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XP Inc. (XP) Q4 2020 Earnings Call Transcript

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XP earnings call for the period ending December 31, 2020.

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XP Inc. (XP 1.54%)
Q4 2020 Earnings Call
Feb 23, 2021, 5:00 p.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Andr Martins

OK. Let's start. Good evening, everyone. [Foreign language] Welcome to XP Inc.'s earnings conference call for the quarter ended on December 31, 2020.

I am André Martins, investor relations at XP Inc. First of all, we would like to thank you all for the interest in our call and participation and also make myself and the rest of the IR team available, [Inaudible] Natalia -- Natali, sorry, for any future touch points and follow-ups. The replay of this call will be available tomorrow on our IR website. Presenting today, we have Bruno Constantino, our partner and CFO; and also Thiago Maffra, our partner and CTO.

After the presentation, we'll be available for the Q&A session. And you just need to raise your hand on the Zoom tool for us to unmute you for your question, or you can do like Otávio Tanganelli, for example, and send a question directly through the Zoom chat. Regarding legal disclaimers, I kindly ask you to refer to the Slide 2 of our presentation. Certain statements in this presentation and in the Q&A session may relate to future events and expectations and therefore constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Information concerning factors that cause actual results to differ from forward-looking statements can be found in our reports filed with the SEC and also in our website on the SEC filings section. Now I'll turn to Bruno, who will deliver our initial remarks. Thank you very much again.

Bruno Constantino -- Partner and Chief Financial Officer

Thanks, André, Maffra. thank you very much for joining us one more time in this call. And good afternoon, everyone, and thank you all for attending our results call and a very special one for us. It's our first year as a listed company.

So on Slide 5, I will highlight the main takeaways from 2020, which was, as you all know, a very challenging year for all of us, where resilience and adaptation were key elements. We understand it would be a waste to go through the pandemic and not learn from it. We kept thinking about what we could learn from the pandemic -- to become a better company and improve our business model going forward. And now I would like to share some key lessons we have taken from this pandemic.

So number one, XP from anywhere, a different way of working. If not for the pandemic, we would not know how predictive and functional we can be working from home. XP from anywhere brings a total new way of corporate working, going forward, delivering a very interesting equation, in our opinion. First, happier employees.

People can be closer to that they love, not going to the rush hours, wasting a lot of time in the traffic. And happier employees usually mean happier clients as well, and all of that based on a more productive company. Also, our talent pool has expanded immensely, and that's how Villa XP, as it's known, or Bioma XP was born because of the pandemic. Number two, ESG initiatives.

We have the obligation to set the example, we know that, to had a better world than we inherit. This was already a clear trend before the pandemic, but it accelerated when the pandemic hit, especially the poor. So XP decided to move forward, speed up several initiatives we already had in our road map, such as establishing a ESG board, starting Juntos Transformamos and Together for Amazonas, seeding some ESG funds in our platform and several others. This is a topic we are going to be focused on and expect to lead by example and contaminate others in a good way.

And number three, the digitalization acceleration. Our long-term plan has been anticipated due to how people embrace technology during the lockdowns. There was no other way around. So we already plan to deal with the whole financial life of our customers.

But we have decided to accelerate some initiatives, such as credit, credit card and digital bank accounts that we will talk more later. We have also delivered during last year our best historical numbers ever, thanks to what we believe to be our main competitive advantage, our culture, dream big, open-minded and entrepreneurial spirit. We are basically close to 4,000 obsessed people, in a good way, walking together, driven by the same and strong purpose to transform the financial markets and improve people's lives. And we believe this is a very powerful force pushing us along our journey.

Now before I explain our long-term strategy, I would like to share a quick video about our results and what last year represented to us. I hope it works. So André.

Andr Martins

Yeah. I also hope it works. So if the sound is not OK, if it's too loud, please let me know.[Commercial break]

Bruno Constantino -- Partner and Chief Financial Officer

I was on mute, sorry. OK. So this was our quick video, and now we move to the strategy session. So on Slide 7, we are going to talk about our long-term strategy to address, if not all, most of the Brazilian financial revenue pool.

As you can see on the left side, since 2016, we have grown our revenue by a CAGR of 60%, reaching the BRL 8.7 billion in 2020, but it is still irrelevant compared to the size of the total revenue pool in the system. The actual size of the revenue pool based on our internal estimates is close to BRL 800 billion. XP's participation in the revenue pool is less than 1.2%. And our strategy is to keep increasing the size of our TAM.

At the IPO time, back in December 2019, our addressable TAM was roughly BRL 70 billion or less than 10% of the total. As of last year, 2020, we increased our TAM to approximately BRL 125 billion or less than 20% of total. This year, 2021, especially with the credit card and debit card and also the digital bank accounts, our TAM expands to approximately BRL 180 billion or less than 25% of the total, less than one-fourth of the total. And this is more -- less than one-fourth of the total is more than 20 times our revenue in 2020.

We know that it will take time in order to address our revenue pool. But the long-term opportunity here, and that's what we want to emphasize, is massive. We believe that through technology and the acceleration of digitalization, we'll be able to speed up things in our ecosystem. This is why you keep hearing from me and other partners of the company repeating that we truly believe our journey is just beginning.

So now we move to Slide 8, where I will explain how XP will complement the client journey. As Guilherme said in his letter to shareholders, I don't know if you all had the opportunity to read it already, but connecting the dots and picking low-hanging fruits with a focus on profitability, execution and the experience of our clients, it's been our history. Since the beginning, we have been focused on the asset part of our clients' balance sheet, which is the most difficult market to penetrate investments. We have done it through education and a vision that investments should be democratized for everyone, independently of the client size.

Now we are going to address the liability part of our clients, step by step. As we have started with the asset part and have built this unique ecosystem throughout our history, we believe to have an important competitive advantage when addressing the liability part of our clients. We have an asset-light model when compared to the incumbent banks and a differentiated distribution capability when compared to other platforms, all together, should result in better prices and products to our clients. And this is a game changer.

