If the potential of WhatsApp Pay, which debuted in Brazil last week and was suspended this Tuesday, already seems great, that of PIX, the instant payment system controlled by the Brazilian Central Bank itself, is huge, not only because it will have a larger ecosystem, but because it also will have a much lower cost. PIX has already 980 financial institutions for its testing phase, including 32 with over 500,000 customers each, and it intends to charge only BRL 0.01 for every ten transactions, a cost not yet experienced in the Brazilian market.
“In Australia, where instant payments started in 2019, 10% of the population, that is, 3 million people, already use the solution. In Brazil, this number can reach 20 million in the first year,” says Ricardo Pandur, Accenture‘s payments expert, in an interview with LABS. A study by the consultancy indicates that the PIX has the potential to move BRL 48 billion and reach 3.3 billion transactions per year, replacing cash and also capturing part of debit and transfer operations.
It is an initial estimate, for a service that will start with transactions between people first, and then add new features. Even modest if we look at what the PicPay digital wallet already does in Brazil: with the mark of 20 million users reached in April, the fintech planned to end 2020 with BRL 30 billion in transactions.
The forecast, thus, can evolve rapidly depending on the development of solutions by institutions and the adoption of the system by Brazilian users. Worldwide, instant payments systems already account for $30 trillion in transactions in more than 20 countries, according to Accenture.
How will the Brazilian instant payment system work?
PIX will allow transfers and payments between people, companies and the government, at any time of the day, including on holidays, in up to 10 seconds. Transactions will happen through the reading of a QR Code or information such as an email, a cell phone number, or an ID number.
To enable this kind of transaction financial institutions and fintechs will have to offer instant payment among their application options. The Central Bank expects to launch the service officially in November this year and, so far, this schedule has not changed.
In fact, the COVID-19 pandemic caused contactless payment methods to gain momentum, even in emerging countries such as Brazil, where electronic payments account for just under half of household consumption. Just as e-commerce claims to have evolved three years in three months, to say the least, the same transformation is likely to happen in banking when it comes to instant payments.
“Even with the queues for withdrawing or transferring the emergency aid from the federal government, withdrawals fell 10% in April in 24-hour ATMs. Another example? In the first three months of 2020, the use of NFC technology in contactless transactions grew 456% compared to the same period in 2019, reaching BRL 3.9 billion in transactions, and this will continue to grow,” stressed Pandur. In the whole year of 2019, NFC transactions reached BRL 6 billion in Brazil, according to the Brazilian Association of Card and Service Companies (Abecs).
Another behavior that tends to accelerate with the pandemic is the use of the smartphone for financial transactions. Following the trends of recent years, transactions made through mobile devices grew 19% in 2019, accounting for 39.4 billion transactions (44% of the total), according to the annual banking technology survey by Febraban and Deloitte, with data from the 22 greater financial institutions in Brasil. Soon, perhaps in 2020, transactions via mobile devices will account for half of the transactions.
Of all transactions made by mobile banking in 2019, 2.2 billion were payments; 1.2 billion, transfers; and 7.7 million, deposits–precisely those operations that can be easily replaced by PIX.
Studying the behavior of consumers in some of the markets where instant payment already works, such as the United Kingdom, Norway, Sweden and Singapore, Pandur says that the use of the debit card has decreased significantly.
It is with the debit card that the greatest competition takes place, and where the instant payment really grows, along with the reduction in the use of cash and the replacement of transfers”, explains Accenture’s expert. How much PIX will capture from each of these methods will depend on the efforts of the institutions involved.
Part of the instant payment system revolution is that it will make operations cheaper. The Central Bank intends to charge BRL 0.01 for every ten transactions carried out, a cost not yet experienced in the Brazilian market. A transfer made today through the banking channels costs the customer from BRL 2.30 to BRL 143.25.
In general, the cost of transactions can decrease between 10% to 40%, according to analysts, because PIX also eliminates a series of intermediaries that today exist in the means of physical payments. For small and medium businesses this translates into a reduction in the need for working capital. In times of crisis, this is crucial: a survey by FGV and the Brazilian Micro and Small Business Support Service (Sebrae) released this Tuesday estimates that the country’s SMBs need an additional $38 billion (BRL 200 billion) in working capital to actually survive the pandemic crisis.