Welcome to 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 will be a question-and-answer session. [Operator Instructions] This event is also being broadcast live via webcast and maybe 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 post their questions on PagSeguro’s website. Before proceeding, let me mention that any forward statements included in the presentation or mentioned in this conference call are based on currently available information and PagSeguro’s current assumptions, expectations and projections about future events. While PagSeguro believes that their assumptions, expectations and projections are reasonable in view of currently available information, you are cautioned not to place undue reliance on these forward-looking statements. Actual results may differ materially from those included in PagSeguro’s presentation or discussed on this conference call for a variety of reasons, including those described in the forward-looking statements in the Risk Factors section 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.

Hello, everyone, and thanks for joining our first quarter results conference call. Tonight, I have here with me Eduardo Alcaro, 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 retained their focus and support in 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 Alcaro, our CFO. And in the end, we will give you our perspective about COVID-19 and some preliminary data about Q2. Going to slide three. 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 crises and higher subsidies offer to our clients through this period, PAGS was able to combine growth with profitability. Comparing Q1, '20 with Q4 '19, our revenues grew 1%, despite the strong seasonality in Q4, while our peers revenues decreased 8% and 5%. And year-over-year, our net income grew 13%, while our peers net income decreased 13% and 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 capabilities. On slide 4, we highlight the great achievements of the quarter, even with COVID-19 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 topline, both revenues and TPV, with less…

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 fourth quarter of 2018 to fourth quarter 2019, proving that we are on the right track as far as investments in PagBank. 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-19 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 first quarter reached BRL367 million, an increase of BRL42 million and up 13% year-over-year, despite the COVID-19 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 first quarter of last year. As we show in the next graph, our TPV grew high 30s in January and February, and low 40s in the first half of March, better than our expectations for the year shared with you during our fourth quarter 2019 earnings call, but decelerating 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 billion in TPV for the quarter due to the COVID-19 outbreak, which means a miss of approximately BRL40 million in…

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 in gaining 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 three products of our ecosystem. And PagBank App is opened 11 times a week. Our PagBank 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 1.8 billion accesses, ending with 113 million unique monthly users and reaching 94% of the Brazilian Internet 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 cost 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 third parties, cash-in through bank slip, bill payments, tax collections, P2P, QR code and other Super App transactions, growing 190% year-over-year. In chart below, we see the number of new payment 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…

Thank you. [Operator Instructions] Our first question comes from Craig Maurer, 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? Second, should we expect financial expenses to normalize in second quarter, following the need or perceived need for short-term liquidity in late March? Thanks.

Hi, Craig. Thank you very much for question. Regarding competition, we have seen some competitors reducing terminal subsidies, reducing smart investments, and at some point, even reducing headcount. Some of them are increasing the price of the terminal, decrease the advertisement, taking out some promotions. So we see that’s some of the grades are slightly consumer paid. They are trying of – they are kind of creating this segment of the market and trying to focus on the large accounts and SMEs. So you're right, we have seen less competition from some of the players. We always said that to operate in long tail, it requires a part of front investment in the platform, the branding, user experience and payback will come later. So we started doing that in 2006. We had a very broad ecosystem, very complete. So that's why we are able to scale our platform and bring, you could see 80-plus-thousand new merchants per month and we got that at the same time. So, going back to your question, you're right, some of the competitors decided not to invest in retail as they used to do in the past. Regarding the financial expenses, Eduardo will take that.

Hi Craig. 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 you can discuss where that's focused and how it's how it's been performing?

So, we are observing faster adoption of e-commerce for some of our banks, mainly post-COVID. Online 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. We are taking advantage, so to say, because of the COVID and all the interest from the clients or 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 ecomm.

Just one follow-up here, Craig. And in speaking, we are -- just like we said, the presentation, we decided to accelerate some new initiatives like -- virtual shopping, back pass that's our open channel for full delivery application. So, some new initiatives that should help the company to, let's say, capture more internal transactions through all in channels going forward.

Thank you.

Our next question comes from Bryan Keane, Deutsche Bank. You may proceed.

Hi guys. Two questions. I guess, first on the PagBank 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 PagBank might have had there and what take rate might look like as we go into the second quarter? Thanks.

