PagSeguro Digital Ltd. Class A Common Shares

Hello everyone and thank you for waiting. Welcome to PagSeguro's second quarter 2020 results conference call. This event is being recorded and all participants will be in a listen-only mode during the conference presentation. After PagSeguro's remarks, there will be a question and answer session. At the time, further instructions will be given. Should any participant need assistance during the call, please press star zero to reach the operator. This event is also being broadcast live via webcast and may be accessed through PACSeguro's website at investors.pacseguro.com where the presentation is also available. Participants may view all the slides in any order they wish. The replay will be available shortly after the event is concluded. Those following the presentation via webcast may pose their questions on PagSeguro's website. Before proceeding, let me mention that any forward statements included in the presentation or mentioned on this conference call are based on currently available information and PagSeguro's current assumptions. Expectations and projections are reasonable in view of currently available information.

You are cautioned not to place and due reliance

on these forward-looking statements. Actual results may differ materially from those included in PagSeguro's presentation or discussed on this conference call, for a variety of reasons, including those described in the forward-looking statements and risk factor sections of PagSeguro's registration statement on Form 20-F and other fillings, with the Securities and Exchange Commission which are available on PagSeguro Investor Relations website. Finally, I would like to remind you that during this conference call the company may discuss non-GAAP measures. For more details the foregoing non-GAAP measures and the reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures are presented in the last page of this webcast presentation. Now, I will turn the conference over to Mr. Ricardo Dutra, CEO. Mr. Dutra, you may begin your presentation.

Good evening, everyone, and thanks for joining our second quarter results conference call. Tonight, I have here with me Eduardo Alcaro, our Chief Financial Officer, and Andrew Cazorro, our Head of Investor Relations. We hope you and your families are well and safe. Everybody knows the past few months has been challenging, and we remain focused on supporting our clients, our business partners, the society, and our employees. By the way, I would like to thank you again, all PagBank PagSeguro team who have been supporting our businesses from their homes in the last months. Thank you very much, PagBank PagSeguro team. As you see in the next slides, even with all impacts generated by COVID-19, our results show our business is exceptionally resilient Certainly, there are numbers that decline in the quarter. However, the most important operational KPIs, such as total payment volumes, net adds, bank users and so on, have been improving each month throughout the quarter and are growing year over year. Finally, important to mention we have developed features and products and acquired companies to build a complete and unique ecosystem to address the needs of our clients. Regardless of the current moment, we are confident in our strategy and the opportunities ahead of us. We keep investing to grow the company and, at the same time, keep our profitability levels. That said, Eduardo, Carla and I will present some slides and we will have Q&A session at the end. On slide 3, we highlight the achievements of the second quarter, a challenging quarter driven by volumes rebound, accelerated growth and stable margins amid social distance measures and economical slowdown. We saw a strong financial and operational performance, a lot of traction in PEGI Bank and also online TPV and software services growth. Important to mention, micro-merchants proved to be more resilient and faster adopters of new payment channels, and we continue to gain scale in payments and banking, backed by our unique online distribution in an untapped and underserved existing long-tail marketing Brazil. TPV reached close to R$ 30 billion, growing 11% year-over-year. In July and August, We saw an acceleration of growth year over year, marking 47% and 51% respectively. When compared with the first half of March, which is pre-COVID-19 in Brazil, the first half of July is 21% above, and the first half of August is 29% above. Take Rate ended the quarter at 2.72%, down 59 basis points quarter over quarter, mainly due to a temporary impact of mix, meaning more debit card transactions and less credit installments, directly impacting our prepayment revenues. However, our take away continues to be way above the listed peers. Our net ads in the quarter were close to 300,000, 32% versus first quarter 2020 and 1% higher than the second quarter 2019. Active merchants reached 5.8 million with a historic record level of gross ads in June and July, given the higher demand for new devices. Transaction activities and other services revenues grew 4% during the quarter, reaching a pre-tax margin of 31.6%. Non-gap net income of R$ 307 million, with a net margin of 22.6%. Moving to Peggy Bank, our non-acquiring TPVs through banking, digital accounts, and wallet services, reached R$ 10.6 billion, growing 168 year-over-year, another triple-digit growth. Peggy Bank revenue grew 52% year-over-year. In the first half, PagBank revenues reached 7% of total revenues and income, with a growth of 105% in comparison to the same period of 2019. We added another record of 1.2 million new PagBank users during the second quarter of 2020 and reached 4.9 million users in Q2. We are also proud to surpass more than 1 million pure PagBank consumers. with the average number of products users growing 36%, showing the success of our go-to-market strategy to reach clients other than acquiring. 4.6 medium tech bank app downloads in second quarter accumulate close to 20 to medium app downloads in July, being one of the leaders on digital banks adoption. Moving to online TPV and software services. Last week, We announced that we reached an agreement to acquire YCAR MOIP in Brazil, the most complete online payments platform in the market, which will help us leverage our omnichannel offer. We will talk more about that in a few minutes. We also announced the acquisition of Zego, a multi-sided loyalty and CRM platform. Online TPV grew 121% year over year in July. Backed by structure transformation in sales channel and payment solutions and the stronger growth of cross-border transactions. Software subscribers reached 311,000, up 267% versus Q2 2019. Link of payments transactions grew 69% in the quarter, while cross-border payment volumes increased 2.5 times year-over-year. On slide 4, we show the main KPIs I mentioned previously. Moving to slide 5, we want to recap the achievements of the first half of 2020. Despite an expected first semester, PEGS continued to be a leading company, maintaining long-term strategy focused on the unique existing opportunity to provide best-in-class payments and financial products and services to the Brazilian population. TPV reached close to 62 billion reais, growing 20% year-over-year. Total revenue and income grew 11% when comparison with Q2 2019, marking 2.9 billion reais. Active merchants were 5.8 million by the end of June. We added 526,000 new merchants during the first six months of 2020. Take rate was 3.04. Adjusted pre-tax margin of 31.9%, with non-GAAP net income reaching R$674 million in the first six months of 2020. 1% up versus first half 2019, with non-GAAP net margin reaching 22.9% in the same period. On PAG Bank Services, Non-acquiring TPV through banking, digital account and wallet services reached R$19.3 billion, growing 178% year-over-year due to the accelerated pace of new financial and digital wallet products launched to serve both merchants and consumers. Active users were 4.9 million, meaning we added 2.2 million new users during the first half of 2020, with PurePack Bank consumers accounting for more than 1 million active users. Slide 6 will show the main first half 2020 metrics I mentioned before. Moving to slide 7, we would like to reinforce our focus in growing with profitability. In the first half, TAGS net income was 60% higher than Brazilian listed peers combined, reaching close to R$600 million of GAAP net income, down only 6% in comparison to this first half of 2019. Important to mention, PEGS results excludes the provision reversal we had in second quarter 2020, which impacted positively our bottom line. On next slide, I'm closing the initial remarks. As we said in our last conference call and in other interactions with investors community, We are observing a sharp recovery of our TPV since the second half of April. Year over year, our TPV in May grew 11%. In June, it grew 25% year over year. Our TPV in Q2 grew 11% when compared with Q2 2019. In July, we observed a better recovery and our TPV grew 47% year over year. And we continue to see a strong pace in August, growing 51% year-over-year. This trend shows the accelerated migration from cash to electronic transactions, caused by the pandemic. The resilience of our diversified merchant base, constituted by micro, small and medium merchants, and individual entrepreneurs all over the country. The faster adoption of online, card not present, and contactless transactions, and also a larger spending backed by government subsidies. Important to mention, all these volumes are related only to payments transactions. Due to COVID-19, Brazilian government disbursed the relief, we can call Corona Voucher, to approximately one-third of the Brazilian population. And some of the beneficiaries decided to top up and transfer their balances to some banks including PagBank. However, these top-up volumes are not included in our TPV figures. In the chart below, we can see healthy TPV trends when compared to the first half of March, which is pre-COVID-19 in Brazil. TPV has been improving and in the first half of July, we reached 121% of the TPV of the first half of March. and 129% in the first half of August. Right now, most of the status in Brazil are reducing the social isolation. Some important cities are reopening, such as São Paulo and Rio de Janeiro, and retail volumes are improving. On the right side of the slide, until August 20, we see we already added more than 250,000 new merchants, surpassing more than 6 million active merchants. backed by another incredible consecutive historical record of gross ads for a unique month in July, which corroborates our view that the addressable market is increasing and accelerating after the pandemic. According to IBGE, since the beginning of the pandemic in late March, the number of new individuals professionals increased by 20% year-over-year, and in parallel, close to 9 million Brazilians lost their formal jobs. meaning that millions of people became individual entrepreneurs for need or opportunity. Additionally, we continue to accelerate the pace of NetEdge for Peggy Bank, already reaching more than 900,000 new users until August 20th, and surpassing more than 5.8 million active users, expanding our addressable market beyond merchants. Finally, on the bottom right side of the slide, We can see some other Q3 trends. Record of POS sales in July and daily TPV record in August. Acceleration of non-acquiring TPV and growing above 200% year-over-year. Backed by the Corona voucher top-up through our virtual cards and net revenues growing high teams in a year-over-year basis. Because of COVID-19, we continue to see higher participation meets of debit transactions. reaching levels higher than those observed in the fourth quarters. Consequently, we will have a lower mix of credit and installment transactions, which will continue to temporarily impact negatively our take rates and margins. Now, I will pass the word to Eduardo Alcaro, our CFO, who continues to manage our costs and expenses very closely so that we can navigate through this unique time together. Thank you. Eduardo, please go ahead.

