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XP Inc. (XP) Q3 2021 Earnings Call Transcript

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XP earnings call for the period ending September 30, 2021.

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XP Inc. (XP -1.97%)
Q3 2021 Earnings Call
Nov 03, 2021, 5:00 p.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Andre Martins

Hello, everyone. Good afternoon. Good evening, everyone.

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Thiago Maffra -- Chief Executive Officer

Go ahead, Andrea. I was just going to let people know what's going on.

Andre Martins

Oh, sorry. Welcome, everyone, to our earnings call. We're just solving some technical issues, and we should begin in a few minutes. Thank you very much for your comprehension.

[Technical difficulty]So let's just begin. Good evening, everyone. I am Andre Martins, the head of investor relations here at XP Inc. And on behalf of the company, I would like to thank you very much for your interest in our webinar.

So welcome to XP Inc.'s third quarter of 2021 earnings call. Today, we have with us Thiago Maffra, our CEO; and Bruno Constantino dos Santos, our CFO; and also the IR team, myself, Antonio Maren and Marina Montemur. We will all be available for the Q&A right after the presentation. Most of you are already used to, you can raise your hand on the Zoom tool to ask your questions.

Because of the BDR and all the spin-off story that you know about, we have now the simultaneous translation to Portuguese. So you just have to click on the globe icon and you can switch to Portuguese, if that's better for you. So before we begin our presentation, please refer to our legal disclaimer on Page 2 that page, we clarify forward-looking statements and their definitions. The document is explaining why forward-looking statements might differ from actual results can be found in our SEC filings section of our website.

So now to begin the remarks and the presentation of the third quarter, please, Bruno the floor is yours.

Bruno dos Santos -- Chief Financial Officer

Well, first of all, let me apologize for my delay here. I was having problems getting into Zoom. So thank you for the patience, and thank you for attending our call one more time. Are we going to project the presentation, Andre? Yes.

I'm going to try to be quick here in the slides. So we can go as fast as we can to Q&A, I believe, is more interesting. So the first slide, we can move to the first slide. Yes, the opening remarks is -- I don't know if you had time to read Thiago Maffra's letter.

But I think it's worth explaining all the investments we have been doing recently in our company and how we organize the big pockets of investments we focus. So if we can, yes. OK. So that's how we look and separate the investments we have been doing in the company.

No.1, it's what we call the foundations. The foundations are mainly investments in technology, people, the headcount growth that we have had. Most of it is in tech people. And this is really important because it will allow our scalability and also our exponential growth going forward.

The second pocket is what we call protect and expand our core business. And our core business has been since the foundation of the company investments. So to protect and expand the core means innovating, bringing new products to the market, creating markets that don't exist yet, reinforcing our ecosystem investing a lot in the capital markets and also in our distribution channels, either through our IFA network or our direct channels. And all of that controlling the costs so we can pass on to our clients this profitability in the core business.

And third, the last one is build the future, that's where all the new businesses, we have been investing a lot recently are. So banking and by banking is the transactional part, the credit card, credit insurance and also SMB. So that's how we segregate and it's important to share with all of you because you're going to see in our numbers the investments we've been doing, and we are going to continue to do in the next quarters. So moving to the highlights of the third quarter this year.

We picked three main highlights for this quarter. No.1, again, the results we had our record results one more time. It's our all-time high gross revenue, quarterly gross revenue, BRL 3.4 billion, and also our adjusted net income more than BRL one billion, one more time. Another point worth highlighting here is the gross margin, that's the highest gross margin we have had since the IPO, 71.8%.

Despite all the investments we have been doing in our IFA network, which, as you know, impacts the COGS and by consequence, the gross margin. Another point is the net new mining. The adjusted net new mining above BRL 15 billion per month is an important pace in our view. Because as you remember, I kept mentioning the range between EUR 10 billion to EUR 15 billion of net new money per month.

And now it's the second quarter that we consistently deliver numbers above EUR 15 billion per month. The second point to improve the governance that has improved after the merger with export. We more than welcome. I don't know how many shareholders, new shareholders we have here in our third quarter conference, but we would like, again, more than welcome all of you to have 500,000 new individuals as investors of our company is something that makes us really proud.

And what I can tell you as Maffra has said in his letter, here in XP, this is our life. We have no plan B. You can count on us that we're going to be working really hard to make this company even greater going forward. And the last one, some product highlights.

We hit the record pension funds inflows in this quarter. You can see that in our balance sheet, more than $5 billion in our own insurance company, those are the retirement funds, pension fund business. And what is interesting about in my view is that this business has only two years. We started this company back in 2019.

If you fast forward two years, we have grown a lot but we only have 2.5% of the total AUC of this market, which is more than BRL 1 trillion of AUC. So we have approximately BRL 26 billion of AUC, 2.5%, but we are able to get more than 50% of the net inflows of this business. It's a business that's going to keep growing. It's a very recurrent business, important one.