Almost 80% of that revenue pool is related to credit, including in that number, credit card and all types of credit products. In the Brazilian markets, credit prices are still extremely high, probably one of the highest, if not the highest in the world. We do not believe that, for example, 12% month interest rates in a -- sustainable or a health product for the client in the long run. And that 12% or 13% or 14% is exactly what several players charge nowadays in their revolving credit card business.

How come -- can a client or person survive with an interest rates that will double your debts in just six months? And as I said, we believe to have an opportunity or an important competitive advantage here and we can use our profitability and scalability that will allow us to charge a reasonable and sustainable price for our clients. When we think about the liability part of our clients, we want to help them as we did with the asset part. Take our credit card as an example. We created the invest-back concept, mixing expenses with investments.

That was something. It's a cash back but with an important concept here: invest back. Talk about investments when you are expanding. That's new.

And our credit card, of course, there is no annual fee. And we're not talking only also, because I talked about the credit card that's for retail clients, but we are not talking only about retail clients here. We are also talking about corporate clients. When we say we're going to address the liability part of our clients, that includes our corporate clients as well.

And we believe our differentiated IFA network will be a powerful origination channel in our ecosystem and also anticipate the acquisition we made last year brings the technology to scale that origination and integrate with the capital markets. If we can help our clients, either retail or corporate, to better deal with the liability part of their balance sheet, probably they will increase the asset part over time. They're both interconnected, as I said. We believe we can help our clients to deal with their expenses the same way we have helped them to deal with their investments, using our education DNA and technology to do so.

Another important consideration is our intention to remain an asset-light business model. This doesn't mean we are going to become a balance sheet business. We are not. We -- the development, and that's important to say, the development of the Brazilian capital markets is interconnected with the development of our unique ecosystem.

When we talk about our ecosystem, to build it, we had to develop the Brazilian capital markets altogether. We can use some of our cash. We have planning to do so to seed some credit strategies here using our own balance sheet but only as a warehouse concept. That's going to be a teeny part.

And then we recycle the products and more products in the capital market, which is good for the development of the Brazilian capital markets. And we create this virtuous cycle that keeps going by itself. We also have two recent examples to share with you. One of it we have already done when we released our KPIs over the fourth quarter, the collateralized credit in the credit card business, that goes exactly -- those two products goes exactly in the direction I'm talking about to address the liability part of our clients.

Now before I go to the numbers, I would like to pass on to Maffra, so he can explain how our ecosystem can scale a product, cross-sell in our base and through technology, bring in new products really faster the markets task to get feedback, improve and keep evolving the client's experience. So Maffra, now it's with you.

Thiago Maffra -- Partner and Chief Technology Officer

Thank you, Bruno. Hello, everyone. Well, on this slide, we have two business line that didn't exist less than a year ago. Scaling a business line from this direction in such a short period of time, it was only possible because of our advanced tech platform.

As we recently reported, as Bruno mentioned, our collateralized credit portfolio has grown exponentially during 2020, attracting individuals and SMBs due to its low interest rates and friendly experience. Our credit model allows our book to be asset-light in terms of capital requirements, and we are confident that we can multiply this portfolio by several times on the next three to five years. Now I would like to spend more time on our XP Visa Infinite credit card, which will be available to our customer base in the next month. As Bruno mentioned, we truly believe this is an important step to build our financial ecosystem.

Our goal is to offer all the financial services, including digital account, payments, credit and become a one-stop shop for all banking service. This will expand our customer base and our ability to cross-sell other products, which will cut the less tie our clients have with the big banks. On the first two months of operation, our credit card has shown a penetration of almost 50, yes, five zero, percent of the eligible customer base. Our TPV in February has reached already BRL 110 million with one week more to go.

Remember that I just mentioned the official launch will be next month. So we not even released the product for the whole base. All these developments were made possible by our technology efforts and investments, and I will discuss a few tech milestones on the next slide. We have recently announced the successful implementation of Soma, our proprietary design system that will allow us to deliver technology improvements with more efficiency.

This ecosystem will serve all XP Inc. brands, and we expect to save about 60 minutes of work per employee each month and reduce up to 30% the time to market of new products. As we mentioned, we have many products on our road map and having a proprietary design system will give us much more faster time to market. I'm confident that XP is one of the top-tier technology companies around the world, and we are ready to support our business exponential growth with immense scale and excellence.

I will mention other remarkable achievements. First, the credit card itself, which took only three months for the first payment and six months until the first client to receive the card. Second. We just released our marketplace with about 25 stores, and we expect to go up to over 50 stores in the next month.

Despite being on a beta phase, our GMV will reach over BRL 1 million in February. Despite all the last less developments I just mentioned, be sure that we will keep investing all the energy and resource to improve and expand our financial ecosystem well beyond investments. Now we will turn back to Bruno.

Bruno Constantino -- Partner and Chief Financial Officer

Thank you, Maffra. So now we go to the KPI --

Andr Martins

Actually, we have another video before --

Bruno Constantino -- Partner and Chief Financial Officer

We have the Soma video. You're right. It's a short video.

Andr Martins

Yes. Just a quick one.

Bruno Constantino -- Partner and Chief Financial Officer

Quick one, yes.[Commercial break ]

OK. Now we go to the KPIs. So moving to the next slide, 12. You can see our -- we have already released that.

So our custody, BRL 660 billion as of December 2020, increase of 61% year over year. Active clients, 2.8 million almost, an increase of 63% year over year. And then we have our net inflow. One on the left, the real numbers and on the right, adjusted by the extraordinary outflows or inflows, which we had only in the first quarter and third quarter.

I think that's our known numbers. So nothing to say here. We can move to Slide 13. Yes.

