown with our NP help over 90 days, still at 2.6%, very much in line with our expectations. I'm also excited with some new initiatives underway. Our specialized credit desk, which is focused on addressing the opportunity within our larger SMB client base, successfully completed its first disbursement this past quarter, and we finalized the structuring of our GiroPasso product. This is a short-term overdraft solution designed to address the immediate capital needs of our clients, which is set to launch in the third quarter. In our software business, we are making progress on our cross-sell initiatives. and we are improving the quality mix of our business towards more recurring revenues. Total software and vertical software revenue growth remain modest, but we are seeing underlying signs of improvement. For example, we are getting better cross-sell traction in our gas station and retail vertical. and we generated stronger Card TPV growth from our software clients in priority verticals than our overall MSNB Card TPV growth rate. We still have a lot of work to do in our software business over the long term, as I have mentioned, but I'm seeing some encouraging trends from our efforts. We have also maintained our focus on efficiency gains and the streamlining of administrative expenses, which decreased by 13% year over year. In the quarter, we achieved a 180 basis point reduction in administrative expenses as a percentage of revenues when compared to the second quarter of 2023. As a result of these positive developments, our adjusted basic EPS demonstrated strong growth, reaching R$1.61. As I mentioned earlier, we remain committed to our business plan and the targets established during our investor day. In light of this commitment and considering short-term market fluctuations, we allocated capital to repurchase an additional 9.67 million shares, totaling R$724 million. bringing us closer to completing the R$1 billion share repurchase program announced in November 2023. Additionally, as part of our liability management strategy, we allocated $295 million to the tender offer for our 2028 bonds, achieving nearly 60% participation. In summary, I'm very satisfied with the trajectory of our results for the second quarter of 2024, and I have full confidence in our team's execution. Now, I'd like to pass the floor to Lia, who will discuss our second part of the 2024 performance and strategic updates. Lia?
Lia
Thank you, Pedro, and good evening, everyone. As Pedro mentioned, we were pleased to see the progress across our strategic priorities and initiatives in the second quarter, which I think positions as well to meet our 2024 and long-term goals. As you can see on slide four, our consolidated revenues grew 8% year over year, mainly as a result of consistent TPV growth and higher client monetization. It is also important to remember that in the first quarter of 24, we changed our internal accounting methodology for membership fees revenues, deferring this revenue stream over the expected life of a merchant rather than recognizing it at the time of acquisition. This change reduced our reported revenue by around 50 million reais in the second quarter. If we exclude this change, our total revenue growth would have been 10% in the quarter. Despite this effect, adjusted EBT increased 46% year-over-year. This was driven by the combination of our top-line growth and the ongoing benefits of our financial and administrative expenses efficiencies. As a result, our adjusted net income increased 54% year-over-year, and our adjusted basic EPS increased 57% year-over-year, reaching 1.61 reais. Now let's dive further into our financial services segment performance on slides five to nine. Starting with payments on slide five, our MS&B client base increased 30% year over year, reaching almost 3.9 million active clients. We generated a net addition of 184,000 clients during the quarter. On a year over year basis, This growth was impacted by the fact that we have caught up to the growth levels in the micro segment. And on a quarter-over-quarter basis, our net ads were impacted by the grow-over effect of higher net ads in the first quarter, which benefited from our sponsorship of a popular reality TV show in the period. As you will see in the pages that follow, besides optimizing our commercial strategy for growth and market share gains, We're also putting a lot of focus on improving our payments and banking bundle offerings to new planning cohorts, both in ton and stone. As you can see on slide six, this approach has resulted in more profitable TPV growth and market share gains in the MSNB segments. Before we dive deeper into our TPV performance in payments, I would like to point out that we have refined our disclosure of TPV. due to the increasing relevance of fixed QR codes in the market and in our transactional volumes. From now on, whenever we talk about TPV, we will refer to transactions settled through cards and fixed dynamic QR codes. When we talk about card TPV, we will be referring to transactions settled with cards only. Now moving to volume intake rate results, MSNB TPV increased 25% year-over-year as a result of a 17.4% year-over-year growth in MSNB card