Hello, everyone, and welcome to the PagSeguro's First 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 be a question and answer session. At that time, further instructions will be given. 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 about future events.
While Pag you are cautioned not to place undue reliance on these 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 on the forward looking statements and risk factors sections of PagSeguro's registration statements 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 the 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.
Hello, everyone, and thanks for joining our Q1 results conference call. Tonight, I have here with me Eduardo Ocaro, our Chief Financial Officer and Andre Cazotto, our Head of Investor Relations. First of all, I hope you and your families are well and safe. I also would like to say thank you to all PagSeguro PagBank team who have obtained their focus in supporting our businesses, our customers and partners as well each other during the past weeks, while almost 100% of us have been working from home. Thank you very much PagSeguro PagBank team.
I will start with an overview of our results. Then I'll pass the word to Eduardo Ocado, our CFO. And in the end, we will give you our perspective about COVID-nineteen and some preliminary data about Q2. Going to Slide 3, we compare PAGS performance with our listed peers. PAGS is in a strong momentum and is the most resilient payments company in Brazil.
Despite the health crisis and higher subsidies offered to our clients through this period, PAGS was able to combine growth with profitability. Comparing Q1 'twenty with Q4 'nineteen, our revenues grew 1% despite the strong seasonality in Q4, while our peers revenues decreased 8% 5%. And year over year, our net income grew 13%, while our peers net income decreased 13% 65%. These results reinforce the strength of our broad ecosystem, the resilience of our business model and the caliber of our professionals and their execution capability. On Slide 4, we highlight the great achievements of the quarter, even with COVID-nineteen impact in Brazil and in our businesses.
As we have seen in the past years, we are proud to announce one more quarter with solid results. We delivered organic growth in top line, both revenues and TPV with less than 3% of our TPV coming from subacquirers. We also delivered usage growth, both merchants and consumers and net income growth. On the left side of the slide, our total revenues and income reached close to BRL1.6 billion, growing 27% year over year and 1% quarter over quarter, despite a stronger seasonality in Q4. Our TPV reached BRL31.7 billion, up 30% year over year.
We reached 5,500,000 active mergers, up 24% year over year. Moving to PagBank, our now acquiring TPV through digital account and wallet reached BRL8.7 billion, growing 190% year over year. Our active users by the end of the quarter were BRL3,700,000, meaning we added 1,000,000 new users only in this quarter. Now moving to our financials on the right side. Our take rate ended the quarter at 3.31%, up 19 basis points year over year, which is a result of adding healthy TPV in
our ecosystem.
Our adjusted revenue and income reached BRL1.5 billion, growing 33% year over year and our non GAAP net income ended at BRL367 million, up 13% year over year. Now I will pass the word to Eduardo Ocado, our CFO, who by the way with his previous Walmart experience has been doing an amazing job in cost controlling and cash preservation as we navigate through this unique time together. Thank you for your work, Eduardo.
Thanks, Ricardo, and hello, everyone. On the next slide, we show our total revenue and income that reached almost BRL1.6 billion, up 27% year over year. This means an acceleration of our total revenue and income growth of 260 basis points, which grew 24% from the Q4 of 2018 to Q4 2019 proving that we are on the right track as far as investments in PacBank. On the top right, we show the total net revenue and income growth compared to Q4, up almost 1%. Let me just pause here for a second.
This is a remarkable achievement. Despite the COVID-nineteen pandemic and a strong seasonality in Q4, PAGS was able to grow total revenue and income quarter over quarter. Moving to the chart below, our operational revenue and income that reached BRL1.5 billion grew 33% year over year. Talking about net income, PAGS delivered growth year over year. Our non GAAP net income in the Q1 reached BRL367 million, an increase of BRL42 million and up 13% year over year despite the COVID-nineteen pandemic and investments in PagBank.
Moving to the Slide 6, we present here our operating figures. Our TPV reached BRL31.7 billion, growing BRL7.2 billion or 30% when compared to the Q1 of last year. As we show in the next graph, our TPV grew high 30s in January February and low 40s in the first half of March, better than our expectations for the year shared with you during our Q4 2019 earnings call, but decelerated sharply in the second half of March. This occurred given social distancing measures implemented in several Brazilian cities resulting in partial shutdowns as a consequence of the pandemic. We estimate an approximate miss of BRL2 1,000,000,000 in TPV for the quarter due to the COVID-nineteen outbreak, which means a miss of approximately BRL40 1,000,000 in the bottom line for the full quarter.
On the chart below, our net take rate, which is the blended take rate net from transaction costs such as interchange, processing and card scheme fees reached 3.31 percent, 19 basis points year on year and 34 basis points quarter over quarter increase. This increase is explained by a better mix of credit versus debit, higher contribution of PegBank revenues and the resilience of MDRs in the long tail. About transaction costs, we had a positive impact in scheme fee rebates of 9 bps in Q1. Active merchants reached almost 5,500,000 growing 1,100,000 year over year and 227,000 sequentially. Also important to say that the pandemic impacted from 25,000 to 30,000 net adds in the second half of March.
Moving to slide number 7, we highlight our strong balance sheet and cash generation despite the pandemic. On the top left chart, we present our solid balance sheet ending the quarter with BRL8.1 billion in cash plus our net position between accounts receivable from card issuers less payables to merchants. Moving to the top right, we ended the quarter with BRL3.5 billion in cash, growing more than BRL1 1,000,000,000 when compared to 1 year ago. This is explained by higher cash generation, higher PagSeguro clients deposits as well as higher receivables discounting in volume and duration resulting in BRL22 1,000,000 of additional interest expenses when compared to the Q4 of 2019. From a cash management perspective, preserving capital and liquidity are the top priorities for now.
On the chart below, we present our non GAAP total costs and expenses that increased 0.2 percentage points year over year and the 4th quarter that 3.4% over total TPV and down 0.7 percentage points when compared to the previous quarter. Related to non GAAP admin expenses over total TPV reached 0.2%, down 0.1 percentage points when compared to 1 year ago and stable quarter over quarter. Important to highlight that approximately 70% of our costs and expenses are variable, meaning that the company has the flexibility to do the necessary expense adjustments to deliver healthy margins and solid bottom line growth. Since April, we are revisiting our expenses structure, which should allow the company to maintain the same level of net income margins in Q2 2020 observed in Q1 2020. Now I'd like to turn the conference over to Ricardo, who will talk about engagement metrics and new products.
Stay all healthy and safe. Thank you.
