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PagSeguro Digital Ltd. (NYSE:PAGS)
Q1 2020 Earnings Call
May 28, 2020, 5:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to PagSeguro's First Quarter 2020 Results Conference Call. [Operator Instructions] This event is also being broadcast live via webcast and may be accessed through PagSeguro's website at investors.pagseguro.com, where the presentation is also available. Participants may view the slides in any order they wish. The replay will be available shortly after the event is concluded. Those following the presentation via webcast may post 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 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 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.

Ricardo Dutra da Silva -- Executive Officer

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 maintained 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 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 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 '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 capability.

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 top line, both revenues and TPV, with less than 3% of our TPV coming from sub acquirers. We also delivered users 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 5.5 million active merchants, up 24% year-over-year.

Moving to PagBank. Our nonacquiring 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 3.7 million, meaning we added 1 million 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 Alcaro, 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. Thank you for your work, Eduardo.

Eduardo Alcaro -- Chief Financial and Investor Relations Officer, Chief Accounting Officer

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 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%, 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 PagBank 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 positive Q1. Active merchants reached almost 5.5 million, growing 1.1 million 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 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 billion when compared to one 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 million of additional interest expenses when compared to the fourth quarter 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 fourth 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 one 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 expense 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.

Ricardo Dutra da Silva -- Executive Officer

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 at 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 nonacquiring 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 PagBank slip, bill payments, tax collections, P2P, QR code and other Super App transactions, growing 190% year-over-year.

In the chart below, we see the number of bill 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 30% quarter-over-quarter and link of payments increased 53% year-over-year, both boosted by COVID-19.

Finally, on PAGS 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 million. Additionally, we ended the quarter with BRL156 million 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 in the COVID0-19 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 first and second quarter of 2020, default rates are not showing significant deteriorations. On top of that, to manage our credit risk exposure in the middle of a global pandemic, we have significantly reduced credit disbursement for now. Credit is an important tool to create higher engagement with our merchant base and will continue to generate additional revenues for the Company in the future.

On Slide 10, we highlight our road map of products already delivered in the past two years. Being tech and independent allow us to think exclusively on our clients' financial needs, and consequently, combine growth with profitability. Since May 2018, we have delivered almost 40 new products, including hardware, software, banking and services in our Super App. In May, we launched our services, 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 two new CDs, paying 115% and 120% over CDI. PagBank CDs with remunerations 30% above the traditional savings account is part of our strategy to expand our investment product offer as well to acquire new PagBank clients.

Despite the current health crisis, we decided to keep investing in product development and keep committed with our road map 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 drugstores and retail pharmacies, offering incentives, discounts and cash backs with purchases 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 PagPerto, our new vital 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 PagBank 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 BRL20 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 eighth 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 monthly subscription model, with prices between BRL9.9 and BRL14.9 per month, and offers a diversified number of medical 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 third-party partnership model with different healthcare companies.

On the next slide, we introduce Pag pro Pequeno. In English, Pag to small companies. Our website was launched during COVID-19 pandemic with PagSeguro solutions to help our clients to keep selling remotely even with their doors closing. Some of the solutions are: link of payments, a non-card present transaction that can be shared via social media, email or SMS; PedeFacil, a delivery app, PedeFacil is a complete omni-channel that combines payment with software and online menu and online ordering. We also offer Envio Facil, a partnership that we set with the post office, with promotional prices 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 all buyers. Additionally, we are offering from now onward, unlimited wire transfers at no cost to all our PagBank clients, both merchants and consumers.

Now I would like to share the management perspectives due to the outbreak of COVID-19, 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 '20 during Q2 '20.

We entered this crisis leading the financial inclusion and electronic payment adoption, with 5.5 million active merchants and 3.7 million 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 engineering 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 second quarter 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 and the near-term economic effects of COVID-19, 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 Pag pro Pequeno, and also helped with government in distributing financial aid to population. Community matter for us. PagSeguro donated thousands of masks to public 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 million.

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 two 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 holiday in 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 last working day due to a national holiday in the beginning of the month. This trend shows the resilience of our diversified merchant base, constituted by micro, small and medium merchants and also by individual entrepreneurs, that were less impacted by the crisis.

In the 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-19. Right now, some states in Brazil are reducing the social 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 one-thirds 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 of May 23, active merchants reached 5.7 million, backed by a healthy trend of 167,000 net adds in April and May. Meanwhile, PagBank reached 4.6 million active users, maintaining the accelerated pace of net additions of 826,000 in the same period.