On Slide 13, we have our total gross revenue growing 58% year over year, reaching the BRL 8.7 billion. When we compare to the BRL 5.5 billion of 2019, it's interesting to note that in 2020, basically, we added on top of the 2019 revenue the whole revenue we had on 2018, which was approximately BRL 3.2 billion. The main line pushing up the revenue is the retail business, contributing with 81% growth on a year basis and 92% in the fourth quarter. When we look at the breakdown, retail is, by far, the most relevant revenue line, representing almost three-fourth of our business; institutional, 12%.

Issuer services, it's interesting to highlight because this number, throughout the year, that's only on the fourth quarter, OK? The revenue breakdown here is only for the fourth quarter, not the entire year. Issuer services for the entire year has been close to 8%, so this means that it's picking up, and that talks a lot not only with our leadership that we got last year in fixed income and hybrids for the first time. And all of the deals that we take to the market are genuine deals, so we don't have a balance sheet business or private placement that go directly into our own asset management. All of those transactions are really capital markets transactions.

And we got No. 1 by ANBIMA in fixed income and hybrids and also the equity part. ECM is probably -- you have noticed with the deals that are going to the market, either IPOs or follow-ons, XP has taken a lead in several of them and participating as a global coordinator as well, and this is a business line that we believe is going to keep growing. And on top of that, we announced last year -- at the end of last year the acquisition of Riza Capital that came to complete and enhance our M&A team.

And now we have the whole suite of products in investment banking to offer our corporate clients. Moving to Slide 14. We talk about their retail revenue and take rate. Retail revenue, as I said, the main revenue line, pushing the growth upwards.

So total revenue grew 58% year over year. Retail revenue grew 71%, reaching 6.3 billion euro compared to BRL 3.7 billion one year ago. And the key growth drivers were equities and futures, financial products and fixed income. All the product lines, they worked really well in 2020.

When we look at the take rates, it's pretty much stable. The way we do the math for the take rates -- and that's a change. So you might notice one difference because it was 1.2%, 1.3%. Just to explain, we divide by the average AUC.

We used to divide by the beginning of period and end-of-period AUC. But when we talk about the last 12 months now, considering we have quarterly numbers released to the market, we are taking five data points, which we believe it's a better way to do the math. And then we take the average of the AUC considering all those data points in the middle of the way, not only beginning and end of period. And it's stable, but it's worth mentioning that on September last year, we decided to forfeit part of our revenue.

So that number is despite forfeiting part of our revenues online brokerage fees. Remember that we decided to zero the online brokerage fees at Rico level and reduced by 75% at XP level. So this gives a sense of how strong the growth in the retail business has been. Now moving to the next slide, that's a new slide we wanted to share with you because we get a lot of questions from investors about the net income from financial instruments.

When you look at our accounting financials, you have that revenue line that is growing a lot throughout the years. And that's true. That's the black bar representing the total in retail revenue. And the total -- I mean, the black bar -- I'm sorry.

The black bar is the retail revenue, and the blue one is the total net income from financial instruments. So what we want to show here is that this revenue line is recurrent by nature. 75% of net income from financial instruments is allocated in retail revenue. And that's because it comes from our retail client base in several different products, either equities, either fixed income and structured products and also other financial products related to equity as well.

And all of that together, as we keep growing our platform in terms of number of clients, in terms of AUC, it's our expectation that the net income from financial instruments is going to keep growing altogether. You can see by the percentage number, that is the total financial revenue as a percentage of total retail revenue, it's pretty much stable. So it's between 45% to 50% in our past. It doesn't mean it's going to continue like that going forward, but it's just to give a sense how recurrent that business is.

It's a client business. It's a flow business that we have because we have built this unique ecosystem in terms of secondary market trading in all different types of securities. Now moving to the expenses part, COGS and SG&A. In COGS, you can see that our growth was 68%.

So we had a compression here in terms of gross margin, from 68.7% in 2019 to 66.9% in 2020. And what explains that is basically the product mix impacts a lot. For example, in the fourth quarter of '20, we had a lot of offers coming to the market. Usually, the commission for IFAs is higher, and that has an impact -- a direct impact in COGS.

Also, the investment we have announced in our IFA network, we have been amortizing the investments, and that's going to keep in our COGS going forward. And also, the long-term incentive plan where we have IFAs with RSUs, we have allocated that expense, which is a noncash expense, but we have allocated as well in COGS, OK? When we go to the right side to look at our operating expenses, we went from BRL 1.8 billion in 2019 to BRL 2.6 billion in 2020, a 44% increase. And that's much less than what our revenue grew, so you can see it as a percentage of net revenue, the operating leverage playing a role there. So basically, year over year, as a percentage of net revenues, we reduced 330 basis points.

And when you compare quarter over quarter, it's even higher, most of it because of product mix as well and operating leverage that I will talk more on the next slide when we talk about our adjusted EBITDA. Our adjusted EBITDA and our adjusted EBITDA margin, it's a KPI -- the management already follows this number because it gives us a sense of how the operating numbers of the business really are going. And we decided to share that with the market as well, mostly because some investors were looking at our lower effective tax rate and the results of our net adjusted net income. And we decided to segregate what is operating, what is corporate structure, OK? So the adjusted EBITDA went from BRL 1.7 million -- and we only adjust by long-term incentive plans, OK? That's basically the only adjustment we have here.

So the BRL 1.7 billion from 2019 went up to almost BRL 3 billion, an increase of 74% year over year. The reasons we already explained, but it's important highlighting that all of that happened despite our investments in new businesses, as you know, the credits, the digital bank that is coming this year, the credit card and so forth and many others and also hiring approximately 50% additional people in 2020 compared to 2019. Despite all of that, which is 100% impacting our SG&A, we were able to show the operating leverage of our business. So that's what this margin going from 32.7% to 35.8% shows.