Hi Bryan, good to hear. Thank you for the question. Regarding PagBank, as we can see in the presentation, we grew 1 million new users following this quarter. The majority of this growth is still coming from versions. But the part is coming from the consumer accelerated more customer. So, we already have hundreds of thousands of consumers with PagBank and it's going fast. Part of that, I could see in Q1. I mean, we are -- had more in fiscal Q1 because of the -- let's say, the media of digitalization because of complete, people just -- or they don't want to go to the streets or they can't go. So, that's why they signed to these digital accounts. Second one, we are can't being used it being used it for some -- suggests they 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 we start in April. And also the, let's say, the brand of campaign 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, I think the answer to your question is we have seen more interest from consumers in the past months and it is growing fast -- faster than the merchants. Regarding take rate, I guess, Eduardo can also take that.

Yes, hi Bryan. Take rate is a combination of things. First, we had 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 debit because of the holiday season and their 13th salary compared to Q1. And obviously, I mean, we do have a higher engagement of our users in our banking strategy, which is already showing some monetization in our take rates.

Got it. Thanks so much and stay safe.

You too, Bryan.

Next question comes from Jorge Kuri, Morgan Stanley.

Hi, everyone and congrats on the numbers. Two questions, if I may. Can you maybe talk through what's driving that Brazilians 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 verticals? Is it the ability of micro merchants to pivot to do different things? Is it that they simply didn't lock down? Any color that you can provide with that would 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 PagBank now at almost 5 million clients, I'm assuming it’s already bringing in some percentage of the top line at least. Could you tell us where are we in that pathway to getting there? Are revenues already have a meaningful portion of PagBank, 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-19, such as airlines, rental cars and things like that. So as we don't have this exposure, we didn't serve them just like other players in the market. We have clients in every city in Brazil. It's more than 5,500 cities in Brazil. We have clients in every city in Brazil. We exerted out geographically. Our TPV becomes a little bit more than one-third coming from capitals and the other two-thirds is from the small cities and countryside. We don't have dependence 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 use nor in terms of users. Also worth to say that all this TPV is organic, right? Only 3% of our TPVs coming from sub acquirers. So we are not, let's say, surfing on the TPV from other companies that are, let's say, certain long tail clients or things like that. So it's organic, all directly connected to us. What happened due to COVID is that we saw some changes as weeks passed by. So in the first week, 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. The restaurant is also coming back. Hair salons and…

Hi, Jorge. This is Eduardo speaking. Nice to hear you voice. So in terms of the additional revenues in this quarter, what we can say is that we grew almost three times when we compare year-over-year. So when we compare Q1 2019 to Q1 2020, those additional revenues, they grew three times year-over-year. And we expect this trend to continue in 2020. I think despite the potential impact of COVID, which has – really has been an upside to the larger adoption of electronic payments by their resilience. PagBank is really helping our clients during this tough times, Jorge. We are offering, for example, three easy wire transfers, 10% cash back through QR codes, cash backs for people who choose PagBank as their bank to receive for example, the corona, the corona viruses 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 in income in five 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 PagBank, right? When we see here that you added 1 million clients, and you brought your base up to 3.7. So this is a significant growth in your client base, PagBank in one quarter. If you can be a little bit more specific? Then about your acquisition costs, your client acquisition costs at PagBank, do you think also that there’s growth – PagBank has benefited from the 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 three 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 good to hear you, regarding PagBank, we, of course, reform the capital evolution almost daily, not to say, intra day sometimes but let me say here, we have a very, let's say, healthy check for PagBank but there’s 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 needed for PagSeguro in 2014, 2015. So the cap for PagBank is very low, 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 funds. The majority of the merchants of the PagBank clients, I said are merchants, but consumers are really fast. Part of that is also because of the COVID-19 that people are being more digitalized. They need to. We made some changes in the last months that also help at PagBank. One of them that people asking us is this free on uses wire transfers. So for everyone that use PagBank they have free interwire transfers. We added two new CDs pay 115% and 120% of Brazilian CDI. So we have seen a lot of traction in the rollout of products that are – that is happening. We launched digital cards for people they can use virtual card while the plastics are wait in the post office. So once you open your account you can have a digital card right after that and use it. So there are many things happening in terms of product as well that helps us in PagBank acquisition. The majority of revenues at this point are related to interchange. As I said before, interchange is a good business in Brazil. So the majority of the revenues are controlled 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 is related then to the mortality of your clients. Can you give us some color on the mortality that you see both at PagBank and PagSeguro?

