Pagbank - Earnings Call - Q2 2025
August 13, 2025
Transcript
Operator (participant)
Good evening. My name is Algir, and I will be your conference operator today. Welcome to PagSeguro Digital's Earnings Call for the Q2 of 2025. This live presentation for today's webcast is available on PagSeguro Digital Investor Relations website at investors.pagbank.com. Please refer to the forward-looking statement and reconciliation disclosure in this presentation and in the company's earnings release appendix. Finally, be advised that all participants will be in listen-only mode. After the presentation, to ask a live question, please use the raise-hand button to join the queue. Once you're announced, a request to activate your microphone will appear on your screen. Please ask all your questions at once. Alternatively, you can also write your question directly into the Q&A icon located on the lower part of your screen. Today's conference call is being recorded and will be available on the company's IR website after the event is concluded.
I would now like to turn the call over to Gustavo Sechin, Head of IR. Please go ahead, sir.
Gustavo Sechin (Head of Investor Relations)
Hello everyone, and welcome to PagBank earnings conference call for the quarter ending June 30, 2025. I am Gustavo Sechin, PagBank's Investor Relations Director. Thank you for taking the time to join us today. We will begin by sharing the highlights for the quarter, followed by our live Q&A session. Tonight, I am joined by Ricardo Dutra, our Principal Executive Officer, Alexandre Magnani, our CEO, and Artur Schunck, our CFO. Now, I would like to turn it over to Dutra. Please, Dutra.
Ricardo Dutra (Principal Executive Officer)
Hello everyone, and thank you for joining our Q2 2025 Earnings Call. I will begin with Slide 4, which summarizes our key operational and financial highlights. This quarter, we continue to execute our strategy with discipline, navigating a more challenging macroeconomic environment while maintaining our focus on long-term value creation. We ended the quarter with 33.1 million clients, growing 1.5 million clients year over year. Despite facing a tougher economic environment and harder comparison from Q2 to 2024, which made top-line growth more challenging, we managed to grow and preserve profitability. Total payment volume (TPV) in our payments business reached BRL 130 billion, a 4% year-over-year growth. Our credit portfolio and funding base continued their double-digit growth, with highlights to the lower APY and the gradual acceleration of unsecured lending, reflecting the strength of our ecosystem and our commitment to broaden access to financial services prudently.
Going to financial highlights, our net revenues increased 11% year-over-year, reaching BRL 5.1 billion. When excluding costs related to interchange fees, net revenue increased an impressive 18% year-over-year, capturing the repricing efforts implemented in the period. Our non-GAAP net income was BRL 565 million, a 4% growth compared to Q2 '24, while our diluted EPS on a GAAP basis reached BRL 1.79, a 14% growth year-over-year, supported by consistent cost discipline and capital efficiency.
Reinforcing our balanced approach to capital allocation announced in May 2025, we returned BRL 1.1 billion in excess capital to our shareholders year to date, with BRL 700 million in share repurchase and over BRL 400 million as dividends. In conclusion, our results reflected a business that remains solid, profitable, and resilient. Since our IPO, we have consistently delivered positive earnings every quarter, a track record we are committed to maintain through continued execution, efficiency, and strategic discipline.
On Slide 5, turning to the macro environment, we continue to see signs of broad-based economic cooling in Brazil, which may represent an additional challenge going forward. Consumer confidence has weakened, leading to a slowdown in discretionary spending, especially in sectors sensitive to interest rates and inflation. GDP growth has decelerated to about half of last year's pace, largely due to the loss of momentum in services, which had previously been a strong driver of economic activity. As a result of this softer backdrop, we observed a contraction in credit origination in the market, as both consumers and financial institutions adopted a more cautious stance. Risk aversion increased, and lending standards became more selective, especially for unsecured products. In this context, Q2 to Q2 2025 results are a testament to our ability to manage the company despite economic cycles.
It is important to mention we expect the current macro backdrop to remain. Going to Slide 6, despite this more cautious economic backdrop, our track record demonstrates the resilience and consistency of our business model in creating long-term value. Here, we showcase the resilience and consistency of our business model in creating long-term value. Since our IPO in 2018, we have grown our GAAP EPS by approximately 2.3 times, representing a compounding annual growth rate of 15%, even amidst changes in industry dynamics and events like the COVID pandemic. Along the way, we've achieved several strategic milestones that expanded our addressable market and strengthened profitability. These initiatives have laid the foundation for sustained EPS growth, supported by operational leverage and disciplined execution. This performance is a result of our strategic focus on recurrent earnings, which have supported predictability and long-term value creation.
A disciplined capital allocation combines share buybacks and dividend distribution, with a total yield of approximately 18% year to date and a robust capital position, which continues to give us flexibility to pursue value-accretive initiatives. Moving to Slide 8, here we see how we've been building the company with a clear long-term vision. Our fully integrated ecosystem, combining payments and banking, allows us to create strong synergies between the two, using one to reinforce the other. By offering a broad and complementary set of products, we've been able to increase client engagement, improve monetization, and capture a larger share of wallet, positioning ourselves as the primary financial partner for our clients. Moving to the next slide, beyond the solid results we delivered so far, there is still significant room to grow across our platform.
In some areas, our banking business, our market share is still below 1%, which reinforces our view that we are only beginning to tap into the full potential of what we can build. As we continue to scale our banking operations, we unlock new growth opportunities, whether by deepening cross-sell, strengthening our deposit base, or expanding and diversifying our credit portfolio in a disciplined way. With that, I will hand it over to Alexandre, who will take you through the operational highlights for the quarter. Thank you.
