Inter & Co Inc

NASDAQ:INTR

Earnings Call Analysis

Robust Growth in Clients and Revenue with Strategic Focus on Personalization

The company reported exceptional growth, reaching 33 million clients with a 1.6 million increase this quarter. Total revenue rose to BRL 2.4 billion, reflecting a 29% year-over-year increase. The firm's focus on hyper-personalization and marketing boosted net revenue by 7% quarter-over-quarter to BRL 1.5 billion. The launch of new insurance products led to record-breaking sales, with 39% quarterly client growth. The company's loan portfolio grew by 35%, driven by FGTS and home equity loans, which surged 93% and 50%, respectively. Despite a competitive market, the client activation rate improved to 55.3%, showcasing strong client engagement and successful cross-selling strategies.

Remarkable Client Growth

In the second quarter, Inter achieved a significant milestone of welcoming 1 million new active clients, bringing the total client base to 33 million. This growth indicates a strong activation rate of 55.3% among existing clients, with ongoing success in attracting a diverse pool of new clients.

Financial Performance Highlights

The company reported gross revenues of BRL 2.4 billion, representing a substantial 29% year-over-year growth and a 7% increase quarter-over-quarter in net revenue, which totaled BRL 1.5 billion. Driving this growth were robust performances across various revenue streams, including fees and Net Interest Income (NII).

Strong Loan Portfolio Expansion

Inter's loan portfolio grew by 35% year-over-year, reaching BRL 35.7 billion. Key products like FGTS and home equity loans were significant contributors, growing by 93% and 50%, respectively. Additionally, the average rate of loans has increased to an impressive all-in loans rate of 21%, which is double the CDI rate.

Enhanced Profitability Metrics

The company achieved a record-breaking Return on Equity (ROE) surpassing 10.4%, indicating effective management and profitability. Pre-tax income reached nearly BRL 300 million and net income was reported at BRL 223 million.

Cost Efficiency Improvements

Inter has successfully reduced its Cost-to-Serve metric to a record low of BRL 11.1 while maintaining an efficiency ratio of 47.9%, well ahead of their strategic target. This consistent improvement highlights the operational leverage achieved through effective scaling and cost control.

Strategic Investment in Growth Areas

The company has identified three key investment areas: technology, personnel, and branding, particularly as costs were up 5% in the quarter. Their targeted marketing campaign has yielded a 25% surge in online searches and a 20% increase in app downloads.

Robust Funding Franchise

Inter's funding base has reached BRL 47.8 billion, with significant growth in transactional deposits, which account for 32% of the total funding. The company reported a low cost of funding of 6.8%, the lowest level since early 2022.

NIM and Risk Adjustments

Despite pressures from inflation, the company has seen positive trends in Net Interest Margins (NIM), maintaining expectations for increases of approximately 20 basis points per quarter. The cost of risk has improved to 5.0%, positioning the company well against potential future credit challenges.

Successful Product Launches and Innovation

Inter has diversified its product offerings with recent launches, particularly seeing growth in the insurance segment with over 1 million policies sold, and a robust performance in the investment sphere, exceeding BRL 100 billion in assets under custody.

Outlook and Future Strategy

Looking forward, Inter aims to continue balancing growth and profitability while expanding essential features and maintaining a competitive edge through their robust digital banking platform. The leadership is focused on innovation while meeting their operational efficiency goals based on the ongoing 6-30-30 plan.

Earnings Call Transcript 2024-Q2

[Operator]

Good afternoon, and thank you for standing by. Welcome to Inter & Co's Second Quarter Earnings Conference Call. Today's speakers are João Vitor N. Menin, Inter Global CEO; Alexandre Rico, Brazil's CEO, Santiago Stel, Senior Vice President of Finance and Risk and CFO, and Rafaela de Vitoria, Chief Economist and IRO. Please be advised that today's conference is being recorded, and a replay will be available at the company's IR website. [Operator Instructions] Please note that there is an interpretation button on your screen where you can choose the language you want to hear English or Portuguese. Throughout this conference call, we will be presenting non-IFRS financial information, these are important financial measures for the company but are not financial measures as defined by IFRS. Reconciliations of the company's non-IFRS financial information to the IFRS financial information are available in interim co earnings release and earnings presentation appendix. Today's discussion might include forward-looking statements, which are not guarantees of future performance. Please refer to the forward-looking statements disclosure in the company's earnings release and earnings presentation.

Now I would like to yield the floor to Mr. João Vitor N. Menin, Sir, the floor is yours.

[João Vitor Nazareth Teixeira de Souza, executive]

Thank you, operator. Hello, everyone. As usual, I will begin with a brief overview of our strategy before handing over to Shanji and Sanji that will cover operational and financial metrics. But before we begin, I want to express my gratitude to Shanji, our new Brazil CEO. Shanji, I'm confident that you will continue to do an amazing job in our new role, leading our business in Brazil into a bright future.

Now let's deep dive into second quarter results. I'm very happy with our deliveries in our 6 [indiscernible] plan this quarter. I can affirm that the combination of growth and profitability is propelling us to new heights. Once again, we are demonstrating our ability to deliver remarkable results by focusing on execution day after day, while constantly passion for innovation and new ideas we also delivered strong financial performance, ensuring that our business is here to last.

I would like to stress my gratitude and admineration for our group of 3,800 employees. We are very proud to see that our company is producing alpha in the Brazilian banking market. A clear way to see this is in the pace of growth that we have in very important portfolios. We are growing multiple times faster than the industry, such as 8x faster in individual accounts and 4x faster in FGTS loans. This reflects the built of our financial super app and the great ability to attract clients and cross-sell our products within the platform, therefore, maximizing our market share gains.