It reduces the churn a lot as well. It increases the cross sell in our platform, and it's a business we are really optimistic about. But we are very small yet. And the other point is the credit card.

The TPV of BRL 3.3 billion in this quarter, more than BRL 1 billion per month. And with a base of clients, that is not big. It's less than 200,000 clients so far using our credit card. What does that tell us that there is a benefit of attracting the right client in your ecosystem with not many clients, you can make great numbers, and we are very optimistic as well about our credit card business going forward.

So those are the highlights of the quarter. And now I think we can jump straight to the numbers, KPIs and financials and then we go to Q&A. You have seen these KPIs, except for the financials. When we look at our core investments, total AUC [ BRL 789 billion ] at the end of September.

The reduction compared to the second quarter totally driven by market to market. We had a positive adjusted net inflows of BRL 47 billion in the quarter, a very healthy number in our view. And also, we kept the growth of number of clients reaching the mark of BRL 3.3 million at the end of the quarter in our three brands. When we look at the banking business, still very strong growth, BRL 8.6 billion of credit portfolio.

The credit card business is not included in that number. Our credit business, if not all, most of it is collateralized, so any concern regarding delinquent rate, we don't have it. As you can see, the NPL ratio so far is 0%, and we intend to keep like that going forward. And going to the credit card business, the BRL 3.3 billion I already talked about is a 55% growth quarter over quarter.

Our financials, as I said, record number in the gross revenue and in the adjusted net income and our adjusted EBITDA 1.2 billion, a 61% growth year over year. And with the NPS hitting the mark of [ 77 ], a very strong number and a very important KPI for XP as you know. Talking about the revenue, the total revenue, the growth 50% year over year, hitting the mark of BRL 3.37 billion. The main driver for that growth, as usual, has been the retail business contributing with 80% of that growth and then the Issuer Services business contributing with 10% that growth.

Retail representing more than three-fourths of our total revenue. And I'm going to talk about in detail about the retail revenue in the next slide. Retail growing more than the average of the company. As usual, 53% year over year, and that's the interesting part in my view.

We hear sometimes concerns about the macro environment and interest rates going up in Brazil. And our business is a business that has a portfolio effect and a very unique ecosystem. Depending on the macro environment, what happens with our business is that the mix of product and this portfolio effect changed. But at the end of the day, if you look throughout our history, we have gone through different macro cycles in Brazil throughout our history, we are a company with more than 20 years of existence.

And no matter what the macro environment has been, XP's results have been strong. The main reason for that is, as I said, this unique model of a portfolio effect and ecosystem together with a still highly concentrated financial market in a few banks. So the growth potential in my view is intact. And what you're going to see is going to be a change in mix.

Let me give you a few examples, so you can put that in numbers. Going from only talking about the retail revenue that is, as I said, three-fourths of our total revenue. When you look at the first quarter of this year, OK, 2021, fixed income plus financial products represented around 37% of our total retail revenue. two quarters later, fixed income plus financial products jumped from 37% to more than 44% of the total revenue.

And equities that represented approximately equity features approximately one-third in the first quarter decreased to one-fourth in the third quarter. Again, some products losing relevance to other products that are gaining relevance, and that's the portfolio effect base. Additional to that, when we have a higher interest rate, Also benefit from two other revenue sources. One, floating that goes into retail; and two, the return in our own drives financial assets that we have, our propriety carry cash.

Doing the same math comparing first quarter this year to third quarter this year, when we look at our interest on our gross cash in the first quarter represented less than 2% of the total revenue of the company, OK? Now two quarters later, this number jumped to 3.5%. Of course, interest rates are higher. When we go into the folding revenue inside the retail revenue, in the first quarter, it was around 4% of total retail revenue. In the third quarter, this number doubled to almost 8% of the retail revenue in the third quarter.

So I'm just sharing some numbers with all of you so you can understand what this portfolio effect means in terms of revenue growth going forward. And also on the right side of the chart, when we look at the take rate for retail revenue, it's interesting to note by confidence that it's been stable since the IPO. I remember at the IPO time, a lot of analysts and also buy sign investors question me the take rate and thinking about price compression going forward and the take rate should go down. And in the middle of this period, we have reduced our prices.

We have, as you know, brokerage online commissions at Rico, we have reduced by 75% our prices at XP Brand. In spite all of that, take rate is stable. And why is that? We have a lot of moving parts affecting the take rate, as you know, but we are also adding new products and business and increasing the LTV of our clients and also the engagement and the loyalty of our clients with our brand. To give you one example here, let's take the banking revenue.

And by banking, we're talking about credit card, we are talking about credit and FX basically. So the banking business, which is totally new for XP, represented in the first quarter this year, roughly 1.5%, 1.7% of our total revenue. In the third quarter, more than 3% already on a relative basis on absolute terms, growing much faster. And this business in the future can represent much more of our revenue mix in the company.