Thanks, Eduardo. On Slide 8, we present our highlights in terms of online distribution, Google searches and our app rating. Starting with Google searches for digital banks, PagBank continues to lead and gain share over its peers, with 72% of the total shares over digital banks, a consequence of our marketing strategy and product rollout. On average, 53% of our clients use at least 3 products of our ecosystem and PagBank app is open 11 times a week. Our Pagibank app was rated at 4.8 stars in iOS and 4.5 stars in Android, being the most reviewed and best rated app among digital banks and payment peers, also a consequence of our best in class product development and user experience oriented strategy.
Finally, with UOL that in the quarter broke new audience records in Brazil, reaching 1,800,000,000 accesses, ending with 113,000,000 unique monthly users and reaching 94% of the Brazilian international audience, just behind Google and Facebook. On Slide 9, we show some of the most relevant engagement trends in our ecosystem. We believe engagement is a relevant metric to follow this stage once it will help the company to increase the switching costs of our clients, their stickiness and loyalty, which will enable future monetization and revenue diversification. On the top of the chart, we reached BRL8.7 billion in non acquiring TPV through our digital account, including prepaid card top ups, cash card spending, credit cards, mobile top ups, wire transfers to 3rd parties, cash in through bank slip, bill payments, tax collections, P2P, QR code and other supernat transactions, growing 190% year over year. In chart below, we see the number of bill payments transactions that increased 25% quarter over quarter.
Our payroll portability feature is also ramping up, growing almost 37% sequentially. Moving to alternative payment methods, our QR code transactions grew more than 30% quarter over quarter and link of payments increased 53% year over year, both boosted by COVID-nineteen. Finally, on PEGS Capital, we continue to offer the product only to our best merchants, eligible according to their account history, TPV behavior and payment frequency. Since the beginning of the operations in October 2018, we have done 150,000 lending contracts. We ended the quarter with a total credit portfolio of BRL338 1,000,000.
Additionally, we ended the quarter with BRL156 1,000,000 in our credit card portfolio. Our credit card strategy is also targeted to our best merchants. So far, we continue to be careful with credit disbursements. However, the preliminary results are encouraging as we still face controlled levels of NPLs. To keep our operations under control, helping our merchants, particularly during the COVID-nineteen crisis and following the Central Bank's instructions, we are offering a 90 day grace period on a case by case basis.
Finally, it is important to highlight that during the 1st and second quarter of 2020, the full rates are not showing significant deterioration. On top of that, to manage our credit risk exposure in the middle of a global pandemic, we have significantly reduced credit disbursing for now. Credit is an important tool to create higher engagement with our merchant base and we'll continue to generate additional revenues for the company in the future. On Slide 10, we highlight our roadmap of products already delivered in the past 2 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 40 new products, including hardware, software, banking and services in our super app. In May, we launched our service, offers and discounts map feature, where our clients can find in app through geolocation, closest ATMs and also merchants in different categories such as restaurants, pharmacies, gas stations and general services to have discounts or cash back when they purchase through QR code or by using our cards. Additionally, we also launched 2 new CDs paid 115% 120% over CDI. PegBank CDs with remunerations 30% above the traditional savings account is part of our strategy to expand our investment products offer as well to acquire new PacBank clients. Despite the current health crisis, we decided to keep investing in product development and keep committed with our roadmap agenda.
We should continue to deploy new products and services on payments, banking and software fronts. Our ecosystem and its development are key to our core strategy. On next slide, we present some of the new products or initiatives launched in the quarter. First, we officially started our partnership with Shell, one of the largest gas station companies in Brazil. Additionally, we announced a partnership with the most relevant drug services and retail pharmacies, offering incentives, discounts and cash backs with purchase done with PagBank Cash Card.
This partnership will also reinforce PagBank Card usage. Given the health crisis, we also decided to accelerate some new initiatives such as Pagiperto, our new virtual shopping to support merchants and individual entrepreneurs to sell online. On the social side, we announced a partnership with the state of Minas Gerais and PAG Bank became the exclusive digital bank to distribute the social aid paid by the government for more than 380,000 public school students. Additionally, PagBank is also supporting the most vulnerable families by offering R20 cash back for the users that are transferring the aid paid by the government to PagBank account. Citizens could withdraw the money or select a bank to have their vouchers deposited.
And PagBank was the 8th in the ranking in terms of deposits received. On Slide 12, we present PagBank Health, officially launched in late April. PagBank Health works in a multi subscription model with prices between BRL9.9 and BRL14.9 per month and offers a diversified number of medicals and dental appointments, including remote appointments during the COVID crisis, exams and pharmacies discounts in the whole country at low cost, everything in app. We work in a 30 part partnership model with different healthcare companies. On next slide, we introduce Pagio Propequeno, in English, Pag to Small Companies.
Our website was launched during COVID-nineteen pandemic with PagSeguro solutions to help our clients to keep selling remotely even with their doors closing. Some of the solutions are: ink of payments, a non card present transaction that can be shared via social media, e mail or SMS Pedifacio, a delivery app. Pedifacio is a complete omnichannel that combines payment with software and online menu and online ordering. We also offer Envio Facio, a partnership that we set with the post office with promotional price to our clients, less bureaucracy and faster shipments and QR code. We are offering 0% MDR fees to our merchants and 10% cash back for our buyers.
Additionally, we are offering from now onward unlimited wire transfers at no cost to our PagBank clients, both merchants and consumers. Now I'd like to share the management perspectives due to the outbreak of COVID-nineteen, including our initiatives with our clients, employees, community and investors. I would like to reinforce, PAGS has a highly variable cost structure, mainly interchange and card scheme fees, combined with a scalable platform, so that we are able to manage cost and expenses accordingly to sustain net income margin levels observed in Q1 2020 during Q2 2020. Enter describes a leading financial inclusion and electronic payment adoption with 5,500,000 active merchants and 3,700,000 PagBank users. Our employees
are our first
and main priority. In a few days, we were able to set home office for almost 100% of our team and we continue to hire people for positions in our product development and software engineer departments. Important to mention, there were no impacts in our systems and operations as we transitioned our team to a work from home status. To our investors community, we recognize it would appreciate as much information on our performance as possible. And to that end, we will disclose some Q2 preliminary numbers in the next slide.