To really understand what I'm trying to say, let's spend some time on Page 7. We can see here the opportunity we have to fish in our own acquiring. We have scaled at the most difficult part, getting clients on board and building the product offering. Now if we keep growing at the same pace for the following years, we can reach greater market share just by fishing in our own acquired, meaning getting more business from our existing clients. Obviously, on top of that, we will continue bringing new clients as we have done consistently for many years. As you know, we have 1 of the most complete product offerings in the market, serving multiple client profiles in 1 single app.

To maximize conversion of our products, we rely on a strategy that are based on hyper personalization, best-in-class UI and UX and a unique digital journey for every moment inside that. Shanji will present the details later, but just to give you a little sneak peak, our insurance vertical printed the best quarter ever, thanks to the amazing impact of integrated data, target campaigns and the strength of our connected platform. What I mean with that is we are seeing incredible results by leveraging our data effectively and constantly pushing the boundaries of innovation.

I'm personally passionate about the client experience and driving innovation. We will continue to enhance our UX and UI and introduce new features to provide the best possible experience. Moving to Page 9. We can see our 7 verticals powerfully working together. As I engineer myself, I'd like to say that all cylinders are working in perfect coordination. And this makes me confident on the continued success of our platform by providing a complete range of personalized products to each client, we observe amazing outcomes across all verticals, which Shanji will deep dive in the next page. Shanji, please go ahead.

[Unknown Executive]

Thank you, João. Good afternoon, everyone, and thanks for joining us today. First of all, I'm extremely proud to assume the role of CEO of Brazil and leading our operations. Having been part of Inter for 11 years, I can say that I have a deep passion for everything we have built so far and of what lies ahead. João once again, thank you for your support and trust as well as of your forward-looking vision that constantly pushes us to the innovation pioneers.

Going into the results, I'll start by focusing on the most important topic, our clients. We're happy to announce that once again, we welcomed 1 million new active clients this quarter. This figure has led to a sixth consecutive quarter of increasing activation now standing at 55.3%, throughout the second quarter, we achieved a total of 33 million clients, successfully increasing the client base by 1.6 million. This demonstrates our ability not only to increase activation among existing clients, but also to attract a new pool of qualified clients who are activating faster and engaging more with our platform.

In addition to the total clients, I would like to introduce everyone to some details of our business clients. We currently have over 2 million business accounts growing at a fast pace of 21% year-over-year. These 2 million clients are highly engaged with an impressive activation rate of 80% in addition to higher deposits, TPV and the interchange levels.

Last month, we announced the closing of the acquisition of [ Granito ] renamed to Interpack our acquiring business. We're excited about this transaction as we now will be able to fully integrate the business into our ecosystem. The transaction brings a long list of opportunities. Three examples are First, cross-selling our banking products to all of Interparks merchant clients; second, cross-selling acquiring services to our existing base of merchants and individuals, hundreds of thousands of which already flow their acquiring receivables into our account. And third, building powerful bundles of banking and acquiring services to address retail clients currently underpenetrated in our base.

In summary, we see opportunity ahead of us and are already moving to capture it. Turning our attention to Page 12. The total TPV has shown a remarkable increase of 47% year-over-year, reaching BRL 290 billion. Specifically, when we consider transactions made through PIX, we transacted over BRL 266 billion in a single quarter, capturing 8% market share of the total number of transactions. Also important was that for the second consecutive quarter, volumes and growth from credit cards have surpassed debit resulting in higher interchange revenue and further improving the TPV mix. Moreover, as we have consistently seen in the past few quarters, we're continuously increasing TPV levels among both new and existing cohorts. This demonstrates the growing engagement of our customers with our product offerings, ensuring continued success.

Moving to the credit side. I want to provide a brief update on our new credit lines expansion. PIX financing, [indiscernible] and our other unsecured lines. In the quarterly comparison, we had an inspired increase of almost 90%, reaching a combined of BRL 330 million in portfolio. This is 1 more important step in bringing our unsecured products through full potential. In the beginning of the third quarter, we expanded our PIX financing offering to the entire credit card base, 1 more element to sustain growth.

Moving to Page 13. In the e-commerce vertical, we have achieved the best [ gross ] level of the post-pandemic base. In the annual comparison, we increased our GMV by more than 50% surpassing BRL 1.1 billion in the quarter, with more than 3 million clients making purchases within the period.

On loyalty, a vertical that completed 1 year in June we achieved impressive 8 million clients, demonstrating our strength in launching and growing new products that have strategic fit with our platform. Those clients are highly engaged spending 2.7x more than non-loyalty clients and generating an RPAC that is 1.7x higher.

Moving to Page 14. On the insurance front, we are very happy to report 1 of our best quarters ever. Our sales have exceeded 1 million for the first time ever. Far exceeding what we have experienced in the previous quarter. And we have seen a 39% quarterly increase in the number of active clients. As a result, we now have 2.6 million active insurance clients, an amazing number. We're also proud to have successfully launched new products in this vertical, such as the FGTS loan insurance. This product integrated seamlessly into the FGTS loan product user experience. And this is a great example of our hyperpersonalization strategy, as previously highlighted by Joao.

Turning our attention to the investment vertical, we had a quarter of encouraging growth. Within a year, we have increased the number of active clients by around 60% reaching 5.7 million.

Furthermore, we have surpassed a significant milestone of BRL 100 billion in AUC for the first time and are already close to BRL 110 billion. This achievement showcases our cutting-edge product offering in this vertical and the evolution of our distribution capacity.

Moving to the next page. Last but not least, on the global front, as mentioned by Joan, we are continuously advancing and replicating 1 of our key competitive advantages in the U.S., our robust deposit franchise. We're excited to report that our assets under custody and deposits in U.S. dollars have reached the milestone of $516 million reflecting an extraordinary 133% year-over-year growth. This achievement underscores our strong performance in the U.S. market.