Thanks, Ricardo, and hello, everyone. On the next slide, we present our operating figures. Total payment volume reached close to R$ 30 billion, growing R$ 3 billion, or 11% when compared to the same period of last year. Our diversified merchant base, no geographic concentration, resilience of the micro merchant segment, and adoption of online and card-not-present transactions supported this strong rebound that continues in July and August. In the next graph, we break down our mix. Like Ricardo said earlier, our take rates are being temporarily negatively impacted by this mix effect. The acceleration on TPV is coming mainly through debit cards supported by the government subsidies, known as Corona Vouchers, a R$600 paycheck for the most vulnerable families. In addition, as a consequence of the pandemic, lower consumer confidence and higher unemployment rates are impacting personal credit card leverage and driving financial institutions to reduce credit limits. This impacts the regular and credit card transactions in installments, which is the main driver of our financial income. Additionally, economy sectors where credit in installments are more relevant, such as general merchandise retailers, clothing stores, among others, were more impacted during the partial shutdowns in Brazil. The debit mix reached an unprecedented level of penetration. surpassing 50% of our total TPV in some weeks of Q2, even higher when compared to the highest seasonality observed in Q4. Again, we expect this mixed effect to be temporary and it should normalize after the COVID-19 pandemic. And the good news is that we continue to gain market share and increase volumes on a year-over-year basis. On the chart below, our net take rate, which is the blended take rate net from transaction costs such as interchange, processing, and card scheme fees, reached 2.72%, down 59 basis points quarter over quarter, and 25 basis points in comparison to Q4 2019. On the next graph, We break down the take rate composition quarter over quarter, highlighting the most relevant impacts which are temporary as a consequence of the COVID-19 pandemic. First, the most relevant is the mix effect impacting 36 basis points with 23 basis points explained by the product mix due to lower installments transactions and 13 basis points as temporary promotional discounts to support our clients during the pandemic. Second, 13 basis points on transaction costs. Remember that in Q1, we had a positive impact coming from a card scheme rebate. And last, 11 basis points related to others, mainly due to our temporary decision to reduce our credit exposure during the crisis. As discussed earlier, the largest negative impacts are temporary and should recover as the economy and the consumer confidence improves, driving more credit instead of debit cards paying. On the next slide, we show our total revenue and income that reached almost R$1.4 billion, down 2% year over year. Operating revenue and income remained in flattish, down 0.6%. Transaction activities and other services grew almost 4% year-over-year, while financial income decreased 8% in the same period due to lower installment transactions. Bottom right, gap net income reached R$296 million, a decrease of 8% year-over-year. Non-gap net income in the second quarter reached Thanks Eduardo. Moving to slide 11.