And of course, the 38.7 -- sorry, 35.8% in 2020 is far from our mature state because we are not -- we are a company that has an exponential growth, so it's natural to assume that we are going to keep reinvesting in the business as we keep growing our business. But it's important to say that we already see a marginal decrease benefiting from all the investments we have made in the last three years in technology in our company. So we are adding -- there are a lot of forces operating there, a lot of investments in new business, hiring a lot of people this year. We are going to hire maybe 1,000 people more.

We don't know yet for sure, but we are going to hire a lot of people, OK? But having said that, the slope of the curve has changed. So we can see already the benefits of our technology investments, and you're going to be able to follow that on a yearly basis or a quarterly basis, if you will, in our adjusted EBITDA margin as well. Now moving to the adjusted net income and the margin. We had BRL 2.3 billion of adjusted net income, a record.

Also in the quarter, we also had a record BRL 721 million adjusted net income, compared to BRL 417 million in the fourth quarter of '19, considering that performance fees in 2019 were higher than in 2020. When we look at the growth year over year, more than 100%, we are able to more than double our adjusted net income and expanding the margin considerably from 20.9% to 27.8% in 2020. And on the right side, what explains that growth in the margin is basically the growth of the business. Gross revenue is growing 58%.

The operating leverage playing a role, and you can see that by the adjusted EBITDA growing more than the revenue, 74%, increasing more than 300 basis points in margin. And our efficient corporate structure, especially after the IPO, that gave us a lower effective tax rate, especially the way our financials are released. Because, again, I have said that before, all the revenue that goes into XP, investing directly in Brazil, because it's done through funds, it's not that there is no tax. There is, 15% to 20% tax bracket.

But the way we recognize that in our financials, it's net of tax. So actually, the way I like to think is our revenue is higher than the one we release, and our tax is higher than the one we release. But because of the way the accounting is done, we release net of taxes, and that number goes straight to the bottom line, which means in our financials at 0% tax bracket, but is not the case. We pay, of course, from 15% to 20% tax bracket there.

And that explains the additional more than 300 basis points on top of the adjusted EBITDA margin growth to our adjusted net income margin. And before we go to the last topic, I would like to move to our last slide in this session. We decided to show this slide just to explain because, probably, looking at the numbers of the sell side, and we don't know the buy side, but this share-based compensation expense, I believe, it's worth explaining. Basically, what happened in the fourth quarter of 2020 was a one-time anticipation in the fourth quarter.

Nothing has changed related to the original plan of granting out of the 5% in four to five years going forward since the IPO. That has not changed. What has changed is that we anticipated a lot of the brands because of the reorg we have done in the controlling company, and we wanted to have our main shareholders aligned with the company for the long term with the right incentives there. So you should not expect at all what happened in 2020 to be repeated going forward.

And we made like a simple math here, looking at what we have, approximately 14 million shares granted already, which is 2.5%, or in other words, half of what we have approved before the IPO. And the other half should be granted in the next three to four years going forward, which means that the dilution of this grant, it's going to be between 0.6% and 0.8% maximum going forward. And again, that's a noncash expense, but we need to recognize, and none of the grants has been vested yet. And finally, before we go to the Q&A, last session.

Our -- we are revising our guidance. We have shown a much higher adjusted net margin than the guidance we had given at the IPO time. We have not considered at the IPO time the corporate structure that would -- that I just explained, which, basically, by itself, reduce a lot the effective tax rate. And also, we had not factored in our guidance at the IPO all these new businesses that we plan to enter throughout our journey.

So our new guidance now is long-term guidance, OK? That's not a quarterly guidance. It's from 24% to 30% of adjusted net margin. That will depend a lot -- it's not easy to forecast that because it will depend a lot where most part of the revenue is. So the mix where the revenue is.

We have companies, as I said, that goes from 15% to 45% tax bracket and some of the 15% to 20%, as I explained, it's shown as 0% tax bracket in our financials. So with that, I conclude our presentation and leave for Q&A.

Andr Martins

OK, Bruno. So we have quite a few people here on the line. I will allow Tito Labarta to ask us a question because I see that before the call he was already there.

Tito Labarta -- Goldman Sachs -- Analyst

André, Bruno, Thiago, can you hear me?

Bruno Constantino -- Partner and Chief Financial Officer

Yes, we can.

Tito Labarta -- Goldman Sachs -- Analyst

Great. A couple of questions. Maybe just first on the last point on the net margin guidance that you gave. What tax rates should we assume? Because the 15% to 20%, it was 9% in the quarter.

So maybe -- that's my first question and then I have another question.

Bruno Constantino -- Partner and Chief Financial Officer

OK. Yes, that's hard because, for example, let me give you one example, Tito. The 9% that you saw in the fourth quarter, if we have not the impact of the long-term incentive plan, it would be approximately 18%, OK? So the 9% is because when we increased, and we anticipated some grants, and we've shown the numbers of the fourth quarter, I think it was 200 and 180 in the fourth quarter in terms of share-based compensation expenses. That gives a tax shield.

The tax that you see, in other words, it gives you a tax shield. Basically, if we didn't have that, our effective tax rate would be higher. But in other words, the tax that we have there in our financials now, it's not what we pay. We -- because of the share-based compensation plan, we have this tax shield, but we pay more taxes than what is released in our financials.

It's a noncash win. And if those RSUs and PSUs become vested, then the tax is going to be due.

Tito Labarta -- Goldman Sachs -- Analyst

Right. OK. That makes sense, Bruno. I guess the question, as that normalizes, right, because you said you sort of -- it was a one-time sort of acceleration.

So as that normalizes, you should get back to between 15% to 20% tax rate? Or can it go above that, just to be clear?

Bruno Constantino -- Partner and Chief Financial Officer

It can. It can. It can go below 15% as well because that depends on the revenue breakdown. If a lot of the net income from financial instruments, we have a part of that that is done through XP because that's where the cash from the IPO, the follow-on we did, is placed, OK? If that part of the revenue is higher than other parts, then the effective tax rate should be lower.