Within this vertical, we have successfully acquired 3.3 million clients, comprising of higher-income Brazilian clients who frequently travel and invest in the U.S. This means a higher quality customer profiles in terms of spending, engagement and ARPAC levels. This growth and engagement in our global operations encourages us more and more to dedicate to expanding our reach and delivering valuable financial solutions to our clients, regardless of geographical boundaries.

With that, I'll pass the word to Santi, who will cover the financial performance section.

[Santiago Stel, executive]

Thank you, Shanji, and congratulations once again on your promotion. Now let's deep dive in our financial performance of the second quarter. Starting with our loan book. We delivered 35% growth compared to the same quarter of 2023, resulting in a portfolio of BRL 35.7 billion. Once again, FGTS and home equity continue to be key drivers of this credit growth with impressive year-over-year increases of 93% and 50%, respectively.

As Joao said, our focus on hyper personalization has opened up new opportunities to optimize our distribution capabilities. Great examples of this improvements in distribution through hyper personalization, our FGTS and PIX financing with our fully digital products with remarkable growth and profitability profiles.

Now speaking about the implied rates on the top of the page, the stability that we can see is attributed mainly to 2 factors. The first, the overall lower interest rate environment in the entire banking system compared to a year ago when Selic was much higher and two, with the lower inflation in the quarter, which affected mainly our real estate loans. We believe that the performance in terms of [ deals ] was very strong with an all-in loans rate of 21% and which is twice the letter of CDI and is the highest we had at intra in the last 4 years.

We'll go deeper into the full impact of rates in the NIM pages. Let's go deeper into our loan growth by product, which reflects our continuous commitment on deploying capital efficiently. Our top-performing credit products, such as FGTS and home equity experienced remarkable growth and now represent 15% of our loan book. Regarding credit cards, we remain focused on allocating new limits for existing clients with strong risk-adjusted profiles. This strategy has resulted in nearly 40% increase in credit cards in the last year. Both SMBs and real estate loans grew around the yearly average of our loan growth of 35%, while personal loans, which is mainly comprised on payroll loans, had a small negative growth. But when excluding the portfolios acquired nearly 2 years ago, meaning looking only at the portfolios that we originated internally, we had a positive growth of 4% with nice acceleration towards the end of the quarter reflecting the success of the new digital initiatives ongoing in this product.

In terms of asset quality, we saw stable trends across metrics. Both NPLs 15 to 90 days and 90 days plus presented slight improvements in the quarter. Regarding NPL and Stage 3 formation, we experienced a slight increase in the metric as a result of the second quarter 2023 credit card cohort, which presented higher than average delinquency. We think that this effect is specific to this cohort and will reverse in the coming quarters.

Now moving on to Page 20. We can observe that our cost of risk metric improved 20 bps to 5.0% or 10 bps to 5.3%, if excluding anticipation of credit card receivables. These levels are the lowest we have seen since 2022 and reflect how we continue to improve quality of the underwriting model and the collection practices. In terms of our coverage ratio, it remained stable at 130%, indicating that we are provisioning in line with the NPL formation trend.

Passing here to Page 21. We are pleased to once again highlight the robustness of our funding franchise, which reached BRL 47.8 billion. A key highlight is how retail and fragmenting our funding base is with more than 17 million clients trusting us with our savings. Another key highlight, I mentioned many times before, is the mix with transactional deposits accounting for 32% of our total funding base.

In terms of growth, we have seen a remarkable 9% and 34% increase quarterly and annually, respectively. In terms of transactional deposits specifically, this quarter alone, we grew BRL 1.3 billion.

Moving on to Page 22. As we mentioned before, we firmly believe that our funding mix sets us apart from other financial institutions in Brazil and provides us with a notable competitive advantage in terms of cost of funding. In this particular quarter, we reached a cost of funding of 6.8%, which is the lowest since I joined Inter at the beginning of 2022. Once again, we are thrilled to report another great quarter in terms of revenue, breaking previous records for the second consecutive quarter. We achieved gross revenues of BRL 2.4 billion with a net revenue of $1.5 billion. These numbers reflect a substantial 29% year-over-year growth and a solid 7% quarter-over-quarter growth in total net revenues. Both fees and NII experienced robust growth, further validating the effectiveness of our hyper personalization and marketing efforts.

Let's now turn our attention to the unit economic metrics highlighted on Page 24. We are pleased to report that our ARPAC increased to BRL 30.4 per month, this growth is a result of further engaging and monetizing our clients through our broad suite of high-value products. On the cost side, we continue to make significant improvements in our cost-to-serve metric. This positive trend has been consistent over the last 5 quarters, reaching a record low level of BRL 11.1. This demonstrates our ability to efficiently monetize our customer base while capturing economies of scale.

Let's now deep dive into our interest income, specifically focusing on NIMs as presented on Page 25. Starting from the top of the page, both our NIM 1.0 and 2.0 with and without the noninterest accruals of credit cards, known as Avista in Portuguese, are showing a positive upward trend compared to the prior quarters. It's important to note that we faced a negative impact from IPCA this quarter inflation, which contributed to a slower growth in the quarter, particularly on the real estate loans. When we consider the risk-adjusted NIM which deducts the cost of risk, the performance is even stronger, further highlighting the consistent positive trends and reaching record levels. Maximizing the value of our capital allocation is a key priority that will consistently quarter after quarter, results are visible and with the continued repricing and new consumer finance initiatives ongoing, we're optimistic on the continuous improvement in the coming quarters.

As seen on Page 26, we had a modest 5% Growth in expenses this quarter, following a 0% increase in the prior one, therefore, also increasing 5% in the first half of this year relative to the fourth quarter level of 2023. But more importantly than the growth levels themselves, we can affirm that our marginal spending is strategically allocated to investing in 3 main areas: people, technology and branding. This reflects our mindset of creating long-term value of our franchise by investing more in these specific areas. Another worthy aspect to highlight is our marketing expenses we launched a targeted campaign aimed at increasing brand awareness.