So that's one example of this innovation and building the future effort that we are going through. And that is done by a lot of investments in our foundations, protect and expand the core, as I mentioned earlier. Now moving to the next slide. we go to our adjusted EBITDA and margin.

And here, you can see the investment. Where can you see the investment, headcount, headcount, that's the main investments. We have grown our headcount by 64% year over year. It's a lot, but it's necessary.

It's as if XP, we have a mature major business in investments, what we call our business so that we keep innovating, and this business has a huge operating leverage. On the other side, we have like start-ups inside XP that we are building from scratch, a bank, we started from scratch a credit card business that in six months, we're able to make a purchase using our fiscal credit card. As I start and then six months later, we launched the product to our customers. So this businesses.

They are like start-ups. They're being built by scratch. And of course, we are going to keep growing the headcount, so we can keep delivering more features and evolving those products and those business as we learn from the clients and keep moving forward. And that's what explains this increase of SG&A compared to the net revenue, growing from 31.9% to 35.2% year over year.

There is one other effect that is a tough comp because in the third quarter of last year, we had operating revenues in our SG&A that reduced the amount of the SG&A. And that operating revenues, they are not present anymore. They are like one-offs. If you take that out of the equation, basically, even with all those investments in this increase in headcount, this number, 31.9% should be higher than 36%.

That's why in our earnings release, we mentioned that our EBITDA margin going to the right side of the chart, 36.9%, adjusted EBITDA margin, which is below 40% level is not a normal margin for a company like ours. So this is temporary in our view. It's going to stay probably below 40% in the next quarters. And why is that? Because we're still investing a lot in those new businesses.

We believe these investments are going to peak at the fourth quarter next year, and then we are going to start seeing these margins going up again, getting all the benefits of the revenue that those new businesses are going to bring to the company. I don't know if you remember last quarter, Maffra commented about the expansion of the addressable market. I have also talked a lot about it. So today, we are addressing between $100 billion to BRL 120 billion of addressable market in the financial industry.

Financial industry revenue grew of more than BRL 800 billion. By the end of 2024, we are going to be addressing four times what we address today. So we are going to be addressing BRL 350 million to BRL 400 billion of annual revenue to not considering that this revenue pool can grow from today until the end of 2024. So that's what just fits the investments we have been doing in the content.

Now next slide, before we go to the adjusted net income, we put here the mass to reach what we call our normalized effect tax rate. I know this is also a point of discussion and confusion sometimes with investors. So we thought it would be helpful to share with all of these. So what we have here.

We have the earnings before tax, as you can see in our financials, then the income tax reported in the financials. Then we add the withholding tax that we have in our structure, but that does not go into our revenue, which in the first quarter was BRL 105 million of withholding tax. Those are tax that are going to be paid, OK? But they do not go through our financials. In the second quarter, we had the BRL 126 million, and this quarter, BRL 179 million of withholding tax.

So you add back that withholding tax to the earnings before tax, and then you add the tax because that's a tack together with the income tax and you reach the normalized effect tax rate that you can see it's around 14% to 17%, 18%. This is the number that we have been talking about between 15% to 20%. This number can be vital depending on the product mix that we have. But that's what explains the lower effective tax rate that you see in our financials reported officially.

And also, we have added in our earnings release, all those numbers in our managerial income statement, so it can be easier for you to see the numbers as we see it and then forecast the way you would like. And now we hit our adjusted net income and margin. 82% growth of adjusted net income, more than BRL one billion, again with 32.8% adjusted net margin, explained again by retail revenue, the operating average, impacted by the growth of the SG&A and the lower effective tax rate. So with that, I think I end here, right? And we go straight to the can.

So as I said, I try to be brief so we can have the Q&A session. Thank you very much. And Andre, you're going to be the one during the Q&A

Andre Martins

Yes. Perfect. [Operator instructions] So the first question comes from Jorge Kuri from Morgan Stanley.

Jorge Kuri -- Morgan Stanley -- Analyst

Yes. Hi, everyone. Thanks for the presentation and congrats on the great numbers. My question is, if possible, could you maybe elaborate more on the expectation for EBITDA margins.

Maybe help us a little bit more with when do you think they will peak. And then where do you think they can be once you finish the investments for growth in the banking business that it seems that you're planning until the end of next year, where should they be, say, in 2023? And what is the risk that then your find another growth avenue and then invest more and maybe the margins just stay low for a while. And I guess the bigger question is, do you really have to have higher margins? I mean, you're generating very good returns as is. I mean what do it just makes sense to continue investing in growing the business, and keep EBITDA margins or net margins, whatever you want to look at.

