Hello, everyone, and thank you for waiting. Welcome to PagSeguro's Third 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. [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 results are available.

[Operator Instructions] Before proceeding, let me mention that any forward statements included in the presentation or mentioned on this conference call are based on the currently available information and PagSeguro's correct assumptions, expectations and projections about future events.

While PagSeguro believes that there are assumptions, expectations and projections are reasonable in view of currently available information, you are cautioned not to place your 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 Factors 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 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 third quarter results conference call. Tonight, I have here with me Eduardo Alcaro, our Chief Financial Officer; Artur Schunk, our Finance Director; 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 pay a tribute to our extraordinary people who work at PagBank PagSeguro and who have been supporting our business from their homes in the last eight months.

Thank you very much, PagBank PagSeguro team. As we will see in the next slides, even without continued impact generated by COVID-19, we see positive trends in terms of engagement, new clients addition and electronic payments volumes we are helping enable. Our results show our business is exceptionally resilient and improving day after day.

I'm glad to announce that in this quarter, we reached our all-time high absolute TPV and historical records in net new additions for both merchants and PagBank users, results of our confidence and continued investments in our business despite the challenging scenario.

Finally, important to mention that during these months, we have been developing features and products for both acquiring and banking businesses, pursuing to build the most complete and unique two-sided ecosystem to explore this huge addressable market, and we are just starting.

Regardless of the current moment, we are confident in our strategy and the opportunities ahead of us. We will continue to manage the business for the medium and long-term, while recognizing near-term realities, which means adapt our company for the opportunities accelerated by COVID-19, while we invest to grow the company.

That said, Eduardo Alcaro and I will present some slides, and we will have a Q&A session at the end. On Slide 3, we highlight the achievements of the third quarter. All-time high TPV reached close to BRL45 billion, growing 53% year-over-year, or 44% year-over-year, excluding the coronavouchers impact.

Our online TPV grew 121% year-over-year, showing another quarter of acceleration. A sustainable and expected trend going forward as we expect online payments to be a growth driver for our company.

Active merchants reached 6.3 million, adding 1.3 million new clients in the last 12 months and a historical record of almost 0.5 million new merchants in one single quarter.

Total revenue and income reached close to BRL1.8 billion, growing 22% year-over-year, a very strong rebound when compared to the previous quarter growth, also our revenue's record.

Net take rate ended the quarter at 2.35%, down 37 basis points quarter-over-quarter, or 2.58% excluding coronavoucher products, down 14 basis points quarter-over-quarter, slowing down the decrease compared to previous quarter, but still temporarily impacted by the TPV mix, meaning more debit card transactions and less credit installments, directly impacting our prepayment revenues.

Non-GAAP net income was BRL330 million, reaching a net margin of 18.5%, or 28%, excluding interchange, as our peers report, still impacted by the pandemic and investments in PagBank.

Our adjusted net margin, excluding pandemic and PagBank investments effect, ended at 29.3% in the first nine months of 2020, growing 2.6 percentage points when compared to the same period last year, posting continued operating leverage in the core business.

Additionally, we are glad to announce that in November, PagSeguro completed the acquisition of MOIP Wirecard that will accelerate our online strategy. Moving to PagBank.

Our PagBank TPV previously known as non-acquiring TPV, through banking, digital account and wallet services reached BRL23 billion, growing 312% year-over-year, another triple-digit growth, or 286%, excluding coronavouchers. The Q3 2020 non-acquiring TPV volume is 12% higher than the full-year 2019 volumes.

PagBank clients were 6.7 million, representing all-time high net additions of 1.8 million in one single quarter. We reached 2.2 million consumers, growing 8x year-over-year and already representing one-third of our total PagBank clients.

PagBank revenues reached BRL133 million in the quarter, up 190% year-over-year, reaccelerating when compared to previous quarter and representing 7.5% of total revenues and income.

Finally, we kept increasing our cash-in process through different products, with PAGS CD's clients close to 50,000, payroll portability transfer reaching 150,000 and, finally, more than 400,000 transactions to TikTok, only two months after we officially launch this service. On Slide 4, we show the main Q4 trends.

Our main top line KPIs, such as TPV for acquiring and total revenues and income continues on accelerator mode. TPV is growing above 60% in October, and 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 October, reached 144% of the TPV of the first-half of March, with both credit and debit presenting growth, although debit is still growing faster. PagBank TPV growing close to 300% year-over-year, and total revenue and income accelerating and growing high 20s year-over-year.

Although we are in the middle of Q4 and still have some impacts related to the pandemic with a continued higher mix of debit, which is also historically stronger than Q4 and continued investments on PagBank, we expect to improve our results and profitability. In Q4, we expect our non-GAAP net margins to recover and to be between 20% and 21%.

On Slide 5, we present our operating highlights. Total payment volume reached close to BRL45 billion, growing close to BRL16 billion, or 53% when compared to the same period of last year.

Our diversified merchant base with no geographic concentration, resilience of the micro-merchant segment and adoption of online, cross-border and card-not-present transactions supported this strong rebound that continues in Q4.

Additionally, excluding the coronavouchers impact, meaning transactions that we captured through QR code that represented BRL2.7 billion in the quarter, we grew 44% year-over-year, still a strong growth. In next graph, we show the largest portion of volume growth is coming from debit card transactions.

Although both debit and credit have been growing, debit grew faster. The mix of debit cards has increased more than 20% when compared to Q3 2019, while overall credit cards mix decreased 15% as a consequence of the pandemic.

On active merchants, we reached 6.3 million in the quarter, adding 1.3 million new sellers, or 25% year-over-year and 0.5 million new ones all in this quarter, reaching a historical record and adding 56% more merchants when compared to Q3 2019. Our new clients are still majority long tail with similar size and behavior when compared to older cohorts.

We still see that 70% to 80% of our new sellers never accepted cards before, and we are still confident that long tail market is approximately one-third penetrated, with a huge potential to keep a strong pace in the coming quarters.

Also important to highlight that in Q3, we launched a new device, our Minizinha NFC now enabled for contactless transactions, helping nano and micro-entrepreneurs to improve their sales as contactless payments are becoming quite relevant since the start of the pandemic.

Additionally, we ended the quarter with 414,000 software subscribers, growing 3x year-over-year as we keep diversifying additional self-service ERP, loyalty and reconciliation features to our clients. On the next slide, I'd like to spend some time talking about our online strategy.

Online has always been a very important vertical for PAGS, as we started our journey back in 2006 as an online wallet and payment provider.

Although in recent years, our off-line growth was much stronger and the main focus of our strategy, we kept investing new products and solutions to offer the most complete omnichannel product offer to our clients.

But with the beginning of the pandemic and the social isolation, millions of sellers and consumers became digital for the first time, bringing an urgency for companies like us to improve our solutions and pursue the best experience for our clients in a huge addressable, sustainable and growing markets going forward.

Brazil still has a long road to run, as online represents less than 5% of the total retail sales, bringing a relevant opportunity to PAGS to explore a potential addressable market of almost BRL130 billion in TPV, assuming that Brazil can reach similar online penetration levels compared to U.S.

Accorded to Ebit/Nielsen survey, in the first 6 months of 2020, online sales grew 47% year-over-year, meaning a growth 3x larger-than-expected before COVID-19, the highest growth in the last 20 years. Brazil reached 41 million online users having almost 7.5 million new ones only in the first half of this year.

Additionally, 58% of the total users made online purchase at least 4x in the period. And 20% of the users did more than 10 purchases in the period, showing a very healthy combination of new users, both sellers and consumers and recurrence. PAGS is well prepared to explore this growth.

