Overview

We are a disruptive provider of financial technology solutions focused primarily on Micro-Merchants, Small Companies and Medium-Sized Companies, or SMEs, in Brazil. Among our peers, we are the only financial technology provider in Brazil whose business model covers all of the following five pillars:

  • Multiple digital payment solutions
  • In-person payments via POS devices that we sell to merchants
  • Free digital accounts
  • Issuer of prepaid cards to clients for spending or withdrawing account balances
  • Operating as an acquirer.

Our end-to-end digital ecosystem enables our customers not only to accept payments, but also to grow and manage their businesses. Before PagSeguro, many of these Micro-Merchants and SMEs were overlooked or underserved by incumbent payment providers and large financial institutions in Brazil. For example, according to a survey conducted by us in June 2017, 75% of merchants who own our entry-level mPOS device, the Minizinha, did not accept card payments prior to signing up with PagSeguro. We offer safe, affordable, simple, mobile-first solutions for merchants to accept payments and manage their cash through their PagSeguro digital accounts, without the need for a bank account. Our digital account offers more than 30 cash-in methods and six cash-out options including our PagSeguro prepaid card, all using our proprietary technology platform and backed by the trusted PagSeguro and UOL brands. Our digital ecosystem also features other digital financial services, business management tools and functionalities for our clients.

We launched PagSeguro in 2006 as an online payment platform to provide the digital payment infrastructure necessary for e-commerce to grow in Brazil. The credibility of our parent company UOL was key to this success. Founded in 1996, UOL is Brazil’s largest Internet content, digital products and services company. According to comScore, Inc., or comScore, 81.2 million unique visitors (approximately 73% of Brazilian internet users) accessed a UOL website in May 2017, representing an increase of 22% from 67 million in May 2016. In addition, according to Adobe Analytics (which we use to measure our audience) and Google Doubleclick for Publishers, or DFP (the adserver system that we utilize), as of May 2017, UOL achieved five billion page views, provided 15 billion display ads and had a potential video inventory of one billion video ads, each on a monthly average basis. Furthermore, UOL had more than 1.2 million monthly subscribers in May 2017. The PagSeguro and UOL brands together gave online consumers the confidence to share their sensitive personal and financial data with us, allowing them to shop online easily and safely. As an example, we brought trust to the online merchant-customer relationship by introducing a feature where we hold the consumer’s payment in escrow for a period of time after the purchase, as a precaution in case of any commercial claims.

In 2013, we expanded from online payments into point of sale, or POS, payments, allowing merchants to receive in-person payments. Focusing primarily on Micro-Merchants and SMEs, we sell a range of POS and mobile POS, or mPOS, devices specifically designed to fit their business needs. Our devices all offer competitive transaction fees and access to our end-to-end digital ecosystem, with a PagSeguro prepaid card, and without the need for a bank account. They span from our entry-level product, the Minizinha, to the Moderninha Pro, the POS device with the most connectivity features in Brazil. Unlike the incumbent payment providers in Brazil, who rent their POS devices to merchants, we innovated by allowing merchants to acquire their own POS device from us in 12 monthly installments. For the equivalent of three to six months of rental fees with the incumbents, merchants can buy a comparable device from PagSeguro.

Our digital ecosystem helps drive financial inclusion in Brazil providing business solutions primarily designed for Micro-Merchants and SMEs. Our main target markets include unbanked merchants who have been ignored or underserved by the incumbents. These merchants are attracted by our disruptive technology, which enables us to offer innovative, scalable and low-cost products and services with simpler onboarding, no paperwork and a high acceptance rate, while maintaining levels of fraud below those required by the card schemes. Once on our platform, merchants can offer consumers more than 30 cash-in methods, choose to obtain early payment of their card receivables on consumer installment transactions, and manage their cash balances on our free PagSeguro digital account, which offers six cashout options including bank transfers, online purchasing through our eWallet, and in-person and online purchases or cash withdrawals using our PagSeguro prepaid card. Our management tools help them start or grow their business with PagSeguro as a partner, with functionalities such as sales reports and inventory control, which we believe create a strong commercial bond with our clients. We believe the combination of all these features increases our clients’ loyalty, leading them to conduct additional business with us, in a virtuous cycle. Our merchants span businesses of all types and sizes, ranging from Micro-Merchants and Small Companies such as street vendors and beauty salons, to MediumSized Companies and Large Companies in retail and other sectors. We also have a growing presence in the businessto-business commerce segment.