In summary, we are prepared to increase our leadership in long tail market, which is still huge, due to large number of micro merchants and informal employees, and it will grow due to acceleration of shift from cash to plastic. Important to mention, some of our peers decided to reduce their investment in long tail segment. Having said that, we reinforced our plan to have 30% of our revenues coming from PagBank, meaning services beyond acquiring in up to five years, with acquiring still growing at a healthy pace.

Although we are pragmatic in understanding and managing short-term impact of COVID-19, 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 in 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. We will start the Q&A session. Operator, please?

Questions and Answers:

Operator

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

Craig Maurer -- Autonomous Research -- Analyst

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.

Ricardo Dutra da Silva -- Executive Officer

Hi, Craig. Thank you very much for the question. Regarding competition, we have seen some competitors reducing terminal subsidies, reducing marketing 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 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 large upfront investment in the platform, in 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-thousand new merchants per month and we got that same time. So going back to your question, you're right, some of the competitors decided not to invest in long tail as they used to do in the past.

Regarding the financial expenses, Eduardo will take that.

Eduardo Alcaro -- Chief Financial and Investor Relations Officer, Chief Accounting Officer

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.

Craig Maurer -- Autonomous Research -- Analyst

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 been performing.

Ricardo Dutra da Silva -- Executive Officer

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 only 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 or the merchants to sell online, to leverage their 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 e-commerce.

Andre Cazotto -- Head of Investor Relations

Just one follow-up here, Craig. Andre speaking. We are -- just like we said in the presentation, we decided to accelerate some new initiatives like PagPerto, that's our virtual shopping; PedeFacil, that is our omnichannel for food delivery application. So some new initiatives that should help the Company to, let's say, capture more Internet transactions through online channels going forward.

Craig Maurer -- Autonomous Research -- Analyst

Thank you.

Operator

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

Bryan Keane -- Deutsche Bank -- Analyst

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 underbanked, 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.

Ricardo Dutra da Silva -- Executive Officer

Bryan, good to hear. Thank you for your question. Regarding PagBank, as we could see in the presentation, we grew 1 million new users all in this quarter. The majority of this growth is still coming from merchants, but the part that's coming from the consumer, it's accelerating month after month. So we already have hundreds of thousands of consumers using PagBank, and it's growing 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 they decided to use digital accounts.

Second one, we are being used for some governments, such as 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 started 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 I think 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.

Eduardo Alcaro -- Chief Financial and Investor Relations Officer, Chief Accounting Officer

Yes. Hi, Bryan. Take rate is a combination of things. First, we have 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 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.

Bryan Keane -- Deutsche Bank -- Analyst

Got it. Thanks so much and stay safe.

Eduardo Alcaro -- Chief Financial and Investor Relations Officer, Chief Accounting Officer

You too, Bryan.

Operator

Next question comes from Jorge Kuri, Morgan Stanley.

Jorge Kuri -- Morgan Stanley -- Analyst

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 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 will be helpful.

And then the second question is, could you -- 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 to the top line at least. Could you tell us where are we in that pathway to getting there? Is -- are revenues already have a meaningful portion of PagBank, say, 5%, 10%? Any quantification around that would be very useful. Than you.

Ricardo Dutra da Silva -- Executive Officer

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 suffer that much 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 -- it spread out geographically. Our TPV comes -- 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 restaurants are also coming back. Hair salons 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 at the beach, they will work as a plumber, they will paint houses, they will do something because they do need to work. So at some point, they are a 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, Andre, if...

Andre Cazotto -- Head of Investor Relations

Important to say that we also saw, let's say, a faster adjustment or a faster adoption of those, let's say, micro entrepreneurs. On Pag pro Pequeno, that is this program that we launched, pretty much offering alternative payment methods for those clients, like link of payments, like QR code, 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, QR 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.

Eduardo Alcaro -- Chief Financial and Investor Relations Officer, Chief Accounting Officer

Hi, 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 three times when we compare year-over-year. So when we compare Q1 '19 to Q1 '20 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 Brazilians. PagBank is really helping our clients during this tough times, Jorge. We are offering, for example, free 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 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 five years.

Jorge Kuri -- Morgan Stanley -- Analyst

Thank you and congrats again.

Operator

Next question comes from Mario Pierry, Bank of America.

Mario Pierry -- Bank of America -- Analyst

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 million, so this is a significant growth in your client base at 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 is growth in 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 nonacquiring business, that your revenues 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.

Ricardo Dutra da Silva -- Executive Officer

Mario, thank you for questions. Good to hear you. Regarding PagBank, we -- of course, we follow the cap evolution almost daily, not to say, intraday sometimes. But when we see, we have very, let's say, healthy cap for PagBank, but it's 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 need for PagSeguro until 2014, '15.