If other parts of the business have a more relevant stake in the breakdown of the revenue, then the effective tax rate should be higher. So it fluctuates. That's why we gave a large guidance, going forward, because it's not easy to -- for example, credit card, if we scale the business really fast and then we have a lot of revenue there, that will bring down the effective -- it will bring up the effective tax rate and down the adjusted net margin. So it's not easy to forecast.

Tito Labarta -- Goldman Sachs -- Analyst

No, I understand. I can understand it's not easy for us, either. OK. So my second question, on the take rate, the revenue yield.

You showed in the slide that it was stable this year compared to last year. But in the quarter, it did come down a bit. So just to understand maybe some of the volatility on a quarterly basis. And I know this is also difficult to understand.

But just to get a sense of what happened, right? Is it just less trading because you had a lot of volatility earlier in the year, and that came down a bit. If you can give some color on sort of the quarterly movements we saw this year.

Bruno Constantino -- Partner and Chief Financial Officer

Sure. No, no. It was not that. I mean, the take rate came down on a quarterly basis marginally was, I think, 1.32% in the third quarter if you look the last 12 months.

Maybe you're taking only the quarter and multiplying by four. And if you take the last 12 months in the third quarter was around 1.32%, and it went down to 1.29%. And remember, in the fourth quarter, I think it should be even lower than 1.29% because we forfeit relevant part of our revenue. We zeroed the online brokerage fees in mid-September at Rico and in XP, we reduced by 75%.

So out the year, in the first nine months, we had that revenue. In the fourth quarter, we didn't. But we more than compensated that with other revenues in our ecosystem. And because of the growth and the appreciation of the custody in the fourth quarter, you have this math effect.

If you look at the revenue itself, not only the retail, I mean, quarter over quarter, it went from a little bit less than BRL 1.7 billion in the third quarter to almost BRL 1.85 billion in the fourth quarter. So the revenue for retail, it went up in the fourth quarter. The take rate, it went down a little bit because of -- mainly because of those two effects. We didn't have a revenue line that we had in the third quarter.

Brokerage -- online brokerage for Rico and reduced by 75% XP, and the growth of AUC, which increased the denominator and makes that number go down because of the market appreciation in the fourth quarter.

Tito Labarta -- Goldman Sachs -- Analyst

Right. OK. That makes sense. But I guess -- so going forward, if we just look at the quarterly take rate because of the elimination of the brokerage fees at Rico and Clear, is that more representative of what to expect going forward?

Bruno Constantino -- Partner and Chief Financial Officer

I would say. I would say. Again, depends on how the other business will perform because take the credit card as an example. Again, the credit card has no AUC attached to it.

It has a revenue, and it's basically retail revenue. So because of the credit card, retail revenue will increase, no way you see a patch, which means that only using that factor, take rates should go up. We're going to have other forces impacting the take rate. So usually, when the market appreciation is really high, take rate goes down a little bit.

When it's -- the market has a sell-off and it goes down, take rate goes up because our revenue doesn't have the volatility that the AUC might have because of market appreciation or depreciation. And that's the point. It's much more recurrent in several different aspects than, I believe, most people think. So take rates will vary, but the denominator plays an important role there.

Tito Labarta -- Goldman Sachs -- Analyst

Right. And just to clarify. The revenues from the credit card portfolio flow in through the retail revenues. Is that correct?

Bruno Constantino -- Partner and Chief Financial Officer

Yes, yes. The way -- the managerial income statement, we have those four lines in our revenues, either retail, institutional, issuer services or digital content. And then it's based by the client profile, most of it. And if it's an institutional client, either corporate or institutional is there.

If it's more retail-originated revenue, it goes into retail.

Andr Martins

That was Tito from Goldman Sachs. Now we will allow Mario Pierry from Bank of America Merrill Lynch.

Mario Pierry -- Bank of America Merrill Lynch -- Analyst

Congratulations on the results. Let me ask you two questions, Bruno, as well. The first one, we saw, right, you added 1,600 IFAs this quarter. I think this is a 25% increase in your IFA base.

But when we look at the net client adds of 132,000, this seems to be weak relative to what you've been doing. So when should we expect this big increase in IFAs to start reflecting in number of clients and AUC?And then my second question is related to your credit portfolio. There was a big jump in your loan book. It seems like you're growing this very well.

I was just trying to get a little bit of more color on what is the ROA of this business, right? You showed that you had zero NPLS. Loan book is growing very aggressively. So just trying to understand a little bit better about the profitability of the loan book.

Bruno Constantino -- Partner and Chief Financial Officer

OK. Yes, Mario, regarding the IFA question, there is a time to make that happen, what you mentioned, in the fourth quarter, basically because of the positive scenario we have for the IFA profession in Brazil, especially with the banks closing the branch. So we believe this is going to stay for a longer term, but we believe the numbers will come. I think that when we have the full experience in terms of banking services and products, which will happen this year with the digital bank accounts, the credit card that, as Maffra mentioned, we are going to launch next month, and we are ready show those numbers that Maffra mentioned this year.

TPV this year -- I'm sorry, this month, the TPV, north BRL 110 million, and the month is not over yet and we have not even started for real. So all of that, when we have all that in our ecosystem, the dream that we have to have 100% of share of wallet of our clients and basically double our company with our existing clients, I think it will be a reality, not to have 100% necessarily, but to be able to have and cut completely the link with other banks in our existing clients. So that's what I believe to be the trigger. But again, it's really short period because that happened in the fourth quarter.

And then it depends on the market, it depends on other circumstances, to keep bringing more clients in the custody of those clients. Regarding the credit part and the ROA, I mean, you mentioned the growth was really very high growth that we had, especially in the second semester. Just bear in mind, as we put in our press release, that, in December, we had a benefit to increase that credit portfolio because of the tax exempt for IOF in credit in the last two weeks of December, if I'm not mistaken. So that helped the December number.

