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 company’s presentation. After PagSeguro’s remarks, there will be a question-and-answer session. At the time, further instructions will be given.

[Operator Instructions] This event is also being broadcast live via webcast and may be accessed through PagSeguro's website at investors.pagseguro.com where the presentation is also available. Participants may view 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 undue 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 filings with the Securities and Exchange Commission, which are available on PagSeguro’s investor relations website.

Finally, I would like to remind you that during this conference call, the company may discuss some 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 André Cazotto, 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 we will see in the next slides, even with all impacts generated by COVID-19, our results show our business is exceptionally resilient.

Certainly, there were numbers that declined in the quarter, however, the most important operational KPIs, such as total payment volumes, net adds, PagBank 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 Alcaro and I will present some slides and we will have Q&A session at the end.

On slide three, we highlight the achievements of the second quarter, a challenging quarter driven by volumes rebound, accelerated growth and stable margins amidst social distance measures and economic slowdown. We saw strong financial and operational performance, a lot of traction in PagBank, 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 market in Brazil. TPV reached close to BRL 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. In first half of August, it's 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 rate continues to be way above the listed peers.

Our net adds in the quarter were close to 300,000, up 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 adds 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-GAAP net income of BRL 307 million with a net margin of 22.6%. Moving to PagBank.

Our non-acquiring TPV through banking digital account and wallet services reached BRL10.6 billion growing 168% year-over-year, another triple digit growth. PagBank revenue grew 52% year-over-year. In the first half, PagBank revenue reached 7% of total revenue 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 one million pure PagBank consumers, with the average number of products usages growing 36% year-over-year, showing the success of our go-to-market strategy to reach clients other than acquiring.

4.6 million PagBank app downloads in the second quarter, accumulating close to 22 million application downloads in July, being one of the leaders on digital banks adoption.

Moving to online TPV and Software services, last week we announced we reached an agreement to acquire Wirecard MOIP in Brazil, the most complete online payments platform in the market, which will help us leverage our omni-channel offer. We will talk more about that in a few minutes.

We also announced the acquisition of Zygo, a multisided loyalty and CRM platform. Online TPV grew 121% year-over-year in July, backed by the structural transformation in sales channel and payments solutions and stronger growth of cross border transactions. Software’s subscribers reached 311,000, up 267% versus Q2 2019.

Link of payments transactions grew 69% in the quarter, while cross border payments 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 unexpected first semester, PAGS continues to be a leading company, maintaining the 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 BRL62 billion, growing 20% year-over-year.

Total revenue and income grew 11% when compared to Q2 2019, marking BRL2.9 billion. 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 BRL674 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 PagBank services, non-acquiring TPV through banking, digital account and wallet services reached BRL19.3 billion, growing 178% year-over-year, due to the accelerate 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 pure PagBank consumers accounting for more than 1 million active users. Slide six, we show the main first half 2020 metrics I mentioned before. Moving to slide seven, we would like to reinforce our focus in growing with profitability.

In the first half, PAGS net income was 60% higher than Brazilian listed peers combined, reaching close to BRL600 million of GAAP net income, down only 6% in comparison to the first half of 2019. Important to mention PAGS results excludes the provision reversal we had in the second quarter 2020, which impacted positively our bottom-line.

On next slide and closing the initial remarks, as we said in our last conference call and in other interactions with investor's 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 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 the government subsidies.

Important to mention all these volumes are related only to payments transactions. Due to COVID-19, Brazilian government disbursed a relief, we can call coronavoucher, 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 states in Brazil are reducing the social isolation, some important cities are re-opening such as São Paulo and Rio de Janeiro and retail volumes are improving.

On the right side of the slide, until August 20th, 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 adds 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 individual 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 net adds for PagBank, already reaching more than 900 thousand new users, until August 20th and surpassing more 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 teens in a year-over-year basis.

Because of Covid-19, we continue to see higher participation mix of debit transactions, reaching levels higher than those observed in the fourth quarters. Consequently, we will have a lower mix of credit and installments 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 close 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 BRL30 billion, growing BRL3 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 breakdown 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 BRL600 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 installments are more relevant, such as general merchandise retailers, clothing stores, among others, were more impacted during the partial shutdowns in Brazil.