As we have one of the most complete platforms that combines web checkout for micro, small and medium businesses, many of those going online for the first time; a complete end-to-end acquiring platform for marketplace in e-commerce, with the recent acquisition of MOIP; wallet services for consumers in cross-border trade with our BoaCompra company.

So the result is that our online TPV grew 121% in Q3 when compared with Q3 2019, accelerating our growth compared to past quarters and showing signs of stronger growth with October growing 163% year-over-year.

Additionally, our cross-border business is doing very well, growing almost 4x year-over-year, capturing the majority of the TPV outside Brazil, mainly in other Latin American countries and Europe.

BoaCompra has a very strong presence in the gaming vertical and gradually expanding its exposure to others, such as travel and entertainment, software and physical goods.

Finally, in November, we completed MOIP's Wirecard acquisition, starting the integration process since the beginning of the month and prepared to accelerate our growth going forward with the best-in-class online platform of the Brazilian market.

We expect online will be a relevant growth driver in the coming years, and PAGS is ready to lead this process for both sellers and consumers. Now I'll pass the word to Eduardo Alcaro, our CFO, to talk about the financial performance. Thank you. Eduardo, please go ahead..

Thanks, Ricardo, and hello, everyone. It's great to be here today, and I hope you all are safe and healthy. In the next slide, we present our revenue figures. Total revenue and income grew 22% year-over-year, reaching almost BRL1.8 billion in the quarter, showing a strong rebound sequentially.

In the next graph in the right side, breaking down our operating revenues, transaction activities and other services grew 38% year-over-year also showing a very strong recovery compared to 4% in the second quarter.

Our financial income revenue also improved when compared to the 8% decrease observed in the past quarter and flat on a year-over-year basis as a consequence of the consumer behavior during the pandemic, leading to less credit card transactions in installments in our transaction mix.

Important to remember that our prepayment model is automatic, meaning that every credit card installment transaction is automatically prepaid instantly in D+14 or D+30 to our clients. In the charts below, we present the recent TPV market data provided by ABECS, the Brazilian card association, as of Q3 2020.

Important to show that the market is growing at 17% year-over-year or 10% excluding coronavouchers, with debit cards growing 41% year-over-year or 22% ex-coronavouchers on a year-over-year basis, while credit cards are only growing 1% showing how the mix has changed across the board as a consequence of the consumer behavior during the pandemic.

Based on those numbers, PAGS is gaining market share in both products, and our total volumes grew 4.5x faster than the market, excluding coronavouchers.

In the next chart, we present our net take rate, which is the blended take rate net from transaction costs such as interchange, processing and card scheme fees, that reached 2.35%, down 37 basis points quarter-over-quarter.

Excluding the coronavouchers impact, our take rate reached 2.58% or 14 bps down, already easing the pace of decline sequentially, as a consequence of the temporary mix effect already discussed earlier. In the next slide, we are presenting our cost and expenses structure and net income performance.

Starting with our non-GAAP total costs and expenses, we ended the quarter totaling BRL1.3 billion, growing 44% year-over-year. Breaking by categories, our sales and services costs grew 58%, driven by higher interchange costs, up 37% year-over-year, as we grew our TPV by more than 50%.

Our personnel expenses grew 63% year-over-year as a consequence of the expansion of our PagBank teams hiring more tech developers, cards, credit, investments, sales and insurance professionals.

Our D&A has also increased 200% year-over-year as a consequence of an unprecedented merchant addition expansion during the quarter, boosting POS acquisition depreciation and higher amortization of product development and tech teams.

Marketing allocated in sales and services also increased by 42% year-over-year with higher investments to promote digital wallet, PagBank products and engagement.

Moving to selling expenses, we highlight costs related to chargebacks, declining as a percentage of the TPV from 0.21% to 0.18% year-over-year, even with higher exposure to online sales and a credit portfolio twice larger than in Q3 2019, driving to a healthy CAC.

Up right, non-GAAP net income reached BRL330 million, a decrease of 15% year-over-year, but 8% higher when compared to Q2 2020. It's important to remember that in every Q3, we have the stock-based long-term incentive plan grants, leading to a larger non-GAAP market-to-market adjustment.

In this quarter, we had a total of BRL67 million, impacted by the stock performance and a more pressured FX rate from dollars to reais in the period. For more details, the reconciliation of these non-GAAP financial measures is presented in the last page of this webcast presentation.

Bottom right, non-GAAP net income margin reached 18.5% in the quarter, stable when compared to Q2 2020. This is exactly what I mentioned during the last call, stable margins comparing Q2 2020 to Q3 2020. As we shared in our Q4 2020 trends slide, we expect to expand net income margins in Q4 comparing to Q3.

Moving to the next slide, we highlight the main operating and financial KPIs for PagBank. In the first chart, PagBank TPV, previously known as non-acquiring TPV reached BRL23 billion, growing 312% year-over-year or 286%, excluding the BRL1.5 billion volumes related to coronavouchers top up. Moving to PagBank clients.

We ended the quarter reaching 6.7 million users, growing 257% year-over-year and adding 1.8 million new users in one single quarter. In the chart below, we present the evolution of our consumer base.

Consumers reached 2.2 million users in Q3, growing 8x year-over-year and already representing 1/3 of the total PagBank base, showing our ability to expand our addressable market, as we become a full complete financial digital ecosystem.

Moving to the next chart, our PagBank revenues ended the quarter at BRL133 million, accelerating 109% year-over-year.

In the first 9 months of 2020, our total PagBank revenues reached BRL330 million and growing 103% year-over-year, a triple-digit growth despite our decision to be more cautious on new credit originations since Q1 2020 that we are resuming in Q4 2020, as well as the launch of new products in the coming months as we'll discuss further.

These figures show that we are in the right track to reach 30% of our total revenues coming from PagBank in four years. 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 10. I want to share how we are positioning our ecosystem and strategy.

PagSeguro was born online in 2006 starting as an e-wallet, PayPal-like model, from millions of Brazilians to pay online in a safe and easy way and, over time, became the largest payment provider for micro, small and individual professionals through a very complete omnichannel offering that goes from very basic and entry-level mPOS devices to cross-border and online checkouts, not forgetting about self-service software features to engage and help our clients to sell more and better.

The payments market continues to be our core business, a market of BRL27 billion opportunity, mainly the long tail, that is still low penetrated with higher margins, few well-succeeded competitors and higher barriers to enter. As we already discussed in the past, we are investing to become more than just a merchant-acquiring company.

Since the beginning of our banking journey in early 2019, we are investing in new products, software, people and marketing to position our company to enter in a much larger market.

We believe PagBank is well positioned and developing a robust and unique 2-sided ecosystem that combined payments, banking, digital wallet, investment and insurance to serve and cross-sell products and services to our active unique users and new customers, both sellers and consumers.

All this, combined with a very strong brand and a unique scale due to a massive online distribution backed by UOL. In 1.5 years, we already reached almost 7 million PagBank active users, probably the largest growth of additional bank in Brazil in a very short period of time.

By launching and upselling new products such as banking, including cards and credit, investments and insurance and expanding our approach to consumers, we estimate the market pool is almost 17x larger than payments.

The pandemic accelerated this digital-first mindset for payments and banking, including millions of Brazilians for the first time and combined with new initiatives such as PIX and open banking, we are ready to lead this digital transformation in Brazil. According to IBGE and Brazilian Central Bank, there are 68 million unbanked people in Brazil.