The credit origination in December was really high. And we -- I mean, when we look forward, we see a great market there. And why is that? Number one, because it's an under-penetrated market. People that invest usually are sub-leverage in Brazil a lot, especially when you compare to other countries.

People don't have any type of debt. And then when you add on top of that, the fact that the macro environment with interest rates is still at single digits, it's a favorable one for people to seek for higher returns and longer-duration products. And then number three, those products are like alternatives and other type of products, where in Brazil, the allocation is really nonrelevant at all. So you combine those three things, you have a great potential to increase and create this collateralized credit market for many more people than only high net worth individuals, which was the history back then.

So we're positive about the growth for our credit -- collateralized credit book. But just remember that December was really high so -- because of the tax exempt. Your other question about the ROA. We are -- I mean, the ROA is not the way we look at it.

I'm going to answer you given the way we look at it. And I'm not sure you're going to be able to model that, but we're going to try to help later on. The way we look at it, we have a lot of credit as a service. What is that? Credit as a service is basically looking at our custody from our clients in our platform and thinking about products that are -- products that those clients would like to buy, and it makes a lot of sense, not only from a suitability perspective but also from an allocation perspective.

As I said, a lot of clients are not allocated in several different products as alternatives, for example, and we can give the solution for the clients at a very reasonable cost for the client. So basically, we tell them because most clients, they don't want to buy some product because they don't want to redeem from other investments they have. And we give that option, and we do it through technology. It's very easy to get this credit in our apps, and it makes a lot of sense because it's under-penetrated, because the client doesn't have the allocation, and that's what we've been doing.

We look at the whole picture there, we have other revenues embedded on that because they are related. If you buy a long-term fund, you're going to have to pay for the management fee of those funds, and we are going to get the distribution of that management fee over time. So we use this concept of credit as a service. And why? Because collateral credit demands little capital in terms of Basel Index and everything else, our -- what I can tell you is that our return on equity on that product is really high.

And by really high, it's high double digits, depending on the products, OK? So that's the way we look at the collateralized credits in our business. But we do, of course, all the calculation to know the price. But remember that we are -- we have a low-cost of funding as well, and we can distribute those products because we do it for several other players in the market, so that is something that we have experienced because the bank is something new. We can raise capital, either issuing CD or structured notes in the market really fast.

Mario Pierry -- Bank of America Merrill Lynch -- Analyst

OK. If I can just follow up. And again, the growth is fantastic. You are at 0.6% of AUC.

What do you think this number should be? And not looking for a short term, like -- but what do you think you can get to in the next five years?

Bruno Constantino -- Partner and Chief Financial Officer

We looked at other markets to see it. We went to the United States. That number stays between 2-to-something percent. It depends.

But in Brazil, I mean, we said like 3%, 5% -- we don't know -- I mean, we don't know because it's a brand-new product. What we know is that Brazilians, generally speaking, are really -- Brazilians that have money to invest are really underleveraged. We do not have the culture to leverage our investments or take bets and do whatever. Most people that do that are the people that don't have the asset part to do it.

If you take the -- just one example. If you think about the real estate market, United States is what, 20% equity, 80% debt. In Brazil, it's 5% equity, I would guess, 95% -- I mean, 95% equity and 5% debt. So Brazilians with assets, they are underleveraged by nature.

And then I don't know what the number in terms of the AUC will be. But we think 0.6% is too little. So we expect a growth there.

Andr Martins

Sorry. I was on mute. Thank you, Mario. We will now answer Mr.

Marcelo Telles from Credit Suisse. Telles, I think you're muted.

Marcelo Telles -- Credit Suisse -- Analyst

Can you hear me now?

Andr Martins

Yes. OK.

Marcelo Telles -- Credit Suisse -- Analyst

OK. Congrats on the results. I have a couple of questions. Some of my main questions have been answered earlier, but can you comment a little bit how do you see competition from other platforms? Of course, you took a big step to try to retain your most important IFAs.

So where are we -- where are you in that respect? I mean, do you see the need that -- to engage in other type of retention agreements going forward? Or you think that perhaps the environment, the competitive environment has already started to normalize a little bit? So that's the first question. And the second question, can you talk a little bit about the growth in net inflows? You had BRL 36 billion in net inflows in the quarter. Do you see room for that growth to accelerate into 2021, 2022, particularly with increase -- considering the increase you had in your IFA network more recently?

Bruno Constantino -- Partner and Chief Financial Officer

Sure, Marcelo. Thank you for the questions. Regarding competition. I mean, it's going to be intense for the future because it's a massive opportunity, as we presented in our long-term strategy chart.

It's almost BRL 800 billion revenue pool. And a lot of players -- some of the players are trying not to lose that pool. Others are trying to gain that pool. And is part of the game.

We have built this company from scratch with nothing competing with the banks, and we think it's a good thing. Competition is a good thing for the client, especially. So we're going to keep focus on the client, give the best experience, product, services, lowest price, and that's it. That's going to be -- it has to be the focus here.

But we -- I mean, in terms of the IFA competition, it has been more intense in the past. But again, it's a natural thing, at least in my mind, when I think what we have built. We -- XP has developed this profession throughout the years. So we are, by far, No.

1. You look at what we onboarded in the fourth quarter, the 1,500 IFAs approximately, that's 2.5 -- probably 2.5 times our closest competitor, just what we did in the fourth quarter. So again, it's natural that other platforms that want to build distribution like that comes to our IFA network and try to shop here. What we have to do is to offer our IFAs better service, better tools.

They can be more productive. That we can increase the probability of them as entrepreneurs to be successful. And that I can tell you -- I mean that I am pretty confident we do that. And if you look, Maffra can complete here if he wants, about other developments of the hub, of our platform for the IFAs when we think we're -- the IFA is a client for us that we treat the same way we treat other clients.