Debit mix reached an unprecedent level of penetration, surpassing 50% of our overall TPV in some weeks of Q2, even higher when compared to the highest seasonality observed in Q4.

Again, we expect this mix 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 transactions costs such as interchange, processing and cards 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 breakdown the take rate composition quarter-over-quarter, highlighting the most relevant impacts which are temporary, as consequence of the COVID-19 pandemic.

But 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. 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 card spending. On the next slide, we show our total net revenue and income that reached almost BRL1.4 billion, down 2% year-over-year.

Operating revenue and income remained 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, GAAP net income reached BRL 296 million, a decrease of 8% year-over-year.

Non-GAAP net income in the second quarter reached BRL 307 million, down 10% year-over-year. In this quarter we had a positive impact of BRL 56 million after-tax due to a tax provision reversal. Thank you all. And now I'm passing the word to Ricardo, who will comment on the latest business developments..

Thanks, Eduardo. Moving to Slide 11. I want to share some figures about our online volumes. PagSeguro was born online in 2006, starting as a new wallet paper-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 payment platform, including features such as different checkouts, cross border transactions, online QR codes, link of payments, split payments and also logistics 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 is 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 payments solutions.

The pandemic is driving a faster adoption of online, card-not-present, and contactless transactions. According to a Visa Global Study, 67% of the SMB´s are moving to a digital first mindset, having Brazil as one of the leader’s country.

We are investing to promote the best omnichannel experience to millions of micro, small and medium businesses, many of them selling 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 the total shares over digital banks, a consequence of our marketing efforts and product roll out.

PagBank app also continues to be the top rated app among digital banks, maintaining at 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 108% more. Finally, some UOL figures.

In June, UOL reached 113 million unique users, or 92% of the Brazilian internet audience. As we 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 adds 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 BRL10.6 billion, up 168% year over year. Our total credit portfolio, combining loans and credit cards, reached BRL465 million, down 6% quarter-over-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 days grace period for repayment. Both measures helped us to control NPLs levels.

Despite the current environment heavily impacted by the pandemic, mainly in late March and April, the majority of the merchants, operating with PAGS Capital, continued to sell and are recovering volumes. In July, we started gradually to make new credit offers to our best merchants.

Credit 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 BRL2.4 billion in PagBank 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 2Q '19, driven higher usage of alternative payment methods and NFC transactions grew 450% year-over-year, boosted by the pandemic.

On the top right, in the first half of 2020, PagBank revenues increased 105% year-over-year, already representing 7% of total revenue and income, on track to reach 30% of the total revenue and income in five years.

Lastly, we are expanding our investments 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 limit 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. PagBank clients can top up their public transportation ticket in PagBank 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 Roldão Atacadista, fostering the usage of QR code, offering a 10% cashback capped on BRL30 per Social Security number. In July, we announced the acquisition of Zygo, a multisided 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 Rate. Despite the current health crisis, we decided to keep investing in product development and keep committed with our roadmap agenda.

The 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 strength our online payments’ 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, PAGS 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. Wirecard MOIP has 200,000 clients.

It is expected to reach close to BRL5 billion in TPV in 2020, a CAGR of almost 40% in the last five years; its revenues will reach close to BRL120 million, a CAGR of almost 30% in the same period. Important to say, Wirecard 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 ZYGO, a multisided loyalty platform that enables micro, small and medium sized merchants to acquire, engage and grow their customer base by offering customized marketing and loyalty 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 already described before, such as Bilhete Único, Roldão Atacadista and coronavoucher virtual card.

Additionally, we included new merchants on PedeFácil, including Bráz Pizzaria, a famous one in Brazil. PedeFácil has been supporting thousands of clients to sell online, by providing payments, software, online menu, and orders and even supporting with the logistic through 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 two billion app downloads around the world. TikTok influencers and content developers may generate revenues by developing short videos, product promotions, et cetera.