Alexandre Magnani (CEO)
Thank you, Ricardo. Hello everyone. In this section, we walk through the performance of our business units for the Q2 of 2025. Before we start, just a quick catch-up on Slide 11. As announced last quarter, we adopted new client segmentation starting in Q1 2025 to better reflect the dynamics of our business. Merchants with TPV up to R$3 million per month are now classified as MSMBs, compared to the previous threshold of R$1 million. Merchants with TPV above R$3 million, along with all online merchants, including e-commerce and cross-border, are now grouped under the Large Retail and Online segment, previously referred as LMAC. This change is fully aligned with our strategic focus on the MSMB space and gives a clear view of how we are growing across client profiles.
Moving on to Slide 12, we ended Q2 2025 with 33.1 million clients, adding 1.5 million new clients over the last 12 months. Our active client base reached 17.7 million, supported by a healthy 3% year-over-year growth in banking-only clients. Consistent with our prior quarters, our focus has been on activating higher-value clients, with an emphasis on monetization and profitability rather than pure volume growth. Now, on Slide 13, we show that our merchants-acquiring business keeps growing in all segments. TPV reached BRL 130 billion in Q2 2025, growing 4% year-over-year, with TPV per merchant growing to 7% on a yearly basis, despite the macroeconomic challenges that we mentioned earlier. Since the Q4 of last year, we have been implementing repricing initiatives focused on profitability rather than net additions. These efforts were designed to mitigate the impact of rising financial costs.
In Q2 2024, the MSMB segment grew 2% year-over-year, supported by stable activity in the physical POS channel. Meanwhile, the large retail and online segment, which includes merchants with monthly TPV above R$3 million, as well as e-commerce and cross-border operations, grew 10% year-over-year, showing our continued focus on attracting merchants with a higher presence in the digital space. Within the online segment, TPV grew 50% year-over-year, driven by stronger penetration in both e-commerce and cross-border. We have onboarded new clients in marketplace, gaming, and other digital goods verticals, further reinforcing our position in this fast-growing space. On Slide 14, we show that our strategy to deliver seamless digital experiences by integrating payments, banking, and value-added services drove cash-in levels to R$91 billion in the PagBank accounts, meant to double the transactionality across our client base.
Importantly, this growth is underpinned by sustained high penetration of our insurance and investment products, which contributed to a stronger deposit franchise during the period. As a result, cashing per active client, a key metric of our client engagement, grew 18% compared to Q2 '23, reaching BRL 5.2 million per client, showcasing both deeper client monetization and the ongoing expansion of our active client base. On Slide 15, we show our strong deposits performance combined with a cost of funding reduction. The total deposits reached BRL 37.2 billion, up 9% year-over-year. This growth is particularly noteworthy given our ongoing efforts to reduce the cost of funding. It shows that we are successfully managing customer deposits while improving the efficiency of our funding base. The APY for total deposits decreased by almost 6 percentage points in the last year, reaching 89% of the CDI.
This performance is mainly due to a lower remuneration on checking accounts, slightly lower yields on certificate of deposits, and funding cost optimization initiatives that we implemented in response to the current interest rate environment. When we include other funding sources, such as borrowings, certificate of deposits with related parties, and senior quotas of FIDCs, total funded reached BRL 42.9 billion in the quarter, an increase of 15% year-over-year. This performance reflects both the increase in total deposits and our continuous effort to diversify our funding base, supporting a more balanced and efficient capital structure. Finally, this quarter, we have successfully completed BRL 920 million issuance of financial letters with a two-year maturity and no early amortization. The transaction was well received, with the book building multiple times the transaction size. The notes were priced at CDI plus 45 basis points, or approximately 103.5% of the CDI.
Proceeds will be used to support the growth of our acquiring and credit operations. It's important to remember that our deposits are primarily utilized for funding prepayments to merchants and our loan book. As of December, our loan-to-total funding ratio, which measures our total funding against our expanded credit portfolio, stood at 112%. On Slide 16, we highlight the continued and sustainable expansion of our credit portfolio. In the Q2, our total credit portfolio reached BRL 3.9 billion, a 35% year-over-year increase, primarily driven by origination of secured products, which now accounts for 87% of our loan book. Since Q2 to Q2 2024, we have been gradually resuming credit underwriting for unsecured products, with focus on working capital loans for merchants. This movement has been supported by ongoing improvements in risk assessment and collection processes. This gradual expansion, although conservative, already shows its first sign in our loan book.
Consequently, there has been a 38% increase in working capital loans quarter over quarter. If we include financial operations linked to merchants' prepayments, facilitated by our instant settlement feature on the acquiring side, our expanded credit portfolio surpasses R$48 billion, up 11% in the last 12 months. Finally, looking at the bottom right of the slide, our NPL ratio reflects meaningful improvements in asset quality, decreasing from 3.2% to 2.4% in the period, a level two times below the market average. Now, I turn over to Artur for the financial highlights of the Q2 of 2025. Artur, please.
Artur Schunck (CFO)
Thanks, Alexandre. Hello, everyone, and thank you for joining us today. I'm pleased to present our consolidated financial results for the Q2 of 2025. Turning to Slide 18, total revenue and income in Q2 to 2025 reached BRL 5.1 billion, marking an 11% year-over-year increase. This growth reflects the positive impact of repricing strategies initiated in Q4 2024, particularly across our acquiring and asset-side products. These initiatives were designed to mitigate rising financial costs and ensure sustainable revenue in a more restrictive growth environment. Excluding interchange and network fees, total revenue net grew 18%. Importantly, revenue growth outpaced TPV expansion this quarter, underscoring the effectiveness of our repricing efforts and improved unit economics. Looking at the charts on the right, payments revenue, net of interchange and network fees, totaled BRL 2.6 billion, supported by successful strategy execution.