So we are totally focused on them to making them succeed side by side with us as we want to do with our clients as well. But again, competition -- I don't see competition creating a price pressure, if that's your concern. I don't know if that's the concern, but I don't see competition creating a price pressure on us. I see it creating a price pressure on the banks because we still see a lot of fixed income funds inside the asset management of the banks charging 100 basis points, 150, more than 200, 250.

It's still there is a fund charging debt management fee to buy government bonds. It doesn't make any sense, and I think that's where the price pressure is. We are market leaders. So for example, what we did with Rico and XP in the equity market is because we wanted to.

Because we looked on our mentality of giving back to the client and increasing that connection, so the client can give us back through time, increase the loyalty of the client. We are going to have more products. Now that we have all the technology in our company to keep adding products, we are going to do it so throughout the journey. And it's important for us to show our clients that whenever possible, we are going to keep giving back.

And that's what we did with Rico and with XP. And then the other competitors in the equity market, they follow us. I saw advisors -- some materials exactly like ours, but it's part of the competition gain. You mentioned the net new money, the BRL 36 billion, BRL 37 billion net new money in the fourth quarter.

I mean, I think that the answer to see that number growing faster. It's about the experience, the whole experience of the client. So the digital bank, I believe, it's going to be important. We will have to see.

But as I keep saying, the BRL 10 billion or BRL 15 billion per month, that's net new money coming into our platform. It's -- I mean, it's a number that it's going to stay here for many, many years, in our belief because of the transformation is going on, and it takes time. It takes time to convince people to open a new account, to bring the money. So I see it's natural.

It's hard to say it's gone. Because of the IFAs that we onboarded, this number is going to grow up really high. We don't know for sure the timing in the short term. But we know or we have a very strong confidence in the long term that we're going to get that wallet and that money because it makes sense.

It makes sense with all that we are doing in providing to our clients, we believe it makes sense for our clients to bring more money into our platform and other clients to join us and leave the banks. And that's what we've been doing, and we're going to keep doing.

Thiago Maffra -- Partner and Chief Technology Officer

And just to add to Bruno's point and answering another question that's on the chat. We really believe that once we comp te our digital account, the date, it's by, I would say, by the end of the first semester, and we truly believe that we will be able to bring more accounts, we'll be able to bring more share of wallet, and the stickiness to our platform we will increase. So we believe that hedging new products, digital account, credit and the other products will bring more money, will increase the stickiness, will bring more clients. So it's a virtual cycle.

Marcelo Telles -- Credit Suisse -- Analyst

[Foreign language]

Thiago Maffra -- Partner and Chief Technology Officer

OK. I can take this one, Bruno.

Bruno Constantino -- Partner and Chief Financial Officer

Go ahead.

Marcelo Telles -- Credit Suisse -- Analyst

Yes. I asked in Portuguese, and I apologize. I should have asked in English. So I apologize for that.

Thiago Maffra -- Partner and Chief Technology Officer

For the English guys here, the question was about the credit card, what we can expect like in spending, what we can expect like in contribution margin, that was the question. So to answer your question. When I mentioned 50% of penetration on the eligible clients, it's only for the clients that are already eligible. That's a small part of the whole clients of XP because the launch is next month.

So we not even released the product when we had -- and we had, so far, this month, BRL 110 million. So you can expect this number to increase really fast on the next months. And my point about the 50% is to show our power to cross-sell products on our base. That was my point because we are not doing marketing.

We are not like proactive selling the card, and the clients are coming. Once we release the card, for example, for any client, 50% of them order the card. That was my pointAbout your -- your other question was about spending. Of course, you can imagine that we -- most of our clients, they are like high net worth clients when compared to Brazil.

These numbers are public. So you can see that the average spend for like high end credit cards in Brazil, they are like between BRL 7,000 to BRL 10,000. So I would say that --

Marcelo Telles -- Credit Suisse -- Analyst

Per month?

Thiago Maffra -- Partner and Chief Technology Officer

Per month, yes. So I would say that's the range for the clients that we have today, OK?

Marcelo Telles -- Credit Suisse -- Analyst

OK. And just on my first question regarding the economics of the credit business. Is 200 basis points, 250 basis points a reasonable ROA assumption for --

Bruno Constantino -- Partner and Chief Financial Officer

Let me give that answer, Marcelo. Yes, it's a reasonable assumption. Yes, it can be lower than that because, as I said, we look at credit as a service, OK? So sometimes, we -- I mean, if you look only at that part of the business, you are going to miss the other parts that is going to be part of the revenue because of the credit as a service, OK? And it's hard to model that. We know.

And we -- I mean it's hard to open exactly how we do our math here. But what I can tell you is that your assumption of around 200 basis points only in terms of the credit, it's not wrong, OK? But what I'm trying to say is that there is more than that. And you're going to see that. Where are you going to see that? In our retail revenue.

It's going to appear in our take rate. It's going to appear there because we do have this credit as a service, and we look at the return on equity that everything we are doing, considering all the products that the credit is pushing and helping to increase the penetration and so forth as well.

Andr Martins

Thank you, Telles. Have a good one. We just have two more questions, Bruno. I think that they will be --

Bruno Constantino -- Partner and Chief Financial Officer

Let me -- before -- sorry. Before -- Telles asked about the numbers of the credit card. Again, we cannot open the base points specifically. But what we can tell is we -- of course, we have our business plan, OK? And we have not, as Maffra said, launched yet the credit card, but it's with a select a group of clients.

It's working on beta phase, and we have already this more than BRL 110 million of TPV this month. Our business plan, so far, it's more than one year advanced in terms of what we had when we decided to move forward. And I think that has to do with two facts. Number one is the number Maffra mentioned, the 50% penetration.