Since this campaign was launched, we have seen a notable 25% increase in searches for Inter and a 20% increase in our app downloads. Regarding personnel expenses, we strategically increased hiring in key areas such as IT and commercial teams. We continue to see significant opportunities for us to achieve operational leverage as highlighted on Page 27.

On the left-hand side, you can see that we have successfully increased the gap between the growth of our net revenues and the growth of our expenses to time. As a result, our efficiency ratio on the right side reported at 47.9%, primarily ahead of our 60-30-30 plan. These charts reflect the merits of our digital banking model where we can scale up our business significantly while maintaining a controlled cost structure that services our clients in a state-of-the-art digital manner.

To conclude, I'd like to highlight our strong performance in terms of profitability as presented on Page 28. This quarter, we achieved another record-breaking ROE, surpassing the double-digit mark reaching 10.4%. Our pretax income reached nearly BRL 300 million, and our net income reached BRL 223 million. This performance shows our commitment and discipline to drive sustainable profitability.

Now I will pass the floor to Joao for his closing remarks. Thank you.

[João Vitor Nazareth Teixeira de Souza, executive]

Thank you, Santi. For my closing remarks, I would like to enforce 3 important topics from the last quarter. One, the execution of our 6 [indiscernible] plan; two, the recent additions on our senior management; and three, the launch of our latest product, our social platform.

The 6-30-30 is on track with consistent growth in total clients and ROE and a stable efficiency ratio. And to help us on our plan, we recently announced some updates to our management team. Our internal sites, as we mentioned before, Shanji is now our Brazil CEO; and Rafaela Vitoria has taken over as our new Investor Relations Officer.

In addition, over the past few months, we have welcomed several new members to our team, such as Juliano, Monica [indiscernible] Fernando Bakken and Marcelo Dando. All of them bring extensive market knowledge from top financial institutions in Brazil and abroad, and we will add strong value with fresh perspectives in their respective fields.

On the Board front, we announced Jen Allen as our new independent Board member, bringing decades of experience into our Board. Guys, welcome to the team. Less, but certainly not least, as part of our commitment of staying ahead of the market. Today, we launched our social platform. Through this platform, our clients will have the opportunity to engage in discussions, share the experience with our products and invest collectively, all of it in our financial sup.

Thank you very much, operator. Let's move to the Q&A session.

[Operator]

[Operator Instructions] Our first question comes from Mr. Gustavo Schroden from Bradesco BBI.

[Gustavo Schroden, analyst]

First of all, congrats to to Shanji to the new role, well deserved. And I -- all the success for you and in this new role. So my question is regarding the NIM adjusted by risk, right? We could see an improvement quarter-by-quarter quarter-over-quarter, but the increase was mainly driven by the lower cost of risk, while the NIM was stable quarter-on-quarter.

I'm trying to understand how should we think this in the coming quarters? Because in my understand, when I see the implied interest rates that you are charging in the credit, which is a 200% of CDI, while the security gains are at 100% of CDI. So I believe that this potential increase in NIM would come from or would be driven by you improve the capital allocation increasing the exposure to the credit. So my question here, is this right? So my point is just correct. If you think that as you improve the capital allocation. This NIM should improve in the coming quarters. And the NIM adjusted by risk will remain in this improvement track considering both sides, cost of risk under control and the NIM with credit improving. So this is my question.

[Santiago Stel, executive]

So thank you for the question. So I'll break down the question in 2 parts. On the NIM part and then on the cost of risk, both parts affect the risk adjusted. So on the cost of risk side, we think that we should continue to be able to operate in the range of 5.0% to 5.5% cost of risk. We continue to work actively in managing credit card exposures and improving that performance on a cohort-by-cohort basis. We have some portfolios that tend to improve that ratio as our GTS and home equity and real estate, the collateralized ones. And then we have others that tend to increase that cost of risk ratio as peak financing and by no [indiscernible] later. Altogether, we think that they will net each other, and we should continue to be operating with this range.

Obviously, quarter-by-quarter, we might have some volatility, but it will be within that range. Now moving to the NIM side, not the pure NIM side before cost of risk. We have a few dynamics playing out. we still have on payroll loans, which hasn't grown yet and on real estate loans, which has grown a lot of upside in terms of increasing the average rate of those portfolios. We have a better mix playing out as we said many, many times that FGTS and home equity are gaining share in the portfolio. Jointly, they represent 15%. The 2 new ones on top of those our PIX financing and by no pay later, we will see how much they will represent in the future. We will -- we have high hopes, but still uncertain on how much they will grow to. And then -- what we also have is what we call a good problem to have is that we had a lot of liquidity flowing into our system.

Now we grew BRL 4 billion deposits and the loan book grew a portion of that. So when that extra liquidity comes in, it is temporarily yielding 100% of CDI. Therefore, it doesn't necessarily increase the NIM. It is an AI accretive but until we deploy it in the loan book will take some time. So all of this together, we do see upsides in the NIM before cost of risk. It will not be every single quarter linear, but we mentioned many times that around 20 bps per quarter is what we see over the coming quarters. And then on cost of risk staying around the level, as I mentioned at the beginning.

[Gustavo Schroden, analyst]

Perfect. Very clear. If I may, just a follow-up here, especially on the PIX finance and by no pay later and the other unsecured loans, you reached BRL 330 million in the quarter, so a 90% growth quarter-on-quarter. Should -- even if we assume some deceleration in this space, of growth, I think that at least at our estimate, it is possible to reach something around BRL 900 million to BRL 1 billion loan book in this segment. Do you think it is reasonable to work with this number?