Additionally, 28 million of low-income population do not have a bank account, and 57% of the population are interested in adopting digital banks. Still today, 40% of the paychecks are paid in cash. 65% of the bill payments are also made in cash. And finally, 51% of the new bank accounts are opened just to receive the payroll.

On Slide 11, we present some of the main initiatives around next steps in our banking and digital wallet strategy. Start with its credit offerings. Our credit portfolio ended the quarter that BRL485 million, growing 1.4% quarter-over-quarter. We reached 132,000 contracts with average ticket transaction reaching BRL2,100.

As we discussed in the past meetings and conference call, we decided to be much more conservative during the pandemic environment and reduced new credit originations, and we focus on renegotiating the existing contract with our clients, which helped us to keep our NPL levels stable and healthy.

With the recovery of the merchant sales since early July, we started to ramp up new originations, but it's still below pre-COVID levels. We expect to reach close to pre-COVID-19 levels originations already in Q4 2020 an accelerate the pace in 2021.

Our focus continues to be our best merchants is still underpenetrated as we have a lot of data from our clients, and we expect to launch new credit products in the coming months, increasing exposure to collateralized credit, such as payrolls and supply chain finance, so-called desconto de duplicatas.

On investments, we are just getting started with PagInvest. We believe we can help our clients and Brazilians overall to invest better. Just to give some perspective, in October 2020, Brazil achieved BRL1 trillion invested in savings accounts, with a very proven remuneration.

Since the beginning of the year, we launched new investment products, such as our own saving account product and more recently, several new proprietary CDs that pay interest rates that goes from 110% to 170% of our CDI with daily liquidity. Right now, we have close to 50,000 clients with investments in PagBank.

In our view, a very solid number, given we have a few investment options and are at the very beginning of our investment rollout. For instance, before the end of the year, we expect to launch the first investment funds, such as multimarket, FX, equities, among others, from third-party partners.

We have an extensive road map of new products in the pipe for 2021. On the bottom left, we provide some color about our insurance initiative. In Q3, we expanded our telemedicine specialties from 2 to 20.

In the first quarter 2021, we expect to launch life, home and equipment insurance with partners and leveraging a more complete portfolio of products in app. Finally, early this morning, on November 18, we launched our marketplace product.

Our new PagBank shopping, partnering with almost 40 relevant stores in multiple categories, providing a unique user experience, especially in end-to-end sales in addition to the cashback offering purchases. On the shopping platform, we connect 2 ends, customers and retailers.

On the one hand, we have almost 7 million account holders with high recurrence in our app. On the other hand, we have retailers eager for recruiters and efficient marketing. The higher our sales conversion, the more retailers value our partnership, which results in higher engagement, potential new products and monetization.

Now I'll turn the word to André Cazotto to talk about PAGS unit economics and adjusted margin analysis. André, please go ahead..

Thanks, Ricardo, and good evening, everyone. On Slide 12, we show some important metrics over paybacks and returns on investments for our core merchant acquiring business. PagSeguro's merchant acquiring business continues to deliver very efficient paybacks and solid returns on investments on our seller acquisition spend.

The first chart, despite larger investments in marketing and sales and higher POS subsidies started in 2018, we continue to observe efficient payback periods on gross profit achieved in average in 4 quarters or more precisely in 10 months.

Moving to the next chart, picking our 2018 seller cohort, we showed strong returns on investments reaching 6.7x after 11 quarters. Return on investment is calculated by dividing cumulative gross profit of the 2018 cohort of merchants by seller cost of acquisition, including marketing and sales plus POS subsidies of the year period when onboarded.

Our unique online scale, a strong brand with word-to-mouth brings higher barriers to enter in our market. Additionally, our efficient paybacks and positive retention have driven strong merchants lifetime value and return on investments. On the next slide, we present a managerial analysis about PAGS core business margins.

In the chart below, comparing the first 9 months of 2020 versus the same period last year, we provide more color in how the pandemic and investments on PagBank are impacting temporarily our non-GAAP net income margins.

Starting with the COVID-19 impact with the partial shutdowns in Brazil, negatively impacting our TPV growth, especially in late March, April and early May and, second, with temporary changes in the consumer behavior, which means less leverage and with spending more oriented to essential goods.

The consequence is a change in the TPV mix with faster growth on debt card transactions, including the coronavouchers and lower growth on credit installments, extremely correlated to credit availability also impacted with lower appetite of banks in the past months. All these temporary changes drove to lower take rates and margins.

We estimate the pandemic impact of BRL238 million in the first months of 2020, decreasing our margins in 5 percentage points. This negative impact is transitory and should recover over time, not only for PAGS, but for the whole cards industry.

Although still too early to anticipate or to forecast the pace and timing of the full recovery, we're confident that there is no structural changes in product mix and consumer behavior.

We expect credit and main installments to recover with the reopenings, improved consumer confidence and financial institutions recovering credit origination appetite in the market, including us. Moving to PagBank investments. Those are more midterm effects. We started our initial investments in 2019.

Despite the pandemic, we kept investing the most important verticals such as product development, software, people, engagement and marketing.

We know that PagBank is essential for our business strategy and will put us in a much higher degree of growth and profitability in the coming years, but larger upfront investments are needed and expected in the short/mid-term.

We're building a new and exciting 2-sided financial ecosystem, but clearly expecting to decelerate the pace of investments over time, benefiting from operating leverage as we start to rescale and monetize some of the initiatives such as cards, loans, investments and insurance.

We had a negative impact of BRL141 million of PagBank investments in the first months of 2020, meaning 3 percentage points impact in net margins.

To conclude, the ration of this analysis is to show that despite the short-term negative impact of pandemic in our business plus mid-term larger upfront investments in an extremely relevant asset for us that is PagBank, our core business non-GAAP net margins keeps benefiting from operating leverage and is still posting healthy profitability levels despite the competitive landscape in Brazil.

Although we understand the nature of operating leverage for a scale business such as PAGS and we are paranoic with profitability, our focus right now is to grow as we're moving to a much more relevant ecosystem, more than just a merchant-acquiring company and entering in a market 17x larger than payments as we discussed earlier.

Profitability is part of our DNA, and we will continue to deliver solid bottom line results. However, we believe that PagBank investments are the most efficient capital allocation strategy for now. Now I would like to hand over to Ricardo again..

Thanks, André. Finally, moving to Slide 14. 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.

To start, we are happy to say that according to Central Bank initial figures, PAGS was the third largest player in PIX key registration to be the account destination of PIX cash-in.

This figure shows a very strong acceptance and engagement of our client base and reinforce our view that Page bank is becoming the final money destination of our clients, both sellers and consumers. We believe PIX will be complementary to card payments, mainly because the dynamics of the payments transaction is very different from a wire transfer.

And also because of the maturity of card payments in Brazil, already established in our consumption culture with roughly 2 debit cards and 1 credit card per adult, representing 41% of our total PCE, private consumption expenditure.

PIX presents the opportunity to boost electronic transaction and leverage financial inclusion to millions of unbanked and underserved Brazilians.

PAGS also has the largest installed POS base in the country, which allows our sellers to offer PIX transactions through QR code, fully integrating our platform, bringing convenience, robustness and security for transactions.

We will charge MDRs for QR code transactions, and we expect PIX transactions to deliver healthy profitability in a win-win situation for us and our clients. PIX MDRs will be lower than debit cards, but also at lower cost to PAGS as we don't have card scheme fees, neither interchange.

Although a card payment is much simpler than PIX, PIX transactions could gain share over cash and, consequently, generate additional revenues and contribution margins for PAGS.