However, due to obvious reasons such as poor visibility and high uncertainty levels around the duration of lockdown measures in the near term economic effects of COVID-nineteen, we have decided to withdraw our full year 2020 soft guidance for absolute TPV growth, take rate and net margin shared in the previous conference call. For our clients, as we saw in previous slides, we launched many services such as Pagio Propequeno and also helped government in distributing financial aid to population. Community matters for us. PagSeguro donated thousands of masks to Tobik Hospitals, donated more than 200,000 food baskets and promoted online concerts with donations of cash, food and health items to UNICEF Brazil. All the initiatives to our clients and communities will reach BRL30 1,000,000.
Finally, on Slide 15, we can see some Q2 preliminary data. We saw a stronger impact in the second half of March with a sharp decline in sales for 2 consecutive weeks due to initial shutdowns in Brazilian retail. However, since April, we started to see recovery in sales, posting a small decline of only 3% year over year, when compared to almost 37% decline in retail sales in Brazil in the same period. Also important to say, we are observing growth in a year over year basis since the second half of April. Adjusting by calendar effect, meaning few working days due to national volume 2020, our TPV in April would have been up 2% year over year.
In May, we are seeing until last week a growth of 11% year over year or 18% up adjusted by calendar effect, once in May we also observed one less working day due to national holiday beginning of the month. This trend shows the resilience of our diversified merchant base considered by micro, small and medium merchants and also by individual entrepreneurs that were less impacted by the crisis. In chart below, we can see healthy TPV trends. TPV has been improved week after week and in the first half of May, we reached 86% of the TPV of the first half of March, which is pre COVID-nineteen. Right now, semi states in Brazil are reducing the source of isolation and retail volumes are gradually improving.
Important to mention that our lack of concentration in segments or geography, 100% coverage of the Brazilian cities and a little over onethree of our TPV coming from large capitals and our efforts to rapidly adapt and deploy omnichannel products are key to our TPV recovery. On the right side of the slide, as May 23, active merchants reached $5,700,000 backed by a healthy trend of 167,000 net adds in April May. Meanwhile, AgBank reached 4,600,000 active users, maintaining the accelerated pace of net additions of 826 1,000 in the same period. In summary, we are prepared to increase our leadership in the retail market, which is still huge due to large number of micro merchants and informal employees, and it will grow due to acceleration of shifts from cash to plastic. Important to mention, some of our peers decided to reduce the investment in long tail segment.
Having said that, we reinforce our plan to have 30% of our revenues coming from Tagibank, meaning services beyond acquiring in up to 5 years with acquiring still growing at a half pace. Although we are pragmatically understanding and managing short term impacts of COVID-nineteen, we are confident about the strong fundamentals of our businesses, the strength of our brand and the ecosystem we have built so far. And we will keep investing our long term strategy in people, products and growth. We believe PAGS will leave this crisis uniquely positioned to lead the digital transformation of financial services in Brazil. Having said that, we finish our presentation and we'll start the Q and A session.
Operator, please?
Thank you. We will now begin the question and answer session. Our first question comes from Greg Merer, Autonomous Research. You may proceed.
Hi, and thanks for all the good detail tonight. Two questions for you. First, our own we're trying to pay attention to the competition from what we can see. It looks like competition has pulled back significantly through the early part of the pandemic. And is that creating an opportunity for you?
2nd, should we expect financial expenses to normalize in 2nd quarter following the need or perceived need for short term liquidity in late March? Thanks.
Craig, thank you very much for the question. Regarding competition, we have seen some competitors reducing terminal subsidies, reducing market investments and at some point, even reducing headcount. Some of them are increasing the price of the terminals, decreasing the advertisement, taking out some promotions. So we see that some of the players that try to come to long tail, they are trying they are kind of quitting this segment of the market and trying to focus on the large accounts and SMBs. So you're right.
We have seen less competition from some of the players. We always said that to operate a long tail, it requires a larger front investment in platform, the branding, user experience and payback will come later. So we started doing that in 2006. We have a very broad ecosystem, very complete. So that's why we are able to scale our platform and bring, as you could see, 80 plus 1,000 new merchants per month and being brought at the same time.
So going back to your question, you're right. Some of the competitors decided not to invest in Montail as they used to do in the past. Regarding the financial expenses, Eduardo will take that.
Hi, Greg. Obviously, we expect financial expenses in Q2 to be lower than Q1, obviously, because in Q1, we had to build this liquidity reserve. But going straight to your question, we should expect lower interest expenses, financial expenses in Q2 compared to Q1.
And if
I could just ask one follow-up. Could you discuss your e commerce business because I know you do have a significant or meaningful e commerce business and can discuss where that's focused and how it's been performing?
So we are observing faster adoption of e commerce for some of our banks, mainly post COVID. On the web transactions have been growing 50% year over year in May. That's the number of transactions, not in TPV because the average ticket sometimes is lower. But we are taking advantage, so to say, because of the COVID and all the interest from the clients for the merchants to sell online to leverage our online or e commerce platform. So it's been growing healthy pace, faster than the POS, of course.
And we see opportunities in the future to even take market share from the POS to the e commerce.
Just one follow-up here, Craig. So, very speaking, we are just like we said in the presentation, we decided to accelerate some new initiatives like a baggyback to net sour beach, virtual shopping, batch fast food that is like a open channel for full delivery application. So some new initiatives that should help the company to, let's say, capture more electronic transactions through online channels going forward.
Thank you.
Our next question comes from Brian Keane, Deutsche Bank. You may proceed.
Hi, guys. Two questions. I guess, first on the PAC Bank user growth, it continues to be solid and impressive. Can you just talk a little bit about these new users? Any change in under banked or are they coming from other competitors, both I guess in the physical branches or even the digital competitors and kind of what engagement you're seeing out of these new users to start?
And then secondly, the take rate was also impressive in the quarter. Can you quantify the impact that PegBank might have had there? And what take rate might look like as we go into the Q2? Thanks.
Hi, Brian. Good to hear. Thank you for the question. Regarding Prime Bank, as we could see in the presentation, we grew 1,000,000 new users calling this quarter. The majority of this growth is still coming from merchants, but the part that is coming from the consumer, it's accelerating month after month.
So we already have 100 of 1000 of consumers using PagBank, and it's going fast. Part of that, I could see in Q1, I mean, we are having more interest from people because of the, let's say, the need of digitalization, because of COVID, people just or they don't want to go to the streets or they can't go. So that's why you decide to use digital accounts. Secondly, we are being used for some of some borrowers such as the Minas Gerais to distribute benefits for the population. So we are talking about 200,000 that started in April.