Banking revenue reached approximately BRL 700 million, a robust 61% year-over-year increase, driven by higher engagement, larger deposit volumes, credit portfolio expansion, and increased fee generation from cards usage and account transactions. Moving on to the next slide, Slide 19 presents our gross profit performance over the last 12 months. Strong banking results and repricing strategies helped to mitigate the negative impact of interest rates, which rose more than 400 basis points during the period. Gross profit totaled BRL 1.9 billion, growing 7% year-over-year, in line with our annual guidance despite macroeconomic challenges. This result was impacted by buybacks and dividend distributions, which introduced additional financial expenses. Excluding these effects, gross profit would have increased 7.7% on a yearly basis. On the right, we highlight the exceptional performance of our banking segment, which is increasingly becoming a strategic pillar for the company's future.
Banking gross profit grew 97% year-over-year, now accounting for over 26% of total gross profit. This growth was accompanied by a margin expansion from 60% to 74%, reinforcing the strength of our platform and our ability to scale complementary products efficiently. Slide 20 provides a deeper look into our cost and expense evolution. Our continued financial discipline, key to balancing growth and profitability, was instrumental in mitigating pressure from rising financial costs. Transaction costs fell 1% compared to Q2 to Q2 2024, driven by increased fixed product penetration. Financial costs rose 48%, primarily due to higher interest rates in the country. This includes BRL 25 million in quarterly costs related to capital returning to shareholders. These effects were partially offset by funding initiatives aimed at diversifying sources and reducing interest rates.
Total losses declined 14% year-over-year, reflecting improved asset quality and stronger QIC and onboarding processes, which led to fewer chargebacks and lower ECL provisions. Operating expenses increased 6% year-over-year, in line with inflation. As a percentage of total revenue and income, we achieved 80 basis points of operating leverage compared to the same period of last year. Finally, tax efficiency remains a core pillar of our strategy. We continue advancing tax optimization initiatives that support profitability and long-term value creation. Moving to Slide 21, this quarter was marked by resilient operational and financial performance. We achieved a non-GAAP net income of R$565 million, a 4% increase compared to Q2 2024. Diluted GAAP earnings per share reached R$1.79, reflecting a 14.2% year-over-year increase. On the right, we highlight a 120 basis points improvement in our annual return on average equity, rising to 15.2% from 14% in Q2 2024.
Despite maintaining a conservative capital structure, the company continues to deliver consistent returns to shareholders. Next, we will explore our capital allocation strategy. Slide 22 outlines our initiatives to strengthen capital structure and create shareholder value. We remained consistent in executing our buyback program throughout 2025, repurchasing over 15 million shares. In Q2 2025, we completed the full amount of $200 million repurchase authorized under our second buyback program. Following this, our board approved a third repurchase program, authorizing up to an additional $200 million in outstanding shares. Additionally, following our first dividend announcement in May 2025, the board approved a second cash dividend of $0.12 per common share, payable on August 15, 2025, to shareholders of record as of July 16, 2025. This reflects our commitment to capital strength and shareholder value. Let's now review our guidance for the year.
Our first semester results are well aligned with the company's outlook, despite a more challenging macroeconomic environment. Gross profit, excluding additional financial expenses from capital returns, grew 7.7% year-over-year, landing within our guidance range. Diluted earnings per share, calculated using the December 2024 share count, excluding repurchased shares and long-term incentive plan grants, grew 14% year-over-year, demonstrating business resilience and disciplined execution. CapEx is tracking in line with expectations and currently performing at the bottom of the guidance range. Despite remaining cautious about elevated interest rates, we are maintaining our full-year guidance. Note that this does not include additional costs from capital structure initiatives. Over the last 12 months, our capital return yield reached 18%, as Ricardo mentioned earlier. Now, I will turn it back to Alexandre for the closing remarks.
Alexandre Magnani (CEO)
Thank you, Artur. Before we wrap up, let's move to the next slide for a few closing thoughts. Overall, our Q2 results reflect the disciplined execution of our strategy, focused on diversifying revenue streams while preserving profitability in a challenging macroeconomic environment. I want to once again highlight the growing contribution of our banking business, which now accounts for 26% of total gross profit. Looking ahead, our priorities remain clear. We'll continue to mitigate macro uncertainty through consistent execution and strong financial discipline. We are also committed to strengthening our capital structure moving forward with the initiatives we recently announced. And finally, I want to reiterate our long-term ambition to become the primary financial interface for our clients, capturing the significant growth opportunities we outlined through this presentation. With that, I now hand it back to the operators so we can begin the Q&A session. Thank you.
Operator (participant)
Thank you for the presentation. We will now begin the Q&A session for investors and analysts. If you wish to ask a question, please press the Raise Hand button. If your question has already been answered, you can leave the queue by clicking on the same button. There's also the possibility to ask questions through the Q&A icon at the bottom of your screen. You may select the icon and type your questions with your name and company. Written questions that are not addressed during the earnings call will be returned by the Investor Relations team. Wait while we pull for questions.
First question comes from Kaio Prato from UBS. Mr. Prato, your microphone is open.
Kaio Prato (Analyst)
Hello, everyone. Good evening. Thanks for the opportunity to ask questions here. I have two on my side, please. The first one would be on TPV. Please, if we look to your numbers, we see that overall TPV was flattish Q1Q, which probably implies, again, some sequential losses in market share, and looking to the MSMBs, more specifically, there was a drop of 2% Q1Q. I saw that you mentioned about slower macro and the effects of repricing, but still, it seems to be somewhat below the industry, so having said that, if you can share a little bit more details around this performance, I don't know if there is any specific sector that is more impacted within MSMBs, or if it's more linked to, I don't know, competitive pressure. Any more detail here would be helpful, so first, is your view about what's happening?