I want to share some figures about our online volumes. PaxSeguro was born online in 2006, starting as a new wallet, PayPal-like model, for millions of Brazilians to pay online in a safe and easy way. On the left side of the slide, we can see our online ecosystem. Over time, we built new services and became a very complete online payments platform, including features such as Different checkouts, cross-border transactions, online QR codes, link of payments, split payments, and also logistic support to our merchants through third-party partnerships. More recently, we also launched our own food delivery app. Our online results are encouraging. Year over year, the number of online transactions doubled in Q2 2020, and online TPV grew more than 70%. Transactions of link of payments, a solution easily shared through any social networks such as WhatsApp, Facebook Messenger, and also through email or SMS, grew 69%, and our cross-border TPV increased 2.5 times. Below in the chart, we see that in July 2020, Our online TPV grew more than 120% year-over-year. Important to say we have very low exposure to sub-acquiring companies, meaning that almost 100% of our online transactions refer to our own merchants using our payment solutions. The pandemic is driving a faster adoption of online, card-not-present, and contactless transactions. According to a Visa Global study, 67% of SMBs are moving to a digital-first mindset, having Brazil as one of the leaders' countries. We are investing to promote the best omnichannel experience to millions of micro, small, and medium businesses, many of them setting online for the first time. On slide 12, we present some highlights in terms of online distribution, Google searches, and our app rating. Starting with Google searches for digital banks, PagBank remains at the top, with 66% of total shares over digital banks, a consequence of our marketing efforts and product rollout. PagBank app also continues to be the top-rated app among digital banks, maintaining a 4.8 stars in iOS and 4.7 stars in Android. being the most reviewed app among digital banks and payment peers. Also, a consequence of our best-in-class product development and user experience-oriented culture. Since its launch, PagBank app reached 22 million downloads. In terms of revenues, we observe an increase of 50% in revenues from merchants that, in addition to acquiring, use three PagBank products. If the merchant uses five products, Its revenues are 108% more. Finally, some UOL figures. In June, UOL reached 113 million unique users, or 92% of the Brazilian internet audience. As you can see in the chart below, UOL has the third largest audience in the country, just behind Google and Facebook. And all this reach and brand awareness helps PagSeguro and PagBank distribution. On slide 13, we show some relevant engagement trends in our PagBank ecosystem. We believe engagement is a relevant metric to follow at this stage, once it will help the company to increase the switching cost of our clients and increase their stickiness and loyalty, which will enable future monetization and revenue diversification. In terms of PagBank users, we reached close to 5 million PagBank active users, adding 1.2 million new active users during the quarter, driven by merchants' conversion into PagBank users and the acceleration of net ads of consumers, surpassing more than 1 million PagBank active consumers. showing our ability to expand our banking and digital wallet addressable market through the launch of new products and services combined with marketing and online distribution. Non-acquiring TPV reached 10.6 billion, up 168 year-over-year. Our total credit portfolio combined in loan and credit cards reached 465 million reais. down 6% part of the quarter. Since the beginning of pandemic, we decided to block new credit disbursements in order to limit our credit exposure in this period. In Q2, our focus was to support and renegotiate our portfolio in a case-by-case with our merchants. For part of our merchants, we offered a 90-day grace period for repayment. Both measures help us to control NPL's laptops. Despite the current environment heavily impacted by the pandemic, mainly in late March and April, the majority of the merchants operating with PAX Capital continue to sell and are recovering volumes. In July, we started gradually to make new credit offers to our best merchants. Crediting is an important tool to create higher engagement with our merchant base, and will continue to generate additional revenues for the company in the future. On financial services, we reached R$ 2.4 billion in tight bank deposits, 41% when compared to the same period of 2019, mainly driven by a larger inflow of boletos or bank slips and wire transfers. QR code transactions grew 40 times when compared to Q2 2019, Driven higher usage of alternative payment methods, NFC transactions grew 450% year-over-year, boosted by the pandemic. On the top right, in the first half of 2020, pegged bank revenues increased 105% year-over-year, already representing 7% of total revenues and income, on track to reach 30% of total revenue and income in 5 years. We are expanding our investment products through the issuance of new certificates of deposits by PagBank, with daily liquidity and higher interest rates. For clients holding investments on PagBank CDs, we offer a free PagBank credit card with credit limited, linked to their investments. On slide 14, we highlight our roadmap of products already delivered in the past two years. Being tech and independent allow us to think exclusively on our clients' financial needs and consequently combine growth with profitability. Since May 2018, we have delivered almost 50 new products including hardware, software, banking and services in our super app. In June, we launched Bilhete Único top-up feature, TAG Bank clients can top-up their public transportation ticket in TAG Bank App, using the balance of the digital account. This new feature brings more convenience and helps to reduce lines in ticket counters of buses, subways and train stations. We also launched Caixa Virtual Card, the option to our user top-up and transfer the Corona voucher paid by Caixa Econômica Federal. Finally, we signed a new partnership with Rodão Atacadista, fostering the use of QR code, offering 10% cashback capped on R$ 30 per social security number. In July, we announced the acquisition of Ziggo, a multi-sided customer engagement and loyalty platform. Lastly, we launched more options of our proprietary CDs. with different durations and interest rates that ranges from 100% to 150% over Brazilian interbank rates. Despite the current health crisis, we decided to keep investing in product development and keep committed with our roadmap agenda. Constant development of our ecosystem is key, and we will continue to deploy new products and services on payments, banking, and software fronts. On the next slide, we would like to share some thoughts about the acquisition of Wirecard Moip. As we remain confident about our long-term growth opportunity, we took the advantage to move forward and strengthen our online payment solutions. Wirecard Moip is an independent institution regulated by the Brazilian Central Bank, providing an end-to-end payment processing for e-commerce and marketplace. With the closing of the deal, Pax will combine its best-in-class offline business model with the most relevant online platform for millions of merchants, strengthening its omnichannel strategy and accelerating our growth in online sales. Online sales in Brazil is still in early stages, with only 4% penetration of the total retail sales. However, it is expected to keep growing as a consequence of the pandemic. Wirecar Moip has 200,000 clients and is expected to reach close to R$ 5 billion in CPG 2020, a CAGR of almost 40% in the last five years. Its revenues will reach close to R$ 120 million, a CAGR of almost 30% in the same period. Important to say, Wirecar Moip has positive EBITDA. On the next slide, we show our software initiatives. We have several initiatives to help merchants to manage and grow their businesses. In June, we reached 311,000 software subscribers, up 267% year-over-year. In July, we announced the acquisition of Sego, a multi-sided loyal platform that enables micro, small, and medium-sized merchants to acquire, engage, and grow their customer base by offering customized marketing and loyal to programs and providing consumers insights and analytics. We believe software offering is one of the key value-added services to keep adding, engaging, and monetizing our clients. On the next slide, we show some of the new products, services, and partnerships. Some of them are already described before, such as Billet Único, Rodão Atacadista, and the Corona Voucher Virtual Card. Additionally, we included new merchants on Pedifácio, including Brás Pizzeria, a famous one in Brazil. Pedifácio has been supporting thousands of clients to sell online by providing payments, software, online menu, and orders, and even supporting with the logistic to partnerships with third-party companies. Finally, we are happy to announce we signed a partnership with TikTok. TikTok is the most popular video sharing social networking service, surpassing 2 billion app downloads around the world. TikTok influencers and content developers may generate revenues by developing short videos, product promotions, and etc. With this partnership, PagBank Taxi Guru offers a very simple and fast cash-out button. so that users can transfer their TikTok balances directly to a PagBank account in up to one day and use all the banking and wallet services that we provide. This partnership will help us to scale our PagBank account with millennials, have users of TikTok who are starting their financial lives. Finally, moving to slide 18, I would like to comment about the existing opportunities in Brazil and how PIX could unlock massive financial volumes to be captured and incorporated in the financial system, consequently boosting the usage of PagBank. PIX presents the opportunity to boost electronic transactions and leverage financial services to millions of unbanked and underserved Brazilians. We believe that P2P, Boleto, and wire transfers are the most impacted by peaks. Due to the nature of the fast payment transactions, the inefficiency of those products in terms of pricing, user experience, settlement period, and also because of the size of its market, which is five times larger than the cards market in Brazil. We believe PIX will be complementary to card payments, mainly because of the maturity of card payments in Brazil, already established in our consumption culture, with roughly two debit cards and one credit card per audit, representing 41% of our total PCE, private consumption expenditure. PagBank and PagSeguro are positioned to capture PIX opportunity as a payment and banking provider for both merchants and consumers. offer an integrated, end-to-end and flexible platform ready to integrate with several stakeholders to our APIs. In conclusion, we are prepared to increase and consolidate our leadership in the long-tail market, which is still huge, due to the large number of micro-merchants and informal employees, and will grow due to acceleration on shift from cash to electronic transaction, and increase our addressable marketing to the consumer vertical through PagBank. Although we are pragmatic in understanding and managing short-term impacts of COVID-19, we are confident about the strong fundamentals of our businesses, the strength of our brand, and the PagBank PagSeguro ecosystem we have built so far. We will keep investing in our long-term strategy, in people, products, services, and growth. We believe PagS is leaving this crisis uniquely positioned to lead the digital transformation of payments, and Financial Services in Brazil for both merchants and consumers. Having said that, we finish our presentation and we start the Q&A session.