They are not in the number of March yet, but they start in April. And also the, let's say, the brand of PagBank that is being more known for the people in Brazil. Also, we have been launching some new products, some CDs, and we see some interest coming to us because of these new products. So summarizing the answer to your question is we have seen more interest from consumers in the past months, and it's growing fast, faster than the merchants. Regarding take rate, I guess Eduardo can also take that.
Yeah. Hi, Brian. Take rate is a combination of things. 1st, we had lower lower transaction costs. We also expected a higher net take rate because of the seasonality.
Remember that in Q4, usually we have a higher mix of debits because of the holiday season and the 30th salary compared to Q1. And obviously, I mean, we do have a higher engagement of our users in our banking strategy, which already showing some monetization in our take place.
Got it. Got it. Thanks so much and stay safe.
Thank you, Brian.
Next question comes from George Carey, Morgan Stanley.
Hi, everyone, and congrats on the numbers. Two questions, if I may. Can you maybe talk through what's driving that resilience in your micro merchants? I think it's pretty impressive that you're at 86% of pre COVID levels in terms of TPV. Can you just help us understand that?
Is it geographical presence? Is it industry vertical? Is it the ability of like merchants to pivot to do different things? Is it that they simply didn't lock down? Any color that you can provide with that will be helpful.
And then the second question is, could you I mean, you continue to talk about 30% of your revenues not coming from acquiring, so I'm assuming it's the bank really. Where are we in that path? Clearly, with PAGRANK now at almost 5,000,000 clients, I'm assuming it's already bringing in some percentage to the top line at least. Could you tell us where are we in that pathway to getting there? Is our revenues already have a meaningful portion of Tag Bank, say 5%, 10%.
Any quantification around that would be very useful. Thank you.
Hi, Jorge. This is Ricardo. Good to hear you. So I'll take the question about the resilience of our total payment volume. I agree with you.
It's really impressive that we already have 86% of our TPV in the first half of May compared to the first half of March. Part of that, I would say that, first of all, we don't have exposure to industries that were very, very affected by COVID-nineteen, such as airlines, rental cars and things like that. So as we don't have this exposure, we didn't suffer that much just like other players in the market. We have clients in every city in Brazil. It's more than 5 1,500 cities in Brazil.
We have clients in every city in Brazil. We it is very spread out geographically. Our TPV becomes a little bit more than 1 third coming from capitals and the other 2 thirds is from the small cities and countryside. We don't have dependency in specific industry. The largest industry that we have is bars and restaurants close to 15%.
So it's very spread out. We don't have any concentration in terms of users nor in terms of users. Also worth to say that all this TPV is organic, right? We only 3% of our TPV is coming from subacquirers. So we are not, let's say, surfing on the TPV from other companies that are, let's say, serving long tail clients or things like that.
So it's all organic, all directly connected to us. What happened due to the COVID is that we saw some changes as weeks passed by. So in the 1st weeks, we saw a lot of TPV coming from supermarkets and also from pharmacies. Gas stations went down a lot. Then we saw some changes that gas stations coming back, restaurants also coming back.
Our warehouse rooms and beauty salons are still suffering a little bit. But as we don't have too much concentration, we could see that it could, let's say, have the TPV coming back in 86%. The other advantage is that as we have many, many millions of micro entrepreneurs and self employed people, these people need to work. So if they cannot sell Coconut to the beach, they will work as a plumber, they will rent houses, they will do something because they do need to work. So at some point, they are transaction and they need to survive.
So that's part of the answer why our TPV has been resilient in this period. So I don't know when we're able to adjust that. Yeah, just also, if you may.
Important to say that we also saw, let's say, a faster adjustment or faster adoption of those, let's say, micro entrepreneurs on Paget Propicare, that is this program that we launched, pretty much offering alternative payment methods for those clients, like link of payments, like QR codes, like delivery services. So we observed that usually these guys, they adjust faster to this new reality. They adopt faster some of those initiatives. You could observe that link of payments in our presentation grew more than 50% year over year to our code more than 30%. So also reinforcing, let's say, the good work that we did internally to also offer new channels for our clients, even working remotely under this environment.
Jorge, this is Eduardo speaking. Nice to hear your voice. So in terms of the additional revenues in this quarter, what we can say is that we grew almost 3 times when we compare year over year. So when we compare Q1 2019 to Q1 2020, those additional revenues, they grew 3 times year over year. And we expect this trend to continue in 2020.
I think despite the potential impacts of COVID, which has really has been an upside to the larger adoption of electronic payments by by Brazilians. PacBank is really helping our clients during these tough times, Jorge. We are offering, for example, free instant wire transfers, 10% cash back through QR codes, cashbacks for people who choose PAG Bank as their bank to receive, for example, the corona the corona vouchers or even the incentives in the state of Minas Gerais. So we are really confident that we can reach the 30% of our total revenues and income in 5 years.
Thank you, and congrats again.
Next question comes from Mario Pierry, Bank of America.
Hi, everybody. Congratulations on the results. Let me ask you also two questions. First one is related to Pagy Bank, right? When we see here that you added 1,000,000 clients and you brought your base up to 3.7.
So this is a significant growth in your client base at PagBank in 1 quarter. If you can be a little bit more specific than about your acquisition costs, your client acquisition costs at PagBank. Do you think also that this growth at PagBank has benefited from this disruption that we have had and people then are moving more into the digital banks? Also, when you mentioned in the prior question that your revenues are up from non acquiring business, that your revenues are up 3 times year over year. Can you be a little bit more specific about what product is driving this growth?
Is it related to your credit book? What is really driving this big increase in revenues year over year? Thank you.
Hi, Mario. Thank you for the question. Good to hear. Regarding Private Bank, we, of course, we follow the cat evolution almost daily, not to say intraday sometimes. But what we see here, we have very, let's say, healthy CAC for PagBank, but we're still also building this brand.
At least we used to do that until March more often. So it's hard for us to say what is the level of cap that we use in the future because right now we need to build this brand, same thing that we did for PagSeguro until 2014, 2015. So the CAC for PagBank is very low, that I would say, because we leverage the brand using PagSeguro ecosystem, using UOL. And of course, we have the challenge to monetize as much as possible this type of clients. The majority of the merchants of the Bank Bank clients, as I said, are merchants, but consumers are growing fast.