TPV and a 2.6-fold increase in PIX QR code, which reached 11.5 billion reais in the quarter. We achieved this strong growth while also increasing take rates by 7 basis points year-over-year, which reached 2.54% as a result of higher credit and banking revenues and higher prepaid volumes, partially offset by a lower duration from prepayment transactions. On slide seven, let's shift to discuss our banking performance. Our banking active client base increased 62% year over year to 2.7 million active clients as a result of growth in both stone and stone payment client base with an increase in penetration of clients using banking and payments bundles. This growth in our client base also helped drive a 65% year-over-year increase in client deposits, which reached 6.5 billion reais in the quarter. Despite the sequential 8.1% growth in deposits, our crack decreased to 25.7 reais per month, mainly as a result of lower average CDI in the period. Moving to slide 8, let me give some highlights on our credit performance. Our credit portfolio increased to 712 million reais, with the working capital portfolio alone increasing 28% sequentially, to reach 682 million reais in the quarter. The remainder of the portfolio is the result of the very initial results of our credit card products, both within Tone and Stone. Because such cohorts are very early vintages, We highlight on the page the credit quality metrics of our working capital loan product alone. NPLs increased slightly this quarter, with NPLs between 15 and 90 days reaching 2.9%, and NPLs over 90 days reaching 2.6%. As highlighted before, because these cohorts are also relatively new, the ratio of past due loans should continue to increase as they mature. Provision expenses for working capital expected losses were 17 million reais in the period, decreasing significantly quarter over quarter. This reduction reflects the beginning of a conversion of provision levels to expected loss levels as the portfolio matures, with provisions now representing 18% of the working capital portfolio, down from 20% in previous quarters. Finally, to summarize the performance of our financial services segment, the second quarter was again marked by strong year-over-year TDV growth and the successful development of our banking and credit initiatives. These resulted in segment revenue of 2.8 billion reais and adjusted EBT of 608 million reais in the quarter, up 11% and 53% respectively year-over-year. and an increase of 590 basis points in our adjusted EBT margin to reach 21.5%. Moving to slide 10, let's talk about software performance and its strategic evolutions. Quarter over quarter, the car TPV of clients that use both financial services and software solutions increased 8%, primarily driven by the gas station and retail verticals, which has been our priority focus since last year. This result has been mostly driven by the cross-selling efforts from our financial services specialist distribution team, cross-selling bundles to software clients. As Peter mentioned, cross-sell volumes outperformed growth of MSNB card CPG in the quarter by almost a factor of two. We're happy with the execution of our cross-selling initiatives so far in 2024. but I believe we still have a lot of room to grow, particularly as we gear up to enable our lean software channels to also sell software and financial services bundles. On page 11, you can see the standalone performance of our vertical software business, where we're seeing some improvements in the quality of our revenues. Vertical software revenue grew 3% year-over-year due to an increase in recurring revenue growth offset by a decrease in non-recurring revenues in priority verticals. As a result, we believe the revenue quality of our priority verticals is improving, with recurring revenue as a percentage of total revenues, increasing by more than 450 basis points year over year. In slide 12, we present the consolidated performance of software. As you can see, total software segment revenues reached 384 million reais, remaining slashed year over year, driven by the trends I just described in our vertical software business, offset by slower growth in the enterprise business. Adjusted EBITDA in the software segment decreased to 64 million reais in the quarter, down 4% year over year, and 3% quarter over quarter, impacted by a non-recurring seventh expense of 3.2 million reais, and by our decision to focus on growing recurring versus non-recurring revenues, which has a negative impact in the short term, but should be accretive for the business in the long run. We continue our efforts to implement the software strategy that we presented in our investor day. While we're happy with our evolution in cross-selling initiatives in the gas station and retail verticals, we're still working and learning how to best enable our software distribution channels to sell financial services and software bundles via commercial incentives and systems integrations. We also continue to pursue efficiency initiatives in a more disciplined capital allocation approach within our software segments. Now, I want to pass it over to Matheus to discuss in more detail some of our key financial metrics. Matheus?