Thank you. We will now begin the question and answer session. If you have a question, please press Start 1. Our first question comes from Mr. Greg Murrer, Autonomous Research. You may proceed.

Yeah, hi. Thanks a lot. A couple questions for you. First, you had discussed the impact that stimulus is having on volumes. What's your expectation going forward for stimulus to be renewed, and how important is that for continued acceleration in TPV? Secondly, In looking at MoIP, MoIP seems to play across the spectrum in terms of merchant size for e-coms. So if you're getting into large merchants via e-com through MoIP, will that lead to an omni-channel opportunity that might pull PagSeguro's traditional acquiring up to large merchants? Thanks.

Hi, Craig. This is Ricardo. Thank you for the question. Good to hear you. First part of the answer about volumes, the emergency relief or Corona voucher that government is giving to part of the population. The discussions that we are having at this time in Brazil is that it's going to be extended until December. That's what the discussions are leading to. So, we're going to have this money coming to the economy just to give an idea. It's close to 50 billion reais per month that the government is depositing for one-third of the population in Brazil. So, it will probably continue until December. That's the discussion right now between the Minister of Economy and also the President and the Parliament. So, It's going to happen in the next month for sure. After that, it's hard to answer you because it all depends how it's going to be the rebound, how it's going to be the unemployment and so on. But we're going to have this money in the next months. About Moip, you're right. They have a solution that serves clients from all sides, even if it's small e-commerce or a large e-commerce, not to say marketplaces. So for sure, they're going to open up Adore for us to have these omni-channel solutions for e-commerce and large merchants that want to have POS or another solution such as conciliation and things like that. So it's not secret for anyone that the world is becoming more digital after this pandemic. So Wirecard is going to help us to leverage this trend and have a better solution for merchants of all sizes in the online arena and also for those who are clients from Wirecard already and that want an offline solution with POS and so on. Thank you very much.

Our next question comes from Marina Kumar, Evercore.

Hi, good evening. Thanks for taking my question. It's really good to see the strong acceleration in TPV growth that you're seeing in July and into August. How much of that do you think is sustainable? We know some of that's obviously being benefited from the Brazilian stimulus plan, but going forward, how should we think of a sustainable TPV growth for PagSeguro? And secondly, you've added massive merchant net ads, 299,000 in the quarter. Is that a sustainable rate of merchant ads going forward? Thank you.

Hi, Nina. Thank you for the question. We think these volumes, part of the volumes, of course, are coming from these companies. Financial relief that government is sending to the economy, but it's a small part of that. I would say the majority of this TPV is the acceleration that we are having more net ads, as you said, so close to 300,000 in Q2 and More than 250,000 already in Q3, in part of the Q3. So it's acceleration of more people coming to our ecosystem. The recovery of our merchants when we compare with the first half of March, what's happening in July and August, they are recovering. And I would say part of that is related to the government relief, but the majority of that is only recovering people that are coming to our solution. Not to say that during the pandemic, As we presented in these few slides, more people are using online solutions and more online TPV is coming to us. So there's this trend from cash to electronic transactions and more digital transactions are happening in Brazil and I guess around the world. So I guess it is sustainable to have these levels. And in terms of net ads, We gave some preview about Q3 already, so 250,000 in 50 days. So it's been a strong pace.

Okay, and just one follow-up for me. What gives you confidence that after the third quarter that you get back to that pre-COVID-19 net take rate?

Well, I would say that As I answer you, part of the TPV is coming from the financial relief. The other part is because we are having more merchants, and as we have more merchants, we have more TPV. So that's why I'm confident that we're going to have a strong pace in the following months.

Just one commentary here, Reina. As we said in the conference call, the presentation, we saw an increase of 20% of new individual professionals in Brazil since the beginning of the pandemic. Many of these merchants probably because they needed to do that, because they probably lost their formal jobs, but you can be sure that also created an opportunity window for people to start to become entrepreneurs in Brazil. And we're going to take advantage over that. So we feel that is the right moment to keep adding new merchants. We think that could be sustainable. We're seeing more people migrating to electronic transactions, new kind of merchants, a larger presence of our online business, even now better with the wire card acquisition. So we're pretty comfortable that those positive trends are sustainable going forward.

Great, thank you.

Our next question comes from Brian King, Deutsche Bank.

Hi, guys. Good to see the recovery here. I want to ask about non-acquiring volumes. I know they were up 190% in first quarter, and revenues look like they were up about 158% in that first quarter. In second quarter, non-acquiring volumes up 168% with revenues up 52. So much larger gap between volume and revenue growth in the second quarter. So just trying to understand the deceleration in non-acquiring revenues considering the volumes are still significant. And then the second question is just thinking about this sequentially on take rate Hi, Brian.

Thank you for the question and good to be here. You're right, when you look at the gap between the growth in non-acquiring and also the revenues growth, part of that we explain because we've seen more people working with wire transfer in this quarter, so using products that are not generating revenue in Q2. And also because, as we showed in the presentation, we decreased the exposure that we had in terms of credit, so we did not give new loans for the base. That affects the revenue. And also, as we have a lower TPV, people use less our cards, so we have a lower interchange revenue. But we expect that we are going to recover in the following quarters.

I guess, Casoto would like to complement. Part of the clients in the PAX Capital product, Brian, we also, let's say, decided to give a larger grace period of repayment, 90 days. So for sure that for those clients, we're not capturing the interest of the transaction. So this also helps to explain why we saw, let's say, less monetization in the credit product in this quarter. And again, a temporary decision given the pandemic. We are more conservative in the credit originations. But as we said earlier, We are starting to see, let's say, the environment improving. Our best merchants are recovering their sales. They are transacting more, so it brings more confidence to gradually, let's say, recover the credit activity with those merchants.