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 clients. The majority of the merchants, as I -- of the PagBank clients, as 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 are asking us is free unlimited wire transfers. So for everyone that use PagBank, they have free unlimited wire 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 virtual cards for people -- they can use virtual card while their plastics are going to 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 product 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 [related] to interchange. At this point, the transaction is low and the credit portion also is low at this point.

Mario Pierry -- Bank of America -- Analyst

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?

Ricardo Dutra da Silva -- Executive Officer

Yes. PagBank is growing fast because as we don't charge let's say anything, they keep using the account, even to receive wire 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 stopped making transactions. Of course, we surveyed these type of merchants. And the answer is they just stopped because their businesses 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 businesses 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 transacting because businesses are closed, but they 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 product such as 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 temporary. Let's say, we stopped it for a while.

Andre Cazotto -- Head of Investor Relations

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 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.

Mario Pierry -- Bank of America -- Analyst

That's very clear. Thank you very much.

Operator

Next question comes from Eduardo Rosman from BTG Pactual.

Eduardo Rosman -- BTG Pactual -- Analyst

Hi, everyone. So two questions here. The first one 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 or increasing 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 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, in a way, the low-income part of the population, the long tail, to learn how to use that app and to learn how to use the digital bank, and this could be very good news for you. So these are the two questions. Thanks.

Ricardo Dutra da Silva -- Executive Officer

Hi, Eduardo. Good to hear you. 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 they are using the device as their first income. I guess it is expected to happen in the future if unemployment goes up, as we expect it to happen in Brazil. But at this point, we didn't see this coming up. Of course, there must be people doing that in our base, but probably is not something that came up in such a way that we could, let's say, pay attention to that. We have thousands of -- millions of people using our devices. So probably, this is still very small.

Regarding PagBank, we were the beneficiary of corona voucher, as you said. The -- for those who are not aware of what is going on in Brazil, the government is giving BRL600 for close to 50 million, 60 million people in Brazil. They're going to receive BRL600 for two 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 one year ago, last May. So in one year, we are the Number 8 in terms of corona vouchers that were deposited. We are very proud to that, not only because of the business, of course, but also to help the community and help 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 three minutes. And then after that, it's very intuitive. People used 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 issues using technology or using mobile phones, and they are 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 to digital bank and now they are being 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.

Eduardo Rosman -- BTG Pactual -- Analyst

Okay. Thank you very much.

Operator

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

Mariana Taddeo -- Bank of UBS -- Analyst

Hi, there. Good evening everyone. I have some questions related to PAGS Capital. 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 we expect in terms of credit portfolio at the end of the year? Also, how is NPL trading -- infringing in the current scenario? And have you done incremental provisions to face this more challenging scenario? Thank you.

Ricardo Dutra da Silva -- Executive Officer

Mariana, I'll talk about the growth of the portfolio and maybe Eduardo can comment about NPLs. Thank you for your question. Good to hear you as well. We closed the Q4 with BRL286 million in total portfolio. And now in Q1, we're closing BRL338 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 first quarter this year, we went down to BRL52 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.

Eduardo Alcaro -- Chief Financial and Investor Relations Officer, Chief Accounting Officer

Yes. The variability of our ratios have not shown yet relevant deterioration. We are offering grace periods 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 history, repayment frequency, so on and so forth. So that's where we are on NPLs right now.

Mariana Taddeo -- Bank of UBS -- Analyst

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 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 they individuals that did not offer 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.

Ricardo Dutra da Silva -- Executive Officer

Yes, Mariana. 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 -- 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 it's just because of the situation of the economy, not because of the profile of the merchant.

Andre Cazotto -- Head of Investor Relations

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 these markets so they rely more on marketing campaigns and advertising.

Some of the other peers also decided to increase the price of their 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 its market share and leadership in the long tail market.

Mariana Taddeo -- Bank of UBS -- Analyst

That's clear. Thank you.

Operator

Next question comes from Jamie Friedman, Susquehanna. You may proceed please.

Jamie Friedman -- Susquehanna -- Analyst

Hi. Thank you and congratulations on the numbers. 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.

Eduardo Alcaro -- Chief Financial and Investor Relations Officer, Chief Accounting Officer

Thank you for your question. As you can see, our cost structure is 70% variable, meaning transaction costs, interchange, card scheme fees, marketing, advertising and charge backs. We are also a company that is low people-intensive. So just -- if you can look at our '20 app to see 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 of -- 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.

Jamie Friedman -- Susquehanna -- Analyst

Great. Thank you very much. Be well.