Our Market Opportunity

The Brazilian Payments Market Is Large, Yet Underpenetrated

  • Although Brazil is the largest economy in Latin America as measured by gross domestic product, or GDP, digital payment penetration in the country remains low compared to more developed economies. In 2015, 59% of the Brazilian population above age 15 reported having made or received a digital payment, compared to 92% in the United States and 97% in the United Kingdom, according to the World Bank. In addition, according to a December 2016 report by the Bank of International Settlements, or BIS, and data from the World Bank, card usage as a payment method in Brazil represented only approximately 28% of private consumption in 2015, compared to approximately 45% in the United States and 55% in the United Kingdom. Credit card penetration levels are a fundamental driver for the digital payments industry, yet, according to the World Bank, in 2015, only 32% of the Brazilian population above age 15 held a credit card, compared to 60% in the United States and 62% in the United Kingdom. Furthermore, 42% of the Brazilian population above age 15 made a purchase using a debit card in 2015, compared with 67% in the United States and 92% in the United Kingdom.
  • Brazil shows strong structural growth drivers for digital payments as its economy continues the transition away from cash. In 2014, according to ABECS and the Central Bank, the transaction volume for payment cards overtook the transaction volume for checks for the first time. Credit and debit card transaction volume in Brazil has increased at a compound annual growth rate of 14% from 2010 to 2016 according to ABECS. As a further indication of this growth, MasterCard stated that the Brazilian real was one of its three primary revenue billing currencies during 2016.
  • In e-commerce, transaction volumes in Brazil grew to R$44.4 billion in 2016 from R$18.7 billion in 2011 according to eMarketer, representing average growth of 18.9% per year for the period. However, e-commerce in Brazil remains underpenetrated compared to more developed economies. In Brazil, e-commerce accounted for only 3.6% of retail sales in 2016, compared to 7.8% in the United States and 18% in the United Kingdom, according to the World Bank. Furthermore, according to eMarketer, in 2015, mobile e-commerce represented 11.7% of e-commerce transactions in Brazil, compared to 23.6% in the United States. According to a 2017 report commissioned by ABECS and carried out by Datafolha, online purchases made up only 19.2% of the total credit card transaction volume in Brazil in 2016, an increase of 3.2% from 18.6% in 2015.
  • Access to mobile Internet in Brazil is growing. According to eMarketer, Brazil had the fourth largest online audience in the world with 139 million Internet users in 2016, representing penetration of 58.2% of the population, compared with penetration of 82.5% in the United States. Furthermore, according to the World Bank and calculated using the weighted average, Brazil has a high penetration of mobile phones, with 119 mobile phones per 100 inhabitants at December 31, 2016, compared to 118 in Organization for Economic Cooperation and Development, or OECD, member countries and 102 worldwide. This trend is driven in part by the rollout of 3G and 4G networks. According to the Brazilian Telecommunications Association (Associação Brasileira de Telecomunicações, or Telebrasil), 5,016 municipalities (where 98.3% of the Brazilian population resides) had access to 3G networks as of May 2017 and 372 new municipalities had received 3G networks in the prior 12 months, representing an 8% increase during that period. Access to 4G networks also continues to grow, reaching 76% of the Brazilian population during the first quarter of 2017, an increase of 21 percentage points from the first quarter of 2016 , according to data from Telebrasil.

As access to mobile Internet has grown, so has the use of mobile banking. According to a research report prepared by Deloitte on behalf of the Brazilian Bank Federation (Federação Brasileira de Bancos, or Febraban), mobile banking increased 96% during 2016, with 34% of all online banking transactions in 2016 being made on cell phones or tablets. However, mobile banking and mobile e-commerce remain underpenetrated in Brazil. Globally, according to information compiled from the Strawhecker Group, BNR Market Research Report, and the Engagement Survey for Boston Retail Partners, the mobile payments purchase volume increased to US$27 million in 2016 from US$4 billion in 2014; yet only 9% of the Brazilian population above age 15 reported having paid bills or made a purchase online in 2015, compared to 65% in the United States and 73% in the United Kingdom, according to the World Bank.