And Brian, this is Eduardo Kari speaking about your question on take rates. First, the main impact in our take rates is related to our TPV mix. The industry as a whole saw an increase in debit transactions driven by the corona vouchers and consumer trends. Consumers are focusing on essential needs, so reducing their purchases in installments, especially in segments that are done in installments. So when you talk about apparel, electronics, white goods, Travel, and among other products that are done in installments. And people are focusing more on the basic needs, which we have more debit transactions. The second thing here is about the number of online transactions that doubled during the quarter. boosting online TPV 60% year-over-year. So, take rates in some of those payment methods like link of payments are slightly lower in comparison to the average. So, in the short term, take rates will continue to be under pressure as a result of the mix. We see the same level of take rates in Q3 compared to Q2. But again, in the long term, we see TPV normalizing and tech bank revenues should possibly drive healthy trends for our tech rates.

Got it. And what about the net income margins, Eduardo, when you think about them sequentially from 2Q to 3Q?

I would say same net income margin levels. Same thing.

Okay, great. Thanks. Stay safe. Thank you.

Mario Pieri, Bank of America. You may proceed.

Good evening, everybody. Thank you for the presentation. Let me ask two questions then as well. Again, you talked a lot about the growth in online transactions. Can you give us A breakdown of how much online transactions represent of your total transactions today, and how do you see this changing over time, especially, I guess, all of your... Your strategy here is really to grow, seems to me, is to grow more on online transactions. And what you mentioned, right, that you do have a lower take rate there. So just if you can give us some color then, what percentage of your volumes today are coming online and where do you see this going? Second question is related to your financial income, right? It took a big hit. Can you give us any sense if there's any pressure though, you know, financial income from the lower rate environments, right? We're seeing historically low levels in Brazil. Is that also impacting or should that impact your take rate on financial income? Thank you.

Hi, Mario. Thank you for the question and also good to hear you. You don't give the exact disclosure about the participation of online in the whole mix, but I would say that we know, as I said before, the world is becoming more digital and some people were forced to do online transactions during this pandemic. All over the world and also in Brazil. So it was a great time for us to have this agreement with Wirecard. They have a good solution to serve merchants from all sides and also marketplaces. So we will grow online much faster than POS because first our POS base is bigger. So as a percentage, it is impossible to grow in the same percentage of the online. and also because we are seeing people using more online here in Brazil. When you talk about the take rate, there are two different solutions for the online environment. First one is Link of Payments, and this is really, let's say, lower than the offline solutions, the POS. But if you look at pure e-commerce, the take rate is higher than the POS because we have more risk there. It's an online transaction, so we charge more Class A Common Shares Class A Common Shares Class A Common Shares

presence of credit installment transactions, especially in e-commerce and marketplaces, Mario. So, over time, this could be something, let's say, important for us also in the mix of product intake rate.

And, Mario, this is Alcaro speaking. Related to your question about financial income, the impact is purely coming from As you can go straight to our website and you can check the price. We are charging the exactly same prices that we charged last quarter or last year or in the last two years. So at the end of the day, it's really a function of Mix, having more debit transactions. And being Brazilian, you know that the Brazilians are more focused now on the very basic needs, and very basic needs are not sold in installments. Things that are sold in installments are usually apparel, general merchandise, travel, all those areas where we saw a slowdown in the whole economy. Okay.

This is very helpful. Just then a follow-up. Caro, do you think eventually you're going to have pressure, though, like, you know, the ability to maintain your same prices even though interest rates have declined sharply? Is this something that you should do, you know, try to lead this, try to reduce the rates before someone else does? And then I also had a follow-up on the previous question. from the caller before me, the revenues from Pagibank are growing at a very good pace, but they're growing much slower than the Net Eds. If you can give us an idea then of these Net Eds from Pagibank, how many of them are coming from this government packages? If you can give us a breakdown of the revenues that you're getting from Pagibank, you mentioned It was the interchange and also some of the credits. Just to give us an idea, you know, what percentage of these revenues come from Worldline?

Mario, let me answer your first question about pressure on the discount rates. I mean, we are not seeing pressure. Actually, I mean, you can see the prices have been stable. If you compare to our prices to our competitors, for example, that also they are online. I mean, it's exactly same rates. They also haven't changed. So, we don't see a reason to change just because, I mean, we don't see pressure here. And still, if you compare to the kind of credit facility that we provide, comparing to, for example, to revolving credit or even the cheque spécial, I mean, charging 8% per month, it is still, I mean, a very, very attractive rate.

Mario, regarding the revenues of PagBank, the majority of the revenues come from interchange, still today. When we see the acceleration of net ads in PagBank and the revenues are not following, let's say, the same speed or the same trend, it's because it takes a while for the consumer that is coming to start generating revenues and it will grow as time passes by. So we gave the example in the presentation that the merchant that uses three PagBank products have 50% more revenues than a partner. If they use five products, it's 100% more. So I'm going to give an example. I can sign up for a PagBank account in three minutes, and then I'm going to receive the card in a few days. Until the point I don't receive the card, I don't generate interchange revenues. I need to put money there to invest in a CD, for instance. If I invest in a CD, I will receive a credit card in a few days. So it takes a while for the revenue to come. It's not a year, but it's not the same time. It's different when you think about similar to what you have in a car, and when they receive the device, they start selling, and then they grow in the first months. But I guess in PagBank, it takes a while for the consumer to generate revenues and But, I mean, we are making cross-selling, we are making promotions, trying to people to stick more of the solution and use more than one product. So, it is happening. It is happening, but it takes a little bit to generate revenues at the same velocity of the net ads.

Okay, guys. Now, very clear. Thank you very much.

Our next question comes from Cody Curry, Morgan Stanley.

Hi, Jorge Cury, Morgan Stanley. Congrats on the numbers. Two questions, if I may. The first one on expenses, you did a pretty good job on personal marketing expenses during the quarter, evidently not a normal quarter. Can you talk about expense projection for the remainder of the year and for 2021? As revenues pick up, are you still going to Continually invest in the business above the revenue growth and should we expect expenses hence to grow above revenues? Can you grow both at the same time and what does that mean for EBITDA margins? And my second question is, I'm sorry to go back to this, but on the take rate, is it possible that the debit mix is actually a permanent change in the way cards are used in Brazil because the substitution of cash, which evidently has been very strong post-COVID, is really a substitution by debit, not really credit, and that may not come back. Maybe we have just a more debit-heavy mix in your business as I think you do in other places that have, you know, higher penetration of overall electronic payments versus cash. So what gives you a pause to say that that is temporary and not potentially permanent? Thank you.

Hi, Jorge. Thank you for the question. Good to hear as well. I'll talk about the first question. As you said, we control the expenses very well in the second quarter, and we're going to do the same in Q3. The only thing that I'll say that's going to be different in Q3, as we see the opportunity to grow, we need to accelerate and have the growth, of course. Balance growth with profitability, something that we always say. So what I'm trying to say here is that the market expenses in Q3 will be between Q1 and Q2. It will not be the same as Q1. It's going to be between these two quarters because we're seeing opportunities here to grow both of the business, merchants and consumers. In terms of personnel, it's going to be kind of similar. That's why I have the information at this point. So we'll invest a little bit more in marketing. Try to grow fast as you saw the previews in Q3, some of the numbers in terms of net ads, 250,000 and 900,000 consumers. But as Eduardo said before, keep the net income margins at the same levels. I guess the take rate, Elcaro can talk a little bit and I can complement if it's necessary.