And going forward, what can we expect? If there is anything in your strategy that you are going to change to address that and the overall expectations around TPV, both on MSMBs and on consolidated level as well? And finally, if I may, on capital, we are witnessing the company distributing more capital recently, as you mentioned in the presentation. So, we saw some buybacks and also they recently announced special dividends, but still, the company remains with a solid capital position close to 30% BIS ratio. So, my question is, going forward, after this special dividend, how can we think about capital distribution if there is any recurring level of payouts that we can work with? That's it. Thank you.
Ricardo Dutra (Principal Executive Officer)
Hi, Kaio. Thank you for the question. Good to hear. Let me elaborate a little bit more about TPV and give you a little bit more broad overview about TPV in our view and what you see inside the company. First of all, we always say that we drive the company to improve profitability. TPV could be a consequence of that. The TPV definitely is not one of our main goals, and market share also is not in our main goals. We are driving the company more and more focused on the client-oriented approach, looking at the client as a whole. And part of that, if you look at the flow that we have, not only TPV in acquiring, but if you look at the flow, our cash-in in Pix grew 19% year-over-year. It's strong.
The participation of these Pix cash-in in the whole flow of the company is growing quarter over quarter, so we are looking at the client as a whole, not only the TPV from cards or for Pix that we have some in the app, but also the cash-in from Pix that we get from this client that could help in deposits, could help in funding, and so on, so the guidance that we gave to the market is gross profit. We think gross profit better captures the performance because it considers everything that I said before: the cash-in, the funding, and all the things that I mentioned before. It is also important to say that in 2024, we had a very, very strong growth.
We are having a hard comp here compared to Q2 2024. It's a hard comp. And in addition to that, we had two less working days and one more holiday in 2025, which could help us in approximately four to five percentage points additional growth. That's why TPV was in the levels that you saw, growing 4% year-over-year. In terms of MSMB TPV, we see some clusters that we can get some actions to take TPV back. We've been doing repricing as well, just like the other players of the industry. We are seeing that part of the. It's a mix of many, many characteristics. There is no silver bullet here. It's the hard comp, repricing, macroeconomic that doesn't help, definitely. And it also creates churn for part of the client.
That's why we see TPV as an important metric, but not the most important metric for us. We really look at the company's gross profit and then EPS that we look in the P&L more and more and the focus more and more. Just to finish here, if you look at the card TPVs, it's still relevant, but comparing to the whole flow of the company is less than 50%. Of course, we are looking at TPV as well, but the most important metric for us is gross profit, and that's what we are focusing on at this point and try to get the best of the whole ecosystem. I mean, there are many reasons that TPV was growing 4%: hard comps, macroeconomics, repricing, and so on. Regarding the capital, definitely it is in the agenda, the 29% BIS ratio that you mentioned.
It is in the agenda. We expect to have some news soon, but we are looking at that to improve capital, to have a better, more balanced capital structure. And of course, to get that, we are talking about share buybacks, dividends, expectation of growing the credit. And remember that we have returned BRL 1.9 billion to the shareholders in the last 12 months. But even with that, I know we are close to 30% BIS ratio, but definitely that's something that it is in our agenda at this point.
Operator (participant)
Okay, Dutra. Thank you very much.
Ricardo Dutra (Principal Executive Officer)
Thank you very much.
Kaio Prato (Analyst)
Thank you.
Operator (participant)
Our next question comes from Antonio Ruette from Bank of America. Mr. Ruche, your microphone is open.
Antonio Ruette (Analyst)
Hi, team. Thank you for your time. Thank you for taking my questions. I have two on my side that are actually follow-ups to Caio's questions. So, first, on TPV, not sure if you could elaborate on Pix here, how much of Pix came on the large merchants and how much came on SMEs. Just trying to understand here your performance compared to the industry. And also, in terms of capital, if you were to distribute this capital today and remain only with the capital that you believe to be required to operate the business and the required excess capital that you need, how much could you distribute in dividends today? I would say, how much is the excess cash that you see at the business today? Thank you.
Ricardo Dutra (Principal Executive Officer)
Hi, Antonio. Regarding TPV, we are not disclosing the breakdown between Pix and cards in these different segments, but I would say to you that definitely the cards decrease more in LMAC than in MSMBs, which is good news. The other thing I would say is important to say, when you look at the clients, the merchant clients that we have in short term, not in 12 months, but in 90 days, in 30 days, it is stable and growing a little bit month after month. So, it shows us that when you think about MSMB, we are talking about clients between BRL 1 to BRL 3 million per month. So, we have different sizes of clients in this cluster, MSMB. And we see that we are not seeing a higher churn. What might happen to some of the clients is to move part of the volumes away.
What I mean here is that we have the opportunity to go back to these clients. They are still working with us, and then we can get part of the volume back. That's the color that I can give on TPV. Clients are stable, and then we still have the opportunity to get part of this TPV back. Again, remember, we have 34% growth in Q2 to Q4. We have a really hard comp and two less working days and one more holiday. Regarding the capital and the amount we can return to shareholders, I'll pass the word to Artur.
Artur Schunck (CFO)
Hey. Good to talk to you, Antonio. In terms of capital, excess of capital, and also cash, as you mentioned, cash, it's important to clarify that we don't have cash available to return to shareholders, but we have excess of capital. That means any amount that I will return to shareholders, I need to go to the market, take this funding from the third party, and then distribute. This process will impact our financial costs, as we are already communicating in the gross profit slide and the guidance that part of the financial expenses is related to dividends and buyback in 2025. In terms of amount, to be comfortable here, I can give you some color that we could distribute more BRL 2.5 billion-BRL 3 billion after what we have already announced.