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 accelerate of the shift from cash to electronic transaction 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, it seems the worst of the crisis behind us, and we keep confident about the strong fundamentals of our businesses, the strength of our brand, the PagBank PagSeguro ecosystem we have built so far and, last but not least, our execution capability.

We will keep investing in our long-term strategy in people, products, services and growth. We believe PAGS is uniquely positioned to lead the digital transformation of payments and financial services in Brazil for both merchants and consumers.

Finally, before we start our Q&A session, I'd like to pass the word to Eduardo Alcaro to make an announcement about new roles in our team. Please go ahead, Eduardo..

Thank you again, Ricardo. Just before we start our Q&A session, I would like to make an important announcement about the expansion of our senior management team. I'm glad to announce the promotion of Artur Schunck as our new CFO.

Artur is a great talent developed internally that has done a fantastic job for PagSeguro over the last 7 years, being responsible for accounting, FP&A and the logistics teams, a top-notch professional with strong background in finance at companies like Walmart and UOL.

I'm not going anywhere, and I will take a new role in the company as the new Chief Business Development Officer, remaining as a PagSeguro Board member. The transition will be gradual and expected to occur within the next 6 months.

The company only benefits from the expansion of our senior management team and reinforces our commitment to promote internal talent to the most important senior executive positions. Let me pass the word to Artur..

Hello, everybody, and thanks for the opportunity to -- just some brief words before we jump to the Q&A section. Firstly, I hope everyone and your family are doing well during this hard time. I want to say that I am very excited with the new challenge.

And after almost 7 years as Head of FP&A, treasury, accounting, logistics and leading many relevant projects to PagSeguro PagBank. I am taking the role of CFO, willing to keep the great work done by Eduardo. Thanks, Eduardo, and all of the team on supporting my journey until now.

I am looking forward to enhance our relationship in the coming quarters and I hope we can talk soon. Having said that, we finish our presentation, and we will start the Q&A section..

Thank you. We will now begin the question-and-answer session. [Operator Instructions]. Our first question comes from Mario Pierry, Bank of America. Please proceed..

Hi, everybody. Thank you for taking my questions and congratulations on the quarter. I have two quick questions. The first one -- and thank you for providing more color, especially on Page 13, this detailed breakdown here of your -- what you consider to be investments and impact on your margins.

So what I was trying to get, when you say 3% impact from PagBank, is this a number that we should continue to see increasing over the next years? Or is this a number that we are peaking and this number should eventually go to zero? Just wanted to make sure also that this number is just like one-time investments.

They do not include recurring expenses. And then my second question is related to your credit portfolio. Like you mentioned, right, you have been very cautious the last two quarters in originating new credits that you're ready to start lending more.

But when you became cautious, what drove you to become cautious? Did you see like a pickup in provisions? Did you see a pickup in delinquencies, and that's starting to normalize now? Was it really you were expecting, given the uncertain environment that things were going to get worse? And if you can give us any color on the profitability of this portfolio, any -- if you can share with us any ROA metrics, that would be very helpful? Thank you..

Hi, Mario, this is Ricardo. First of all, good to hear you, and thank you for the question. Well, talking about the investment in PagBank that you asked, the 3%. I don't have here the exact percentage for the next year. But for sure, we will keep investing in PagBank.

I don't think in 2021 or even 2022, we're going to see that going to zero, because as you can see, there are a lot of opportunities ahead of us. You see that in PagBank, we are growing triple-digit in terms of revenues, growing a lot in terms of users.

So we have a lot of opportunities that we cannot decelerate at this point and save, I don't know, BRL15 million, BRL20 million, BRL15 million in the bottom line instead of growing faster.

So we will explore the opportunities that we have the -- all the opportunities that even COVID accelerated, more people getting digitalized and doing things online, buying online for the first time. So we will keep investing in PagBank.

We gave some information or some color about the next features we will launch in the investment side, in the insurance side. We just launched the shopping -- the marketplace today in the morning. So there is a long road map of features that we will launch.

So that's why it won't go to zero for sure in 2021 and probably not even 2022, because there is a lot of opportunities that we have to explore. Regarding the credit, when the pandemic started in the second-half of March, we kept evaluating our TPV, seeing the behavior for our merchants. And, of course, we saw a decrease. Some restaurants being closed.

People not selling anymore. So, as you know, part of our collection is based on the TPV, so we decided to stop. And also, if you evaluate all the banks in Brazil, they all did the same. They just decreased the credit concession in Brazil.

There are a few companies that keep giving more credits during the pandemic, which is -- in our view, is a very risky thing to do in the middle of the pandemics. So that's why we stop it. We didn't see delinquency going up. I will give you some information just to help you to understand.

But we had to renegotiate some of the contracts, because the merchants were not working, the stores were closing and so on. We started giving some credit again in the -- in July, because the economic activity in Brazil was coming back.

As we could see in the previous slides, the TPV is growing again, of course, more in debit, but the TPV is coming back, economic activity is coming back. So that's why we decided to give some credits in July. In terms of NPLs, we don't disclose the exact number. But if you look at the Slide 8, we have in the right bottom, we have the chargebacks.

And, of course, chargebacks. We have everything. We have the chargeback from the cards. But if there is any delinquency in the loans, they are there as well. So if you look, it went down from 21 basis points to 18 basis points.

So it's very controlled in the mid of the pandemic, we had some back and forth with the merchants, but in our view, we are doing very well. And we will disclose -- we'll give more color on that when you think it is appropriate when the business is bigger than it is today..

Okay. No, that's very clear.

If you can just go back then on the investments of PagBank, these are one-time expenses, right? It does not include any recurring expenses with PagBank in this figures, correct?.

Well, it's usually product development, people. There are some products that you need to like. You need to give maintenance. You need to develop to make it better, to keep the evolution.

So I mean, 100% is not recurrent for sure because some of the products that you launch, you don't need to keep the same size of team doing maintenance or things like that. But part of that will be recurrent because the business is growing, the business is changing. We are in the dynamic industry.

But I mean going back to your question, it's straightforward. It's not 100% recurrent. The majority of that is launching new features and marketing, marketing things..

Okay. Thank you very much..

Our next question comes from Craig Maurer, Autonomous Research..

Yes. Hi. I hope everybody is well, good to hear everybody's voices. Wanted to ask on the acquiring side. You showed a lot of new directions for acquiring, whether it's e-com through MOIP or I know you're also doing some larger merchants in acquiring.

So I wanted to get your thoughts on the long-term average merchant size and how we should think about TPV per active merchant over the long-term, plus how these -- this mix change or potential mix change will impact take rate? Thanks..

Well, Craig, thank you for the question. So you're right. Regarding MOIP, MOIP usually has larger merchants, because they serve e-commerce and marketplaces. It's worth to remember that behind these marketplaces, we have thousands of smaller merchants that sell online.

So -- but you're right, if we compare MOIP's TPV with our TPV, the average is larger than what we have today. The good news is that is 100% online. And in the online environment, take rates are higher than in the off-line world because of the risk, because these are not card-present transactions and things like that.

So MOIP – that's the answer regarding MOIP. Regarding the larger merchants, we do a reactive work, right, because some of the merchants came to us asking for our services. We don't have, let's say, a strong proactive work to get larger merchants. But if they come to us, if we see that is a TPV that is accretive that we have margins, we serve them.

We don't have any problems in having a larger merchant if we have positive margins or positive contribution margin. So it's -- let's say, in our view, here, it's easy to go up, but to go down is much more difficult. So as you could see the incumbents that try to come to our market.

But looking in the medium term, I don't think the profile of our merchant base will change because our focus is still long tail. The majority of our merchants are long tail. They are small. So all these 2 movements that you mentioned, the MOIP and also the larger merchants.