Matheus
Thank you, Lia, and good evening, everyone. I would like to begin on slide 13, where we discuss the quarter-over-quarter evolution of costs and expenses on an adjusted basis. Cost of services reached R$ 841 million, increasing by 23% year-over-year and 4% quarter-over-quarter. Sequentially, cost of services as a percentage of revenues decreased by 10 basis points, primarily due to a reduction in lieu-loss reduced to R$18 million this quarter from R$45 million in the first quarter of 2014. This reduction reflects the beginning of the process of aligning our provision levels with expected credit losses as the portfolio matures, with provisions now representing 18% of the working capital portfolio. This decrease was offset by higher provision for losses in the quarter on our acquiring and banking solutions. Administrative expenses decreased by 13% year-over-year, resulting in a 180 basis point reduction as a percentage of revenues compared to the second quarter of 23. Sequentially, administrative expenses increased by 1.4%, but declined by 20 basis points as a percentage of revenues. This was driven by lower expenses in the software segments as well as by the divestment of PIMPAG in the first quarter of 24, which eliminated expenses in the non-allocated segments. Selling expenses increased 27% year-over-year and decreased 0.9% quarter-over-quarter, down 80 basis points sequentially as a percentage of revenues. This decrease is primarily due to a reduction of approximately 26 mentioned, partially offset by increased investments in sales teams. Looking ahead, we anticipate gradual dilution of selling expenses as these investments in sales teams mature. Financial expenses decreased 20% year-over-year and decreased 4.5% sequentially, leading to a 230 basis points reduction as a percentage of revenues. This decrease was a result of lower average CDI in the period, a reduction in our funding spreads, and our decision to reinvest our cash generation towards the planning of our operation. These effects were partially offset by higher funding needs for our prepayment and credit operations, as well as by a higher number of working days in the park. Lastly, other expenses increased by 26% year-over-year and 80% sequentially, or 140 basis points as a percentage of revenues. This variation was a result of more normalized levels of share-based compensation expenses, as the first quarter of 24 included a non-recurring positive impact of R$ 40.5 million from the net effect of the cancellation and new grants of incentive plans. Excluding this effect, other expenses net would have been flattish as a percentage of revenues. Turning to slide 14, our adjusted net cash position was R$ 5.3 billion by the end of the quarter, reflecting an increase of almost R$ 1 billion year-over-year and R$ 117 million for the quarter. We continued to deploy capital towards the expansion of our credit portfolio and executed our share-buy-back program in the amount of R$ 237 million this quarter. As Pedro mentions, I would like to highlight that in July we allocated capital to repurchase an additional 9.6 million shares, amounting to 724 million reais, newly completing the 1 billion reais buyback for purchase program announced in November 2023. Additionally, we allocated 295 million dollars in July to the tender offered for our 2028 bonds, which will further optimize our funding spreads as we move forward. Finally, let's move to slide 15 to discuss our guidance. We are very pleased with our performance in the first half of the year. The profitability achieved in the first half of 24 has positioned us favorably to meet our full-year guidance, despite several headwinds. These include a R$ 120 million reduction in revenues due to the changes in recognition of membership fee revenues, and a challenging macroeconomic environment with a higher yield curve. In our banking and credit solutions, which are key drivers for our long-term growth, we have exceeded initial expectations, not only in volume, but also in quality. This strong performance may put us on track to surpass our year-end guidance in these areas. From my perspective, the most challenging area so far has been our MS&B Prime TPV. PIX QR Code penetration in the market and within our client base has been higher than we anticipated when setting our guidance in November of last year. This has affected our overall volume mix towards less Card TPV and more PIX QR Code TPV. Although this trend is positive for the business, it also means that Card TPV is growing a little tighter within our expected range. We ended the first half of 24 with 18% growth, exactly in line with our guidance. Despite a more challenging comparable base in the second half of 24, we remain later focused on our efforts to meet this guidance. Overall, I believe our second quarter results are trending favorably and we are on track to achieve our long-term goals. With that said, operator, can you please open the call up to questions?
Operator
Okay, at this time we are going to open it up for questions and answers. If you have a question, please click on Raise Hand for audio questions. We do ask that when you pose your question that you pick up your headset to provide optimum sound quality. Please hold while we poll for questions. Our first question comes from Mário Pierre with Bank of America. You can open your microphone.
Raise Hand
Hi, guys. Good afternoon. Congratulations on the results. Let me ask you a question about competition. Have you seen any changes in the competitive environment over the last three months, especially coming from maybe some of the incumbent banks and any changes at Cielo? Because we did notice, right, that you increased or you talked about making higher investments in your sales team. Can you, you know, so like I wanted to understand that a little bit better. Why are you investing in sales team? Do you think like you had a disadvantage? you're catching up or you're seeing a more competitive environment. And if you're seeing a competitive environment, if you can discuss like how you're seeing pig rates trending. Thank you.