[Unknown Executive]

Gustavo, this is Joao speaking. Thank you for your message in the beginning. So when we think about the PIX financing portfolio, we're more solving for growth in all the unsecured lines, right? So PIX financing, bill pay, cash financing, buy now pay later and the overdraft. We're thinking of in all of those together, we are aiming something close to BRL 1 billion, maybe a little bit under that, but that's what we are working for. But 1 message, I think it's important, and I'd like to bring is about -- it's not about just portfolio size, but also revenue formation, especially when we think about the credit card portfolio. Today, our mix is about BRL 1 in interchange fees for every BRL 1.2 in credit -- revenue from credit cards. If we look at the competition, they are today at about 1 interchange to 3 in credit. So the idea is to move closer to close this gap. We want to move from this 1 to 1.2 to 1 to 2 as quickly as possible, obviously, maintaining our risk appetite under control and delinquency under control.

[João Vitor Nazareth Teixeira de Souza, executive]

So Jean Vitor here. Just to add on Sanci and Shanji, One thing that's very important on this new portfolio, this consumer finance is what we have been saying for a while. We are improving the risk/reward equation. So when we do the PIX finance and when we do the buy now pay later, we have the same risk that we used to have on the credit cards on the [indiscernible], but now with more yields on the PIX financing and with take rate on the binopulator. So the change on the economics is very important. So as Shanji mentioned, grow the volume, the amount of the portfolio but grew a lot, the profitability revenue that we're going to make on this new portfolio. So this is the good thing, better risk reward.

[Operator]

Our next question comes from Mr. Eduardo Rosman from BTG.

[Eduardo Rosman, analyst]

Congrats on the numbers. I think I have a question to Joao Vitor, right? Because Inter has been very successfully improving its ROEs. However, these improvements, not necessarily they will come in a straight line, right? From time to time, the company will need to invest thinking about medium, long-term projects, right? So I think this includes the U.S. expansion, for instance, I think Joao did an interview with Brazil Journal recently where he talked about it and how he thinks it's a cheap call option, right? So my question is Joao how to balance growth investments and profitability, right? And how can you help us to understand what's really kind of a maintenance OpEx? And what is the CapEx for the future?

[João Vitor Nazareth Teixeira de Souza, executive]

So Rosman, Joao Vitor here. Thanks for the question. So if you listen to the interview, I mentioned that I like that when you are really, really innovating you are generating value without a lot of CapEx and a lot of OpEx. So most of the things that we did at Inter in the past, we didn't spend a lot. So let's think about the Inter Shop, for instance. We just came in that idea out of the blue, we were able to use the same components in our app, the same things on our platform, and we were able to generate a lot of revenue.

So we are always trying to raise the bar. How can we innovate our platform, how can we cross-sell upsell without the burden of investing a lot. And when you think about the combination of ROE and growth, it's important to highlight that when we launched the 6 [indiscernible] plan back in January 2023, we stated that it was and it still is a plan for both growth and profitability. I want to make it crystal clear, we are a growth company. We're not an incumbent company. We are here to grow the business, to grow the revenue. But the good thing, Rosman, that we can do that both we can both grow and also improve our profitability. That's what we're proving now on 2024.

Of course, it's not going to be linear. It's not that we want to keep improving our ROE faster and faster quarter-over-quarter. But long term, what we see is also that the operational leverage really kicks in. So we're adding more revenue, adding more -- and diluting our fixed costs. So this is very important. This trend is here to continue. So we're very comfortable on both growing, innovating, bringing more revenue, but also delivering our profitability. So it's a good balance. And actually, at the end of the day, [indiscernible] this is my role as the CEO. I need to balance these 2 things in the right way with the right time. We need to see the context of the market. And I believe that we did that very well in the past, and we're going to keep doing that going forward.

[Operator]

Our next question comes from Mr. Yuri Fernandes from JPMorgan.

[Yuri Fernandes, analyst]

Congrats Alexandra for the promotion. I have a follow-up on the margins on the implied rate. I know like hedges they tend to bring like some difference in the numbers. But when we go to the personal loans and credit cards, we note a decrease on the quarterly implied rates, right? And I know, I guess, PIX is within the cards and maybe and correct me if I'm wrong here, and I think like the overdraft and other line as they are within the personal loans.

So my question is, should we not see those lines moving up as you continue to deliver on this mix towards, I would say, more profitable products. It was surprise me that we saw this more decrease and what happened for this. Thank you very much.

[Santiago Stel, executive]

Santiago here. So thank you for the question. On personal loans, the improvements will be slow but steady relative to a year ago, we're now at 140 basis points higher in the rates that we disclosed today. If we measure that related to CDI even more -- we do have -- the majority of that portfolio is [ consignado ] or payroll deductible loan, and we had a portfolio or a series of portfolios that we acquired or INS retirees that had higher interest rates. Those are expiring and maturing, and that has pushed a bit down the rate. But overall, we do see a continuation of the improvement in the coming quarters. And the [ conciliate ] digital initiatives that are being taken place, together with more portability in a lower rate environment than what we had a year and 2 ago with some growth on that portfolio that repricing should be faster going forward.

[Yuri Fernandes, analyst]

Okay. And regarding the [indiscernible], the similar approach. Shanji should we continue to see this recovery and moving up. [indiscernible] gain traction there?

[Santiago Stel, executive]

Yes. So the main driver there in change of cards, now that about is PIX financing. As I mentioned in the prior question, we have been accelerating from the beginning of the year. But since it's a newer product, it's difficult to model to which level will grow. We do -- it's a very short product so we are running and trying to extend to our client base, but we need more time to assess on how much it will grow. But as it gains share within credit cards, interest rates of cards will obviously go up. The average interest rate on these loans is 6% per month.

[Operator]

Our next question comes from Mr. Tito Labarta from Goldman Sachs.