Part of that is also because of the COVID-nineteen that people are being more digitalized, they need to. We made some changes in the past months that also helped at PagBank. One of them that people ask is this freely into wire transfers. So for everyone that use PagBank, they have free unlimited wire transfers. We added 2 new CDs, pay 115% and 120% of Brazilian CDI.
We have seen a lot of traction in the rollout of products that are that is happening. We launched virtual cards for people. They can use virtual cards while the plastics are going through the post office. So once you open your account, you can have a virtual card right after that and use it. So there are many things happening in terms of quality as well that helps us in PagBank acquisition.
The majority of revenues at this point are related to interchange. As we said before, interchange is a good business in Brazil. So the majority of the revenues are from interchange. At this point, the transaction is low and the credit portion also is low at this point.
Okay. Thank you for that. Let me ask then a follow-up. It's related then to the mortality of your clients. Can you give us some color on the mortality that you've seen in both Pagy Bank and Pagy Suburu?
Yes. PagBank is very low. It's growing fast because as we don't charge, let's say, anything, they keep using the account even to receive right transfer or things like that. So the PagBank, let's say, mortality is very low. In terms of Fantasy Group, what we saw is we saw let's say, it's early to talk about churn rates after these 2 months of the health crisis, but we saw a slight increase in absolute numbers in people that stopped making transactions.
Of course, we surveyed these type of merchants and the answer is they just stopped it because their business are closed or they decided not to do business more and we will come back after the health crisis. So it's a temporary, let's say, I would say churn. It's a temporary churn. So we don't see mortality in our merchant base accelerating or many business going down because the majority of them, they are self entrepreneurs, as I said before, and they need to work, they need to make money even to survive. So for the merchants that we surveyed, they said they are not transaction because the business are closed, but it will be back as soon as possible.
We saw the worst number in April, but in May, we have seen some recovery as you could see TPV. So one proxy of the merchants that we have in the base, it's you just can take a look at TPV. TPV is already 86% what we had in the first half of March. So, users are coming back as well. So I don't see that churn is going to be an issue.
It's just a temporary, let's say, please stop it for a while.
Yes.
And
Mario, just one add on here. We do believe that probably the addressable market could increase, especially after the crisis. We are seeing, let's say, the same example that we had in the past crisis back in 2015. Many new individual professionals, Let's say that an increase in the unemployment rate probably will cause a larger number of informal jobs, informal entrepreneurs And probably, we're going to be able to capture these additional addressable market that is expected to, let's say, be created in the coming months.
Next question comes from Edouard Rosner, BTG Pactual.
Hi, everyone. So two questions here. First on the TPV. I just want to understand if you have seen in the last 2 months clients who were only using the machines as a part time job or including their usage right now, right? So my question here is trying to understand here if maybe people lost their job and their income right now and so they need to use a lot more as a full time job when compared to before.
So this is the first question, if you're seeing something like that, a lot more usage on machines. And the second question is on PagBank, right? We can see here that the bank has been a very clear beneficiary of the corona voucher, right? And as far as I understand, and please correct me if I'm wrong, one of the challenges, right, that you have is to educate clients on how to use the functionalities of a bank, right, which probably is much tougher than to understand a POS machine for merchant acquiring, right? So do you think that this crisis will force in a way the low income part of the population, the long tail to learn how to use an app and to learn how to use digital bank and this could be very good news for you.
So these are the two questions. Thanks.
Hi, Rosman. Good to hear. Thank you for your question. So regarding TPV, we didn't see, let's say, this trend coming up that people that lost their jobs that are using the device as their first income. I guess it is expected to happen in the future if an employee goes up as we expect it to happen in Brazil.
But at this point, we didn't see this coming up. Of course, we there must be people doing that in our base, but probably it's not something that came up in such a way that they could, let's say, pay attention to that. We have thousands of millions of people using our own devices, so probably this is still very small. Regarding PangBank, we were the beneficiary of Coronavirus, as you said. For those who are not aware of what is going on in Brazil, the government is giving BRL600 for close to 50,000,000, 60,000,000 people in Brazil.
They're going to receive BRL600 for 3 months. And people can receive through the government bank or people can select a bank to have the money deposited in another bank. And PagSeguro was the number 8 in terms of deposits. We just launched PagBank 1 year ago, last May. So in 1 year, we are the number 8 in terms of quota of options that were deposit.
We are very proud to that, not only because of the business, of course, but also to help the community have the society to spread out this financial aid. But we people that use our app, it's very simple. You can just sign up in 3 minutes and then after that, it's very intuitive. People use it to have these mobile phones and use other apps. So I don't think this is an issue.
But you're right. There are some people today that may have some difficulties using technology or using mobile phones, and they're being forced to do so. So it will generate a new, let's say, addressable market for us. People there were more resistance to adopt the digital bank and now have been forced to adopt and they're trying this digital bank and see that it's useful, that it works, that it's simple. So we try to do our app in a very intuitive way, large fonts for people to see very clear what's going on, what's happening in the screen.
So I agree with you. It's going to be an opportunity for us.
Okay. Thank you very much.
Our next question comes from Mariana Tadell, Banco, UBS.
Hi, good evening, everyone. I have some questions related to tax capital. During the presentation, you mentioned that reducing that you reduced your credit origination. What level is it today compared to the level before COVID-nineteen outbreak? And what can we expect in terms of credit portfolio at the end of the year?
Also, how is NPL trading trending in the current scenario? And have you done incremental provisions face this more challenging scenario? Thank you.
I'll talk about the growth of the portfolio and then Alcaro can comment about NPLs. Thank you for your question. Good to hear you as well. We closed the Q4 with BRL386 million in total portfolio and now in Q1, we closed in BRL 338 million. So we grew BRL52 million.
If you look at the pace in the previous quarters, it was close to BRL90 million. So in the Q1 this year, we went down to BRL52 1,000,000. In Q2, it will be less than that. We are in the middle of this situation with COVID-nineteen. So we're very careful about credit origination.
So it's hard to give you an overview how it's going to be at the end of the year because it depends when the lockdown will be over and how it's going to be the rebound of the economy. So right now, it's hard for me to give a forecast until the end of the year, but I can say you that you are very cautious and Q2 will be even smaller than what we had in Q1. Regarding NPLs, I guess Eduardo can comment.
Yes. The Mariana Venetian Piaud ratios have not shown yet relevant deterioration. We are offering grace periods for repayment on like case by case depending on the clients. And as Ricardo said, we are managing our exposure to merchant loans during pandemic and we slowed down the credit originations so far. But as you know, credit is still a new business for us.
