Brazil’s new payment system called PIX was announced on February 19th, 2020 by the Central Bank of Brazil (BCB). It is intended to replace not only bank transfers and debit card payments, but also the outdated and current de facto standard form of payment: boleto bancário. PIX is set to become the new default infrastructure for companies and individuals in Brazil to transfer money and pay for goods and services – online as well as in brick and mortar stores. It will function 24/7/365 – and all payments will be settled in around 2 seconds, with a maximum time limit of 10 seconds. The infrastructure will be open to all market participants, and all financial institutions and payment service providers that hold 500,000+ accounts are obligated to implement it by November 2020, so we can assume this will be made available to the bulk of account holders in Brazil.
Why does it matter?
Brazil already has one of the fastest “real-time” gross settlement systems (RTGS) in the world, built decades ago to speed up bank transfers. At the time of its launch, it really improved the experience for bank account holders in Brazil by providing intraday bank transfers, changing the paradigm of having to wait for one or more business days to receive/send money. The current system works on business days on working hours only for bank account holders. Usually, in spite of being “real-time,” most users have to wait several minutes or sometimes even hours depending on which bank is handling the transaction, and the lack of a link between an invoice and the payment makes it very cumbersome to be used in casual purchases, online and at points-of-sale.
PIX takes the intraday experience to a truly real-time experience with 100% availability (24/7/365), expands access beyond bank accounts to e-money accounts and has a built-in capability of linking an invoice with a payment, making it suitable for transfers and purchases at any time by any channel and facilitating automated reconciliation.
With compelling features for customers and merchants, such as low cost and ease of use, a strong incentive for adoption by service providers, and particularly for online usage amongst the growing Brazilian internet population, PIX has the potential to become widely used, eating market share of some of the current mainstream methods, namely credit/debit cards, cash, and boleto bancário to become the Brazilian equivalent (in terms of market share) to iDEAL in the Netherlands, Sofort in Germany, or Swish in Sweden.
How will it work?
Brazil’s new payment system PIX will allow account holders to use their banks or FinTech apps to create instant payments using their smartphones and desktop computers. Similar to what is already mainstream in China, users will be able to use their phones to scan QR codes, use NFC technology or open payment links to get the transaction data, review it and approve it. After the approval, the payment is settled in seconds. The QR code may be static – the same for all transactions – which may well serve for paying for a hot dog or a doctor’s consultation, or dynamic – one unique ID per transaction – that will be a good tool for bigger operations like supermarkets or online commerce. Account holders will also be able to pay utility bills, taxes and other public services using PIX. For money transfers, PIX will offer different routing keys, like tax ID, phone number, email, etc.
The central bank will provide the settlement and routing layers and banks and payment providers will build their solutions on top of those layers. This architecture will allow for full interoperability.
Who gains?
In short, there are more winners than losers. Merchants will be able to accept low-cost hassle-free instant payments, users will have a very efficient and easy system to make payments, and individuals and companies will benefit from this tool to simplify fund transfer across the nation.
Will this impact your Brazilian operation?
Before the launch of the system in November 2020, no impact is to be expected. After the launch, the impact should be an overwhelmingly positive one. Supposing people adopt the system, we expect the overall volume of transactions to grow due to the simplicity of the payment process, plus a reduction in fraud and chargebacks because users will be strongly authenticated, similar to the standards included within PSD2 for Europe. On the treasury side, the cash flow generated by sales should be available sooner than when users pay through traditional methods, credit cards or boletos, and will likely also carry a lower payment cost.
What is the impact on the current payment methods used in Brazil?
We expect PIX to increase the overall volume of payments in Brazil, but to compete with all other payment methods, especially debit cards, boletos, and credit cards – in that order. How fast this will happen will depend on many variables and should be different for each payment method. Some things are very clear though:
- Debit cards are the most vulnerable to PIX because they do basically the same thing – an instant debit from the user’s account and subsequent credit to the payee.
- Boletos should lose some market share because PIX works well for people that don’t have a credit or debit card but have a smartphone or a computer, with the advantage of providing instant transactions. Payments made using the boleto bancário system can take several business days to be cleared and the goods/services are usually only released after clearance, which can lead to frustrating user experiences, especially for digital goods and services. On the other hand, boletos can also be paid with cash at the bank counter, meaning that people who don’t have a smartphone or are unable to handle the technological hurdles will likely still use boleto.
- Credit cards can offer features that PIX does not have (at least by default), such as providing a credit line and the convenience of settling everything at a later stage in a single bulk payment.
- Cash may also suffer some competition from PIX among users that have smartphones. Brazil’s new payment system processing costs might make it more suitable and practical for low-value transactions for which cash is probably the best solution until today. The more useful the balance held on PIX the more people will tend to move their “wallet money” to their e-wallet.
We shouldn’t ignore the merchant’s point of view and their economic incentives for receiving payments over PIX instead of cards – immediate settlement, lower costs and better security. This will certainly create economic advantages for users to pay using Brazil’s new payment system, the same way it happens with boleto today – some merchants offer discounts as high as 10% for boleto payments – and this should help PIX to gain significant market share from other methods.
Privacy
The only case where there is a loss in privacy is where people currently using cash for low-value transactions decide to use PIX instead. The current Brazilian law stipulates that all cash transactions bigger than 10k BRL must be reported to the Central Bank (Banco Central do Brasil – BCB) and all other payment methods are already visible to the government. This means that the only type of transactions that are lawful and private in Brazil are transactions using cash amounting to less than 10k BRL.
Our position
We are very supportive of this initiative and are keen to offer such innovative solutions to our partners as soon as they become available, and pledge to swiftly handle the necessary development to create a great user experience for increasing overall conversions and revenues.
For more information (in Portuguese), you can checkout the video from the Brazilian Central Bank for the announcement of Brazil’s new payment system PIX below:
Additional information
Brazilian Central Bank Press Release: https://www.bcb.gov.br/en/pressdetail/2313/nota (in Portuguese)
Regulations: https://www.bcb.gov.br/estabilidadefinanceira/exibenormativo?tipo=Circular&numero=3985 (in Portuguese)
Educational Material and Presentations: https://www.bcb.gov.br/conteudo/home-ptbr/TextosApresentacoes/Apresentacao_PIX.pdf (in Portuguese)