We are working hard always to balance growth, profitability. That's important because financial costs increase on that process, and return to shareholders.
Antonio Ruette (Analyst)
Thank you for the numbers. I appreciate that.
Thank you for the numbers. I appreciate that.
Artur Schunck (CFO)
Thank you.
Operator (participant)
Our next question comes from Yuri Fernandes from JP Morgan. Mr. Fernandes, your microphone is open.
Yuri Fernandes (Analyst)
Hello. Good afternoon, and thank you for the opportunity of asking questions. I have a question regarding your deposit mix. I think maybe this is related to the buybacks and the need of cash you mentioned, but Interbank was growing a lot this quarter, like 30%, and still, you were able to improve your funding cost. I tend to imagine that Interbank deposits tend to be more costly than some of your other lines. So, just trying to understand if this is a trend that we could continue to see, you continue the buybacks and the capital distribution, and maybe you could have a little bit of more expensive funding.
I would like to understand if this could limit the improvements here because this was a good quarter for funding, and I don't know if we start to see a little bit of more expensive interbank deposits, we could see this reverting the trend. Then just a question on the banking gross profit. It was a pretty good quarter for you on the banking side of the operation. If you can comment a little bit more about longer-term, what you see for deposits, just trying to understand how the bank can help you to offset part of the weaker gross profit we are seeing on the payments. Thank you.
Ricardo Dutra (Principal Executive Officer)
Hi, Yuri. I'll start with your question about the funding, and then Artur can complement. Regarding the trend, we don't see that trend changing. We don't see that because of more participation of interbank deposits in the mix, our total deposit APY would change, as you could see in our Slide 15. It's going down from 90% to 89%, 90% to 89% CDI. So, we don't see that reverting in a structural way that could hurt the P&L of the company. We also try to balance to get the best cost for the company comparing what you have in checking accounts, deposits, and interbank. And so, going back to your question, I don't see that trend changing. Artur can give you more color about it. And yeah.
Artur Schunck (CFO)
In terms of deposits and the mix that we have there, interbank is part of the funding products that we are using to fund the expanded portfolio that we have. And Dutra have already mentioned the cost that we have today does not change too much going forward because we have competitive costs in many different products that we are using.
Ricardo Dutra (Principal Executive Officer)
Regarding the banking gross profit, we see we have three pillars here in the company, in our view. It's the banking, the payments, and the credit. We see banking and credit as two main pillars that you see here. We see a huge opportunity for banking. It's still working on, if you could see our growth in portfolio in our working capital, it's still credit portfolio is still small, but it grew a lot in this quarter, and we see an opportunity in this product as well. As you know, we have BRL 130 billion in TPV per quarter, and we're still scratching the surface in this product, and when you have some test and good return in some of the credit products, you can accelerate, so we see some opportunities also in the working capital, which will help the bank P&L.
And the banking still today is 21% of the revenues and 26% of the gross profit. So, we always try to say here, that's the power of the ecosystem. We are not only a payments company anymore. That's the beauty of having this ecosystem. And we expect that bank will keep growing and gaining share from the total revenue and gross profit looking forward.
Yuri Fernandes (Analyst)
Thank you.
Ricardo Dutra (Principal Executive Officer)
Thank you.
Operator (participant)
Our next question comes from Pedro Leduc from Itaú BBA. Mr. Leduc, your microphone is open.
Pedro Leduc (Analyst)
Thank you, guys. Good evening, everybody. Two quick questions, please. The first one, and here I'm going to take a step back into the last few years when you started, when you went successfully into larger merchants than you were in before. But this seems to be the first big pricing wave that you did since more present with these mid-merchants. Now that you've gone through it, we're discussing here, you care less about TPV or client count, more about gross profits. But at the end, you will care about the clients, call it NPS. Now that you've gone through this pricing cycle with the larger clients and you're observing their NPS, their reactions, do you have a diagnosis of what else you could add to either services or products that would help reduce churn or help NPS be high, even though you increased prices? That's the first question.
The second, a little bit less related, but has to do with the income tax rate, remains on the low double digits. If you guys have given any thoughts or any already alternatives to the proposed taxation changes for offshore funds that was discussed by the government a few months ago? That's it. Thank you.
Ricardo Dutra (Principal Executive Officer)
Hi, Pedro. I'll let Artur start with the last one regarding the tax rate, and then I'll get back to the first one.
Artur Schunck (CFO)
Okay. Good evening, Pedro. In terms of tax reform, we are pretty close to the government and following all the changes that they are promoting. At this point, I don't have any information, any number to give you. We are working hard to mitigate that impact or those impacts in the social contribution that is moving from 15 to, sorry, 9 to 15. Also the changes to income tax abroad in the shares that we have from our FIDC in our legal entity abroad. The good point is we have only 20% of the FIDC abroad. The impact could be limited. If we had much more, the impact would be worse. That's the idea. We are looking for alternatives to mitigate that impact. As soon as I have something more concrete to communicate, I will do that accordingly.
Ricardo Dutra (Principal Executive Officer)
Regarding the first one, Pedro, we've been increasing or repricing our clients since October 24, so nine months now. The repricing was exclusively to offset, even partially, the increasing interest rate in the country. As you know, we also have part of our clients, they have the full MDRs that you have in our website, and we did not increase for these clients. So, in a scenario where the interest rates could go down, we will also take advantage because we didn't increase the price for the default MDRs, and we still take advantage temporarily from the clients that we increase the price that we will not decrease in the next following day. So, we've been following, yes, the NPS with these clients.