Pedro
Hi, Mario. Pedro here. Thank you for the question. I'll jumpstart and then I'll pass over to Lia to make further comments. Well, I think on the pricing piece, I think the way we see it is it has become really a dynamic process within the company, meaning that we continuously evaluate the profitability of our cohorts and we adjust prices accordingly. So in terms of the new interest rate environment and competition, I think we'll gradually incorporate the new curve and changes in the competition environment in our decision making. And I think we evaluate the economics of passing through these shifts into our clients. But I think as a direction, I think we will continue to prioritize profitability and to price based on returns. Still on the competition piece, I'm not going to address specifically on the Seattle piece, but I think the market has evolved a lot. And I think other players have been behaving in a similar way. Right. Just another point I wanted to highlight is that more and more, we have more levers to price the relationship with clients through the bundles as the core of our strategy between payments, banking, credit, and software. So I think to some extent, this is a kind of a hedge against short-term interest rate dynamics and in some ways on the competition side. I'll pass over to Lia to talk about selling.
Lia
Hi, Mario. Lia here. So talking a little bit about dynamics around selling. I think there's two relevant dynamics to highlight. First is more of a short-term discussion, which is we've already seen a reduction in selling expenses as a percentage of revenue, as Matheus mentioned, due to a 26 million impact decrease, given that we sponsored Big Brother Brazil in the first quarter. So that's more of a short-term dynamics, and it's going to continue to sort of impact positively throughout the year. But longer term, regarding selling, we continue to invest, and we talked about this, especially scaling our specialist distribution as we continue to move up to onboard larger SMBs within the SMB segments. And as you know, there's a dynamic. regarding our selling expenses in distribution, which is with front loads, right, investments in sales. So there's a front load of OPEX and the results will come as we continue to onboard those clients. So we are going to see this impact for a few more quarters, but longer term we do anticipate gradual dilution in those selling expenses as the sales force matures and we bring in more clients.
Matheus
And if I may add, Mário, Matheus here, I think in summary, the investments that we're doing in terms of hiring the specialists is not a reaction of any sort in terms of reacting to the competitive environment in the short term. It's because we're basically seeing a huge opportunity to go upmarket within SMBs with very profitable type of clients, good unit economics, and our decision is much more of a bottom-up decision and not a reaction to anything that any player is doing.
Raise Hand
That's clear. Can you just give us a sense of the size of how many people are we talking about?
Lia
We don't disclose the breakdown, Mario, but I think the way to see this is it's kind of proportional to the distribution of the TAM, right? When we talk about what we call medium clients, so the larger SMBs, Naturally, from a density perspective, there are less of them spread throughout the country, right? So we always kind of allocate sales teams in terms of the opportunity that we see locally in terms of the TAM. And although there are less medium clients within a specific hub or within a specific region, these clients have very attractive economics, right? They have larger TPV. There's a lot of opportunity to upsell credits. So We kind of see this from the perspective of the addressable market. And if you think about the overall sales force, specialists are a smaller percentage of that and pretty much in line with, you know, the distribution of the addressable markets.
Raise Hand
Okay. Thank you very much. Thanks, guys.
Operator
Thanks, Mário. Our next question comes from Eduardo Rosman with BTG. You can open your microphone.
Eduardo Rosman
Hi. Hi, everyone. Congrats on the numbers. I have two questions here. The first one is a follow-up to what I asked during the last conference call, and it's what about the software division, right? Why not consider divesting from at least part of it, given that the number of verticals likely to have synergies with stone is not that large? So that's the first one. And the second one is kind of a follow-up as well on the comparative front. We saw a big surge on the number of acquirers in recent years. What do you think about this market in terms of consolidation? Do you see room for M&As in the sector? So that would be the second question. Thanks a lot.
Pedro
Hi, Rosman. Pedro here. Thank you for the question. On the first one, I think we remain focused on executing the strategy we unveiled at our investor day. I think in software, our efforts are really concentrated on driving cross-sell in our priority verticals and improving overall business efficiencies. And I think you can see that from the results that we presented. So while we are pleased with the progress we made so far, I think we do recognize that there is still work to be done on both fronts, right? And regarding the potential sale, I'd like to emphasize that we're not selling the asset. I think in some ways, there have been some rumors and what we said is that we continually evaluate all options to maximize value from our assets, and really allocate capital within the company. But our focus at this point in time is really on executing the strategy we have laid out. And on the second question, could you please apologize, but can you please repeat?