Yes. PagBank is growing fast, because as we don't charge, let's say anything they keep using the account even to receive or transfer or things like that. So the PagBank let's say mortality is very low. In terms of PagSeguro what we saw is we saw it's – let's say it's early to talk about churn rates after these two months of health crisis, but we saw a slight increase in absolute numbers. People that have stopped making transactions, of course we survey these type of merchants. And the answer is, they just stopped because their business are closed, or they decided not to do this anymore, and 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 they need to work, they need to make money even to survive. So for the merchants that we surveyed, they said they are not transacting because their 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 in TPV. So one cross sells 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. This is just a temporary, let's say we stopped it for a while.

Yeah. 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 last crisis back in 2015. Many new individual professionals, let's say that an increase in 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.

That's very clear. Thank you very much.

Next question comes from Eduardo Rosman from BTG Pactual.

Hi, everyone. So two questions here. First on the TPV, I just want to understand if you have seen in the last two months clients who were only using the machines as a part-time job increasing the 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 PagBankm right. We can see hear that the bank has been a very clear beneficiary of the corona voucher. 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 client from how to use the functionalities of the 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 away the low income part of population, the long time to learn how to use that app and to learn how to use a digital bank and this could be, very good news for you. So these are the two questions. Thanks.

Hi, Rosman. Good to hear, I think, difficult question. So regarding TPV, we didn’t see, I'd say, this trend coming up, that people that lost their jobs there, they're using the device -- as their first income. I guess, it is exactly to happen in the future, if an employee goes out as we – has started to happen in Brazil, but at this point, we can see this is coming up. Of course, there must be people doing that in our base, but currently it's not something that came up in such a way that it could -- let's say, be a patient to that. We had dozens of – millions of people using our device, so probably this is still very small. And for the time being, we were the beneficiary of organizing, as you said, the – for those who were not aware of what is going on in Brazil. The government is giving BRL 600 for close to 50 million, 60 million people in Brazil. They're going to see BRL 600 for three months. And people can receive through the government bank or people can select a bank to have the money depositing in another bank. And PagSeguro is the number eight in terms of the deposits. We just launched private bank one year ago. Last may, so in one year we are the number eight. In terms of coronavirus, where it was. We are very proud to do that, not only because of the business, of course, but also to help the community and help the society strength up with [Indiscernible]. But we – people that use our app, it's very simple. You can just sign up in two minutes and then after that it's very intuitive. People uses, you have these mobile phones and these other apps, so I wouldn't think this is an issue. But you are right, there are some people today that may have some difficulties in technology or using mobile phones and there the process is to do so. So we will generate a new, let's say, addressable market for us. People that are really more resistant to adopt the digital bank and now they being forced to adopt, they trying this digital bank and see that it is useful, that it works and is simple. So we try to do all that in a very intuitive way. Large fonts for people to see very clear what's going on, what's happening in the screen, so a relatively synergy and opportunity for us.

Okay. Thank you very much.

Our next question comes from Mariana Taddeo, Bank of UBS.

Hi, there. Good evening everyone. I have some questions related to price cut. So, during the presentation, you mentioned that you reduced your credit origination. What level is it today compared to the level before COVID-19 outbreak. And what can I expect in terms of credit portfolio at the end of the year. Also, how is MPL trending in the current scenario and how do the incremental provisions are facing more challenging scenarios? Thank you.

Mariana, I'll talk about the growth of the portfolio and maybe, Eduardo, can comment about details. I think before your question, I want to say here is. We closed the Q4 with BRL 286 million in total portfolio. And now in Q1 we're closing BRL 338 million. So we grew BRL 52 million. If you look at the pace in the previous quarters it was close to BRL 90 million. So in the first quarter this year, we went down to BRL 52 million. In Q2 it will be less than that. We are in the middle of this situation with COVID-19. 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 to you that we are very cautious. And in Q2 we'll be even smaller than what we had in Q1. Regarding NPLs I guess Eduardo can comment.