It's very small, as you can see in the presentation. And before the health crisis, we continue to scale the product to our best versions, cherry picking the ones according to TPV, account history, payment frequency, so on and so forth. So that's where we are on on NPL right now.
Thank you. That's clear. And if I may ask another question related to your net adds, it remained strong in this Q1 and based on data you provided quarter to date, it suggests a similar or even higher level in Q2. Do you know or could you share a bit on the profile of these new merchants? Are there individuals that did not accept card before or retailers increasing their POS base for deliveries, for instance?
Is this incremental margin coming with lower average spending than the ones you have in your base? Thanks.
Hi, Lorena. Yes, for sure, I can answer that. We you're right, we had close to 170,000 in April and part of May. So it seems there's going to be a strong quarter, better than Q1. We don't see any difference in terms of profile of new merchants that are coming to us.
There is this movement, some merchants coming to us and buying additional device in terms of delivery, But that's the minority of them. I guess the majority that we have in our net adds today, they are similar to what we had in the previous quarters. People coming to the system, according to our surveys, it's still close to the 80% that come to us did not accept cards before joining us. So and even in terms of TPV, it's, let's say, similar to what we had in the past, but it's hard to conclude because of the mid of this COVID-nineteen. So it's a little bit slower today, but we think it's just because of the situation of the economy, not because of the profile of
the merchant. Mariana, just one additional commentary here. We also we're keeping the same subsidies for the clients, right? Just like Ricardo said in the beginning of the presentation, we are observing some of our peers or competitors reducing the level of marketing campaigns. Some of those players are just starting in this market, so they rely more on marketing campaigns and advertising.
Some of the other peers also decided to increase the price of the hardware. And when it comes to price, that's exactly where this kind of merchant is more sensitive. So a combination, I think that's just like we said, having our peers also reducing the level of, let's say, subsidies or marketing will help PAGS to keep increasing its market share and leadership in the long term market.
That's clear. Thank you.
Next question comes from Jamie Friedman, Susquehanna. You may proceed please.
Hi, thank you and congratulations on the numbers. I'll just ask my 2 upfront. Eduardo, I realize with the Q2 margin, you're guiding the net margin to be flat sequentially. I'm just wondering, are you comfortable? Do you think that it will be at those levels for the remainder of the year?
And then you also mentioned in your prepared remarks, 70% of the costs are variable. So what would it take since the cost structure is so variable, I mean, what would it take to see a significant deterioration in the margin? Thank you.
Hi. Thank you for the question. As you can see, our cost structure is 70% variable, meaning transaction costs, interchange, card scheme fees, marketing, advertising and chargebacks. We are also a company that is low people intensive. So just can look at our our 20 f to see how how low people intensive we are.
As we can see right now, I mean, we have visibility on Q2 and that's why we are guiding everybody in terms of maintaining the net income margin that we have in Q1 to the same levels as to Q2. It's important to say that we continue to hire engineers to invest in the platform. So at the end of the day, we are doing a tough job here of reviewing every single line of expense during Q2. And of course, I mean, slowing down investments that do not make sense at this stage. But going forward, looking at Q3, Q4, we prefer to have more visibility of those quarters.
And but Q2, we can say that going to be in the same level of Q1.
Great. Thank you very much. Be well.
Next question comes from Tito Labarda, Goldman Sachs. You may proceed.
Hi, good evening. Thank you for the call. A couple of questions also. Following up, going back on your take rates, I understand the seasonality in the quarter compared to last quarter, so it's an increase. But if you look, it was higher than every single quarter last year.
And with PagBank and everything else going on. Is this sort of a new level for the take rate? And I mean, do you think it can increase higher over time, particularly as you do more with PagBank? Just want to get a sense of more like the long term outlook for the take rate. And then my second question, on marketing expenses, you mentioned you spent around $67,000,000 I think in marketing for PagBank.
Did you reduce that a lot, I guess in the Q2, just given the lockdown and particularly lower revenues, would that have any impact on the future growth of Tag Bank? Like how you did reduce, how sensitive could that be to future growth? If you can give some color on that would
be very helpful. Thank you.
Hi, Tito. This is Eduardo speaking. The level of take rate that we have seen in this quarter is really a combination of 3 things. I think, first, we do have a better mix in Q1 compared to Q4. That's number 1.
Number 2, we had also lower transaction costs. And number 3, we did have more additional revenues compared to Q1 2019. As we said, we grew those additional revenues 3x compared to last year. Of course, we do believe that going forward, we will have those additional revenues in 5 years representing 30% of the total business and they should contribute more to the take rate going forward.
So regarding marketing expenses, this is Ricardo. Thank you for your question. We decreased the investment in market in Q2, but we try to control the acquisition cost as much as possible to see if it makes sense or not. We also have been closing partnerships that help in the number of fragment new users. But the investments in market in Q2 will decrease for sure.
As Eduardo said, we are working here almost in a daily basis to keep the margins in decent levels and have the same levels that we had in Q1. So everything that, let's say, were related to brand building and things like that, we are trying to postpone, if you think it makes sense. So we are very much focused on the performance, trying to take advantage of the situation that people are looking for, looking more for initial banks. And that's why even with lower investment of marketing, we already had 826,000 new fabric users in these 2 months. So but going back to your question, we are decreasing the marketing expenses and looking for the performance only view and try to keep the CAC in low levels that make sense for us.
Okay. Thank you, Norberto and Ricardo. And just to go back on the take rate. So once you get the 30% of additional revenues related to PAG Bank, so I guess it would be fair to assume that the take rate should eventually over time be higher because of the contribution from PAG Bank. Is that a fair assumption?
Hi, Tito. Yes, it's expected to go up, but we are talking 30 percent, 5 years or, let's say, 4 years and a half from now. Many things will happen until then. But of course, we expect PagBank to help in our take rate. And you can imagine that if it's 30% of the revenue, it's going to be relevant for take rate as well.
There are many assumptions in the business plan for this 5 year plan, so to say. Things that we thought in the past, we can see change over time. We are adjusting the plan according to results that we have, the performance that we're having. So at some point, we thought that cards would be in one size and would be sometimes it's smaller than that or even higher than that, but depends on the situation of how the business performed. But answer to your question is straightforward.
Way here is, yes, 30% is going to help the take rate in the future. Right now, it is not that big as Alcaro just said.
Said. Next question comes from Victor Chabot, Bradesco BBI.