I think that your guidance for net margins of 25%, just keep it there for the next three to five years and grow more or that's just not -- there's not enough available have for you to do that. So I know I'm rambling. But anyway, thanks for the -- Thanks. Hopefully, it was clear.

Bruno dos Santos -- Chief Financial Officer

Yes. Thank you,. That's a math you're free to jump in, OK? But that's something we discuss a lot. And we are investing, as I tried to show here.

We are investing heavily the 64% growth in head count. I mean we're going to have almost 3,000 new people in our company in one year. That's a lot -- And that's basically because all the new businesses that we are entering in. But also we are a company result driven as well.

We are cost conscious. We like -- we don't like to see our margins going on. We understand that because it's temporary. We understand the opportunity, huge, and we understand we have to do it.

It's the right decision for the long term. And we are doing. But we don't want to do it in a way that the profitability is not there really strong because that's our life. XP has been profitable since the beginning.

It's -- as I have said that many times, -- The land bench mall has said that many times about the necessity of this company to be profitable to disrupt the banks because imagine we were nobody, no money competing against the huge banks with a lot of capital, with a lot of money, a lot of profitability and without any financial exposure for 10 years, 10 years. And we became the largest independent broker dealer like that without any sponsor and with our own money, How being profitable, being profitable and reinvesting 100% of the profitability in the future of the business, and that's exactly what we have been doing. We haven't distributed any dividends since the IPO. And why is that? We see a lot of opportunity.

And we are profitable, and we are going to keep reinvesting the pace of investment, we have constraints. One of them talent people. You need to find them. Culture fit in, you need to have that.

We know that it's easy to create a narrative, it's hard to execute and deliver and do a lot of things at the same time, it's not that easy. Yes, go ahead.

Thiago Maffra -- Chief Executive Officer

Yes. Another way to answer your question is, of course, you -- we may side to be to go faster or slower. But in our view, we are going at a very fast pace because we are building for a huge business line, insurance, credit, banking and businesses. So for huge business lines that will bring us from BRL 100 billion market to over $400 billion in the next 24, 36 months.

So we believe we are growing very fast, but it takes some time to build such business line. We will not build everything from -- in a quarter or two quarters. And we believe to have a very good execution. We need people.

We need some time. And -- as the number starts to show from credit card, credit card will be the 10 top issuers in Brazil in the next months or quarters for sure. The same thing for FX will be top 10, top 5 players in the next quarters. So everything we build, we want to be the top players, but we'll take a few quarters.

So we believe we are going fast. If we find a way to grow even faster, for sure, we will be I didn't answer, Hong. I didn't answer. You talked about the margin in the fee.

Yes. Yes, it's going to be beyond north 40% for sure because the business is really scalable. So what we see, the way we see in a transitory period, and we are going to -- we are building the future actually. And only investments, forget about the build in the future only in investment, we are still main early stage there because the cross-sell capability of our ecosystem has proven really interesting, not only for the new businesses, as you can see in the numbers of collateralized credit and a credit card.

But also when we have any new product in our -- in our system, in our platform. International funds, we went from nothing to more than BRL 25 billion of AUC, really fast creating the market. Anything that we cross-sell here because Brazil is so underpenetrated in many, many products. I mean, it's a really positive for the company and the financials as well.

Jorge Kuri -- Morgan Stanley -- Analyst

Right. Thanks and congrats again. Thank you. 

Andre Martins

Thank you. Great to here from you. Our next question is from Otavio Tanganelli, Credit Suisse.

Otavio Tanganelli -- Credit Suisse -- Analyst

Hi, guys. Thanks for taking my questions. Congrats on the results as well. I wanted to understand a little bit better the revenue mix structure thinking going forward, especially if you have seen at the margin, any trends of clients switching back to fixed income products.

Obviously, the higher interest rates should have a positive impact in some portion of your revenues. But why don't you get your sense on clients' behavior throughout the products? And also, if I can add potential revenue trends that we may see going forward.

Bruno dos Santos -- Chief Financial Officer

Sure. First, let me clarify that when you have a mix, for example, away from equities into fixed income, that's not necessarily something negative for a company like XP, OK? Think that Fixed income nowadays different than in the previous upward interest rate cycle that Brazil had has much more fixed income-related credit in the market, right, and with even longer duration than before. So you have a lot of benefits as well investment business from interest rates going up. It's not that this is like only equity business.

It's not. We are not in the equity business. We are in the investment business. And in the investment business, the disruption is going to be always there because it's the same business that we have been disrupting in equities, fixed income as well.

We sell CBs from banks in our platform. We have distributed, for example, CD from one of the incumbent banks in our platform. We do that. We are an open platform I mean there is a lot of demand, but we also have a lot of other fixed income products as well.

So just to make sure we don't get it wrong and say, OK, because it's not equity anymore. We are in a risk-off mode, it's fixed income, so that's going to hurt revenue. No, not necessarily. I show the numbers of fixed income.