Eduardo Rosman
Yes, yes. No, it's in terms of, let's say, consolidation, right? We saw like a big number of acquirers and payment companies, you know, coming to the market in recent years. You know, many of them actually don't have probably the scale, right? We do have the ones linked to the big banks, you know, which are becoming kind of a cost center, you know. So how do you guys see, you know, the market evolving? Do you see room for consolidation? Yeah.
Lia
Rosman, let me highlight our view on the competitive environment regarding number of players and then pass it over to Pedro to complete the answer. So, if anything, I think we see less players entering the market over the last couple of years, right? I think this dynamic has been much more intense in the past. What we do see is different players being relevant within each segment of the market. So micro, there's a very clear competitive landscape. SMBs, it's different as you move up. Naturally, we compete more with incumbents. But I think the overall trend of, you know, five key players more or less playing out consistently in terms of market share evolution. I think that has kind of been consistent. And the group which ABEX calls other does gain share as a group, but I don't think that there's been a lot of difference in who those players are. Yeah, so I think from the competitive dynamics front, I don't think that we see a lot of change. If anything, we see less intense, like new entrants and new players coming into the market more recently. Pedro, do you want to complete?
Pedro
No, I don't believe that there are many other points to highlight. I agree with you, there's not really any big news regarding the competitive environment. I think it's been quite stable over the past couple of quarters, and no big changes on this front.
Eduardo Rosman
Great. Thanks a lot.
Lia
Thanks, Osman. Thank you.
Operator
Our next question comes from Neha Agarwala with HSBC. You can open your microphone.
Neha Agarwala
Hi. Congratulations on the results, and thank you for taking my question. On the OPEC side, the delivery so far has been quite strong despite some amount of expenses. Is there an upside to your guidance? Could you have better costs and that could drive your bottom line? Or are there any other costs or investments that you're looking to make that could weigh in on the second half of the year? And my second question is on the credit book. The originations, I saw the disbursements were slightly down for a quarter. Any particular dynamics there? The NPR ratio is increasing as expected, but are you comfortable with the risk? If you can share more color about the uptake of the working capital is directed more towards the SMBs, any particular type of merchants who are more willing to take the loan or whom you are more willing to lend to. Any color on the credit book would be very helpful.
Matheus
Thanks for the question, Eva. Mateo is here. I'll start by addressing the credit one, and then we'll talk about OPEX. So regarding credits, in terms of quality, I think we're really happy with the performance of the portfolio, so no worries whatsoever. But in terms of growth, I think the message here is that when we think about the growth in disbursements, it's not going to be linear over time. What we're doing now is that basically we're making a series of experiments to test new criterias in the cohorts. And whenever the results from those tests are positives, we roll out new offerings and then we unlock a bigger wave of disbursements. That has been the behavior of the past quarters as well. And when we look at the guidance, we guide this for a portfolio above 800 million by the year end. We're already with 712 million the first half of the year. So actually, when we compare to our plan, even though the disbursement for this quarter was a little bit smaller than the previous one, we're actually above the initial plan. And that said, when we look ahead, I'd say in terms of the economics of the product, we're becoming increasingly comfortable over time. I think the challenge and the opportunity now is that there is a lot to be done in terms of improving the conversion of the approved pool. but also increasing the percentage of clients to which we extend a credit line as a result of those tests. Keep in mind that when we look at the product nowadays, it's still pretty much fully digital, so with very low participation from the distribution channels, which is key in terms of increasing conversion and penetration in the future. So that's pretty much the message around credits. On the OPEX side, I think you are correct. We had a good performance in the first half of the year, especially on the administrative expenses. When we look at administrative expenses, it's down 13% year-on-year when we look at the second Q. We guided actually for our growth, right? So it's becoming more clear that we're probably going to land with upside in that line. But more broadly, when we think about operational leverage, Looking ahead, I think the message here is two-fold. So, within the operation, when you look at selling expenses and cost to serve specifically, I think we should continue to see operational leverage in the next quarter. So there's still work to be done there. We're probably also going to see tax rates converging more towards the bottom of the range that we provided, the 20 to 25% range. I think the place where it's going to become more challenging in the second half is probably going to be financial expenses simply given to the fact that interest rates are expected to increase in second half versus decreasing in the first half. And we also did a sizable buyback, right, which is a creative when you look at EPS over time, but has a short-term negative impact to the P&L. So those are pretty much the main movements that we see going ahead.