With this partnership, PagBank PagSeguro offers a very simple and fast cash out bottom, so that users can transfers 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, heavy 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 into 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.

Additionally, we believe that the P2P, boleto and wire transfers are the most impacted by PIX, due to the nature of the fast payments 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 adult, representing 41% over total PCE, Private consumption expenditure.

PagBank and PagSeguro are positioned to capture PIX opportunities as a payment and banking provider for both merchant and consumers, offering an integrated end-to-end and flexible platform ready to integrate with several stakeholders through our API´s.

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 of the shift from cash to electronic transactions and increase our addressable market into 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 brands 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 will start the Q&A session..

Thank you. We will now begin the question-and-answer session [Operator Instructions] Our first question comes from Mr. Craig Maurer, Autonomous Research. You may proceed..

Yes. Hi, thanks a lot. A couple of questions for you. First you had discussed the impact that stimulus is having on volumes. Are there – what's your expectation going forward for stimulus to be renewed? And how important is that for continuing acceleration in TPV? Secondly, in looking at MOIP.

MOIP seems to play across the spectrum in terms of merchant size for e-com. So if you're being – if you're getting into large merchants through e-com – 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 is close to BRL 50 billion 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 help in the next month for sure.

After that it's hard to answer you because it all depends how it's going to beat the rebound, how it's going to beat 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 there's more e-commerce or our large e-commerce, not to say marketplaces. So for sure they're going to open up a door for us to have these omnichannel solutions for e-commerce and large merchants that want to have POS or another solution such as consolidation things like that.

So it's not secret for anyone that the world is becoming more distorter 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 offline solution with POS and so on..

Thank you very much..

Our next question comes from Rayna 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 adds 299,000 in the quarter. Is that a sustainable rate of merchant adds going forward? Thank you..

Hi, Rayna, thank you for the question. We think these volumes, part of the volumes of course are coming from this 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 adds as you said, so close to 300,000 in Q2 and more than 250,000 already in Q3 in part of Q3. So it's acceleration of more people coming to our ecosystem.

The recovery of the – our merchants when we compare with the first half of March, what's happened 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 is this trend from cash to electronic transactions and more digital transactions are going – 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 adds, 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'd say that, as I answer part of the TPV is coming from the financial relief. The other part is, because we are having more merchants – as we have more merchants 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, Rayna. As we said in the conference call in 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 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 Wirecard acquisition. So we're pretty comfortable that those positive trends are sustainable going forward..

Great. Thank you..

Our next question comes from Bryan Keane, 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 the non-acquiring revenues considering the volumes are still significant? And then second question is just thinking about this sequentially on take rate given the mix changes you guys are seeing for the first two months, should take rate continue to deteriorate a little bit with mix in the third quarter.

And same question on net margins. What about net margins in the third quarter as a result of that mix change and investments? Thanks..

Hi, Bryan, thank you for the question and good to hear. You're right. When you look at the gap between the growth in no acquiring and also the revenue growth, part of that we explained, 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 show 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 you have a lower TPV, people use less our cards, so we have a lower interchange revenue, but we expect that we're going to recover in the following quarters.

I guess, Cazotto would you like to complement?.

Yes. Part of the clients in the tax capital product, Bryan, we also, let's say, decided to give a larger growth spirit of repayment line today, 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, 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, Bryan, this is Eduardo Alcaro speaking, about your question on take rates. First, the main impact in our take rates, I mean, it's related to our TPV mix, the industry as a whole, saw an increase in debit transactions, driven by the corona vouchers and consumer trends.

Consumer 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 -- 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 PagBank revenues should positively drive healthy trends for our take 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 Pierry, 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 right, 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 on line? And what 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 in financial income from the lower rate environment, right? Are we 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.

We don't give the exact disclosure about the participation of online in the home mix, but I'd say you that we know as I said before the world is becoming more digital and people are -- some people were forcing 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 for all size 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.

The 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 if you are pure e-commerce or a marketplace.