I don't think it's going to be enough to change dynamics, the way we see our company in the past years. Probably, it will grow a little bit faster than inflation or things like that. But I don't think it's going to change. That's not in our plan because the focus is still long tail. All the PagBank investments that you do is also for long tail.

So long tail is the focus and will be the focus. And regarding take rates, if you go to our website or if anyone goes to our website, you'll see that we don't change the prices. Of course, there may be a few merchants that came to us to renegotiate, but a small percentage. But we didn't change prices.

The majority of the take rate that went down in Q3 is because of the mix. If we look at the components there, we will see that the financial income went down a lot because we are having more debit transactions that we believe is temporary. This change in the mix is temporary because of COVID. All the industry is seeing more growth in the debit.

If you look at the industry -- cards industry in Brazil, you see that debit grew 40% year-over-year and credit only 1%. So that's -- we believe is something that is going to be temporary, and we'll get back as our lives come a little bit back to normal again..

Okay. To follow up, just one question.

Do you expect to pursue a cross-sell opportunity with MOIP, if there are e-com merchants that also have material presence in the brick-and-mortar point of sale?.

Yes, Craig, that's for sure. We see -- in MOIP, we see at least 2 big synergies here. One in the revenue in the top line and the other one in the cost that will help the net income.

So in terms of revenues, we will cross-sell our solutions of -- our off-line solutions and POS and EFT and reconciliation to MOIP clients because MOIP has some larger merchants in Brazil that use MOIP for the online world and use another acquirer for the POS or physical stores. So we will cross-sell our solutions for these merchants.

We also have the other way around. We have some merchants here that are part of marketplace or have some small marketplaces and would like to use our online solution that we can cross-sell MOIP. So those are the 2 synergies in terms of top line. And in terms of cost, as I mentioned, MOIP was a sub-acquirer.

So it used to work with other acquirers to operate in Brazil. And of course, they paid a few basis points or they had some additional costs by using a third party. Now they are 100% PagSeguro. They are working exclusively with us. So we don't have these additional costs anymore, they do help a lot the P&L of MOIP.

So MOIP is going to be -- MOIP is already profitable and will be more profitable in 2021..

Our next question comes from Mariana Taddeo, UBS..

I have two questions. The first one is related to the credit portfolio. Can you share the breakdown of how much is related to working capital? And how much is related to credit cards? And how much do you expect to grow next year? During your presentation, you mentioned that you plan to accelerate the credit portfolio growth in 2021.

And my second question is related to PIX.

Could you share with us how much are you charging for PIX transactions? Is that a fixed fee per transaction, a percentage of volume or no charge for the merchants?.

Mariana, good to hear, and thank you for the question. Regarding the credit portfolio, about, roughly speaking here, 1/3 is credit card and 2/3 is working capital. That's roughly speaking. That's the breakdown of our credit portfolio. We plan to grow in 2021.

And of course, that's a dynamic thing, right? Because we have a lot of discussions all the time, and we follow the -- what's going on with the whole economy and the whole environment, so to say, to define our credit concession.

But our plan is to keep giving the same credit that we gave before COVID, close to 90 million, 100 million per quarter, roughly speaking, that was what we were growing before. And that's what we had in mind for 2021. But of course, it can change. It depends on what we see in terms of the environment here in Brazil.

Regarding PIX, we are charging MGRs for PIX because in the QR codes, we charge the merchant, it's lower than the debit. But it's more profitable for us because we don't have the card scheme fees and interchange. So it is public in our website. We are charging up to 1.89%. And so it is public. It is in our website. That's what we are charging.

We evaluated some case by case because some merchants that we had a smaller debit take rate we are charging a little bit less. But the default rate is 1.89%. But just to be clear here, just PIX started yesterday or the day before yesterday and is very -- at the very beginning and a few transactions at this point. But we are ready to charge.

We have 6 million POSs in the market. We have the better distribution or the larger distribution in the country. So as we said before, we think PIX is giong to be neutral to positive for PagSeguro..

Our next question comes from Rayna Kumar, Evercore..

Congratulations, Eduardo and Artur, on your new roles. It's really good to see the TPV growth remaining strong into 4Q.

Can you help us quantify the benefit you're seeing from coronavouchers into 4Q? And what impact that could have specifically on your take rate? And then on a related question, should we expect the strong trajectory of merchant net adds, you did 474,000 in 3Q to continue into 4Q and 2021?.

Rayna, thank you for the question. If you exclude coronavoucher, we grew 44%, still very strong. We are discounting here all the transactions that you had with QR codes, people using the app to have access to the coronavoucher funds. So that's the answer for the coronavoucher question.

Regarding net adds, as you could see, we have the best quarter in terms of net adds, almost 500,000 net adds. That's something that we are very proud of in the middle of the pandemic to have this size or this number of new merchants coming to us. Still today, 80% of them did not accept cards before joining us.

So we are still really bringing people, new people to the system and creating this market. And part of that, you can see that the industry as a whole in Brazil in Q3, the card industries grew 10%, excluding coronavoucher, and PagSeguro grew 44%. So we are bringing new people to the market.

Going forward, it's hard to say it's going to keep the same level, but I don't think it's going to go down dramatically, right? We had 300,000 in Q2, almost 500,000 in Q3. So in our view, it's going to be something between these two numbers.

We know December, we have only half month because of the second half of December, people are more focus on the holidays and things like that. But it's still a strong trend what we see in Q4 until now..

Okay. Great. And just one follow-up. In the third quarter, your transaction expenses, that was up 71% year-over-year. Can you just tell us what the drivers was for that increase? And how we should think about transaction expenses going into 4Q..

Rayna, now I need to ask some help here for Eduardo or André because I don't have this number in front of me here.

So Eduardo, André, can you?.

Basically, what you did not have last year is the intercompany is the intercompany taxes on the POSs. So basically, this increase is explained by the additional expenses that we are having with intercompany POSs because in this quarter -- during part of the quarter, we acquired the POSs through a subsidiary company from PagSeguro.

So that's the main reason..

Our next question comes from Bryan Keane, Deutsche Bank..

I wanted to ask on the net income margin, the non-GAAP net income margin, it came in, in line with your expectations, I think, around 18.5%. But you are expecting a pretty material improvement to 20% in Q4.

What's driving that impact why the improvement, I guess? And then I guess, secondarily, on that take rate because the mix will be still heavy with vouchers and probably even more debit, should we expect the take rate to deteriorate a little bit further just as that mix change has its impact?.

Bryan, this is Ricardo. Thank you for the question. Regarding the margins for Q4, I will start and then Eduardo can complement. But it's a mix of many things, right? In Q3, it was 18.5%, and we are expecting 20% to 21% in Q4 part of that is explaining because we're going to have more volumes and we can dilute more fixed costs.

We also -- if debit keeps growing as we see because in Q4, we have the 13 salary, the transactions cost may be a little bit lower. But those are the two main drivers that I can give us some color at this point. But I guess, Eduardo can complement a little bit more..

And we've also seen a slight increase on the take rates when we look at the whole Q3 compared to what we had in October. So as Ricardo said, at the end of the day, it's expense leveraging and a little bit better take rates when we look at October compared to what we have seen in Q3..

Got it. That helps. And just one follow-up question. When we think about you guys ramping up the ecosystem and particularly looking at the insurance and the investments in the marketplace.

Can you just go through those 3 additional ecosystems and talk about how you guys will get paid directly from those? It sounds like some of this might be referral versus transaction fees..