Good evening, everyone. Thanks for taking the question. First, congratulations on all from you guys about the strategy going forward regarding instant payments. What do you guys see as an opportunity coming from the new infrastructure that the Central Bank is developing the PIKs? Is it more of an opportunity for your PagBank?
Is it sort of a track for PagSeguro acquiring business? So how do you see that evolving? Or are you guys not that excited or that concerned about that new functionality? Thanks.
Hi, Victor. Thank you for your question. Let's just give a quick overview about what happens in Brazil in terms of transactions, let's say, similar to what we're going to have in pigs. So, currently, Brazilian buyers, they don't pay anything to make a debit transaction. And let's say, it's part of our culture to pay through debit cards.
It's a simple, it's a safe transaction. And merchants, even if merchants have the advantage to accept PIKs, who decides how it's going to be paid, it's the consumers. So it's the buyers. If they don't adopt PIKs, probably it won't be successful. I guess it's going to take a little bit of time for the solution to take traction.
If you look at the U. K. Case, for instance, it took a while to get traction. And when it got traction, then car transactions was growing 10%. So the cannibalization, we think, is going to have more in cash, checks and wire transfers.
Just remember, onethree of the Brazilian labor force is paying cash today. So that's part of the transactions that we expect is going to be shipped from cash to plastic or to electronic transaction. In addition to that, we think that fast payments will help the financial inclusion, mainly the unbanked and the underserved. They will start adopting electronic payments. So that's why we see growth in debit card transaction even in countries that adopt instant payments.
So we see more as an opportunity than a threat. It's going to depend how the consumers will adopt it or not. It's I mean, you need today in Brazil, it's very easy to pay the credit card transaction. People are using to do that. If you want to pay with PIX, you need to get your mobile phone unlocked, go to an app from your bank and lock again.
So let's see how it's going to happen. But we see more as an opportunity. Everything that is going to turn cash into electronic and plastic transactions is good news for us.
Next question comes from Felipe Salomao, Citibank. You may proceed.
Hi, Dieter, Karl and Dave. Thanks. I hope you all are well. I have two questions. The first one is regarding the take rate.
So you reported a 3.31% net take rate. But I think this number was positively affected by an adjustment of BRL 88,000,000 in transaction costs. Could you please explain what led to the adjustment? And also, should we expect similar adjustments to take place in the upcoming quarters or this was a one off? And my second question is related to the marketing budget for 2020.
Remember that roughly we'll be fair to expect BRL 600,000,000 to BRL 700,000,000 in marketing for the full year. Does these numbers still make sense given how that everything has changed? Or should we expect a little bit later, a little bit more? I know that we don't provide guidance, but any color on that would be great. Thank you.
Hi, Felipe. This is Alcaro speaking. I'll take the course I'll take the first question. So the A immediately, it's an intercompany, it's an intercompany in fact that we have, BIS, both fees, ISMS, Disney, NetPOS, the company that acquires the terminals and sells those terminals to bikesiguru. It's a major company transaction.
The reason why we do that is because we do have tax incentives to do that. You unfortunately, you see only the intercompany taxes, but we do that because we do have tax incentives and we have a lower taxes on the total cost of the terminals that we acquired.
Felipe, this is Lutzrat. Thank you for your question. Good to hear. I expect you are well and safe. I hope you are well and safe.
Talking about marketing, we decreased the marketing expenses in Q2, as we said before, in such a way that we do not hurt our business growth and also keep the margins in decent levels in terms of net income margins. So we are working, let's say, in a daily basis adjusting that our performance is performing. So it's a very controlled margin versus Q2 because we're in the middle of the pandemic situation here, as you know. Regarding Q3 and Q4, we kept in our budget the same market investment that we planned for the year. But of course, we will adjust if it's necessary according to what happened next month.
We have seen some governments easing the lockdown, Even here in Sao Paulo, the government is making this plan that some of the cities will the activity will come back. So we need to follow that and see if it makes sense to increase market investments. But again, always looking for the performance, to get new merchants, to get new back end users, to increase the PV and try to be accretive as much as possible in our P and L. So answer your question, Q2, it's almost fine. Q3 and Q4, we are keeping the same budget that we did for this year.
And we will adjust if necessary. And we can adjust to go up or to go down depending on what's going on, depending on the opportunity we're seeing. One thing is clear for us. We will always look for growth with profitability. We will not decelerate growth, but we will try to keep profitability as much as possible.
As Alcaro said before, in Q2, we had the same margins than we had in Q1. And we are confident that we can do that, very confident. After these 2, almost 2 months of lockdown, we saw the performance of our business, the performance of our Body Bank users, as you could see in the last slide. And we are confident that business is doing well. For a company that is has a tech DNA like us, we are taking advantage of the situation.
People take hold in using more digital solutions. So that's what we have looking forward.
Next question comes from Jeff Cantwell, Guggenheim Securities.
Hi, guys. Thanks for taking my question. On PagBank, we saw the May update in the slide deck and you know how 4,600,000 active users for PAdbank, which is very impressive. The number of users, it still seems like it's early days if we think about the size of the addressable market that PAdbank has. And therefore, what I wanted to ask you is, why couldn't PAG Bank's market share double over the next year or 2 years potentially?
It just seems like that's the pace that PadBank is on. We're seeing some real good momentum in PadBank users right now. There should also be plenty of stickiness to the platform when we kind of look at pace of product development, which again is very good. So I'd just like to hear your thoughts. If you try to think a year, 2 years out, could you maybe talk to us about your level of confidence for Pine Bank you maybe talk to us about your level of confidence for Pine Bank growing its user base from here?
Thanks.
Hi, Jeff. Thank you for your question. Good to hear. You're right, PagBank is in the strong momentum. We have seen a lot of people coming to us.
It's easy. It's simple. You can just open our account in less than 3 minutes and then you can start using our end. That's part of our advantage to make something that is simple, useful even for people that are not, let's say, digital. Don't use digital solutions every day, but it's very simple.
We have been increasing a lot the rollout of products for PagBank. We know that we launched this PagBank account in May 2019. It was a very basic account. And then we started adding some features, just to remember. In September 2019, we started paying interest in the account.
In January this year, we started offering more and more cash backs to QR codes. In the past weeks, we launched the radar of services and offers, so people can get benefits while using Tag Bank. People are sticking to that solution. So we are in a place you can see for bank bank users if you have some offers or discounts or cash backs, so people are using that. We launched this we made this offer free, wire transfers, new CDs.