Operator

Next question comes from Tito Labarta, Goldman Sachs. You may proceed.

Tito Labarta -- Goldman Sachs -- Analyst

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 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 that 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, that would be very helpful. Thank you.

Eduardo Alcaro -- Chief Financial and Investor Relations Officer, Chief Accounting Officer

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.

Ricardo Dutra da Silva -- Executive Officer

Tito, regarding marketing expenses, this is Ricardo. Thank you for your question. We decreased the investment in marketing in Q2, but we tried to control the 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 marketing 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 additional banks. 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 marketing expenses and are looking by the performance only view and try to keep the cap in low levels that make sense for us.

Tito Labarta -- Goldman Sachs -- Analyst

Okay. 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?

Ricardo Dutra da Silva -- Executive Officer

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 imagine, 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 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 we're having.

So at some point, we thought that card would be in one side and would be -- and sometimes it is smaller than that or even higher than that, but it depends on the situation, how the business performed. But answer to your question in 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.

Tito Labarta -- Goldman Sachs -- Analyst

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

Ricardo Dutra da Silva -- Executive Officer

Thank you.

Operator

Next question comes from Victor Schabbel, Bradesco BBI.

Victor Schabbel -- Bradesco BBI -- Analyst

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 PIX? 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.

Ricardo Dutra da Silva -- Executive Officer

Hi, Victor. Thank you for your question. Just a quick review about what happens in Brazil in terms of transactions, let's say, similar to others that have in PIX. 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. It's a simple and a safe transaction. And merchants, even if merchants have the advantage to accept PIX, food sites, how it's going to be paid, it's the consumers. So it's the buyers. If they don't adopt PIX, 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 they got traction, debit card transactions was growing 10%. So the cannibalization, we think, is going to have more 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 shifted from cash to plastic or through electronic transaction.

In addition to that, we think that PIX payments will help the financial institutions, 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 -- and you need -- today, in Brazil, it's very easy to pay the debit transaction. People are used to do that. If you want to pay with PIX, you need to get your mobile phone unlocked, go to the net, 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 turn cash into electronic and plastic transactions is good news for us.

Victor Schabbel -- Bradesco BBI -- Analyst

Perfect. Thank you.

Operator

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

Felipe Salomao -- Citibank -- Analyst

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 number was positively affected by an adjustment of BRL88 million in transaction costs. Could you please explain why was there 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. I remember that, roughly, will be fair to expect BRL600 million to BRL700 million in marketing for the full year. Do these numbers still make sense given all -- 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.

Eduardo Alcaro -- Chief Financial and Investor Relations Officer, Chief Accounting Officer

Felipe, this is Alcaro speaking. I'll take -- of course, I'll take the first question. So the BRL88 million it's an intercompany tax that we have, PIS/COFINS and ICMS [Indecipherable] POS that the company that acquires 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 total cost of the terminals that we acquired.

Ricardo Dutra da Silva -- Executive Officer

Felipe, this is Dutra. Thank you for your question. Good to hear that you are well and safe. I hope everyone is 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 margin. So we are working, let's say, in a daily basis adjusting that performance. So it's a very controlled margin versus Q2 because we're in the middle of a pandemic situation here, as you know.

Regarding Q3 and Q4, we kept in our budget the same marketing investment that we planned for the year. But of course, we will adjust, if it's necessary, according to what happens next month. We have seen some governments easing the lockdown. Even here in Sao Paulo, the government is making this plan that some industries will -- the activity will come back. So we need to follow that and see if it makes sense to increase marketing investments. But again, always looking for the performance to get new merchants, to get new PagBank 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 if necessary. We can adjust to go up or to go down, depending 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 be profitable 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 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.

Felipe Salomao -- Citibank -- Analyst

Okay. Thank you.

Operator

Next question comes from Jeff Cantwell, Guggenheim Securities.

Jeff Cantwell -- Guggenheim Securities -- Analyst

Hi guys. Thanks for taking my question. On PagBank, we saw the May update in the slide deck, and you now have 4.6 million active users for PagBank, which is very impressive. That number of users, it still seems like it's early days, if we think about the size of the addressable market that PagBank has. Therefore, 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.

Ricardo Dutra da Silva -- Executive Officer

Jeff, thank you for question. Good to hear you. You're right. PagBank is in its -- is in a strong momentum. We have seen a lot of people coming to us. It's easy. It's simple. You can just open your account in less than three minutes, and then you can start using online. That's part of our advantage, to make something very 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 '19, we started paying [Phonetic] 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 -- a radar of services and offers, so people can get benefits by using PagBank. People are sticking to net solutions. So you are in a place you can see, for PagBank users, if you have some offers or discounts or cash backs. So people are using that.