[Daer Labarta, analyst]

A couple of questions, if I can. First, just on the hirings in the quarter. I mean, do you expect -- do you think that was more of a onetime thing? Do you expect to do more hiring? Just I know you're still on track for the longer-term 30% efficiency, but just in the more short to medium term, how should we think about efficiency and any other hiring plans that you may have? And then a second question, just -- congrats Andy on the with the promotion. But with that promotion, [indiscernible], you're more of a global -- in the past, you had talked about the U.S. could be 50% of the business. I don't think those are necessarily the plans today. But just -- I mean, do you expect to spend more time looking at the U.S. or other expansion plans? How do you think about other potential geographies and how much they may contribute to earnings or profitability over the coming years?

[João Vitor Nazareth Teixeira de Souza, executive]

Joao Vitor speaking. Let's start from the last question, last comment on expansion. As I also mentioned on the interview I gave to Brazil journey that [indiscernible] mentioned earlier today. It's not about only the U.S. business, about having our global account initiative available for other countries as we mentioned. And as of today, the Brazilians are the only 1 using that. We believe that we're going to be able to offer this amazing product, which is a huge success among the Brazilians to other individuals all over the globe as well. Also being more in this strategy and going thinking the future of Inter with this new, let's say, position, I have been very focused, and I love that, to be honest, on the UX, the UI technology behind the scene. So for us to be ahead of the competition first, to be the most innovative company, we need to think about what we're going to launch next [indiscernible] or UI performing, how our UX and not only that -- do we think that you're going to be a bank that's going to a platform that we're going to interact with our customer only through an app? Or do you think you're going to use our applications on the back end to integrate direct for our clients through voice, through PIX, through WhatsApp.

So I'm really trying to put this in place together with Gillian, our CTO. I really love to not only to build the best products, but to facilitate how the clients engage, embrace and use their products with us. The other question regarding hiring, as also I mentioned to [indiscernible] on the previous question, we're playing here for the mid, long term, I'll say that more for the long term. And I'd like to say to our team here into our [indiscernible] our Head of IR. My dream is to have millions of employees, no problem. But we need to make sure that they are generating value for our company. And mostly on technology, on the commercial side, that's where we're investing more of these new hirings.

Just for you to have an idea on that. We had 195 we call [ Gotex ] last quarter. We did a big program here in Brazil. we were able to bring, we believe, very, very talent guys to help us on IT. They just joined us. They're going to help us a lot building these new products, evolving these new products. And we also bring a lot of people on the commercial side because we believe that these guys are the 1 generating revenue for our [ Parafon ]. But all that said, we're still committed to our 6[indiscernible] plan, which -- we want to get to a 30% efficiency ratio. And therefore, we don't see our platform getting a lot of new hires without bringing the revenue together. So what we see is that we invest in technology, we invest in market and invest in these new hires, but we get more, I would say, the double in terms of revenue that we're putting in terms of expense. This is the right equation for us. So that's it.

[Operator]

Our next question comes from Mr. Pedro Leduc from Itau BBA.

[Pedro Leduc, analyst]

First, on the service revenue, a nice increase here, line comes capturing things as insurance. If you can talk a little bit more about it, if this quarter had any specific boost to it, it's really a new run rate level you're reaching here for services. And on the loan book side, credit portfolio had a significant increase in credit card anticipation. If this is already something that has to do with the integration of Granito or not yet? So these 2 questions.

[Santiago Stel, executive]

Santiago here. Thank you for the question. So on commission and brokerage fees, which grew from BRL 146 to BRL 189 meaning almost a 30% quarter-over-quarter. No, we did not have any one-offs of any type. This was pure organic growth. The main driver was Inter Shop. Inter Shop had a 50% GMV growth relative to the prior -- the same quarter of last year, BRL 1.1 billion, very nice acceleration on top of that, which is not in this number buy now pay later, attributed to this is also scaling up nicely. And then the other 1 was insurance. So we had a nice growth in on that front as well, which has to do with many factors, but the 1 I would stand out is the FGTS insurance that we are -- we launched at the beginning of the year has had great adoption throughout our client base and that has pushed up. The [ airlines ] also grew a bit, but those were the main 2 drivers. And then in terms of can you remind me the second one?

[Pedro Leduc, analyst]

The credit card participation on the loan book.

[Santiago Stel, executive]

Yes. So no, what we did here, as I mentioned before, we are blessed on having a very nice inflow of deposits from our clients. So that's -- as we mentioned from Joao, a good problem to have. We deployed as much as we could in our loan portfolio, which is the accretive long-term way to do it. But temporarily, we deploying different cash options that try to yield a bit more than just CDI, and this is 1 of them, no buying portfolios of anticipated portfolios of credit card receivables. We get a margin over the CDI. These are short portfolios, but we park the cash there with a bit of an extra yield until we are able to employ in the loan portfolio.

[Pedro Leduc, analyst]

Okay. And this has nothing to do with Granito yet? And if you can comment on how it cycles in, in the second half?

[João Vitor Nazareth Teixeira de Souza, executive]

Joao speaking. I'd like to comment on on [indiscernible], actually need to be renamed to Inter [indiscernible]. We don't have a connection with that yet. But on the other hand, I'd like to express how excited I am about this integration. To be honest, it surpassed our expectations. And I believe you crush it on SMEs and acquiring. Just by changing the name, we see a big inflow of clients asking for the acquiring product at Inter. As Sandi mentioned, we have a very good cost of funding, short-term funding through our demand deposits that will serve very well on this strategy.

Of course, we still need to integrate a lot of things. So for instance, Granito, now in the [indiscernible] has its own app. Now we are integrating the app to our at our business app. And I'm very excited that we will be able to do something amazing with SMEs down the road. But so far, what we did was pretty much with other players in the market who were able to buy the receivables and not a lot to the [indiscernible] yet, but very excited with what we can do with this platform embedded in our super app.

[Operator]

Our next question comes from Ms. Neha Agarwala from HSBC.