Yes, just to complement Eduardo's answer before, when he said that it's getting better. The net take rate in October is better than the average of Q3, just to be clear, that is the net take rate..

Yes, excluding interchange and the other processing cost and lower transaction costs here, Bryan, just to make sure because just to give more commentary here. We just shared the Q4 trends. So we are seeing that TPV is growing 60%. And revenues growing high 20s year-over-year. So somehow, we still have some pressure on the revenue yield.

But lower transaction costs will drive to a slightly better -- is driving to a slightly better take rate -- net take rate expansion comparing to Q3 on October, right?.

Yes. No, that's helpful..

I'm sorry, Bryan. And regarding the ecosystem, in Slide 11, we have 3 blocks here that are kind of new, which are the PagInvest insurance and marketplace. So PagInvest, it's -- we're going to receive a rebate based on the funds that we distribute. Of course, depending on the funds we have more commission and other funds, we have a little bit less.

But the overall business model is to receive a rebate for the funds that we distribute. Some of them are based only in distribution. Some of them have performance fees as well, and we received part of that. So that's how we're going to monetize in PagInvest. Insurance is a recurrence business.

We don't have the operation of insurance to work with partners, so we distribute here. We charge every month. And we have a fixed cost with the partner, and we can make this gross up of revenues for these products. The good thing is that we charge every month. We have annual plans as well. So that's the way we monetize insurance.

Marketplace, the way it works is -- right now is the percentage of the sale and part of that, we can give back as cash back for our clients, part of that we can take for us. So that's the business model for the marketplace. So it's very diversified.

That's what we look for to have some of the revenues based on our performance, such as the marketplace, some of them based on recruitments, such as the insurance. So we try to have -- to balance these 2 types of revenues, one that is more consistent and the other one that is depending on the performance if people buy in the marketplace.

But we started today. It is doing well. It was great that we launched one week before Black Friday. So we are confident we did the right move in this product. So let's see how it's going to be in the performance..

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

Jorge Kuri from Morgan Stanley. Congrats on the results. Two questions, if I may. The first one -- you adjusted your recurring net margin on Page 13. I wanted to understand that 5% that you're attributing to the pandemic mix, I guess.

Is that just basically saying, if the mix between credit and debit in the 9 months of 2020 would have been similar as the previous year than net income flows -- the impact flows all the way down to the bottom line? Or is it relative to the mix that you're expected to have this year? And I'm asking that question because as plastics continue to penetrate in Brazil, debit will continue to grow faster, right? I mean, I think that's -- it's going to be difficult to have that stable mix over time.

The more it subside cash, the more debit volumes you'll have. And so I wanted to understand exactly what's behind that 5%, if you can explain how that works. And also, what gives you confidence that we're going to go back to the same mix.

Again, I think one of the things that's happening in this environment is that we're bringing forward years of classification of payments. And so maybe we don't go back to where we were last year. That's my third question -- first question, sorry, and I have a second one later on..

Hi, Jorge, André speaking. So you're correct. We're pretty much, let's say, measuring the mix of fact that is impacting the take rate of the company. We had an expectation to have pretty much take rates stable year-over-year, so around 3.18%.

That was exactly the take rate that we had in the first 9 months of 2019 and then given the pandemic, the change in the consumer behavior, a much larger growth of debit card transactions, a very strong increase on those coronavouchers where you have also a lower take rate.

So that combination somehow drove the company for, let's say, lower margins in the first 9 months of 2020. In your second question about debit, it's true that debit will continue to grow in Brazil because we still have only 40% of penetration of cards in Brazil, and debit is a very important product.

But not forgetting that credit is also extremely relevant for the Brazilian consumption. You could see the numbers that we shared from the card association, ABECS. Credit cards are only growing 1% year-over-year. We do not expect this to last forever. We know that credit is a very important product for purchases in Brazil, especially the installments.

We do believe that with the reopenings with, let's say, the better consumer confidence, with the banks recovering the appetite, just like PAGS, it's one example, we are expecting credit cards to gradually recover and then take rates to improve it again. We don't believe that there is a structural change. No.

Credit cards will continue to be extremely important for the market. Remembering that before the COVID-19 pandemic overall credit cards, including regular one and installments, they represented 2/3 of the transactions. We don't see a reason to see that -- this changing after the pandemic. This will recover as things starts to improve in Brazil..

And also just to complement, Jorge, thank you for the question. Good to here. We see that the consumer behavior is changing because people are staying at home. So I mean people are not traveling. People don't go to restaurant. People don't buy new cloths and things like that, all the things they used to do with credit cards.

So that's also part of the consumer behavior that changed because of the pandemic, and this is coming back a little bit. I guess the other thing that we didn't say is that the debit participation was growing, and then it stopped growing, and it went down a little bit in October.

So it's part of the signs that is -- the economic activity is coming back, and then people start using credit again. Related to the point that André said that banks were not giving credit for the people that really need -- people that need more credit. They didn't have access to credit.

They were obliged to use a debit, and also people that receive the financial aid from the government, they use in the debit mode as well. So that's why we believe it's going to be something temporary, and it will get back as we get back a little bit more to, let's say, a normal life again..

Great. And my second question is on the net adds, 434,000, that's evidently very impressive. And then you did say that it's probably not sustainable, and that figure's a little bit lower or sort of between where you ended up in the second quarter and the third quarter seems likely.

But I guess trying to understand what is it that drove that 60% jump in net adds? Is it also the pandemic? Is it people that are losing their jobs because of the pandemic and are having to find new sources of revenue and they're joining in the force of entrepreneurs? Is it your marketing? How much of that is under your control? How much of that do you think is really temporary? And hey, maybe could we see this level for the next 2, 3 quarters, if a lot of it is really based on things you're doing and just the momentum of the brand and the growth in PagBank, which is alerting people about also PAGS.

And so how you're sort of like that circle of having 10-plus or what is it like 12-plus million clients, if you add the 2 or 10 -- I don't know how the numbers supposed to be, but just this massive number of clients fitting into the brand recognition and just the overall customer acquisition..

Jorge, you're right. It's everything that you just said. I mean we -- what is it here as new people that really need to sell through credit cards, part of that is because people get unemployed. Some people that, let's say, they have a restaurant, they use competition now. They need an additional device for delivery. They try PagSeguro.

We are seeing our brand being even more stronger as time prices buy because all the investments that in market that we did and that we still do today, so that helps as well. We try to make some advertisement linking PagBank and PagSeguro, so that people can get a device, and they have this complete and free digital bank. So all these things help.

Not to say the competition in long tail also decreased a little bit because the incumbents decided not to play in long tail anymore. They are vocal with that. Some of them, they -- if you compare their prices with ours, you will see that they are 3x more expensive than us. So it's a mix of everything.

Our brand, our distribution channels online that we can cover the whole country, UOL has 93% international coverage in Brazil, so we can leverage this audience. More people buying devices for delivery, less competition, some people get unemployed. So that's the -- all these reasons helped us to have this jump in terms of net adds.

We saw a strong need in October as well. So I mean, the trend is very -- makes us confident that we can keep high volumes of net adds in the next quarters..

And a follow-up to that, Ricardo. Is it possible for you to add 1.1 million, 1.3 million clients next year? That certainly was not what consensus would have thought, say, in January before the pandemic started.

Is that kind of like where we are now? Or it's too early to say?.

Well, Jorge, let me answer this way. In 2019, we gave the soft guidance that we would have 1 million net adds, and then we had close to 1.2 million. This year, we already have 1 million until the Q3, roughly speaking.