So link of payment is smaller is lower than POS but the other solutions they have a higher take rate. So it's -- it will be accretive to the take rate. We expect to be accretive take rate in the future..

Yeah. And also larger 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 and take rate..

And Mario this is Alcaro speaking. Related to your question about financial income, the impact is purely coming from the mix. As you -- you can go with straight to our website and you can check the price. We are charging the exactly same price 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. Alcaro, do you think eventually you're going to have pressure though like the ability to maintain your same prices even though interest rates have declined sharply.

Is this something that you should do 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 PagBank are growing at a very good pace but they're growing much slower right than the net adds.

So if you can give us an idea then of these net adds from PagBank, how many of them are coming from this government packages? And if you can give us a breakdown of the revenues that you're getting from PagBank, you mentioned it was the interchange and also some of the credit but just to give us an idea of what percentage of these revenues come from online?.

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 compared to the, kind of, credit facility that we provide comparing to, for example, through revolving credit or even the earnings per share, I mean charging 8% per month is still I mean a very, very attractive rate..

Yeah. Mario regarding the revenues of PagBank, the majority of the revenues come from interchange, still today.

When we see the acceleration of net adds 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 generate revenues and it will grow as time passes by.

So, we gave the example in the presentation that the merchant that used three PagBank products have 50% more revenues than acquiring. If they use five products, it's 100% more. So, I'm going to give you an example. I can sign up for PagBank account in three minutes and then I'm going to receive the card in a few days.

And to the point, I don't receive the card, I don't generate interchange revenues. I need to put money there to invest in SCD for instance. If I invest in SCD, 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 at the same time.

It's different when you think about similar to what you have in acquiring, when they receive the device, they start selling and then they grow in the first months. But I guess 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 on the solution and use more than one product. So, it is happening. It is happening, but it takes a little bit to generate revenue at the same velocity of the net adds..

Okay guys. Very clearly. Thank you very much..

Our next question comes from Jorge Kuri, Morgan Stanley..

Hi, Jorge Kuri, Morgan Stanley. Congrats on the numbers. Two questions if I may. The first one on expenses, you did a pretty good job on personal and marketing expenses during the quarter evidencing on 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 continue to invest in the business above the revenue growth? And should we expect expenses hence to grow up along 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, so maybe we have just a more debit heavy mix in your business.

As I think you do in other places that have 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 view as well. I'll talk about the first question. We -- as you said, we controlled the expenses very well in the second quarter and we are going to do the same in Q3. The only thing that I'll say that is going to be different in Q3 as we see the opportunity to grow we need to accelerate and have the growth.

Of course balancing growth with profitability is something that we always say. So, what I'm trying to say here is that the marketing expenses in Q3 will be between Q1 and Q2 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 what I have the information at this point.

So, we'll invest a little bit more in marketing and try to grow fast as you saw the previous in Q3 some of the numbers in terms of net adds 250,000 and 900,000 consumers, but as Eduardo said before, keep the margin levels at the same -- keep the net income margin at the same levels.

I guess the take rate Alcaro 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 a deep economic crisis. We saw the same trends. I think not as dramatic as here because now we have BRL50 billion 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 BRL50 billion is 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 having an opportunity to expand our addressable market here. .

Just one complement 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 restaurant is recovering a little bit, but not 100%. For tourism, it's still not happening.

So we also believe that some sectors where we have a larger presence of credit transactions or even installments are still impacted by the virus and should recover as we have the end of the pandemic. .

Solid results and congrats again..

Our next question comes from Tito Labarta, Goldman Sachs. .

Hi, good evening. Thanks for the call. My question a couple on costs. If you look at your cost, they went up in the quarter even though volumes were down. Just to understand, would expect them to run someone in line with volumes. So that anything happened specifically that you cost services actually went up in the quarter.

And along those lines, I mean, looking at your net margin if we back out the onetime -- the provision reversal that you mentioned you estimate your margin was actually close to around 19%.