Micro-Merchants and SMEs Account for a Large Portion of the Brazilian Economy and Need Suitable Payments Solutions to Flourish

  • According to SEBRAE and the Portal do Empreendedor, in 2016, Micro-Merchants and SMEs accounted for 99.8% of Brazil’s 12 million businesses. According to data published by Neoway Business Solutions in 2017, Micro-Merchants and SMEs represented 35.4%, or R$1.8 trillion, of the R$5.1 trillion total annual TPV from businesses in the following sectors: wholesale, retail, other commercial, electronics, pharmaceutical, hotels and food service, education, healthcare, professional and technical services, textiles and transportation.
  • Due to higher prices by banks and other incumbent providers many Micro-Merchants and SMEs remain unbanked and seek digital payments solutions. We believe that by attracting these merchants into our ecosystem with our superior value proposition, we can continue to drive significant additional revenue growth in the coming years.
  • Demand for payment solutions by Micro-Merchants and SMEs is resilient, both during times of higher economic activity when sales increase, as well as during times of lower economic activity and higher unemployment, when more individual entrepreneurs open new small businesses, as demonstrated by our growth rates since our launch.

Micro-Merchants and SMEs Need Working Capital Financing

In the standard payment cycle in Brazil, merchants receive sales revenues from credit card transactions 30 business days after the consumer transaction. In addition, Brazilian consumers expect merchants to allow them to choose at the point of purchase to have the purchase price either (i) charged to their credit card accounts in a single payment, as in other markets, or (ii) split into several payments and only charged to their credit card accounts in monthly installments. In this case, the merchant only receives the revenues after the respective monthly installment has been charged, rather than 30 business days after the original transaction. Together, the 30-day payment cycle and the installment option create working capital difficulties for merchants. We offer two services to help merchants improve their cash flow. To shorten the payment cycle, our “payment date election” service (regime de recebimento) allows our merchants to receive their credit card revenues from us either (i) in the regular 30-day payment cycle or (ii) if the merchant so elects, on the 14th or first business day. To help our merchants offer the installment payment option to consumers, we offer to pay the monthly installment receivables to our merchants either (i) when each installment is charged to the consumer’s card or (ii) if the merchant elects our early payment feature, on an up-front basis. MicroMerchants and SMEs have historically faced difficulties obtaining this service from the incumbent payment processing providers, and they often require merchants to request early payment on a transaction-bytransaction basis. We offer a solution to these bottlenecks through simpler onboarding and preapproval of a merchant’s early payments. The underlying receivables relating to these payments are owed to us by the credit card issuers, which are owned primarily by Brazil’s large retail banks. This early payment of receivables feature creates an important working capital alternative for our merchants while also generating income for us.

Major Benefits for Our Customers

We offer the following major benefits for both merchants and consumers:

  • Customers do not need a bank account to join our ecosystem. With a 100% online onboarding process, without paperwork, quick turnaround and a high acceptance rate, we offer access to our advanced digital payment processing and early payment of merchants’ installment receivables. We accept merchants who are either individuals or companies.

  • We offer a full suite of more than 30 cash-in options under a single contract, with security and reliability, plus six cash-out options including bank transfers, online purchasing, and spending both in-person and online as well as cash withdrawals using our PagSeguro prepaid card.

  • Our pricing model for all of our services––whether transaction fees, early payment of installment receivables or sales of POS devices––is simple, transparent and easy to understand.

  • Our social payment solutions, such as Pag.ae, allow both consumers and merchants to use their PagSeguro account to request payments via web links sent through e-mail, social networks or messaging services such as WhatsApp.

  • We offer a comprehensive suite of affordable POS devices, with user-friendly features and functionalities, reliable connectivity and a five-year warranty. Our devices range from the entry-level Minizinha to the Moderninha Pro, the only single unit to offer GPRS/2G/3G/4G chip connection, NFC, plug-and-play Wi-Fi and Bluetooth connections (for commercial automation and connection to other devices) on the same device, making it the POS device with the most connectivity features in Brazil. Merchants purchase their own device through a flexible payment plan. For the equivalent of three to six months’ rental payments with incumbents, merchants can buy a comparable device from PagSeguro and avoid continuous monthly rental fees

    Data protection and confidentiality for consumers, with merchant verification and transaction protection mechanisms, including escrow periods and claim mediation services.

  • Our payment solutions reduce the need for consumers to carry cash since more Micro-Merchants and SMEs are able to accept digital payments in-person.

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