Neha Agarwala
Very helpful. Thank you so much.
Operator
Our next question comes from Tiago Binsfeld with Goldman Sachs. You can open your microphone.
Yuri Fernandes
Hi, everyone. Thank you for taking questions. The first one is on PIC. I think you mentioned that this has been an area of challenge. So I wonder how you see the evolution of the PIC agenda. We're following news of PIC that today we also see within the open banking agenda some initiatives with no direct payments. So how are you preparing for those changes? And do you think there can be a meaningful impact to PPV? And I can ask my second question after that. Thank you.
Lia
Hi, Tiago. I believe it was chopping a little bit. The whole question is around PIX dynamics, correct?
Tiago
Yeah, that's right, Lia. Perfect.
Lia
So let me give an overview of PIX dynamics in terms of the performance and then how we see the outlook regarding PIX. So I think the first message is we continue to see a strong growth from increased penetration of PIX QR codes. dynamic QR code, which is the PICS that we see as a payment method, right? That's been true both within our base and the market based on central bank figures. So that's been an evolution beyond our expectations at the beginning of the year. So PICS penetration is now higher than we initially expected. I think for us, this is net positive, right? As we said many times before, because Number one, we see peaks as being incremental to our overall volumes. So if you look at the overall, I think the way to illustrate this is the following. If you look at electronics penetration and how that has evolved as a percentage of household consumption over the past year, we see that penetration of credit has more or less remained stable, even slightly increasing year on year. While if you look at the sum of debit plus PICs plus prepaid volumes, this has increased significantly, right? So from 25% around a year ago to around 33% today. So what this means to us is that this volume is taking – there is a slight cannibalization of debit, but overall it's taking volume from cash. So the reason why it's accretive for us is because we monetize this in line with net MDRs for debits. but it is accretive from the perspective of more engagement with our banking solutions and naturally more cash in and more overall deposits. So that's kind of the big message around PICS performance so far. When we look ahead, I think there's a roadmap, right, that we know that the central bank has put out. There's an evolution around PICS NFC and PICS. I guess our take on this is the following. All of this evolution opens up opportunities for us to improve client experience, for us to evolve our product development roadmap around the PIX rails. So there's a lot that we have already developed on PIX rails, and there's a lot that we will continue to do. We think that PIX NFC may accelerate the cannibalization of debit volumes, as I just described. because it's going to greatly improve the user experience around paying through PIX. But as I just said, I think this is a creative for us. And our mission here is to make sure that we stay ahead of the central bank's roadmap, kind of anticipating how we can turn this regulatory evolution into better products and better solutions for our clients. I think the same is true regarding open banking. Naturally, we expect that with more access to data and an ability to create better product experience, we can also gain from that by giving better experience and solutions to our clients. So I think that's the overall message.
Yuri Fernandes
Thank you, Lia. That's a helpful call. And if I may ask a second question on software, just to follow up, what do you think are the main KPIs you should follow if execution is going according to plan? I think in the past you may have provided some guidance on margins in that segment, if you could provide an update on that as well would be helpful. Thank you.
Lia
Sure, Thiago. So, good question. So, I think the two main metrics sort of to look out for, which are in line with the two main Pieces of the strategy that we communicated in the investor day is, number one, how we are evolving in cross-selling financial services to Lynx clients. So, we disclosed the metric of TPV overlap. TPV is, of course, only one part of the story, right? Because as we get better at cross-selling financial services to software clients, we also want to advance on the banking and on the credit opportunity. But for now, sort of tracking this TPV overlap is an indicator of our traction regarding this part of the strategy. And I think the second big message that we brought out is the opportunity to increase efficiency within the software segments. And so monitoring margin evolution is an important aspect of this, naturally. We did talk about margin behavior this quarter. There was an one-off effects from restructuring costs. But in the long run, we continue to see still opportunity to improve margins within the software segment. So I think that's kind of the main, those two main things to track.