Jorge, good to hear you. We are seeing on-debit transactions, if we go back like four years ago with the deep economic crisis, we saw the same trends. I think not as dramatic as here because now we have 50 billion reais being provided to people every month. And this is a normal pattern. If you see people with more cash on hand, they will obviously spend more on debits. And at the same time, we do have a credit compression in Brazil. So in our view, we don't see this as a permanent change. We see credit compression in Brazil right now. We see 50 billion Reais being dumped in the Brazilian economy every month. And the good news here is that we have been adding volumes, growing in August above 50% our TPV. and adding more merchants. This means that we continue to gain market share and we are continuing to have an opportunity to expand our addressable market here.

Just one compliment here, Jorge. We still have some sectors like bars and restaurants and tourists where we have a larger presence of credit card transactions, let's say, also being impacted, still under pressure. We're seeing that the activity in bars and restaurants is recovering a little bit, but not 100%. For tourism, still not happening. So we also believe that some sectors where we have a larger presence of credit transactions or even installments are still being impacted by the virus and should recover as we have the end of the pandemic.

Our next question comes from Gito Labarta, Goldman Sachs.

Hi, good evening. Thanks for the call. My question is a couple on costs. If you look at your costs, they went up in the quarter even though volumes were down. Just to understand, would you expect them to run somewhat in line with volumes so that anything happened specifically that your cost services actually went up in the quarter? And along those lines, I mean, looking at your net margin, if we back out that one time, the provision reversal, that you mentioned, you estimated your margin was actually close to around 19%. So just to understand, because you had mentioned the margin would remain relatively stable or a little bit lower in the quarter. So was that factoring in this provision reversal? And when we think about, you mentioned in the third quarter, your margin should also be stable. Should we back out that provision reversal so the margin should be stable at around 19%? So, just to understand a little bit the cost and the impact of that provision reversal on margins and how to think about that. Thank you.

Hi, Tito. This is Eduardo to speak. This is a good question. Actually, when we were talking about same level of net income margins, I mean, it's considering the recurring operations of the company taking out any extraordinary items. At the end of the day, the tax provision reversal is something extraordinary. So, to compare a stable margin for next quarter, it should be excluding this one-time event that we don't expect to have in the next quarter. About costs. Actually, here we have, it's good news. Because you may remember that we have taxes on the intercompany transfer of the devices and since we are selling more devices, we are having higher intercompany taxes on the devices and as a result, you are seeing the cost of Class A Common Shares Class A Common Shares Class A Common Shares Class A Common Shares Class A Common Shares Class A Common Shares Class A Common Shares Class A Common Shares

It seems that it's a bit lower than that. So, was anything surprising in this quarter? Was it maybe the take rate was lower because of the mix? Why do you think the margin maybe fell more than you originally had thought?

As we mentioned before, we saw, especially in the end of May and June acceleration, of the debit transactions in our mix, having a higher share in our total mix. So, I mean, it came down from originally expected due to the product mix that we are having, but we are not seeing in Q3 nothing different from what we saw in Q2. And again, this should be temporary. This is a result of the sectors of the economy where we have credit installments. I mean, they are slower than sectors where for basic needs where we have more debit transactions. And again, I mean, we are having the whole country a credit compression.

Okay, so mostly a function of makes just to understand. And then if I can ask this one follow-up question on the prepayments. with the receivables market that's expected in November. I mean, do you think that could put some pressure on pricing, maybe offset by higher volume? But how do you think that could impact the prepayment for you guys?

Hi, Tito. This is Ricardo. The prepayment, the chambers of receivables, it's going to be – we think it's going to be used. I mean, we – I believe it's going to be used for more large merchants because, remember, our merchant sells 2,000 reais in cards per month. If you consider the mix in a normal situation, we are saying that 30% of that is related to installments. So we are talking about 600 reais per month. So they are very small. They don't even have the sophistication to use this kind of Chamber of Receivables and things like that. And also remember when they use our services, they need to choose if they want to receive the money instantly or in D30. And the majority of them choose to receive instantly because we are talking about long tail. They just want the money as fast as possible. So once they make the transaction, we already make the prepayment. So I see the Receivables Chamber as an opportunity if you want to go there and bid for someone else's receivables. Hi, congratulations on the strong results and thank you for taking my question.

My first question is on TP Week.

I believe that some of the TPV includes the volumes generated from the corona vouchers. Would you be able to segregate that and give us some sense of how much would the TPV be if you exclude these volumes? You showed the TPV evolution is quite strong. Volumes in first half of August is already 129% of that in the first half of March. But what would this number look like if we exclude the coronavirus volumes? And my second question is on PICs. I understand that some of your revenues is also generated from the issuance of the letters and from wire transfers. These could be at risk if P2P takes off the de-implementation of PICs. How much of your revenues is generated from these sources? Thank you so much.

Hi, Niha. Thank you for the question. Let me just explain here. The first, let's say, explanation is we are not considering the top up of Corona Voucher in our TPV. We are only considering payments that happen in our system. So, the top up that some other players is considered as TPV or some points they discount or make this disclaimer. We don't have these volumes here in PagSeguro. So it's only payments that happen through our ecosystem. It is hard to say what would be the TPV without all the financial relief for CoronaVoucher because let's think someone gets the money deposited in a bank and then they decide to use the debit card from this bank. It is impossible to say what is the impact, the exact impact of Corona Voucher to us. I would answer you in a different way. Let's say we are growing much faster than the whole industry. We are taking market share from the whole industry. If you look at the first semester in Brazil, the industry grew 3 or 3.5%. We grew 20%. If you look in Q2, the industry as a whole decreased Close to 8%. We are growing 11%. So we are taking share. We are adding new merchants. We are bringing new people to the system. And being straight to your question, it is impossible to say this is Corona Voucher, this is not Corona Voucher. But I would say that we are having strong trends, putting new merchants, new consumers, and taking share from some other players. The other question regarding peaks, and you asked about Boleto. We also see that as a positive thing because we don't have debit card transactions in online environment in Brazil. It's a very bad experience and today people don't use debit cards. Some of them decide to use boletos. We can now have this solution that people are going to use PIX and we can get a take rate of that. And also, part of the people that decide to use boleto, they do that because they want to pay in cash. They want to go to a branch or they want to go to a place with the boleto and pay in cash and have the confirmation of the payment and things like that. So I see that in terms of boleto, Pix is a huge opportunity, huge opportunity, because boleto doesn't generate too much revenue for us, and there is no debit cards in online transactions, and now with Pix it's going to be able to have these transactions. So it will be positive.