Yes. The variability of our ratios have not shown yet relevant deterioration. We are offering great schemes for repayment like case by case depending on the client. And as Ricardo said, we are managing our exposure to merchant loans during this 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 rescale the product to our best versions cherry picking the ones according to TPV account user, repayment frequency so on and so forth. So that's where we are on NPLs right now.

Thank you. That's clear. And if I may ask another question related to your net adds. It remained strong in the first quarter. And based on data you provided quarter-to-date, it's just 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 they individuals that did not affect 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.

Yes. Mariana. 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 that'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 survey still close to the 80% that come to us did not accept cards before joining us. So anybody in terms of TPV, it's let's say similar to what we had in the past, but it's hard to conclude because in the middle of this COVID-19. So it's a little bit lower today, but we think just because of the situation of the economy not because of the profile of the margin.

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 serving some of our peers or competitors reducing the labor of marketing campaigns. Some of those players are just starting in these markets. So they rely more on marketing based on 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 just like we said having our peers also reducing the level of let's say subsidies or marketing will help PAGS to keep increasing with these market share in pursuing the long terms 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 two 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. Thanks for the question. As you can see our cost structure is 70% variable. Meaning transaction costs, interchange, card team fees, marketing, advertising and charge backs. We are also a company that is low people intensive. So, if you can just look at our 2020, how low people intensive we are. As you can see right now, I mean, we have visibility on Q2 and that’s why we’re guiding everybody in terms of maintaining the net margin that we had 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, slowing down investments that do not make sense at this stage. But going forward, looking at Q3, Q4, we prefer to have more visibility on those quarters. And -- but Q2, we can say that it's going to be in the same level of Q1.

Great. Thank you very much. Be well.

Next question comes from Tito Labarta, 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 a new level for the take rates? 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 rates? And then my second question on marketing expenses. You mentioned you spent around BRL67 million I think in marketing for PagBank. Did you reduce that a lot I guess in the second quarter? Just given the lockdown and potentially all revenues, would they have any impact on the future growth of PagBank like how -- you did reduce how sensitive could that be to future growth? So 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 three things. I think, of course, we do have a better mix in Q1 compared to Q4. That's number one. Number two, we had also lower transaction costs. And number three, 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 five years representing 30% of the total business and it should contribute more to the take rate going forward.

So regarding marketing expenses, this is Ricardo. Thank you for question. We decreased the investment margin in Q2, but we try to control acquisition costs as much as possible to see if it makes sense or not. We also have been closing these partnerships that happened in the number of PagBank new users. But the investment in March in Q2 will decrease for sure. As Eduardo said, we are working here almost on a daily basis to keep the margins in decent levels and have the same levels that it 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 PagBank users in these two months. So -- but going back to your question, we are decreasing the market expenses and are looking at a pro forma only view and try to keep the cap in low levels that make sense for us.

Okay. Thank you, Alcaro and Ricardo. And just to go back on the take rate. So once you get the 30% of additional revenues related to PagBank, so I guess it would be fair to assume that the take rate should eventually over time be higher because of the contribution from PagBank? Is that a fair assumption?

Hi, Tito. Yes, it's expected to go up, but we are talking 30% five years, or let's say, 4.5 years from now many things will happen until then. But, of course, we expect PagBank to help in our take rate and you can measure that we fix 30% of the revenue is going to be relevant for take rate as well. There are many assumptions in the business plan for this five-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 they're having. So at some point we thought that card will be one size and would be -- sometimes it is smaller than that or even higher then, but it depends on the situation on how the business performed. But to answer to your question it's straightforward. Way here is, yes, 30% is going to help the take rate in future right now. It is not that big as Alcaro just said.

Yeah. All right. Perfect. Thank you very much.

Thank you.

Next question comes from Victor Schabbel, Bradesco BBI.