[Neha Agarwala, analyst]

Two questions. First, follow-up on the last point. Can you talk a bit more about what is your ambition regarding the SMEs? We saw a good growth in the number of SME accounts that you have. You're talking about good uptake from the Inter Park, the acquiring solutions -- so -- and we understand that SME is a space which is not very penetrated. There are not a lot of digital banks focusing fuller on SMEs. So what is the opportunity you see there? And how would you like to position bank there for the SMEs? And my second question is on the BNPL product. Could you talk a bit more about the BNPL product that you have mostly on your Inter Shop, what percentage of GMV are you now financing for your customers? What is the take rate that you get on the BNPL product? A bit more color on that.

[João Vitor Nazareth Teixeira de Souza, executive]

Neha, this is Joao speaking. Thank you for your question. I'll start with the SME part. So in terms of positioning, so we have almost 2 different strategies that are converging now. First is an SME lending that we've done for many years, and that's growing, and we have a very good momentum. And the second 1 goes back to what we started in 2019, which is the SME accounts. These accounts have grown a lot. They're super popular already. So we are currently at about 2 million clients that have a variety of profiles, about 1 million are [indiscernible], which are small entrepreneurs in Brazil, then we have about 600,000 micro businesses, 200,000 small businesses and the remaining, which is a little more than 100,000 our larger businesses. And this amounts to about 10% of the companies in the country already with us banking with us. The profile of these customers today leans more towards service given that our offering up to now was more of a digital bank. We didn't have acquired, we did sell the prior product of the old Granito, but not integrated that Inter Pack. So we didn't have a robust offering for retail. So on a few things, account usage on is very heavy on the transactional business today. So we're super underpenetrated on everything else. This means a lot of opportunity for growing clients, bringing clients in with a more robust offering and also increasing the share of wallet of high value-add products.

This is when Inter Pack comes in. So we believe that -- we're going to be able to do a lot of nice things with Inter Pack. So cross-selling, as I mentioned, and I'll call it like be directional. Entering into Inter [indiscernible] Inter. This is something that we will do. One of my favorite approaches that we're already putting together is product bundles with banking and acquiring. Now we can think of a client as unique and some of the revenues for both sides to see where it's interesting to grow and with that in place, we can do a strong go-to-market in the retail business of all sizes. So again, we have the balance sheet, we have the credit product and now we'll have the bundles, and this excites us to keep growing on SMEs.

Andre will take the second part, Neha.

[Alexandre De Oliveira, executive]

Thank you, Shanji, I'm going to comment about [indiscernible], but just to add on Shanji's comment and without the respect to our contenders to our competitors, I mean the digital banks we have, by far, the best product in business account. And for a lot of risks, but we start by differentiating that we are a bank at the end of the day. And for our business account is very important. How you can offer how you can serve a client by [indiscernible]. And now the last thing that we didn't have was acquired now. We have, by far, the best product. This is still a blue ocean in Brazil, the business account. They are still underserved overcharged in Brazil, not only on the individual account, the competition is big. But on the business account, most of the markets are still underserved over chart, Huge opportunity for us.

Going to Banopelera, -- we -- as I have been saying for a while, I'm very excited with this product. We launched a Inter Shop back in 2019, and we wanted to connect the engagement that we have with the clients with the findings there, that's how you sell a product on the retail by names in it. And what we're happy about that, Neha that with small tweaks on the product, we can see that the volumes are growing. So we were doing like only BRL 100,000 per day than 200, 500 to 1 million. Now we're getting close to 2 million, 3 million per day in [indiscernible]. So it's already a big percentage of our GMV at Inter Shop and the good news with very good risk reward, as I mentioned. So I believe that the future of consumer finance in Brazil is to offer together the product, good UX, good UI and a good finance embedded. That's how we foresee consumer finance in Brazil and not only for goods for service as well. So we have here airline tickets, large and everything to sell to the clients. And just to connect with One question that was made, I believe by your I don't know, I don't recall about the PIX financing. These type of things together, PIX financing by [indiscernible], slowly, they are replacing the famous [indiscernible], which is a problem in Brazil.

So when we do the PIX financing the [indiscernible], we're putting our balance sheet, our risk to work and get yielded at the same time for the right clients, for the right product, we can differentiate the rates for these clients, that client if they are buying a service are good. So we now have all the hands on that to improve the risk/reward for consumer finance in Brazil. So PIX financing [indiscernible] together are outpacing [indiscernible], which is very good -- which are very good news for ourselves and for the digital players on the consumer finance environment in Brazil.

[Neha Agarwala, analyst]

That's super casual. Just follow up with Andre on the SME business. So going to the SMEs do you think you are getting consumer -- getting SMEs that attracting them to your banking product and then cross-selling acquiring? I believe that is the route which makes more sense for you because you're banking offering is probably much more superior to what our competitors offer. And who are you getting these customers from? I believe a lot of them is acquiring with either the incumbents, CLO already get that or maybe with the new ones like stone and parks, who are the main acquirers from which it's been a bit easier for you to gain SMB merchants from.

[Alexandre De Oliveira, executive]

Thanks, Neha. So the natural trend for us is to do the cross-sell, as you mentioned. So we attract customers based on our -- the quality of our business account, which is, again, very popular super good UX both from both web and app. We convert -- we did a large project in the last, say, 2, 3 years where we converge the experiences, and this attracts customers in high volumes as we're seeing. And then the idea is -- so what happened is also to what you said, most of the revenue base that we already have from these customers are related to the transactional business, which is the core of the product offering today. As we move forward with Inter [indiscernible] -- we are deploying obviously, the acquiring products, and we're going to keep on growing and increasing both share of this customer, so bringing -- acquiring share of wallet, for example, and also exploring new products that we're launching internally, not necessarily through M&A. We're seeing new credit products being deployed -- there is, for example, 1 that's popular in Brazil. FGI, we've been growing there.