It's growing a lot. In terms of the mix, it's going to change. You are correct, and that's natural. So let me share some data with you when we think about the AUC.

When we think about the AUC, we had like in the first quarter, equities -- It's the largest part of AUC, not revenue, OK. Revenue is less than 25%, less than one-fourth. When you take everything into consideration, apres futures, etc. But the AUC is higher because we have large custodies that does not necessarily deliver too much revenue.

So it used to be in the first quarter, more than 40%. Now it's less. It would be like 44%. Now it's less than 39%, 38%.

So it has reduced a lot because of the market to market and etc. Fixed income used to be less than 20%. Now it's more than 20%, going to 14. So this mix is natural.

And we are a company that we are always looking for the opportunities I was looking for what is the best thing for the client. And of course, the product mix, the offer of the product, respecting the client profile, risk profile and everything else, it depends on the macro environment. And we do not dictate the macro environment. So we take it for granted and then we act.

And we always innovate. We have a very strong sales team and treasury department that keep thinking about what could make sense for our different profiles of clients. And that's how we got here in the investment business. Again, portfolio, think about a portfolio effect, and this mix change depending on the macro environment.

Otavio Tanganelli -- Credit Suisse -- Analyst

And another, just to add here, other important point, as Bruno mentioned earlier on, the part of the revenues that are not correlated to ASC, they have been increasing a lot and then you will increase a lot in the new year future because we have been investing in products that they don't have no correlation with AUC. They are not investments as credit card, credit, this kind of stuff. So our revenue mix is becoming less and less correlated to AUC as used to be in the past. So that's a very important part of our business model for the future.

Thiago Maffra -- Chief Executive Officer

Obviously, understand a little bit the segments of that revenue being generated, but really up to you regarding the disclosure.

Andre Martins

Thanks, guys. Thank you, Otavio. So let's move on to Mr. Tito Libarta from Goldman Sachs.

Tito Libarta -- Goldman Sachs -- Analyst

Hi everyone. Good evening. Thanks for the call. Thanks for taking my question.

My question on the net inflows. Bruno, you mentioned you closed a $15 billion per month. How should we think about that given the rising interest -- not just rising interest rates, but going into election year, high inflation concerns about GDP growth getting worse. How resilient is that? Can you get back to the $10 billion? Is there upside from here? Any color or how you think about that net inflow number going forward? .

Bruno dos Santos -- Chief Financial Officer

I mean, can we get back to the $10 billion, yes. Anything can happen. I expect that and be happy with that number, not at all. Not at all because of the growth of the distribution channels, I mentioned at the beginning, protect the core and all the investments we've been doing in our distribution channels.

We expect to keep the pace that we have delivered in the last two quarters. So we don't see that reducing because of interest rates going up. Again, what changed? Is the product mix, not the net new one because the net demand considering how concentrated it still is the investment business inside the banks. It doesn't need to grow.

We just need to do more and more of the same.

Thiago Maffra -- Chief Executive Officer

Yes. For me, that's a good way to answer, Tito. If you think of XP in Brazil, it's less about the macro environment and more about the microenvironment because demand to inside the five big banks. So it doesn't matter how the macro environment is going in Brazil.

Our goal is to keep growing because the money is to inside the five big banks. So we believe we can continue to grow. It doesn't matter what has happened in the macro environment. .

Bruno dos Santos -- Chief Financial Officer

Yes. If I may, I mean, a crisis -- As MAPFRA said, we don't know if we are in a crisis or not yet. We are going to see, time will tell. And of course, a crisis is not wanted and not welcome.

-- and a tailwind of a risk-on mode is more than welcome. But not having that and having a crisa, a headwind in a business like ours, Maffra says not really a problem sometimes on the contrary because for other players, it might be a problem, but we do have a very consistent and resilient business model and our ecosystem and business has become more diversified and more resilient over time. And we have much more money than we had in any other crisis that we have faced in the past. So that's how we see.

The tailwind in the investment business, it does help to get people out of the inertia of moving from one place to the other, the investments. That's a positive thing about risk come and a tailwind mode. We don't have that right now. But that doesn't mean we are not going to grow the claim, the number of clients.

We are not going to grow the net new money because the money is still outside XP inside the banks. And we believe that we have a better product offer, we believe that our company has a better brand awareness because we have been side by side with the client since the beginning, it's our history here. And we believe we can provide a better experience and knowledge about investments as well as an advisor. So all of that together, I mean, we just adjust to the macro environment.

Otavio Tanganelli -- Credit Suisse -- Analyst

Great. Thanks. I guess, one follow up on that. On the IFAs, you continue to grow over 1,000 per quarter.

How much will that help? And also, I was surprised by the gross margin increasing, right, particularly given the investments you've had to do. If you can give some color on that, like the IFAs and the impact on gross margin and how that contributes to growth?