As I said before, the base, the active merchants base in short term, when you look at 90 days or 30 days, it is growing month after month. So, it's not that we are losing the client as a whole. As I said before, we are looking for the client in total, looking for the payments, deposits, the products they use here. If you go to Slide 14, we see clients using more and more our products, our banking products, and get more engaged. So, it's part of the back and forth that they need to make this repricing and then retest and so on. So, we don't see, let's say, deterioration in our relationship with the whole base of clients. But of course, when you have some repricing, and again, MSMB, we have clients from one real per month to three million reais per month.
Three million per month is something some company that already have some more price sensitive. We've been following that very close. TPV, as you said, didn't grow that much, but the profitability is coming, net income is coming, gross profit is coming, EBT is coming. Going back to your question and wrapping up here, we don't see a structural problem in the company. We are looking at the client as a whole. The active base is growing, and we'll keep working with the pricing and try to preserve profitability in this scenario where the macro is not helping at all.
Pedro Leduc (Analyst)
Very good. Thank you.
Ricardo Dutra (Principal Executive Officer)
Thank you.
Operator (participant)
Our next question comes from Arnon Shirazi from Citi. Mr. Shirazi, your microphone is open.
Arnon Shirazi (Analyst)
Hi, all. Thank you for the opportunity. My question is a follow-up from Antonio's question. The first one is related to financial expenses. As you mentioned, it was negatively impacted by buybacks and dividends. Could you share what would be expenses excluding this effect? And also, my second question is also on the line of Antonio's own and its own potential ROE after leveraging the balance sheet, which could be the ROE level that is feasible for the company in the long term? Thank you.
Ricardo Dutra (Principal Executive Officer)
Good evening, Arnon. Thank you for the questions. Regarding the first one, financial expenses, in the Q2, we had BRL 25 million of impact coming from funding expenses related to buybacks and dividends, so our growth of 7% in a yearly basis would be 7.7%. Regarding the second question, ROE, we are not guiding exactly the number that we are looking for in the future, but based on our analysis, there is no reason to be different than other companies in the country.
Arnon Shirazi (Analyst)
Super clear. Thank you.
Ricardo Dutra (Principal Executive Officer)
Arnold, if I may comment here. Thank you. Okay. Thank you.
Arnon Shirazi (Analyst)
Please, please go ahead.
Ricardo Dutra (Principal Executive Officer)
Arnold, we are talking about a BIS ratio of about 30%. We see some other players similar to ours, our peers, working in a lower BIS ratio. And of course, that means that we can increase ROE because of this. Once you give it back to our shareholders through dividends, buybacks, or increasing the credit portfolio, we will also decrease the equity, and then this ROE will be higher as a mathematical consequence because the denominator of the equation is going to be lower once we decide to accelerate giving back to shareholders and have a BIS ratio close to what we see in our peers. So that's the mathematical.
We have two items here. The first one is the level of BIS today, and the second one is the margin from the banking products are good. As soon as we scale more, definitely the ROE should be better.
Arnon Shirazi (Analyst)
Got it. Thank you.
Ricardo Dutra (Principal Executive Officer)
Thank you.
Operator (participant)
Our next question comes from Daniel Vaz from Safra. Mr. Vaz, your microphone is open.
Daniel Vaz (Analyst)
Hi. Thank you for the opportunity of making questions. The gross profit from acquiring has been falling in nominal terms and losing relevance when compared to the banking business, right, so the banking business is growing almost 100% every year, and I wanted to pick your brain about the link between both business. At some point of the presentation, you described banking as a complementary offering, right? Somehow, right now, it's hard to see this link beyond better funding or prepayment, right, so the credit portfolio is essentially a consumer base right now, and deposit growth is now growing more in the off-platform, right, so account balances have been flat for a while, so correct me if I'm wrong here, but you seem excited on the banking side and kind of disconnected to the acquiring story right now.
So the question is, when should we see a more connected business, right? So maybe you will start offering working capital lines, other value-added services to the small business to bridge that gap between the both. Thank you.
Ricardo Dutra (Principal Executive Officer)
When you think about the gross profit in the acquiring, remember we had this 48% increase in financial expenses year over year. That definitely doesn't help. So when you compare it, it's a huge impact. And as I said before, part of our base, we did not increase the prices for the clients that you have default MDRs and default prepayment rates. So we have this huge headwind about the financial expenses. You're right when you say that today, the majority of the portfolio, it is based on consumer, but the credit card, part of this portfolio of credit cards, it is based on merchants already. And working capital, of course, is 100% on merchants. The working capital grew 38% quarter over quarter, although it's still small, but it is growing. We originated in July the same amount that we originated in almost the whole Q2.
So that's definitely the product that we see some traction, and we see some NPLs under control, and we see some space to grow here. We also see in the industry other players taking advantage of that. So it would be no different for us, although we may be a little bit late in the product when compared to the other player. We are catching up. So we see opportunities to grow working capital, definitely. We saw that in Q2. We'll probably see that in Q3 as well. And then maybe by doing so, it's going to be more clear the link between banking and payment that you mentioned before. But still today, it helps a lot in terms of funding. It helps a lot in terms of getting the collateral for us to offer, for instance, credit card for merchants.
We are extremely confident about this working capital looking forward.
Daniel Vaz (Analyst)
Thanks very much for it. And if I may follow up quickly, any guesses where penetration on your client base about the working capital product? Have you been conducting any sensitivity on that?
Ricardo Dutra (Principal Executive Officer)
I would say to you that our base is more taker of credit than a saver, so to say. So there is a huge opportunity to grow there. We just want to make it step by step because consistency is more important than back and forth when you think about credit products. So it's still very small, the penetration. And as I said before, the origination that you have in July, it was almost the whole origination we had in Q2. So definitely, it's a product that is growing. I don't want to give you any guidance here because we are still, although we are growing very fast, it's still baby steps or very small, but definitely something that we will grow in the future.