We were much more conservative in terms of the adoption of the credit card. Because usually, credit card takes time people to adopt, to keep moving and so forth, for the type of the clients that we are addressing because the type of the clients we are addressing, probably they have two, three credit cards already, OK? Number two is the spending. We were -- I mean we know our client spends a lot more than the average. So we need much -- I mean many -- much less, I would say, clients to make the same TPV and -- but we also were surprised by it so far.

But we are just at the beginning. So it's hard for us to give any kind of guidance here. I know it's going to be important for all of you to model the business and so forth. We are going to work on something, how to help.

But what I can tell is that it's much ahead of the business plan, and we are optimistic about the stickiness of the card, especially linked to our brand, and let's see how it plays.

Andr Martins

OK. Next one, Jorge Kuri sent us a question, kindly sent us a question here at the Q&A. And that's an interesting one. He's asking about what do you feel, Bruno, about -- I mean, recent market volatility, maybe interest rates will go up eventually.

What do you think this could bring to XP's business? I mean, it could hurt structurally the business to have high interest rates or there's a level which is healthy because we make more money, and we still have compelling investment alternatives for clients.

Bruno Constantino -- Partner and Chief Financial Officer

OK. Thank you, Jorge, for the question. I will start answering looking at our history. We have grown through very high interest rate environment in our history.

And here we are. So that's number one. And the reason for that is because we don't need the market to grow, to keep growing. We just need to convince the clients from the incumbent banks to migrate into our platform, and we believe we have all the tools to do so, and now even more as we keep adding new products and enhance the experience of our clients.

So that's number one. Number two, in the short term, when there is volatility or interest rates going up, that is a positive in the short term because of fixed income, because of floating revenue, because of volatility itself. Remember that we have several books -- flow books in our business, and we are always hedged for volatility in tail risks. So either the positive or the negative one.

In our history as well, when we had like a lot of market volatility, like in Brazil in 2017, that May 17, the tema day, we made money. We -- when you look at the pandemic, right after Carnival in February last year, same thing. Yesterday, same thing with the Petrobras case and so forth. So we are always in the short term hedged for tail risks, and volatility in the short term is something positive.

And as I said, interest rates going up. Considering the size of our business now, our floating revenue would go up substantially, depending on the growth of interest rates. And fixed income also would be much more attractive for investors to trade and to allocate, and we could make money there as well. Thinking about the longer term, of course, to have Brazil on track doing the reforms, keep moving and growing is what we want as Brazilians, as a company that wants to -- the best for the country, that want to generate wealth in Brazil and so forth.

So -- and for our business in the longer term, I also believe it's better to have Brazil developing itself. The Brazilian capital markets is developing a lot, so I don't think interest rates -- interest rates needs to go up from 2%. We all know that. It will this year.

We don't know by how much and how fast. But again, if we do not come back to the above 15% interest rate that we had in our past, I think that doesn't change the picture at all. In considering our size nowadays, it might even, in terms of the results in the numbers, it might even be bad in that perspective.

Andr Martins

OK. Thank you, Jorge Kuri, Mr. Kuri from Morgan Stanley. The last one would be from Carlos Gomez from HSBC.

He's asking you to comment on an expected time line for the conclusion of the transaction with Itaú.

Bruno Constantino -- Partner and Chief Financial Officer

OK. That's -- Carlos, thank you, but that's hard to say because it's pending the creation of newco, the XPart, the way Itaú laid the company. It's pending approval by fed and Brazilian Central Bank. It could come at any time.

We personally -- I mean, I personally don't see a reason why not. But it depends on fed and Brazilian Central Bank. And only after that, this newco is going to be created, and we can move forward with the merger proposal that we have agreed with Itaú's controlling shareholders to do so. I think it's reasonable to estimate that we are going to have everything concluded in the first semester this year.

But again, it's not a guarantee because I cannot speak for fed or Central Bank. What I can tell you is that we are ready. As soon as we have this creation of newco, we will have to file in SEC some forms and then proposed the merge, have the general meeting of XP Inc, Itaú, now XP Part actually, the new company created will have its own general meeting to approve the merger. And we move from there, from there.

That's the time, as soon as possible.

Andr Martins

Great, Bruno. So we are running out of time. We have some other questions here, but I kindly ask you to get in contact with us, the IR team. We will be thrilled to talk to you about these results and especially about the long-term opportunities of XP that Bruno described and Maffra described so well.

Thank you very much for your participation. Thank you very much for all your partnership during this intense year of a public company. Bruno, would you like to conclude as well? Thank you, everyone.

Bruno Constantino -- Partner and Chief Financial Officer

No, André. No. I just would like to thank you all for participating here and supporting us and say that it was a strange year, last year, a different year for all of us, but also an important year in our life as a company because first year as a listed company, we are still learning and improving there. And most important, I think we tested our company in a way we had never tested before.

And the results, they are what you see and makes me personally even more confident that our journey looking into the future, it's going to be something else. And the main attribute or competitive advantages, as Guilherme said in his letter, is our culture. And I think when you have crisis like the one we did last year is when the culture of the company is really tested. And I think our response, our employees', partners' response to the challenge were really impressive.

So thank you all. And anything you need, we are here to answer and help. Thank you.

Andr Martins

Thank you, Bruno. Thank you, Maffra. Everyone, have a great --

Bruno Constantino -- Partner and Chief Financial Officer

[Inaudible] everyone. Thank you, Natali. Bye-bye.

Thiago Maffra -- Partner and Chief Technology Officer


Duration: 76 minutes

Call participants:

Andr Martins

Bruno Constantino -- Partner and Chief Financial Officer

Thiago Maffra -- Partner and Chief Technology Officer

Tito Labarta -- Goldman Sachs -- Analyst

Mario Pierry -- Bank of America Merrill Lynch -- Analyst

Marcelo Telles -- Credit Suisse -- Analyst

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