Bruno dos Santos -- Chief Financial Officer

Yes. The IFAs phase is what I believe Marta mentioned that in the last earnings call. We believe that in the next three years, we're going to have more than 30,000, 5,000 IFAs. Why is that? It's a trend of the profession.

It's people need to understand better about investments. You have the incumbent banks reducing costs closing branch being attacked by all the places from different players in the market. So this trend, I believe it will continue. And that's the number you see of more than 1,000 new IFAs coming to our ecosystem per quarter.

It's organically. It's not even ourselves doing. It's the ecosystem of the IFAs doing it themselves with the money we have injected in the network. Regarding the gross margin, product mix, for example, sometimes people do not realize that, but OK, fixed income compared to equities, different commissions Fixed income has a greater gross margin than equities, for example.

So there are many factors there, that explains the growth of the gross margin. And you are correct. We still have the impact of the investments we have been doing, and we're going to continue to have this impact going forward. in our talks, but the product mix plus different channels, plus different products, it's related to the product mix, but I mean products that from the new businesses like banking products, all of that together explains the record gross margin since the IPO.

Tito Libarta -- Goldman Sachs -- Analyst

Great. Thanks, Bruno. [Inaudible]

Bruno dos Santos -- Chief Financial Officer

Thanks, Tito.

Andre Martins

Tito, have a good one. OK. Our next caller, [Inaudible] with UBS. Hey, [Foreign language], can you hear us?

Unknown speaker

Hi, guys. OK. Hello Bruno, Thiago, Andre, and hello, everybody, and thank you for taking. I just have one just to make this very quick.

It's about the credit operations of the company because I understand that C19PL ratio is very close to zero, but our credit portfolio is growing at a solid pace. So I was wondering how big you expect the credit portfolio of the company to reach a thinking about the next five years for instance. And if this expansion contemplates a different segment or a credit product that is offered today. And also, what is the NPL ratio level the company is assuming as stable for this credit portfolio? This is it.

Thank you

Bruno dos Santos -- Chief Financial Officer

Yeah. Sure. Thank you, [Foreign language] The credit business, credit, as you know, is a risky business, and we like to look for low-hanging fruits. And the low-hanging fruit in our ecosystem is collateralized credit.

That's less riskier for sure. We know the client. The client invests with us. So it's a different type of credit, and we cross sell a lot in our ecosystem.

The loan portfolio has grown very fast. And that's one of the things that I explained about the potential of Casein our platform. We were impressed ourselves about the growth of the credit portfolio. And the NPL is zero, it's BRL 12 million that we have in our NPLs so far as a provision.

And we expect to stay like that for now. If we decide to move further and start giving crowd like clean credit without collateral and etc. Then, of course, the NPL will grow. It's credit, it's a function of risk at tax that you have at the end of the day.

We have the benefit of having started recently of having started with a very, I would say, secure credit risk a different profile and collateralized. So we're going to go step by step. I don't have a number to give you like what should be the NPL five years from today the type of the credit. We know that most of the revenue grow of the BRL 800 billion in the financial industry is driven by different types of credit.

And when we think about credit, there are different segments of credit. We like the low hand fruit, the collateralize, then we keep moving, get the experience and so forth. And credit is something that you need to be cautious about. It's easy to grow.

It's easy to answer in a different way. If we wanted to grow our trait portfolio is easier given me. So give money, anybody wants money depending on the interest rates, of course. But then you have to collect and you have to get back.

And we are cautious about that, and we will see. We're going to go step by step. We know we are in a different macro environment. So we need to be cautious here.

But we are in very good shape. We do not expect our NPL to raise further as we are today because of any prices or whatever, again, because of the type of the credit we have. Yes, just a follow up on this.

Andre Martins

How much penetrated or compared to the potential of penetration of this credit portfolio, the company has within all the client base considering the asset under custody Yes. Nowadays, I mean, we used to have like 0.6. We did like a metric of a total custody because if it's collateralized with investment, it's a function of the investments you have in-house, right, in the platform in the ecosystem. So we had like 0.6% of AUC this number because of the reduction of AUC driven by the market-to-market effect, it's now around 1%, something like that.

We do not know. It's like 2%, 2.5%. It depends on the interest rates. Of course, interest rates is higher, but also depends on the opportunity of the investments our clients might face and sometimes it's easy to get the credit and invest.

So we are learning the potential of this business because it's a brand new business in Brazil for that type of client in our ecosystem.

Thiago Maffra -- Chief Executive Officer

I can give you two examples, that we will illustrate very well. If you take our credit card, as Bruno mentioned, we have about 200,000 issued cards in the market. If we look at the number of clients we have, that number is very low, and why it's very low. Because today, we only allow clients from the brand XP with 50,000 plus to apply for a car.