Okay, thank you so much. If I can ask one last question. In terms of competition, we heard that in the past few months Mercado Pago has been quite aggressive in terms of acquiring new clients and distributing their POS machines. Could you tell us a little bit about how you see competition in the past few months evolving in your segment?

Well, Neha, as we also talked in some previous calls The long-term market in Brazil is still growing. I don't know how much the competition is growing when compared to us, but I'd say that we are very happy with 250,000 net ads in only 50 days in Q3. We had records of sales in July. In June and then in July, we had records of TPV, daily TPV in August. So we are doing very well. I don't know if competition is at the same pace as us, but we are not suffering. We don't see our churn going up. We do research all the time with our base. People don't say they are leaving us to go to a competitor. Part of the merchants that stopped transactions is because they didn't have the business open because of the pandemic or things like that. We are not feeling the competition, so we are growing faster than what we grew in Q2 last year.

Very clear. Thank you so much for that.

Our next question comes from Thomas Peredo, BTG Maxwell. You may proceed.

Hi, everyone. Thanks for taking my questions. I have two. The first one is on net ads in the merchant business. Before the crisis, you were indicating a similar net ad this year than last year, but with the 300,000 net ads until mid-August, this indicates a much stronger trend. So I just wanted to try to get a view if you have new expectations for how much Net Ads could be in Q3 and Q4 if they can continue in the same strong pace as we are seeing in mid-August. And also, what is the expectation for next year? And the second question is still on the Net Ads, but if you could share with us how much of the Net Ads We're using the payment links kind of to have an idea of how much merchants you already have without using the POS machine, just using the payment links. And how was the churn if you had any different dynamics in the churn in Q2 and more recently in July and August?

Thank you. Hi, Thomas. Thank you for the question and good to hear you. Regarding NetAds, you're right. We had an expectation for this year. Now we are surpassing the expectation by far. Part of that, we see the strength of our brand. People coming to us because they know PagSeguro and PagBank. It's a trust company. They can make the transaction here. They are not concerned about the money coming here. They know it's Class A Common Shares Class A Common Shares to make money because they don't have the scale and they don't have the complete ecosystem. We always say here, people come to us because they see it as a more complete solution. Not only the POS, but also they receive the money right after the transaction. They receive a card to access the balance of the account. So, as I said before, we are in a really strong pace. When we have a situation like that, that some people also decide to work by themselves, some of them because they need, we also see more demand for our services and our device. So that's why we had records of sales in June and then a new record in July. We see the long-term market is expanding, so we are addressing this market and accelerating to try to grow as fast as possible to gain share. As I said before, in the first half, the industry grew 3%, 3.5%, and we grew 20%. When we make research with the merchants that come to us, still today, 80% of the merchants that come to us did not accept cards before joining us. So it's not a zero-sum game here. We are bringing new people into the system. Some of them come because they want to sell with PagSeguro. Some of them come because of PagBank. So, I mean, we are in a very good position. Looking to Q3, right now, I guess what we can say is 250,000 we can make this projections is going to be more than 300,000 in Q3. That's what we expect because we had 250,000 only in 50 days. I don't see why Q4 would decelerate. But it's hard to give a projection for 2021. I guess we are not in a position to give a projection for 2021. A lot of uncertainty looking forward and volatility in these times. But, I mean, we have a strong brand. We invest in marketing. We are investing a little bit more in marketing Q3. We are seeing the results. So, we look forward. We are confident it's going to be a good year in terms of NetEdge, in terms of the New Merchants and New TPV coming to us.

Okay. And just a follow-up on internet ads. How much of them are clients using the payment link? And if you have any different dynamics in churn, how did churn behave in these Q2 and early July and August.

Yeah. So in terms of link of payments, we have many merchants that decide to use link of payments, but I would say in this 250,000, we don't have a large number of merchants that came to us only to use link of payments. I would say that the majority of that, not to say more than close to 100% of those They bought devices. Of course, they can also use Link of Payments because of some situations they have or they just want to serve their clients, but it's not boosted by Link of Payments. This $250,000 is not boosted by Link of Payments. It's people that are coming to us and buying devices and choosing a POS or a Smart POS to sell with us. In terms of churn, We see that it's very common in PagSeguro that people come to us, they make a transaction for one month and then the following month they stop and then they come back again. So we have this back and forth in Longtail. We had this, let's say, decrease in April and May, but when looking in June, we recovered more than 100% of the base that we saw that were transactions in February and March. There is no churn, no spike in churn because of the pandemic. People just sold less because, I mean, the business was closed or some situation, but they're coming back. They're coming back and we see that the recovery is being very strong and very fast.

Okay. And one final follow-up, if I may. You already see a trend of clients that started using PagBank and then became merchants of PagSeguros. Did you see this reverse trend?

Yes, Thomas. We have this situation. People that come to us, they come, they sign up for PagBank, and at some point they buy a device and decide to become a merchant. It's not the majority of the new merchants at this point, but we have merchants that come to us first because of PagBank and then afterwards they decide to buy a device and start selling with PagSeguro. So that's why we say that when we invest in the platform for PagBank, it's not a platform only for consumers. It's a platform that serves both merchants and consumers. And we have this situation. People coming to us because of PagBank and then become a merchant after a while.

Okay, very clear. Thank you very much.

Our next question comes from Edwell Guggenheim. You may proceed, please.

Hi. Thanks for taking my questions. Thanks for squeezing in. Apologies if I missed some of this earlier. This is certainly an impactful call. I just wanted to see if I can circle back and ask you one on PacBank. Can you talk a little more about the growth that you've seen in the user base? Specifically, you now have over 1 million consumers using PagBank, and you're also talking about another 900,000 net ads through August 20th, so it sounds like you're on track for another record quarter in the third quarter. So what's driving that, and do you think those consumers are using PagBank as their primary account? I just want to get a feel for how entrenched that user base is. You know, it's certainly interesting to watch your strategy with the partnerships you're making with tag banks. I guess my question that I have for you is, you know, do you think the partnership with TikTok, could that grow into something meaningful eventually? You know, can that help accelerate the number of customers using tag banks? It would be great to hear your thoughts on that. Thanks.

