The COVID-19 pandemic is accelerating the use of debit cards in Brazilian e-commerce. It is natural for this to happen in a country where the number of unbanked people – 45 million Brazilians, according to a 2019 survey by the Locomotiva Institute – is still large, and access to credit is still restricted. The use of this payment method in the online environment began to be more effectively promoted in the country in 2018 when the worldwide consortium of card labels, EMVco, started to test a new authentication protocol, called 3DS 2.0. More complete than other authentication systems available on the market and much simpler than its first version, launched in the late 90s, this protocol promises to make the use of the debit card in e-commerce soar in Brazil.
Since last year, major digital product providers, such as Uber, Spotify, Netflix, Rappi, and iFood, have started to accept online payment by debit cards in Brazil. According to the Brazilian Association of Credit Card and Services Companies (Abecs), currently, 78% of online purchases are made with credit cards in the country; 6.5%, with debit cards. Also according to Abecs, 38.1 million people have only debit cards, and about 20.6 million, multiple cards in which the credit function is not active. That is, with 3DS 2.0, at least 58.7 million new cards could be able to buy in e-commerce using debit. In total numbers consolidated by the Central Bank at the end of 2019, Brazil has 110 million active credit cards, and 116 million debit cards – this last number must have grown a lot with the pandemic.
What is missing, then, for the use of debit cards to soar in e-commerce? New habits by the consumers – something that the pandemic is helping to speed up – and the integration of more issuers (banks and fintechs who are the ones who effectively decide to grant a card to a user) and retailers to the new protocol.
How does 3DS 2.0 work?
3DS 2.0 is nothing more than an authentication protocol for online transactions with debit and credit cards. With each transaction, 3DS analyzes more than 100 types of data, which are encrypted and sent to the bank to authorize transactions with less risk. The customer can confirm its identity with a code sent by SMS or with a token, among other ways.
The simpler and faster a transaction, the greater the chance that a consumer will take the purchase to the end. In addition, the more familiar with digital services in general, the easier it is for consumers to make purchases online with a debit card. And Brazilians are getting there: a survey by consultancy Fujitsu, commissioned by the news outlet Valor Investe, shows that one in four Brazilians already use both banks and fintechs on a daily basis.
The bad experience with the first version of the 3DS also needs to be overcome. In the first version, of 1999, the user was taken to another window, outside the retailer’s website and within the issuing bank’s environment to finalize the purchase. This generated mistrust and made many consumers abandon their purchase.
New protocol gives issuers a more active role
In the case of issuers, the main Brazilian banks (Itaú, Bradesco, Caixa Econômica Federal, Banco do Brasil and Santanter), in addition to some of the main fintechs, such as Nubank, have already joined or are in the process of joining 3DS 2.0 – among the banks, Bradesco was the last one to start the process, in March this year.
And this process, according to Mastercard, is a medium-term process. The fact is that the purchase by virtual debit involves a different risk dynamic than that of the physical transaction, where the risk can fall on the establishment. Within 3DS is the issuer that will verify that the card user is really the user, and it is the seller that will ask for the transaction authorization.
“I think the risk issue was a big component for (the sector) not adopting the debit card with the volume (that it could have) previously. The world of not-present cards today is mostly for very small transactions. But the entry of this new protocol of authentication, with issuers, also participating, imposing their own rules, changes this perspective, ” stresses Hugo Costa, executive director at Visa Brazil. “In a transaction that was authenticated, and then authorized, the chance of fraud is minimal, because the two sides of the chain exchanged information,” adds Costa.
“3DS is the only protocol that involves the three parts of the transaction (commerce/acquirer, card labels, and banks). It is a more robust and complete process,” says Felippe Galeb, director of Cyber & Intelligence Solutions at Mastercard Brazil.
The increased adherence of payment fintechs that make the middle ground between online stores and consumers to the new protocol is also helping the debit card to gain more space in the online world. One of them is EBANX, a fintech that processes payments from international companies, such as the aforementioned Spotify, for Latin America consumers, and to which LABS belongs. In June this year, EBANX registered a 115% growth in the total value of payments made with a debit card compared to the same month last year.
Apparently, the biggest challenge at the moment is the integration of more retailers and platforms in general to the new protocol. In this case, the doubt lies in the difference that the offer of this type of payment can make when attracting new consumers versus the costs (of integrating the platform and also in transactions) for this.
In order to join 3DS 2.0, the retailer must ask its accreditation service provider (acquirer) the inclusion of the technology in its sales platform. Each acquirer has a process and, therefore, the costs of integration and per transaction with 3DS also vary. Mastercard and Visa believe that as sales volume increases, more retailers will offer debit cards as an online payment method.
Even solutions outside the 3DS 2.0 protocol gained ground during this pandemic period. Since April, the state-owned bank Caixa Econômica Federal has opened more than 50 million digital accounts to pass on to self-employed and informal workers the emergency aid related to the COVID-19 pandemic. About 40% of these people did not have any type of bank account and started to have the digital option of Caixa, which also comes with a virtual debit card, accepted in more than 1,000 commercial establishments in the country, including websites of large retailers, such as Magazine Luiza and Via Varejo. In the case of this virtual Caixa card, authentication on the sites that have accepted the device is done with a CVV, dynamic card security number, which changes with each use.