In the next quarter, we will go down at XP to zero requirement for investments. And you'll see the number of large clients going up a lot. So probably in the next quarter is we wish a lot of cards. The same thing for margin.

It's a brand-new product. We just released last quarter. It's going up like really, really fast because the penetration is still very low. So most of these new product lines they are just starting to ramp up, and we expect a very high growth in the next quarter.

So we are just beginning the business lines.

Unknown speaker

OK. That's very clear. Thank you, Bruno, and thank you, Thiago.

Thiago Maffra -- Chief Executive Officer

Thank you, [Foreign language].

Andre Martins

So our next call is Neha from HSBC. Hi, Neha. Good evening.

Neha Agarwala -- HSBC -- Analyst

Hi. Good evening. Thank you so much for taking my question. Congratulations on the very solid quarter.

Just one quick question. The headcount increase that you've had. I believe part of that is coming from some of the executives that you're hiring, which act as financial advisors as well for some of your clients, right? So could you explain your strategy there? Are you trying to have some in-house financial advisors as well? Or what is the outlook there?

Bruno dos Santos -- Chief Financial Officer

No, we do have our internal financial advisor. I don't know. First of all, good evening, Neha. I don't know if I understood your question.

But we do have expire and the IFA network, they coexist and the XP brand, we do have the self-attendance client that it's do it yourself. But we also have an important channel of advisor there with internal advisors. At Rico and Clear brand, we do not have that, OK? So yes, part of the growth of our headcount is from internal advisors as well. Brazil is big and the concentration is huge.

And despite all the growth XP has had, the money is invested inside the bank. I mean that's what keep bothering ourselves. We look at it and say, why we are not growing faster? And what can we do? We have been investing.

Neha Agarwala -- HSBC -- Analyst

So, has the growth in the financial advisors that you have internally for the XP Brand? Has that been faster now? Are you trying to hire more people, maybe that helps you in facilitating growth for your business? .

Bruno dos Santos -- Chief Financial Officer

Yes. It's accelerating together with the IFA network. It's the channels, they are they're going to coexist. It's like the XP Direct for the shelf attendance type of plan.

We are agnostic about channels. We think as an ecosystem and platform, we need to have all channels like the wealth service channel. Same thing. We have been investing a lot on the wealth service channels for different managers and private bankers to connect through our ecosystem.

So both of them near are growing at very healthy pace.

Neha Agarwala -- HSBC -- Analyst

And my last question on credit. I completely understand that you want to grow on the credit side, very, very cautious. And I think that completely makes sense. What other new products can we expect to be launched in the coming two to three years? So I just want to get a sense of the new products that we can see from XP.

Bruno dos Santos -- Chief Financial Officer

But when we think about, for example, the insurance business, there are a lot of products that we can go after, right? A different type of insurance, and we can do partnerships using our platform and so forth. So insurance, as Maffra mentioned, is one of the four main blocks of businesses that we are looking and investing a lot. When we think about the banking part, the digital bank is something that we started our digital bank one year ago, one year ago. When you think about how the competition and, etc., they've had a bank for many, many decades.

We have started our bank from scratch basically one year ago because we decided before having the digital bank account to start with the credit card because we believe it would be the most important product. We did a lot of service. So the banking, it's going to be up and running for our clients at the end of this year, beginning of next year, and then we keep adding new features as we move forward. It's like any other business scaling from the scratch, right? Then when you think about SMB is a different market.

We do have many corporate clients middle and large corporate clients in our platform. But we do not have all the products to serve them. We're going to invest and we're going to have that in the next in the next years. So the road map for the next two to three years, I would say they are concentrated in those four blocks that Maffra talked about.

Banking. And here, there is a lot of investments. You do have the credit card here that you make money and it impacts the revenue growth. But the other part of the digital banking is to get the transactional part of the client and then understand better with the data and engage the client.

So you can cross sell later and increase the loyalty of the clients. And in our case, for our existing clients, as we have said, the strategy is to cut completely the link with the banks we have nowadays approximately 50% of share of wallet if our clients already trusted us with their investments to trust us with the transactional part. It's a matter of proving to the client that we can deliver a very good experience. And we are going to do that through our time, OK? So that's a huge potential in our view that we have without adding one single additional client in our ecosystem.

So banking part. Then you have the credit that, as I said, you have to be cautious, step by step, look at the environment, learn from the data that you get, and then you can move with the low-hanging fruit because there are a lot of different segments that are not really risk for our clients that we can get with partnerships, for example, more, just to give you one other example or home equity. Then you have the insurance that I talked about, different types of insurance and the SMB, as I said, this is at a later stage compared to the other three.

Neha Agarwala -- HSBC -- Analyst

Very clear, Bruno. Thank you so much.