I guess all this performance that we are seeing reinforces that we are right when we say that in long tail, we have only 1/3 penetration. If you sum all the long tail clients from PagSeguro and other players, let's say, you're going to get close to 12 million or 13 million merchants.

And we have in our information here and stats from the official agencies that we have 30 million to 35 million people in Brazil working by theirselves. So we think that reinforces that you are right. The penetration in long tail is still small. It's too low. And I guess, it's feasible that they're going to have close to 1 million in 2021.

Let's see next quarters. I mean it's hard to say that it's going to be that. This year, we thought it could be 1 million. It's going to be much more than that. So but I guess it's feasible because there is a huge mark to be explored in the long tail merchant that we are specializing and that is our focus..

Our next question comes from James Friedman, Susquehanna..

Good results here. I had two questions. I'll just ask them upfront. So when we calculate the growth in average TPV per merchant it looks like it reaccelerated. Our calculation is 16% growth. I won't ask you to do the math, I can explain how we did it.

But anyway, in general, do you see the TPV per merchant reaccelerating? And if so, why? That's the first question. And then I want to ask about the Slide 12, which is the cohort analysis. And this is really helpful. Thank you for this disclosure.

What are some of the better marketing channels, though, that you're finding in your customer acquisition approaches? Is it -- does it remain very UOL-dependent? Maybe you could just talk about the customer acquisition approach in general. So the first time TPV per merchant, the second on the CAC trends..

James, regarding your first question, you're right in your calculation, TPV per merchant accelerated this quarter. Our calculation here shows above 20% during this quarter. There's not one single explanation for that.

I think at the end of the day, it's a combination of several things are the investments that we're doing in the brand, the investments that we're doing in PagBank. We have the most complete offering in terms of banking and acquiring for the long tail market. So those investments are really paying back.

And also, as Ricardo mentioned, to Jorge before, we are having more people in the system. More people that are not getting their formal jobs, are getting fired and becoming individual entrepreneurs. So that's not a unique answer for that.

I would say there are many pieces coming together and just reinforces that we are in the right path in terms of investments in PagBank, investments in the brand, so on and so forth..

Yes. And James, this is Ricardo. Just to complement, we also see more digitalization, people using less cash and people buy more online, people using more cards, using more NFC, contactless transactions. So all these trends also helped to increase the average TPV per merchant. So that just complemented the first question.

And the second one that you asked about PagBank, no acquiring TPV. It is in this number, everything that our clients do in the account.

So if they use the cards, if they top-up their mobile phones, if they make wire transfers, if they use our super app to buy -- to fuel their cars, so everything they do using the money they have in the account, in the PagBank account, it is in this total non-acquiring TPV. So we can say that it's the activity they do in our digital account.

So that's the non-acquiring TPV. Regarding CAC, yes, the CAC went down in Q3 because we had this huge number of nets adds, close to 500,000. UOL is important for the distribution to make the brand when we launch new features such as the shopping that we launched today. So UOL helps a lot. But we also use other platforms as well.

We use all the other online platforms, such as Google and Facebook that they have also huge audiences in Brazil. So we are -- we use UOL a lot. We try to use as better as we can, but we also use other platforms. But we try to control CAC as much as possible all the time.

We looked at -- we don't look that every day, we look that intraday, just to be clear. Here, we are very focused on the -- to have a low CAC every day and sometimes a day in some cases..

Our next question comes from Thomas Peredo, BTG Pactual..

So my first question is regarding the marketplace initiative. We have seen many players developing this initiative.

And I just wanted to get a bit more detail on how the PagBank marketplace will work? And do you have an end-to-end process that clients can conclude the transaction 100% within your ecosystem, and it is open to people that are not -- do not have a PagBank account? And how you see the strategy to scale this business? And if you intend to be aggressive in cashback as we have seen other players to gain traction faster? And then I will ask a second question..

Thomas, this is Ricardo. Thank you for the question. Regarding the shopping, we -- you need to be a PagBank client. You -- it is available since today -- earlier today, we have an area in the app called services, and inside services, you'll see the bottom shopping. So everyone has -- that has a PagBank account has access to the shopping.

You click there, you're going to see the offers, and you can see the cashback for each store or for each offer. We launched it today. At this point, it's not 100% end-to-end with all stores. In some cases, you'll be redirected to the store website. But that's something that we are working.

And of course, we will prioritize to have the stores that will have more engagement and stickiness in our base. We will integrate first to have the process inside our app 100% here. But we just launch it today, it's early to define which one is going to be the best. We already have some sales. Of course, we have a huge audience in the app.

So we saw some sales right after we launched the feature. And the cashback, we will make some tests. We don't believe that we need to be giving cashback forever. We have a strong base. We've got to be good offers so that people can come here to -- because they see some advantage.

So right now, we are giving part of the cashback to our clients, but it can be more aggressive depending on the offer, or it's going to be a very dynamic thing. There is no or 100% row that we're going to give 100% cashback or it's going to be 50% no. It's going to be a case by case. It depends on the store. It depends on the offer.

I mean, it could be a limited offer for a few days or something like that. But what you have in mind here that if we have the right offer for a huge audience that we have in the app, people use, people will stick with the solution. So that's the answer regarding the marketplace, the shopping.

I guess you have another question, right?.

Yes, yes. And my second question is regarding the data on Slide 12 on the return over investment. And thank you for all this disclosure, it is very welcome. And just wanted to have an idea because here you are taking the -- to calculate this 6.7, you are taking into account the cohort from 2018.

And please correct if I'm wrong, but since then the market kind of became much more aggressive in the subsidies, in the POS sales.

And then with the crisis that the market kind of eased a bit on the level of subsidies, how have the level of subsidies changed from PAGS during this period? And how this would impact the return over investment that we would be seeing for the next cohorts? I just wanted to get a little bit of this sensibility, if you have..

Thomas, André speaking. In terms of paybacks, it would be very similar, close to 4 quarters, close to 10, 11 months. In terms of returns, first, important to say that the level of, let's say, more aggressive subsidies on the POS business started in 2018. So the level that we had in 2019 didn't change dramatically, let's say.

So maybe the pace of return was a little bit lower in -- is lower in the 2019 cohort, but let's say, very similar trends. It doesn't change dramatically. We can say that we -- although we had marketing campaigns, although we had some subsidies, the returns continues to be extremely fast and extremely aggressive after a few quarters.

So it's true that probably the pace of growth, it's a little bit slower when compared to 2018, but still a very healthy rate and very close to that trend..

Okay. And just one more follow-up. In this number, you considered revenues at the PagBank, right? So going forward, you even can have a room to increase this return.

Is that correct?.

No. In this analysis, we exclude debit [indiscernible] PagBank. It's only about the merchant, the core merchant acquiring business. For sure that the future cohorts or the new cohorts, they're getting more engaged on PagBank, we expect faster returns..

Our next question comes from Jeff Cantwell, Guggenheim..

Congrats on the results. I just wanted to circle back on PagBank and ask you a couple on that. You've reported a 6.7 million customers this quarter. That's well ahead of where we were. That's been happening throughout the pandemic. And it's been really interesting to watch. You got your platform over the past few quarters.

You have new partnerships, some marketplace strategy, PagInvest, your super app strategy. So I just wanted to ask you if you could talk about PagBank a little more in the sense of, if you have a feel for what PagBank users can grow to over the next 12 months maybe that 1.8 million quarter-over-quarter number is a nice benchmark.

You certainly have a nice greenfield opportunity here. So just curious to hear you talk about that..

Jeff, thank you for the question. I guess, part of the growth that we're seeing in PagBank is the return on investment that we've been doing since May 2019. Remember, we launched PagBank in May 2019 as a very basic account.