It's seeing the industry that we have this opportunity as well because other players are growing this product and have a credit portfolio bigger than ours.
Daniel Vaz (Analyst)
Very clear. Thank you. Thanks again.
Ricardo Dutra (Principal Executive Officer)
Thank you.
Operator (participant)
Our next question comes from Neha Agarwala from HSBC. Mrs. Neha, your microphone is open.
Neha Agarwala (Analyst)
Hi. Thank you for taking my question and apologies if I'm making you repeat anything. The slowdown in the MSMB TPV is quite material. So I just wanted to double-click on that and see if maybe part of that is because some of your peers, as you mentioned, have been more active on the financing working capital loan side. So do you see that as part of the reason why with the repricing churn, your repricing churn was stronger than maybe what we otherwise expected? And how should we think about MSMB TPV growth in the coming quarters? Should we see a pickup? Was there anything on this quarter which should reverse, or is this the kind of level that we should expect for the remaining part of the year? And my second question is on the unsecured loan portfolio.
I mean, thank you for the clarification about the origination in July. That's quite promising. But still, as you mentioned, it's a very small portfolio. So can you give us a bit more details about how you're pricing the product? What collaterals are you taking? Are you just using the receivables, or are you taking any other collaterals? How have you designed the product in this acceleration that has been happening in the last month? Thank you so much.
Ricardo Dutra (Principal Executive Officer)
Neha, thank you for the question. We'll start from the last one. In terms of the working capital product, it's very similar to what you see in the market. The advantage that you have here is that we have a base that is very, very engaged within our app. They use our app very often, as we can see in Slide 14. They use our app all the time. They are using our app. And remember, we only have one app for the merchants, for the consumer, for everybody. So it's the same app, and we take advantage of this digital distribution in order to get our product to the market. In terms of collateral, we use the future receivables. So part of the principal, we use the future receivables, and then we're going to follow the activity of the merchant throughout the month.
So it's very similar to what other players do in the market in terms of the product, but in terms of distribution, definitely we have a huge advantage, I would say, because of, again, the way that our clients use our app and the frequency they use our app. So that's about the working capital. The other questions about churn and TPV looking forward, we are not guiding the TPV looking forward, but I would say that in Q2 2024, we had a 34% growth year over a year. In Q3 2024, we had a 37% growth year over a year. So definitely, it's going to be, again, a hard comp. And we are looking for the profitability of the company and profitability of the client.
And Neha, the number of active clients, as I said, when you look at short term, 90 days and 30 days, we do not disclose the exact number, but it's very stable and growing in the last months. It was very stable and now growing in the last months. So we see that they have the opportunities to take it back, part of the TPV, as part of this negotiation and so on with the client. So we are monitoring that very close. TPV, again, is not the main metric. We are looking for gross profit and EBT. In a situation, in the macroeconomic environment, as you said in the second slide of the presentation, it may be hard, but to be honest, definitely doesn't change the trajectory of the company. Doesn't change the trajectory of the company.
The trajectory of the company is growing, generating shareholder value, growing EPS, growing net income and EBT in absolute terms. We did that with the higher effective tax rate, so we are managing the company in this, I would say, complicated macroeconomic scenario, and we are delivering the results, but TPV definitely is not the main metric, and going forward, I will not give you guidance because we don't have it here right now, but I would say to you that we are looking for the profitability of the company and the profitability for each client, and going back to your question, working capital is doing well up to this point.
Neha Agarwala (Analyst)
Dutra, if I can just follow up on the working capital, your focus is more on the SMB segment for the working capital loans, or is it lower income and long-term merchants in that segment? And also in terms of.
Ricardo Dutra (Principal Executive Officer)
I'm not hearing Neha, but I got the beginning of the question about the profile of the merchant. Yes, we are focused on the small and medium business, not in the long-tail, not in the nano client. We are focusing more in the small and medium businesses. SMBs, not the M of the SMBs. We are focused more on the small and medium businesses.
Neha Agarwala (Analyst)
Understood. Thank you so much, Dutra, for your comment.
Ricardo Dutra (Principal Executive Officer)
Thank you, Neha.
Operator (participant)
Our next question comes from Bruno Bonfim from Santander. Please, Mr. Bonfim, your microphone is open.
Henrique Navarro (Analyst)
Hi. Actually, this is Henrique Navarro speaking. My question is on competition. Can you guys give some color on how do you see competition recently? We heard that maybe Mercado Pago, some of your competitors could be gaining market share. I mean, do you see competition more rational on pricing, etc.? I mean, any color you could share, I would appreciate. Thank you.
Ricardo Dutra (Principal Executive Officer)
Thank you for the question. I'd rather not comment about any specific competitor because, of course, each one has its own strategy. We also have ours. I would say to you that everyone is looking for profitability at the end of the day. When you look at the companies that are public, releasing their results, even the acquirers that are part of the incumbent banks, you see that everyone is looking for the profitability. Remember, in Brazil, we are with a 15% basic interest rate of the economy. So everyone is looking for profitability, being more defensive, and we are not different. That's why we said that it was a quarter that we focused on profitability, and we did deliver, but I don't see any rational movements, and sometimes you see some promotions here and there, but that's a movement that back and forth and appears and disappears.
But I don't see structurally someone being irrational or taking advantage to gain market share because, again, when you have 15% basic interest rate of the economy, you cannot be that aggressive and losing money, or you do that for a while and then you make the math and get back to the rationality. But again, I don't see that happening at this point. So competition is rational. Everyone is looking for profitability, and we are doing the same here. And looking at the client as a whole, I want to highlight that we are looking at the client as a whole. We had BRL 130 billion in TPV and BRL 91 billion in Pix cash-in, 19% increase year over year. That is important. That is important. And we've built the bank with the most difficult part, which is to create deposits. That's the most difficult part of the bank.
