PIX, Brazil’s instant payment system controlled by its Central Bank, debuted on November 16th, only some days before Black Friday, the biggest event for Brazilian e-commerce. More inclusive and faster than any other payment method, PIX is expected to change this industry in a matter of months, not years.
“Of all the sectors that will be positively impacted by PIX, e-commerce will be the most benefited. Today, the predominant payment forms are the credit card and the boleto bancário (a type of payment voucher or bank slip that Brazilians use to pay bills and purchases). On the one hand, the boleto shows incompatibility with services that require real-time operability, since it takes one to two days to clear and complete the transaction, on the other hand, credit card excludes many people because it requires a credit record, and other entry requirements most consumers don’t have. PIX covers these both gaps,” explains Carlos Eduardo Brandt, deputy head of Brazil’s Central Bank payments and banking operations department, in an interview with LABS.
He says that the Central Bank works with possible scenarios for the impact of PIX in several areas, but that it does not disclose them publicly so as not to influence expectations or guide decisions by financial agents.
Looking at the current online consumer behavior in the country and the effects of the forced digitization promoted by the COVID-19 pandemic in recent months, however, it is easy to understand Brandt’s statement about the impact of PIX in the sector – or even why banks and fintechs have entered in a race to ensure that their customers register their PIX access keys.
In 2020, the good old boleto is likely to surpass international credit cards as the second most used payment method in the country’s e-commerce, just behind domestic credit cards, according to Americas Market Intelligence (AMI) projections. For the first time, the percentage of payments made with international credit cards will probably decrease (-1%), while the share of payments made with domestic credit cards is expected to grow 11%.
Furthermore, Latin America’s largest e-commerce market is expected to end 2020 with a much larger share of payments made through debit cards and digital wallets than the previous years, with a 16% and 6% growth, respectively, compared to 2019.
Many experts say that with the amazing growth of fintechs and digital wallets in the last few months in the country – the Brazilian neobank Nubank closed September with 30 million customers, and digital wallet PicPay, with 33 million users –, these last two payment methods are likely to overtake some of the traditional ones, especially boleto, in the next years.
Others say that the boleto share will be partly taken up by digital wallets, partly captured by debit cards, which not only have the advantage of being old acquaintances of Brazilians in the physical world but of being the main payment method, in a virtual version, of the more than 100 million social accounts opened by state-owned bank Caixa Econômica Federal for the transfer of COVID-19’s emergency aid.
What makes PIX a revolution
PIX only requires a transactional account to operate, which can be a traditional bank account or a digital payment account offered by fintechs. “Payments are the first step in this broader financial inclusion process because payment is something you do every day. You don’t take out a loan every day, you don’t take out insurance every day, but you pay every day or almost every day,” stresses Brandt.
Another important point is the speed of PIX transactions, combined with its lower costs. Tests done so far, with the appropriate security layers, such as encryption of access keys or even machine learning applications capable of “learning” the typical behavior of each user, show that a transaction within PIX takes less than 1 millisecond (something much faster than the “up to 10 seconds” promised by the Central Bank back in February, at the launch of the system schedule).
For individuals, PIX is completely free. For businesses, a substantial cost reduction is also expected. The Central Bank itself intends to charge only BRL 0.01 for every ten transactions, a cost not yet experienced in the Brazilian market.
While Nubank says it will not charge entrepreneurs for transactions with PIX, acquiring companies like Stone are enabling PIX as part of a larger package of services already offered by them to businesses, as a way of defending that there will be room for all means of payment and that entrepreneurs must continue offering all the possible options to their customers.
In the specific case of e-commerce, PIX’s availability and interoperability are two other critical factors. PIX will operate 24 hours a day, every day of the week, making room for the automation of a series of crucial stages in the customer journey.
In time, these advantages listed here are likely to appear to consumers in the form of greater discounts and faster deliveries when they pay with PIX.
PIX for cross-border e-commerce
In October, the Central Bank’s Financial System Organization director, João Manoel Pinho de Mello, said during a webinar with specialized lawyers that an international PIX could leave until 2023. Brandt, however, told LABS that it is not possible to set a deadline for that PIX can connect to instant payment systems in other countries and allow international companies to sell their products and services directly to Brazilian consumers.
This depends not only on tests, which have already started to take place within the scope of the Bank for International Settlements (BIS), but also on the approval of the new exchange rate legislation (sent by the Central Bank to the Brazillian Congress last year and not yet discussed or approved by the senators).
He explains that without the regulatory framework, an international PIX might work, but would be limited to low value transactions. In addition to the new legislation, Brandt points out that any PIX connection to another instant payments ecosystem would involve negotiation of terms, and service levels. “And this negotiation is bilateral, it does not depend only on us,” he stresses.
In the meantime, nothing prevents international companies that are already registered in Brazil and have an arrangement with local payment providers to be able to use PIX within the process that they have already structured. “It depends a lot on how each company is structured. If the company has an account here, for example, and makes a PIX for its account here, it can later send it via remittance abroad. It depends on how to structure the process,” says Brandt.