Hi, Jeff. Thanks for the question. You're right when you talk that we will probably have another record of PagBank net ads in Q3. In Q2, we reached more than 1 million consumers using PagBank. We also make research with this base. We have, let's say, a decent percentage of these consumers that uses as a primary bank. We are not disclosing that at this time, but it is Getting better as time passes by. And why is that? Because we launched PagBank in May 2019. It was a very basic account. Then we started rolling out new products. Just to give some examples. In September last year, we started paying interest in the balances. So... After that, in November, December, we offered a few credit cards for some consumers, and then we launched CDs, and then we launched new partnerships. Now people can have a CD here that pay 150% CDI. So that's why people are coming to us and see that we have a complete digital account. Of course, it's not complete yet, but we are rolling out products, and that's why we invest in platform. There are many things that we need to do. We launched some micro-insurance services, Class A Common Shares Class A Common Shares Class A Common Shares Class A Common Shares that are for free. That's the first thing. And the second one is because during the pandemic, people saw the need to use more digital banks in Brazil. That's a trend that is happening here and probably is happening around the world. So the branches were closed. People could not go there to make some basic operations. So there is this demand for people to use more digital banks. So we see a good trend and a good opportunity for us. As I said before, the world is becoming more digital. We thought that we were digital already, but now with the pandemic, there was this acceleration, more people using more digital services. Regarding TikTok, it's still too early to give, let's say, the number. We started a week ago. TikTok is very, very used for millennials. Some of them, they don't even... They cannot have a bank account, so it's still too early to give a preview of what's going to happen. Maybe in the next call we can give more color about that. But for sure, it's a good partnership. It's a strong social network and services. Even if people don't come to us to create an account, at least we're going to have, let's say, the exposition of our brand for these millennials, and it will help us in the future for sure.

Okay, great. Thank you.

Next question comes from James Friedman, Susquehanna. You may proceed.

Hi. Thank you. This is a good investor relations presentation. I just had a couple of follow-up questions. The first one is, when would you suggest that we start to layer in Wirecard? Is this year too soon, or is it more 21 events? And then in slide 18, this is the one where you talk about PICS, Ricardo. You know, what do you mean in this example by the barcode replacement? If you could just elaborate on that. And then how should we be thinking about the financial model? Is there any, like, take rate observation you would have about what PICS might look like if it's a funding source for you? So those are the two questions, Wirecard and then PIX. Thank you.

Hi, James. This is Eduardo. I'll take the first question. So the Wirecard acquisition now is only subject to antitrust and central bank approval, which we don't envision any difficulty here. So probably in Q4, we start to consolidate their numbers.

Yeah. And go to slide 18, James. First of all, thank you for the question. Good to hear you. How does it work today? Let's say if you want to pay someone or e-commerce to a boleto, in this boleto you have a barcode, and then you can generate this bank slip. There's a barcode, and you go to your bank app, or you can print that to pay in cash. And then the money is going to come to the merchant, in the next day. And only after that, they're going to have the confirmation and send you the products or, I mean, make the services available for someone that is buying or for someone that is paying. With PIX, this could happen automatically. So people just can go to a website or a screen and then make the transfer. It's going to be 24 hours a day, seven days a week. Regarding how it's going to be the economics for us, for sure it's going to be the source of funds because PagBank is an account that people can send the money they will receive through PIX. So they're going to send the money to us. And also, we can offer solutions with charging take rates for our merchants if they accept PIX. What is defined is that people that is buying will not pay anything, but people that are receiving, if it is a business, regardless if you are a small business or not, the company that is making this connection can charge. So, for sure, we are going to offer this for our merchants, and we will have take rate in this type of transaction, and that's something that, or we have a very small take rate today, or maybe we are out of this market at this time. So it's an opportunity to reach this market that is five times larger than credit cards market or cards market.

Great. Thank you very much.

Next question comes from Josh Beck, KeyBank.

Thank you for squeezing me in. I just have a higher level question. Obviously, you know, we're all starting to get a lot of information. on Alipay and China, and certainly what a super app can look like. And in the US, we have PayPal, and that's a pretty good example of a really powerful wallet. So I'm just wondering, when you think about Brazil, where do you see the consumer ecosystem going to in the next, call it five years? And also, how do you think about the importance of QR codes within this kind of new consumer digital ecosystem?

Hi, Josh. Thank you for the question. Good to hear you. That's a discussion that people always bring to us, making the parallel with China. It's worth to say that we went to China Many times to understand what's going on there. And what we always say is there is only one China in the world. It doesn't mean that white works in China is going to work in another emerging country. But I guess the difference, the main difference here is that in China, they didn't have the penetration of cards or the plastics. Class A Common Shares Class A Common Shares Class A Common Shares People use only the debit, so we have also this culture of credit and credit with installments. So we are, let's say, much more in front of China in terms of plastics or cars or things like that. So they went straight from the cash, the paper, to the mobile phone. That's the first thing. Second one is about super app. We are always building our app to try to be a super app and have additional services. There are some other companies doing that down here. The conclusion is it's hard to change consumer behavior. People keep using the cards. Of course, some of the early adopters used the Super App, but some people used the cards. So I see a very different situation when you think about that Super App is going to come to Brazil and be successful in terms of disrupting the industry that you have here. So even if you think about some of the social benefits the government pay in cards. It's very common here for people to use cards. We gave some information in the presentation. On average, an adult here in Brazil have two debit cards and one credit card. And they use credit card a lot because we have 30-day grace period without any interest. So different situation, different environment. That's why we keep... selling thousands of devices of POS in Brazil because people use card. And if the consumer wants to use the card, the merchant needs to accept it. That's why they need to have a POS there, and that's why we are selling records of devices in June and July.

Really helpful. Thank you for the context on the market there. Really appreciate it.

Next question comes from Guilherme Grispan, JP Morgan.

Thank you, guys. Thank you for the presentation and opening for questions. On our side, there's actually a follow-up from the previous one on the inventory tax. It was not fully clear to us. If I'm not mistaken, the last time we discussed this on conference call, it was expected to be a little bit lower the impact from these transfers. And we just wanted to dig a little bit deeper on the dynamic of what is happening. And we are trying to understand here first, you have a runoff inventory there in the subsidiary that as you sell more POS, this impact in terms of tax starts to happen. And if that's the case, can you provide us any soft guidance on what is the size of this inventory or eventually How long is going to last those impacts? Or if there's a second situation in which the new POS acquisitions that you guys are buying from suppliers, if it's happening on the subsidiary and then you were selling on the holding, and if that's the case, which was not clear to us, what is the benefit of making this structure? Thank you.

I'll start with the last question. The benefit, we do have a tax benefit of doing that through this subsidiary, comparing to the holding company of PagSeguro. I think we mentioned that in the last call. It's not really a one-off. I mean, we are actually pleased to what happened. We posted record device sales in June and especially in July. So, we are not seeing this figure coming down for a good reason.

Just as a follow-up, Okado, so just to be clear, as long as you continue selling POS, this impact is going to take place, I mean, in the following quarters.

Yes, if we keep selling more, it should increase. If we sell less, it should decrease. I mean, it's simple as that because we are doing that through a subsidiary company.

Okay, thank you. Once again, if you have a question, please press star 1. It is concluded the question and answer session for today. I would like to invite Mr. Dutra to proceed with his closing statements. Please go ahead, sir.

Hi, everyone. I just want to thank everybody for our time today. We hope all of you and your families are safe and healthy and we look forward to being able to see all of you in person as soon as possible. Thank you. Thank you very much for your time.

Thank you. TagSeguro's conference call is concluded. Thank you very much for your participation. Have a nice evening.