So we are kind of rolling out new products, of course, to increase the stickiness and increase revenues of these users. We are having growth very aggressive and we think that is very, let's say, realistic for us to think about the base twice as much we have today. We don't see churn. But of course, we see some of the users that, let's say, use less, but we don't see churn because of the free accounts. So at some point, they stop using, then they come back 1 month later because it's so free.
They can receive a wire transfer in the digital content that they use. So looking forward, it's very realistic for us to have the base at least twice as much what we had today and monetize as time passes by because we're adding new products, not only in terms for the merchant, for the consumers, but also for the merchants. So it's very common for a merchant to start using QR codes for bag make users because they have 0% in the yard and the consumers have 10% cash back. Of course, at this point, we are not making money in this transaction. But remember, this is a this intermediates transaction.
There is no card scheme fees and no issuer bank in this case because we are an issuer bank. So we are creating this ecosystem and it's taking a lot of structure here.
Okay. Thanks very much. Stay safe.
Next question comes from Marco Calvi, Itau BBA.
Hi, good evening. So can you share your view on the profitability of your online clients? How different is that, if so, from the rest of your active client base? And second question, if you may, can you confirm how much of your 1st Q CPV came from the online clients? Thank you.
We are not disclosing the TPV that comes from online and offline. Even just to be sincere with you here, it is possible to do, of course, But nowadays, we have so many bundled transactions, so to say that, in theory, what we had in the past, this differentiation between online, and offline, it doesn't apply today. If you order food in your house and you pay through your credit card, is this online or is this offline? It depends because you're buying online, you're going to get the products offline or you can order online and pay when you receive the hamburger. So it's we as time as it's by, I think those things are getting more and more complex, but we of course, we could divide just what is pure online, but we are not disclosing that.
In terms of profitability, it's pretty much the same because remember, in long tail, we have rates that are profitable for us because it's long tail. They don't care about the rates. They are much more focused on the ecosystem and all the advantages they can have. Like I sell the device and I have PAG Bank for free. So they don't care too much about the take rates or the MDRs because at the end of the day, remember, they sell BRL 2,000, they use it to sell BRL 2,000 per month with us.
So it's not 10 basis points or 15 basis points that move the needle here and make our merchants to change for another competitor or things like that. So in the online, the personal is pretty much the same because also in online, we have we almost don't have debit transactions. It's almost 100% is credit and there's a lot of transactions with installment. So it's profitable and it's very similar and profitable between both.
Next question comes from Neha Agarola, HSBC.
Hi, good to hear from all of you and thank you for the detailed presentation and congratulations on the results. My question is more on Parks Capital. Should we expect that in the second and third quarter you wouldn't be making more provisions on the loans that you've already given out as the 90 day grace period ends? And could you give us any indication on the profitability of the loans that you are giving out right now in Parks Capital? Thank you so much.
Hi, Mira. I think the first question about the NPLs, it's hard to say how the closures and the social distancing measures, they'll last. Of course, I mean, if they they last longer, we we should we should expect higher NPLs in Q3 and Q4, for example. But there is so much uncertainty right now in terms of when big cities will be reopened and how the pandemic evolves in Brazil that it's hard to say. We are providing the visibility that we have right now, where we are on a case by case, understanding the needs of each client and trying to help them as much as we can.
And NPLs were not did not materially affect our take rates
in Q2. And we have regarding the type of credits that we offer to our clients, Right now, we only offer for the merchants. So we are not offering credits for consumers or if you're offering for consumers, it's just small pilots, small tasks that we do. But we can say that 100% what we offer is only for merchants, 1st. 2nd, we only offer for the best merchants.
We have all the history of these merchants in terms of CPV, chargebacks and many other variables that we have here in our database. And then we score these merchants and we offer only for the best merchants. And usually, the majority of them, they pay just like Square Capital in U. S. We increase the MDRs and they pay back in each and every transaction.
Although it's credit, we know it's a low risk credit, so to say, because it's only possible for the best portion based on their transactions with all the leases that we have. Also important to say that the information that we had from these merchants, you cannot find anywhere in the market. You cannot buy the information from another bureau because these guys were out of way there. They were informal. They didn't have the transactions in terms of electronics.
They used sell through cash. So it's kind of the, let's say, exclusive information that they have so that we can offer credit to them. But it's only for the merchants, only for the best merchants.
Very clear. Thank you so much.
Next question comes from Josh Beck, KeyBanc.
Thank you so much for the color and all the information. It's very helpful. I just wanted to ask about PagBank. You had mentioned that the engagement can be 11 times a week. So that is quite high, especially when you look at that on a monthly basis.
So I'm just wondering, if you look at your existing PagBank clients, are there some of them that are effectively completely replacing those traditional banking relationships and just using the PagBank app?
Hi, Josh. Thank you for the question. Good to hear. You're right. People are using 9 times a week.
It's a lot because as we said before, we are not only offering their, let's say, basic bank products or solutions, but we are also increasing that to some services like they can get some offers and cash back so they can go to an app, see if they have any offers close to where they are to have cash back or to pay less. Just to give you an example, we have a partnership with the largest pharmacies chains in pharmacies and drugstore chains in Brazil. If you are a public bank user, you can go there and have a 10% cashback. So where you can find this type of pharmacy in your Mac. So that's why people use it a lot.
You can fill up gas in your car and then you also have R10 back. So people use the app not only to make the basic transactions such as light transfers or pay bills or top up mobile phones, but also we have this type of super ad features that people use more or increase the stickiness and we are in, let's say, in the top of their mind. Regarding the question that people are using PagBank and replacing the banks, yes, we see that trend in our base. It is getting higher month after month. People come here, they try, they test, they see if it works, they get comfortable with the app and then part of them uses as their main bank.
It is growing. Still, of course, not the majority of the declines at this point, But we see month after month that people are using PagBank as their main bank. And we are also, as we said before, we are having new people coming to the system because of the COVID-nineteen. And by being a digital bank with a very frictionless process of sign up and usage, we are getting people that are interested in digital banks during these tough times for everyone here in Brazil.
Thank you. That concludes the question and answer session. Now I'd like turn the floor over to Mr. Ricardo Dutra for his closing statements.
Hi, everyone. Thank you very much for your time and for your questions and for your support during this time. I hope to meet you, all of you, in person very soon or as soon as possible and talk to you next quarter in the conference call. Thank you very much.
That concludes PagSeguro's conference call. Thank you. Have a nice night. Stay well and safe.