And from there, we have lots of new features and an evolution in the ecosystem with interest rates paid in the balance that we have here then we launched CDs, then we launched PagBank Health, Super App partnership with gas stations with Cabify in Brazil, which is kind of the Uber company in Brazil.

So we try to make this app more complete as time passes by. So that's why we keep investing in that.

It's not secret for anyone that we still have some new features that we will launch as we disclosed some of them here, such as PagInvest with investment funds, treasury bonds and new insurance lines such as home and equipment and equipment will include mobile phones. So it will be more complete in the next quarters. That's for sure.

And that's why people -- some of the people come to us because one feature or a few features or a combination of features, so it's hard to say why this 1.8 million, why they came to us, exactly because we have everything. Some people come because -- now we're going to have people coming to us because of the marketplace because of the cashback.

But I guess the main message here is that we need to improve the ecosystem and the PagBank ecosystem as much as possible to be complete and to leverage this trend of our brands so that we can bring customers -- more volumes of customers. It's hard to give you the number, but we had 1.2 million in Q2 and 1.8 million in Q3. So it is strong. It is strong.

We have in Brazil, 30% of the people don't have a bank account. Part of the people that have bank account, they are underserved. They have a very basic bank account in their traditional bank they pay nothing and they don't have nothing.

So that's why they -- we also get some people that already have some bank accounts or basic bank accounts because our ecosystem is more complete and is free. So it's a combination of things. We are confident PagBank will keep having millions of customers in next quarters. It's hard to give you a number, but the trend is strong, and it keeps strong..

Next question from Neha Agarwala, HSBC..

Congratulations on the strong results. Very quickly on PIX. The number of registrations that you showed your third highest number of PIX key registration, it's quite exceptional performance.

What do you think was the driver behind such high number of registrations? And do you know how many of your merchants have registered that PIX key with you? And my second question is on your product pipeline. You have a very strong product pipeline in insurance, in marketplace.

Should we expect more organic growth in terms of partnerships? Or should we expect to see some M&A in any of these business areas?.

Neha, thank you for the question. Neha, I'm sorry, thank you for the question. Regarding PIX, we were the #3. Part of the explanation, I would say you that our merchants -- there are some reasons here. But first of all, our merchants and our clients, they have recurrence in our app. So when we launch something when we put in the app, people will engage.

So they come to the app very often. That's the first thing. Second one, they are used to have this digital experience. So to have this key registration, it's a 100% digital experience. So they come to our app, and it's very easy to make this key registration.

And also, as part of our objective here, our goal that to be the main financial services provider for our clients. Because when they come to us and register their PIX key, for us is a strong message, they want to work with us. They don't want to work with some other bank in the market because they decided to use PagBank as a PIX destination of money.

So those are the reasons that we see here. The engagement, the services we are providing, the customers that like the services we are providing, they understand our app very easily. So those are the main reasons. And they are seeing us as the main bank or the main financial provider for them. Those are good news.

Regarding the partnerships, we -- usually, we are making partnerships organically. That's the more common path. It doesn't mean that we cannot have M&As. We are active in the market to look for M&A. But as we used to say before, we don't buy volumes of TPV because that's something that we believe we need to build by ourselves.

It's -- usually, we don't buy volumes. But if you see there are some companies out there with features that can speed up our road map, we will look for sure, and we'll evaluate. So in Q2, for instance, we bought Zygo, which is a loyalty company for restaurants. They used to be a desktop feature, desktop software.

Now we are moving them to our POS, to our smarts POS. So those are the type of M&As that we are looking in the market, some companies that can speed up our road map. And there is no one candidate at this point that I can just disclose to you. But we are always looking for companies to help us in our road map..

Our next question comes from Victor Schabbel, Bradesco BBI..

First, congratulations, Eduardo, Artur, on the new roles. Happy to hear that the company is managing to keep the talents in-house, congratulations again. So just one quick question. It's about the relationship between the PagBank TPV and PagBank revenues.

They are not growing at the same pace, naturally because of the expansion, the fast expansion that you are posting TPVs, but implied take rate is dropping quite a lot, right? So what we should expect for the upcoming quarters? Should we expect some sort of normalization and PagBank revenues gaining more traction and growing closer to what we are seeing in terms of TPV or some -- at least some sort of stabilization of the implied take rate.

So how you think about the trends for PagBank revenues given the very strong performance on the TPV side?.

Victor, André speaking. I think that more is somehow related to the pandemic. So some of the important products where we have a higher monetization, such as the cash card, the credit card, the prepaid card, we saw less activity so less issuancy and less people using during the lockdowns, although already recovering in Q4.

Part of that growth also would come from the credit portfolio, where we decided to be much more conservative during the pandemic, so are the 2 most products in terms of monetization.

In the other hand, other services that we capture as a non-acquiring TPV, where we have lower monetization such as new payment, mobile top-up or wire transfers for third bodies, they were more used during the pandemic.

So I would say that is more related to a mix effect in terms of the products that are being used, especially during the polemic rather than any kind of impact on the take rate of important products such as cards where we capture very health take rates and the credit origination that is expected to recover to close to pre-level -- close to pre-COVID levels already in the fourth quarter..

Next question comes from Josh Beck, KeyBanc..

Thank you for all the content and the questions. I just wanted to ask about consumer. You -- very quickly seeing to have ramped to over 2 million true consumer accounts. So I'm curious, as you went through October, is that a trend that remained? Obviously, you had some really good stats, otherwise that you shared about October.

But I'm curious if that strength in consumer has continued? And as you look, maybe not for Q4, but in the year and years ahead, how do you think about the strategy of really making that consumer number much -- particularly on the acquisition side of those consumers, a much bigger contribution?.

Josh, good to hear, and thank you for the question. I don't have here the October number on the top of my mind. But as far as I remember, it is not decreasing. It's not decelerating. So nobody said it's decelerating. And if there was a deceleration, probably people would say.

So I guess part of the answer here is -- as we mentioned before, is we are having a more complete ecosystem. Our brand is more well known than it used to be 1 year ago. We launched a PagBank in May in 2019. So we are building this brand. That's why we invest in market. Some points, we -- of course, we keep looking at the CAC.

But at some point, we need to build this brand because it's going to pay back in the future. So the same thing that we saw in PagSeguro back in 2006. We built this brand. We have this brand equity, and then it was good to leverage the POS later on, a few years later. So in PagBank is the same. We invest in the market. We look at the CAC all the time.

We look at the downloads, we follow the funnel pretty close, how many downloads, how many new signed accounts, sign-ups, how many people activate it. So we are following this funnel, and we try to optimize very often, just to be clear here to have the lower CAC. It's very easy to open a PagBank account.

You just need to download the app, and you can open your account in up to 3 minutes. And right after that, you already have a virtual card. So it's very useful for people to have this type of service. They -- right after they open their account, they have this virtual card. They can buy online, they can sign-up for Netflix, for streaming services.

They can ask Uber. So that's all the appeal that we have here, and that's why people keep coming to us. We try to be self-service, to be simple, easy and to be free for the consumer.

So when you think that 30% of the population in Brazil don't have a bank account, so there is still this huge market of 50 million, 60 million people that we can address, and we can offer PagBank to them. And usually, that's the situation here. It's still a huge market to be addressed to be explored by us..

We now conclude the Q&A session, and we proceed with the closing remarks..

Hi. I just want to thank everybody for your time today. I 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. So thank you. Thank you very much for your time. Have a good night, everyone. Thank you..

That does concludes PagSeguro's conference call for today. Thank you very much for your participation. You may now disconnect..