Good evening everyone. Thanks for taking the questions. First, congratulations on all the initiatives that the company has been carried out on the social side. So I think it's worth highlighting that. And second, I would like to hear 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 fixed? Is it more of an opportunity for your PagBank? Is it sort of a threat 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 the questions. Just a quick review about what happens in Brazil in terms of transactions, let's say, similar to other than I have in takes. 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 to debit products. A simple and a safe transaction, and merchants even merchants have the advantage to accept peaks, food sites how it's going to be paid it's the consumers. So it's the buyers. If they don't adopt peaks, 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 got traction, then car transactions was growing 10%. So the cannibalization we think is going to have to grow in cash, checks and wire transfers. Just remember one-third of the Brazilian labor force is paid in cash today. So that's part of the transaction that we expect is going to be shift from cash to plastic or through electronic transaction. In addition to that we think that best savings will have the financial including mainly, underbanked and underserved. We will start adopting electronic payments. So that's why we see growth in the debit card transaction even in countries that adopt an 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. Its -- and we need -- today in Brazil, it's very easy to pay the debit card transaction. People are used to do that. If you want to pay with peaks, you need to get your mobile phone, unlocked, go to an app from your bank and lock again. So let's see what's going to happen, but we see more as an opportunity. Everything that is going to upturn cash into electronic and plastic transactions. It's good news for us.

Perfect. Thank you.

Next question comes from Felipe Salomao, Citibank. You may proceed.

Hi, Dutra, Alcaro. Thanks and 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 other was positive effect in adjustment of BRL 88 million in transaction costs. Can you please explain why was this adjusted? 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. I remember that roughly will be to expect BRL 600 million to BRL 700 million in marketing for the full year. Those -- these numbers still make sense within -- and that everything has changed or should we expect a little bit lower a little bit more I know that you didn't provide guidance, but any color on that would be great? Thank you.

Felipe, this is Alcaro speaking. I'll take -- of course I'll take the first question. So the BRL 88 million it's an intercompany tax that we have [indiscernible] POS the company that applies the terminals and sells those terminals to PagSeguro. 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 lower taxes on the low-cost of the terminals that we acquired.

Felipe, this is Dutra. Thank you for the question. 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 easy levels in terms of net income margin. So we are working let's say in a daily basis adjusting that for performance. So it's a very controlled margin version in Q2 because we're in the lead to the unique situation here as you know. Regarding Q3 and Q4, we kept in our budget same, market investment that we planned for the year. But of course we will just if it's necessary according to what happens next month. We have seen some governments easing the lockdown. Even here in São 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 this to increase market investments. But again always looking for the performance to get new merchants to get new users to increase TPV and try to be accretive as much as possible in our P&L. So answer to your question. Q2 is almost defined Q3, Q4 we are keeping the same budget that we did for this year and we will adjust it this time. We can adjust to go up or to go down depending what so 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 would try to be profitable as much is possible. As Alcaro said before in Q2 we had same margins than we had in Q1. And we are confident that we can do that very confident after these two -- almost two months of lockdown we saw the performance of our business the performance of our PagBank 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 type DNA like us we are taking advantage of the situation people stay home and using more virtual solutions. So that's what we have looking forward.

Okay. Thank you.

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 4.6 million active users for PagBank which is very impressive. That number of users it still seems like its early days if we think about the size of the addressable market that PagBank has. What I wanted to ask you is, why couldn't PagBank's market share double over the next year or two years potentially? It just seems like that's the pace that PagBank is on. You're seeing some real good momentum in PagBank users right now. There should also be plenty of stickiness to the platform when we kind of look at slide 10 which shows the pace of product development which again is very good. So, I'd just like to hear your thoughts if we try to think a year or two years out, could you maybe talk to us about your level of confidence for PagBank growing its user base from here? Thanks.

Hi Jeff. Thank you raising the opportunity here. PagBank is in its -- is in the strong momentum. We have seen a lot of people coming to us. It's easy. It's equal in just over the accounts that we’ve seen in this. And then you can start using the line. That's part of our advantage we 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 this on 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 in the PagBank. People are sticking to that solution. So we are in a place you can see for PagBank uses 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 projects of course to increase the stickiness and increased readiness of these new users. We are having growth very aggressive. And we think that it's very -- let's say realistic for us to think about the base prices what you have today. We don't see churn. But of course, we see some of the users let's say use less. But we do see churn because the free accounts. So, at some point, they stop using then they come back one month later because it's so free. They can receive a wire transfer [indiscernible] card and then they use it. So looking forward, its very realistic for us to have the base at least twice as much what we have today and monetize as diversify because we are having new products. Not only in terms for the merchant for the consumers, but also for merchants. So its income for a merchant to start using QR codes for PagBank users because they have 0% MDR and the consumers have 10% cash back. Of course at this point, we are not making money in this transaction. But remember this is an intermediate transaction. There is no cards and fees and no issuer bank in this case because we have issued that. So we are creating this ecosystem and it's taking a lot of traction here

Okay. Thanks very much. Stay safe.