Andre Martins

Thank you, Neha, buh-bye. Now we have our last question from Mario Pierry from Bank of America. Hi, Mario.

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

Hi guys. Good evening. Thanks for taking my question. Since it's the last one, let me ask two of them.

if you don't mind. The first one is on the revenue yield, right? You show that your revenue yield has been stable for a long time, and you're talking about now more contribution from the banking from credit cards and also from floating I don't know, Bruno, if you mentioned during your comments, what percentage of your retail revenues are coming from floating if you can give us the breakdown again. And what I understood was that the banking revenues were 3% of your retail revenues, I think, that would imply revenues of only BRL 80 million, roughly, out of a loan book of almost BRL 9 billion. So I was just trying to understand here if you can give us some color on the interest rates on these loans that you're charging, I think that will be helpful.

So that's the first question. The second question is I think, right, with the share price down following the divestiture from Itau, you still remain very confident with the outlook for the company. Are you considering doing a share buyback? How do you see, right, the attractiveness of your shares now? And why not like start buying some of the shares?

Bruno dos Santos -- Chief Financial Officer

Sure. Yes. So to answer your first and second question, Mario, it's the floating in the third quarter represented approximately a little bit less than 8% of the retail revenue, OK? In the first quarter was roughly 4%. So basically, it doubled in two quarters.

And the banking services, it's more than 3% in the third quarter. OK? It's closer to 3.5%, growing from less than 2% in the first quarter, close to 1.5%. So it's more than the $80 million that you have mentioned. But remember that our credit, it's a very cheap product for the client.

We use a lot credit as a service where we have different revenue profile because sometimes we are distributing a product that makes sense. And then we provide a credit also because the credit risk is really low, and you can see that in our NPL. And then we can have a profitability by the cross-sell in our platform. We get the benefit of a very good experience in the perspective of our clients and the engagement is higher for the long term because the client has a credit with us.

So it makes a lot of sense, OK? So the net interest margin in that credit is not huge. We are not in the business of clean credit, taking risk, high NPL, not today, right?

Thiago Maffra -- Chief Executive Officer

We are adding some new products, for example, I just mentioned the margin one. And it's public, the product is available for clients. We charge 4% a month for you to leverage your investment [inaudible] . So then you can imagine that's a very profitable product because the NPL is still very close to zero because you leverage on top of your own investment.

So we are creating new products. I would say that the the credits we have so far, as Bruno mentioned there, bigger tickets with very, very low risk or zero risk. So they're very cheap but we are adding new products with higher interest rates and higher profitability, as I just mentioned.

Bruno dos Santos -- Chief Financial Officer

Yes. And also, that's a good point because on Neha's question before Mario's about the products, I forgot to mention the margin low one. So margin owing something new that it should it should increase in the next years. And going to your third question, Mario, about the share buyback, here's how we think, OK? We are here for the long term.

We need to think about what is the best use of our cash inside the company. And the company is growing a lot. And we do need cash especially for our business of flow that helps to develop the Brazilian capital markets, bringing new products to secondary market and we are able to make money using that warehousing business outflow as well. You can see that in our revenue in the third quarter was almost half and half, the fee business and the flow business.

And that business despite not hedging the risk and etc. and trading a lot. It's a business that demands capital. And we believe it's the best use of our capital because that's the core of the business.

To buy back shares, it would be an option if we had cash that has no use for the business itself. So -- and we are here, as I said, for the long term. It's our net worth year of the main partners of XP is more than 90%, 90% XP shares. So that's it.

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

Very clear. Thank you.

Andre Martins

OK. Mario was indeed the last caller, I believe. So thank you all very much for your participation in our call. We hope to see you again.

We are all available Bruno, Maffra, ourselves for follow-up calls, any questions, any subjects that you might want to discuss down the road. Bruno, Maffra, if you'd like to say some closing remarks on our behalf here, thank you all very much.

Thiago Maffra -- Chief Executive Officer

I just want to finish saying that as Bruno mentioned as I wrote in the letter XPs or likes. So we are here for the long term, and we really believe we have big opportunities in Brazil to continue to grow despite the macro environment in spite any kind of interest rates or crises. So we will deliver very strong results in the next quarters for sure.

Bruno dos Santos -- Chief Financial Officer

Thank you. Thank you all. Good see you.

Thiago Maffra -- Chief Executive Officer

Thank you.

Bruno dos Santos -- Chief Financial Officer

Stay safe. Bye.

Duration: 71 minutes

Call participants:

Andre Martins

Thiago Maffra -- Chief Executive Officer

Bruno dos Santos -- Chief Financial Officer

Jorge Kuri -- Morgan Stanley -- Analyst

Otavio Tanganelli -- Credit Suisse -- Analyst

Tito Libarta -- Goldman Sachs -- Analyst

Unknown speaker

Neha Agarwala -- HSBC -- Analyst

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

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