So just to understand because given -- you thought you had mentioned the margin would remain relatively stable or a little bit lower in the quarter, but 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 speaking. 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. So 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 onetime advance that we don't expect to have in the next quarter. The second question about costs. Actually here, we have very -- 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 transactions going up, but it's for -- really for a good reason as we are adding more merchants and you could see that we surpassed until August '20 of 250,000 net adds. .

Okay. Thank you. That’s helpful. So just to understand a little bit on the margins. Because when you gave the guidance in the last quarter, it seems it's a bit lower than that.

So just 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?.

Well, 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 regionally 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 in installments. I mean, they are slower then sectors where for basic needs where we have more debit transactions. And again, I mean, we are having the whole country in credit compression..

Okay. So mostly a function of mix just to understand. And then if I can ask this one follow-up question on the prepayment with the receivables market that's expected in November.

I mean, do you think that could put some pressure on pricing may be 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 believe it's going to be used for more large merchants, because remember our merchant sales BRL2,000 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 BRL600 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 the [Indiscernible].

And the majority of them use -- 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 and less as a threat, so I think it's neutral to positive for us..

All right. Thank you..

Next question comes from Neha Agarwala, HSBC. .

Hi. Congratulations on the strong results. And thank you for taking my question. My first question is on TPV. I believe that some of the TPV includes the volumes generated from the corona vouchers.

Would it be -- 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 corona vouchers volumes? And my second question is on PAGS. I understand that some of your revenues is also generated from the issuance of the letters and from via transfers.

These could be at risk if P2P takes off with the implementation of PAGS. How much of your revenue is generated from these sources? Thank you so much..

Hi, Neha. 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 consider TPV or they -- some points they discount or make the 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 corona voucher, because let's think someone gets the money, they deposits in a bank and then they decide to use the debit card from this bank. So 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 be straight to your question, it is impossible to say this is corona voucher. This is not corona voucher, but I would say you that we are having strong trends putting new merchants, new consumers and taking share from some other players. The other question regarding PIX 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 boleto and paying cash and have the confirmation of the payment and things like that.

So I see that in terms of boletos, 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 to be able to have this transaction. 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 MercadoPago 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 and since the IPO, the long tail 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 adds in only 50 days in Q3.

We had a record 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 in our base. People don't say they are leaving us to go to a competitor.

Part of the merchants that stop transaction is because they didn't have the business open because of the pandemic or things like that. So we are not feeling the competition. So it's – 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 Tenyi, BTG Pactual. You may proceed..

Hi, everyone. Thanks for taking my questions. I have two. The first one is on net adds in the merchant business. Before the crisis you were indicating a similar net adds this year than last year but with the 300,000 net adds until mid-August. This indicates a much stronger trend.

So I just wanted to try to get a view if you have a new expectations for how much net adds could be in Q3 and Q4, if they can continue in the same – 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 the net adds, but if you could share with us how much of the net adds were used in 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. Regarding net adds, you're right, we had an expectation for this year. Now we are surpassing the expectation by far. Part of that, we see this trend of our brand people come in to us, because they know PagSeguro os – PagSeguro and PagBank it's a trust company. They can make the transaction here.

They don't – are not concerned about the money coming here. They know, it's a serious company, and it works very well. There is all this word-of-mouth that people talk to each other, the solution is good and it's easy to work with. And also, we see part of the competitors deciding not to compete in on tail anymore.

They were vocal saying that, they would not invest in long tail, because it's hard to, 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 this year is a more complete solution not only the POS, but also they receive the money right after the transaction, they receive our card to access the balance of the account. So we – as I said, before, we are in a really strong pace.

We don't 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 in our device. So that's why we had records of sales in June and then a new record in July. We see the – the long-term market is expanding.

So we are addressing this market and accelerated to try to grow as fast as possible to gain share. As I said before, the industry in the first half, the industry grew 3%, 3.5% and we grew 20%. Where we make research with the merchants that come to us is 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 of – they want to sell with PagSeguro some of them come, because 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 projection is going to be, I mean, 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 market. We are investing a little bit more in market in Q3, are seeing the results.

So when I look forward, we are confident, it's going to be a good year in terms of net adds, in terms of the new merchants and new TPV coming to us..