Next question comes from Marco Calvi, Itaú 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 first few TPV came from the online clients? Thank you.

Hi Marco, thank you for the question. We are not disclosing the TPV that comes from online, offline. We didn’t distribution series here. It is possible to do of course, but not have so many bundled transactions so to say. In theory, what we had in the past this differentiation if you know online, offline, it doesn't apply today. If you order food from your house and you pay through your credit card. Is this online or is this offline? It depends, because everybody online we're going to get the product supply then you can order online and pay when we receive the handler. So we -- sites think things are getting more and more complex, but we -- of course we could divide is what is thinner line, 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 grades. They are much more focused on the ecosystem and all the advantages they can have by selling the device and they have PagBank for free. So they don't care too much about the take rates of the MDR, because at the end of the day remember they sell BRL2,000 -- they use it to sell BRL2,000 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 poster [ph] 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 is a lot of transactions that's installed. So it's profitable and it’s very similar in profitability in both.

Thank you. Very clear. Thank you.

Next question comes from Neha Agarwala, HSBC.

Hi. Good to hear from all of you, and thank you for the detail presentation, and congratulations on the results. My question is more on PAGS 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 end? And could you give us any indication on the profitability of the loans that you are giving out right now on PAGS Capital? Thank you so much.

Hi, Neha. I think the first question about the NPLs, it's hard to say how the closures and the social distancing measures will last. Of course, I mean, if they last longer, we should really expect higher NPLs in Q3 and Q4 for example, but there's 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 have provided 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 Neha, regarding the type of credits that we offer to our clients. Well, now we only offer for the merchants, so we are not offering credit for consumers. Or if you are offering for consumers it's just a small pilot, small test that we do. But we can say that 100% value offer is only for merchants first. Second, we only offer for best merchants. We have all the history of sales tax [ph] and many other variables that we have here in our database. And then we support these merchants and we offer only for the best merchants. And usually the majority of them, they pay just like square capital in less. We increased the MDRs and they pay back in each and every transaction. So it's -- although it's credit we know, it's a low-risk credit so to say, because it's only for the best merchants is on their transactions with all the leases that we have. Also important to say that, the commission that we had from these merchants, you cannot find anywhere in the market. You cannot buy information from another bureau because these guys were out of wage [ph]. They were informal; they even have the transactions in terms of electronics they used to sell through cash. So it's kind of the let's say exclusive information that we have. So that we can offer credit to them, but it's only for the merchants, only for the best merchants.

Great. Thank you so much.

Next question comes from Josh Beck, KeyBanc.

Thank you so much for the color. And other information it's very helpful. I just wanted to ask about PagBank, you had mentioned that, the engagement can be 11 times week. So that is quite high, especially when you look at that on a monthly basis. So I am 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 apps?

Hi, Josh. Thank you for your question, its Richard here. Who are using PagBank apps thank you so much. As we said before, we are not only offers there, let's say, basic, base products or solutions, but we are also increasing that to some services like, they can get some offers and cash backs. So they can go to the app to see, if they have any offers close to where to have cash back or to pay less. Just to give you an example, we have a partnership with the largest pharmacy chains -- pharmacy and drug store chains in Brazil. We are sure our PagBank user can go there and have 10% cash back. So where they can find this type of pharmacy in our apps, so that's why people use that lot. You can fill up the gas in your car. And then you also have BRL10 back. So people use the app not only to make the basic transactions such as like transfers or pay bills or top up of mobile phone but also we have this type of Super App and see that people use more or increase in stickiness in reality, let's say, in of their mind. Regarding the question of people are using PagBank and replacing. And we can see that taking our base. It is getting higher, month-after-month, people come here, they try, and 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, but of course not the majority the clients, at this point. But we see, month-after-month that people are using PagBank Bank as their main bank. And we are also, as I said before, we are having new people coming to this system because of the COVID-19. And by being an initial bank, with 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.

Thanks so much. Stay well everybody.

[Operator Instructions] Thank you. That concludes the question-and-answer session. Now I'd like to 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 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.