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Economy

Brazil's instant payments system, PIX has everything to boost the world's biggest financial inclusion process

With the right range of services, about a third of the 97 million Brazilians who gained a digital account to receive the COVID-19 emergency aid can enter the banking world once and for all

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From April, when the first installment of the federal government’s emergency aid to mitigate the effects of the COVID-19 pandemic was deposited, to date, 97 million digital savings accounts have been opened by the state-owned bank Caixa Econômica Federal to transfer the aid to 67.7 million unemployed, self-employed professionals and individual microentrepreneurs in Brazil.

To date, a total of BRL 101.3 billion has been paid to these people, in six installments of BRL 600 or BRL 1,200 (which is the case of women heads of household beneficiaries of the program). In May, after the payment of the first two installments, Caixa’s president, Pedro Guimarães, and his team estimated that from one third to 40% of the beneficiaries of emergency aid were people who had no bank account before – that is 30 million Brazilians.

READ ALSO: Brazil’s instant payments system can reach 20 million users in its first year

A survey made last year, by the Instituto Locomotiva, a well-known research institute focused on consumption of lower-income classes in Brazil, revealed that the country has 45 million unbanked people, that is, people who don’t have a bank account or who have but don’t use it.

“This is the biggest banking process ever occurred at a global level. Within the standard concept, they are people who have started to have an account and who (with the extension of the emergencial aid until December) will have moved this account in the last six months,” explains João Bragança, senior director for the financial industry at consultancy Roland Berger.

In order to consolidate this process, however, he explains that Caixa itself and Brazillian fintechs and neobanks will have to run and offer the right range of services, with solutions built to solve historical issues such as informality, if they really want to keep all these people inside the banking system. And PIX is a key asset in this race.

We are talking about very simple services, but that serve these people on daily basis. It is in this context that PIX can be a real revolution

João Bragança, senior director for the financial industry at consultancy Roland Berger.

He explains that with the free person-to-person (P2P) transfers that will be made possible by the instant payment system controlled by the country’s Central Bank (PIX) on its debut, on November 16, an informal worker will be able to receive payments directly into a digital account, whether through a traditional bank like Caixa, a neobank or a digital wallet.

READ ALSO: The rise of digital wallets in Brazil

Since the 2014-2016 crisis, the country has seen the number of informal workers soar, and in September, according to the Brazilian Institute of Geography and Statistics (IBGE, in its acronym in Portuguese), it reached its highest level in four years, 41.1% of the employed population, that is, more than 11 million Brazilians.

With the push by PIX, Bragança estimates that between 25 and 30 million Brazilians will be able to enter the world of banked people once and for all – a number very close to that repeatedly mentioned by Caixa’s staff.

Queue of people to withdraw emergency aid at a Caixa branch in Recife, Pernambuco, in May this year. Photos: Andréa Rêgo Barros / PCR / Fotos Públicas.

Although the use of cash is still a persistent cultural trait in the country and gigantic queues have formed so that millions of Brazilians could withdraw the amount of aid from their digital accounts, many of them effectively used the aid electronically – through Caixa’s digital account itself (as it shows the table below) or transferring the money to other fintechs that, through digital payment accounts, made it possible to anticipate the benefit’s availability.

This happened because, in order to handle the task of transferring billions of reais to millions of Brazilians, Caixa had to create a calendar, which established a grace period between depositing the aid in the account and the possibility of withdrawing or transferring that money. In the meantime, the beneficiary could use Caixa’s virtual card, both in physical establishments and in e-commerce, and also pay bills from electricity and water utilities, and telephone operators. In order not to “waste that time” and have access to a wider range of services, many of the beneficiaries of emergency aid “migrated” to the world of fintechs.

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At the end of April, videos on YouTube and messages on WhatsApp started to explain how to “anticipate the amount of the emergency aid”, opening an account at Nubank, Original, Neon, C6 Bank, Inter, among other Brazilian neobanks, and making a “deposit by boleto bancário (a type of cash voucher or bank slip that Brazilians use to pay bills and purchases)”. How?

The application that comes with Caixa’s social digital account, called Caixa Tem, allows anyone with a positive balance in the account to pay boletos. Users could generate a boleto on the fintech app, and then pay it with the Caixa Tem app. With this, in two business days, which is the standard time for clearing a boleto, the money was available.

This also helped Brazilian fintechs saw the number of new customers soar during 2020. Nubank, the largest neobank in Latin America, surpassed 30 million customers in September. Inter, ended the first half of the year with 6 million users and is now approaching 7 million.

READ ALSO: Nubank will not charge for PIX transactions, Brazil’s instant payment system

Many experts are betting that the fintechs will be able to read, before the big banks, the profile of this newly banked Brazilians.