To give credit is a consequence of us having the right products, the right models, the right credit risk, and so on. But to get the deposits, which is hard, that's something that we've been building in the last year. So I'd like just to take advantage of our question to highlight that.
Henrique Navarro (Analyst)
Okay. Thank you.
Ricardo Dutra (Principal Executive Officer)
Thank you.
Operator (participant)
Our next question comes from Renato Meloni from Autonomous Research. Please, Mr. Meloni, your microphone is open.
Renato Meloni (Analyst)
Hey, everyone. Thanks for taking the question. So first, I just wanted to go back to the funding strategy here and deposits. So we saw checking accounts going up 2% quarter on quarter. This is normally a positive in terms of seasonality for checking accounts. So I wanted to understand something if something happened here. And then picking up on your earlier comment saying that you might rely more on interbank deposits. And I understand you have competitive rates there, but just given here by the differential of rates, I would just be surprised that that doesn't impact cost of funding and if we should expect that to pick up in the upcoming quarters. Then just if you allow me for a second question, just looking here at gross margins over TPV, I think you've achieved a pretty healthy level helped by the repricing.
So I wanted to know, I was just wondering what do you expect for the second half of the year? I mean, there's more competition, potential worse economic scenarios you were describing, but at the same time, you might still have the can be carry-ons and benefits from the repricing. So trying to understand if that's stable for the second half, maybe up or down. Thanks.
Ricardo Dutra (Principal Executive Officer)
Renato, we'll start with the last one. We have been doing the repricing since October 2024, and it was exclusively to offset the increase in interest rate of the Brazilian economy. So that today is 15%. So it was to offset this increase. If we don't have increased interest rates looking forward, structurally, we will not have increase in our price for the merchants. Of course, there is always some customization in some of the price for smaller merchants here and there, but I mean, it's more negotiation, it's more clusters. Structurally, we don't see that happening if we don't have increased interest rates, and it seems that interest rates should go down in 2026, so if that scenario doesn't change, there will be no big waves of repricing in the following months or in the following quarters. Going back to deposits, I'll pass the word to Artur.
Artur Schunck (CFO)
Good evening, Renato. Thank you for your question. And so regarding our funding strategy, I think the main point here is we have all the company and the management team focused on increased checking accounts, all the deposits, not only checking account, but all the deposits. On top of that, we are working in our treasury to diversify in a different perspective, like many counterparties, many different products. On that way, we could have a competitive cost on those players. We also can work in a more longer duration. So we have a broad view on how to operate our funding structure and always boosting costs down. Regarding this checking account, we prefer to combine checking account and certificate of deposits because everything that we see in deposits is in line with our expectation, even considering the macro scenario that also affects our clients and their financial activity.
But it is in line with what we see: checking accounts growing two, certificate of deposits growing six, and you need to combine those two things to understand the activity in the engagement of our clients in the base.
Ricardo Dutra (Principal Executive Officer)
And the most important, Renato, is to manage the APY, which went down quarter over quarter from 90% to 89%. So that's part of the science to get the best deals that you have in the market, being checking accounts, certificates of deposit, and interbank, manage this cost of funding at the end of the day. That's what matters.
Renato Meloni (Analyst)
Perfect. Thanks, guys.
Ricardo Dutra (Principal Executive Officer)
Thank you.
Operator (participant)
Our next question comes from Marcelo Mizrahi from Bradesco BBI. Please, Mr. Mizrahi, your microphone is open.
Marcelo Mizrahi (Analyst)
Hello, everyone. Thanks for the question. So my question is regarding the strategy of the company looking forward. So what the company is planning to do in this environment with soft economy and with this? So I understand that the strategy is to try to bring back some clients, but how to do that? So do you guys are planning to use the marketing to bring these clients? Do you guys are planning to offer credit to them? So how do you guys plan to bring back these volumes in the next quarters? Thank you.
Ricardo Dutra (Principal Executive Officer)
Hi, Marcelo. There are many tools that you can use here. Once you have the relationship with the client, there are many tools that we can do with these clients. We can get promotions. We can get specific deals for specific payment methods. We have the sales force in the streets, so there are many ways to get these clients back. Definitely, I don't think that credits would be a tool to get clients back because we try to get the client because of the whole package of the company, including banking and payments, and credits are a consequence of the activity that we see the client here, so we will not make irrational movements. Of course, if you have a client that has a decent volume with us, we can offer credit, but there are many, many tools that we can use to get these clients back.
Looking forward, the strategy of the company, as we've been seeing in Slide 19, is to grow banking more and more. I said before we did the most difficult part of building this balance sheet of the bank, which is to build the deposits franchise. That's the most difficult part. To give credit in the asset side of the balance sheet, it is something that if you do it right, you can keep growing in a very consistent way. But the most difficult part is to get the deposits from franchise, and we've been building that in the last years, and banking is gaining share. It's 21% of the revenues, 26% of the gross profit. That would be no different looking forward.
And again, we look at the client as a whole, and we look at the whole volume of the company, BRL 130 billion from cards and Pix QR codes and BRL 91 billion from Pix cash-in. So we need to look at the whole flow, the cash flow that you have from the client here and take advantage of that in different ways.
Operator (participant)
Thank you. That's all the questions that we have for today. I will pass the line back to PagSeguro Digital's team for their concluding remarks. Please go ahead.
Ricardo Dutra (Principal Executive Officer)
Thank you, everyone, for the time. Thank you for participating and for the questions. See you soon. Thank you.
Operator (participant)
This does conclude PagSeguro Digital's conference call. We thank you for your participation and wish you a very good evening.