We launched this -- we made this offer of free wire transfers, new CDs. So we are kind of rolling out new projects, of course, to increase the stickiness, increase readiness of these 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 don't see churn because of the free accounts. So at some point, they stop using, then they come back one month later because it's for free. They can receive a wire transfer and then they [shop out] and then they use it. So looking forward, it's very realistic for us to have the base at least twice as much what we have today and then monetize as time passes by because we are 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 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 intermediary 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 traction here.

Jeff Cantwell -- Guggenheim Securities -- Analyst

Okay. Thanks very much. Stay safe.

Operator

Next question comes from Marco Calvi, Itau BBA.

Marco Calvi -- Itau BBA -- Analyst

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.

Ricardo Dutra da Silva -- Executive Officer

Hi, Marco, thank you for the question. We are not disclosing the TPV that comes from online and offline, even this [Indecipherable] here. It is possible to do, of course, but not -- at least we had so many bundled transactions, so to say, that in theory, what we had in the past, this differentiation, if you're online or 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 if 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 passes by, we think these 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 by selling the device and they have PagBank 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 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 profitability 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 is installment. So it's profitable and it's very similar in the profitability between both.

Marco Calvi -- Itau BBA -- Analyst

Thank you. Very clear. Thank you.

Operator

Next question comes from Neha Agarwala, HSBC.

Neha Agarwala -- HSBC -- Analyst

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 ends? And could you give us any indication on the profitability of the loans that you are giving out right now on the PAGS Capital? Thank you so much.

Eduardo Alcaro -- Chief Financial and Investor Relations Officer, Chief Accounting Officer

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 is -- 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.

Ricardo Dutra da Silva -- Executive Officer

And we have -- 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 we're offering for consumers, it's just a small pilot, small test that we do. But we can say that 100% what we offer is only for merchants, first. Second, we only offer for the best merchants. We all -- we have all the history of the merchants in terms of TPV, shopping bags [Phonetic] 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 the U.S. 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. It's on their transactions with all the history 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 radar. They were informal. They didn't 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.

Neha Agarwala -- HSBC -- Analyst

Great. Thank you so much.

Operator

Next question comes from Josh Beck, KeyBanc.

Josh Beck -- KeyBanc -- Analyst

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 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 apps?

Ricardo Dutra da Silva -- Executive Officer

Hi, Josh, thank you for your question. Ricardo here. You're right. People are using 11 times a week, it's a lot. Because as we said before, we are not only offering there, let's say, basic bank products or solutions, but we are also increasing that through some services like they can get some offers and cash backs. 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 pharmacy chains in -- pharmacies and drugstore chains in Brazil. If you are a PagBank user, you can go there and have a 10% cash back, so where you can find this type of pharmacy in your map. So that's why people use it a 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 wire transfers or pay bills or top up mobile phones, but also we have this type of Super App features that people use more or increase the stickiness, and we're, let's say, in the top of their mind.

Regarding the question that people are using PagBank and replacing their 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 us as their main bank. It is growing. Still, of course, not the majority of the clients at this point. But we see month-after-month that people are using PagBank as their main bank. And we are also, as I said before, we are having new people coming to the system because of the COVID-19. 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.

Josh Beck -- KeyBanc -- Analyst

Thanks so much. Stay well everybody.

Operator

[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.

Ricardo Dutra da Silva -- Executive Officer

Hi, everyone. Thank you very much for your time and for your questions and for your support during this time. I'd like 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.

Operator

[Operator Closing Remarks]

Duration: 89 minutes

Call participants:

Ricardo Dutra da Silva -- Executive Officer

Eduardo Alcaro -- Chief Financial and Investor Relations Officer, Chief Accounting Officer

Andre Cazotto -- Head of Investor Relations

Craig Maurer -- Autonomous Research -- Analyst

Bryan Keane -- Deutsche Bank -- Analyst

Jorge Kuri -- Morgan Stanley -- Analyst

Mario Pierry -- Bank of America -- Analyst

Eduardo Rosman -- BTG Pactual -- Analyst

Mariana Taddeo -- Bank of UBS -- Analyst

Jamie Friedman -- Susquehanna -- Analyst

Tito Labarta -- Goldman Sachs -- Analyst

Victor Schabbel -- Bradesco BBI -- Analyst

Felipe Salomao -- Citibank -- Analyst

Jeff Cantwell -- Guggenheim Securities -- Analyst

Marco Calvi -- Itau BBA -- Analyst

Neha Agarwala -- HSBC -- Analyst

Josh Beck -- KeyBanc -- Analyst

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