Okay.

And just a follow-up in the net adds, how much of them are our clients using the payment link? And if you have any – any different dynamics in churn? How did churn behave in this Q2 and early July and August?.

Yes. 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 a link of payments. This 250,000 is not boosted by link of payments. Its people that – people that are coming to us and buying devices, and choosing a POS or smart device 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 they didn't – in the follow month they stop, and they come back again. So we have this back and forth in long tail.

We had this, let's say, decrease in April and May, but when you look in June, we recovered more than 100% of the base that we saw that were transaction in February and March. So there is no churn – no, let's say spike in churn, because of the pandemic.

People just sold less, because, I mean, the business were closed – was closed or some situation when 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 is, if you already see a trend of clients that started using PagBank and then became like merchants of PagSeguro.

Did you see like this reverse trend?.

Yes. So as we have this situation, people that come to us, they come, they sign up for PagBank. At the same point they buy a device and decide to become a merchant.

It's not the majority of the new merchant at this point, but you 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 it's -- 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 come into us because of PagBank and then become a merchant after a while..

Okay. Very clear. Thank you very much..

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

Hi, thanks for taking my questions. Thanks for squeezing me 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 PagBank.

Can you talk a little more about the growth that you've seen in the user base? Specifically you now have over one million consumers using PagBank and you're also talking about another 900,000 net adds through August 2020. And 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? And second, it's certainly interesting to watch your strategy with the partnerships you're making with PagBank.

I guess, my question that I have for you is, do you think the partnership here with Tiktok can that grow into something meaningful eventually can that help accelerate the number of customers using PagBank 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'll probably have another record of PagBank net adds in Q3. In Q2, we reached more than one million consumers using PagBank. We also make research with this base. We have let's say a decent percentage of these consumers that use us 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 in Q1 this year, PagBank Health. There are some others that we will launch as well. So we are making this account more complete.

So people will use as a primary bank more and more. They come to us part of because they see a free account with a lot of services that are for free. That's 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 couldn't 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 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. It's Tiktok is very, very useful for millennials. Some of them they don't even -- they cannot have a bank account.

So it's still too early to give, let's say, a preview of what's going to happen. Maybe in the next call we can give more color about that, but for sure is a good partnership, is 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 a 2021 event? And then, in slide 18, this is the one where you talk about PIX, Ricardo, what do you mean in this example by the bar code replacement? If you could just elaborate on that? And then, how should we be , or thinking about the financial model? Is there any, like, take rate observation you would have about what PIX 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, it is only subject to antitrust and Central Bank approval, which we don't envision any difficult here. So, probably in Q4 we start to consolidate their numbers..

Yes. And going 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 we want to pay someone or e-commerce through a wallet. In this wallet you have a bar code. And then you can generate this bank slip. There is a bar code then you go to your bank app or you can print that to paying 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 for someone that is paying. With PIX, this would 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, we 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 can even -- 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, KeyBanc..

Thank you for squeezing me in. I just have a higher level question. Obviously, we're all starting to get a lot of information on Alipay and China and certainly what the Super App can look like. And in the U.S. 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 in 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 what 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 if you prefer that we have in Brazil. Today 40% of PCE is already happening in cards.

So in China, they only had the cash, the paper and then they went straight to the mobile phone. So they didn't have this plastic culture that we have in Brazil first. Second, they didn't have the credit that we have in Brazil, people use credit card a lot. So it's different. 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 cards or things like that. So they went straight from the cash to paper to the mobile phone. That's the first thing. The second one is about Super app.

We are always building this -- our app to try to be 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 use the Super application, but some people use card.

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. So 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 a 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 Grespan, JPMorgan..

Hey, guys. Thank you for the presentation and taking more questions. On our side is 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 the 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 it's going to last those impacts, or if there is 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 will 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..

Okay.

Just as a follow-up Alcaro, so just to be clear, as long as you continue selling the 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..

[Operator Instructions] It has 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 your 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. PagSeguro's conference call is concluded. Thank you very much for your participation. Have a nice evening..