There is another one, which is Pronampe, which has more than BRL 100 billion portfolio in Brazil that we're going to explore. So this is also good and has a very good -- can have a very good adoption rate with our base. So a lot of good plans to go there and your approach is right. But I wouldn't I wouldn't not explore also the opportunities to go to market and explore the retail opportunity now that we have the acquiring in at home. Last, before I forget where the market -- where we are acquiring these clients from primarily big banks. So that's where it's flowing. Customers are hurt, there for years, mainly Pegotas with super high fees, and we came up with the free offering back in 2019 -- and it was a big source of flow of customers from big banks to us to save on banking fees.

[Operator]

Our next question comes from Mr. Mario Pierry from Bank of America.

[Mario Pierry, analyst]

Let me ask 3 quick questions. The first 1 is on Page 22, right? You show your cost of funding at 6.8%. This is the lowest level since the second quarter '22. However, as a percentage of market rates, it has gone up to 64%. If we look at the first quarter of 2022, you were like 55%. So I'm wondering, are you seeing any pressure on raising deposits, and that's why we're seeing like a higher cost of funding versus [indiscernible] rates. So that's question number one.

Second question is related to your marketing expenses, right? We saw a big increase in marketing expenses. So I'm just trying to understand, is this the level that we should continue to see? And are these marketing expenses targeted at an increasing client base or increasing engagement. In my third question is related to your sale of insurance, right? You showed the number of policies rose like 2.5x roughly quarter-on-quarter, but revenues only grew 10%. So does it mean that these policies that you are growing, they have a much lower ticket. How do we think about that? Why such a big disconnect in number of policies versus revenues?

[Santiago Stel, executive]

Mario, I'll take that -- those 3. So on the funding, this is connected, the right-hand side of the balance sheet with the left-hand so. on the liability side, we are fortunate to have the quarter with the highest growth in deposits, excluding the fourth quarter that has positive seasonality, and we raised BRL 4 billion of deposit this quarter, BRL 1.3 billion were the transactional ones which don't have a cost, but then we had BRL 1.9 billion on time deposits and another BRL 0.8 billion in LCI, LCAs, [indiscernible], et cetera. This excess funding, as I mentioned before, is mostly allocated into liquid assets that yield close to 100% of CDI and tend to until we deploy this into a loan portfolio, they tend to compress a bit the NIM, but they are accretive, and they also tend to push slightly up the cost of funding. But we feel that the more we capture the principality of their clients, the more we bring their savings and their transactional life into the platform, the better it is for us, independently of the cost of funding level.

We do think that at the cost of funding as a percentage of CI is a competitive advantage that we have and that we will continue having. But we will have some movements depending on the speed at which we get these deposits and the mix that we get them at -- on branding, we do recognize that we have investment to do. It's not a spending. We do see that this is in line with what mentioning some questions before. We want to build a stronger brand. We think that the product is excellent and with a good branding along with it. we will be able to benefit from the product offering that we have in place.

It's difficult to say how it will evolve through time, but we are testing higher levels of branding spending or investing and we'll see depending on the results, how we continue to invest or not. The upsell cross-sell metrics are the main ways that we track to see the performance of that investment. And then insurance, yes, you kind of anticipate the answer. FGTS is a very small ticket insurance. That is the -- was the main driver in that business line and the policies were greater on the average size of the average ticket of those policies reduced this quarter. Again, we welcome that growth. We have more than 2 million clients with FGTS credit, and that's an opportunity that we try to cease with a fully digital platform, both on the long part and also on the insurance side. Very happy with the results that we had so far.

[Mario Pierry, analyst]

That's clear. Santi, let me just go back then to the deposit question. How are you seeing the competitive environment to raise deposits. Again, you have a very healthy deposit base already. your loan-to-deposit ratio looks very low. So I'm just wondering then you have excess liquidity. What is the need here to really be focusing on growing deposits if if you're seeing a more competitive scenario.

[João Vitor Nazareth Teixeira de Souza, executive]

Joao Vitor speaking, let me tell I love to look on our deposit franchise. I started at Inter as internship on the commercial side raising deposits for our bank tech in 2004. So I have been following that for a while and always with our treasury, [indiscernible] discussing about that. So as Santi anticipated, we have a good problem. People are choosing our platform to transact but also to save and we have in the past distributed a lot of third-party CDs, other companies, the entries, the bonds and everything. But at the end of the day, they like our brand and they say, oh, I want to see this from Inter. And what we see that we could start reducing the percentage of percentage of CDI that we pay, but it's not going to move the needle in terms of profitability. But we could lose the client to our comparison. We're keeping them at 100% of Selic. But the good news, 1 thing that you should look at is how fast our demand deposits grow. Then when you compare the loan portfolio growth with the demand deposits growth, they are pretty much steady.

So they are on the same pace. So therefore, every time deposits that come even at 100% of Selic and you can deploy that 12%, 13%, 15% of Selic securities in our cash position is accretive to NII. So that's what we're doing. I would say the opposite. Our deposit franchise are getting more and more efficient as we speak. So I'm very proud of that. And I'm sure that it to keep being thing that will differentiate amongst our competitors. That's how we manage these things of cost of funding at Inter.

[Operator]

This concludes our question-and-answer session. I would like to yield the floor back over to Mr. João Vitor N. Menin for his closing remarks.

[João Vitor Nazareth Teixeira de Souza, executive]

So another very good earnings results call. I'd like to thank for our team, our employees that are working hard every single day to raise the bar at Inter. I also like to thank for our shareholders that are supporting our business, our franchise. And also, I'd like to thank as well how the analysts on the sell side, the industry, very good questions. A lot of good quality questions for us. We love that to interact with you. We're very happy with the business and hope to see you soon another good quarter in a few months. Thank you very much. Have a good day. Bye-bye.

[Operator]

This conference is now concluded. Inter's IR department is at your disposal to answer any additional questions. Thank you for attending today's presentation. Have a nice day.