Will 2020 see the overhaul of the payments market in Brazil?

. Aug 13, 2020
Will 2020 see the overhaul of the payments market in Brazil? Image: w_key/Shutterstock

PIX, an instant payment platform created by the Brazilian Central Bank, is one step closer to its launch date. On Wednesday, the monetary authority approved and published the regulations for the new platform, which is set to begin operating in November, as the latest addition to the ebullient payments market in Brazil. 

The pandemic has imposed new habits for consumers around the world and, in many cases, it has sped up processes that were ongoing before Covid-19 arrived. In Brazil, changing consumer routines have come together with new technologies in the payments market, many of which are set to come into operation before the end of the year. 

Will 2020 be the year the Brazilian payments industry sees a more radical overhaul?

</p> <p>&#8220;The payments market in Brazil ten years ago was extremely concentrated, with elevated tariffs, little competition, and therefore, very high prices, which led even to underutilization of some payment tools such as credit cards,&#8221; says Paulo Furquim de Azevedo, coordinator at the Center for Regulation and Democracy with Insper, speaking to <strong>The Brazilian Report</strong>.</p> <p>Over the past six years or so, however, a series of decisions have transformed Brazil into fertile land for innovation, according to Mr. Azevedo. He explains that the innovation rush in Latin America&#8217;s largest economy has had two main driving factors: the inefficiency of traditional systems, and a more encouraging regulatory environment.</p> <p>&#8220;There is a big group of innovations and startups that are entering this market and causing disruption, and, at the same time, watchdogs have modified regulation, acting towards enabling the development of such businesses,&#8221; he says, adding that these measures have also fostered competition.</p> <h2>The Central Bank wants in</h2> <p>PIX is part of the so-called &#8216;BC# Agenda&#8217; —&nbsp;a plan by Central Bank Chairman Roberto Campos Neto to promote &#8220;financial democratization&#8221; and digitize the Brazilian economy. One of the pillars of this process is technological innovation. &#8220;Despite the recent shifts in governments, the Central Bank has been steady in its trajectory, and this is translating into measures that are consistent over time and that have shown up in a rhythm that is reasonably efficient,&#8221; Mr. Azevedo explains.</p> <p>The Central Bank is adamant in saying that PIX is not an app, it is a resource embedded within banking apps that will allow customers to make payments, either as a transfer to another individual or to make purchases, if the business is signed up to PIX. In order to access the tool, individuals must first ask banks to link their smartphones to their accounts, as the Central Bank explained to <strong>The</strong> <strong>Brazilian Report</strong>. For now, the platform will only work for payments within Brazil.&nbsp;</p> <p>Despite being significantly cheaper than current tariffs on bank transactions, the operations will still have a cost, charged to the recipient bank. The Central Bank said that for every 10 transfers, the cost will be just 1 cent. Today, Brazilians pay up to BRL 15 to transfer money to another bank. Costs nearly double for in-person transactions at bank branches.&nbsp;</p> <div class="flourish-embed flourish-chart" data-src="visualisation/3138802" data-url=""><script src=""></script></div> <p>&#8220;PIX was modeled to increase competition and to transfer the gain in competition on to the consumer, in the form of tariff reductions. It has enormous potential, that is positive for the system as a whole, but especially for the final consumer,&#8221; says Mr. Azevedo.&nbsp;</p> <p>Subsequently, he says, the platform will also benefit new firms, small fintechs that already exist and may come to exist, while it will dissuade those who are taking advantage of higher tariffs today.&nbsp;</p> <h2>Is PIX a game-changer?</h2> <p>Meanwhile, the private sector moves on with innovations of its own, with the potential to change the payment ecosystem. In June, Facebook launched its <a href="">peer-to-peer transfer system Whatsapp Pay</a> in Brazil. The system involved state-owned bank Banco do Brasil, fintech Nubank, and credit cooperative Sicredi. Cielo, Brazil’s largest payment company, was also the only firm responsible for processing the transactions.</p> <p>As reporter Natália Scalzaretto explained in June, to use WhatsApp Business’ payment function <a href="">companies will have to sign up with Cielo</a> and pay a 3.99-percent fee for both credit and debit payments — higher than the current fees charged by both Cielo and the competition for debit payments, or those with a longer deadline to receive the money. On the other hand, companies may receive debit payments in up to a day and credit payments in two days, a special advantage at a time when companies need liquidity.&nbsp;</p> <p>But, above all, companies do not require POS machines — which was one of the first tools the competition used to hurt Cielo in the past.</p> <p>Just a few days after WhatsApp Pay was launched, the Brazilian Central Bank suspended the system, claiming that it required further scrutiny, notably in three areas: competition, efficiency, and data privacy. That was two months ago, and Facebook Inc is still awaiting an answer.</p> <p>But this pending authorization has not stopped Visa and Mastercard from moving ahead with tests using the platform. Last week, the monetary authority stated that the tests being conducted should not be seen as an indication of the Central Bank&#8217;s final decision on the matter, which shall be taken at the end of the authorization process.&nbsp;</p> <p>For Mr. Azevedo, this analysis requires a high level of detail from authorities, due to the transformative potential of WhatsApp Pay.&nbsp;</p> <p>&#8220;We are talking about a system that will unite the leading company in credit cards with a platform that is the global leader in a variable that is absolutely crucial for payment solutions, which is the number of users,&#8221; explains Mr. Azevedo<strong>.</strong></p> <p>He says the platform has potential implications that are not simple to be assessed, but are potentially huge and can swing in a positive or negative direction.&nbsp;</p> <p>Regardless, the parties involved are confident that the monetary authority will give the platform the green light.&nbsp;</p> <p>&#8220;I still believe the Central Bank will have an innovative vision and confirm this by authorizing [WhatsApp] Pay,&#8221; says Percival Jatobá, Visa Brazil&#8217;s Vice President for Innovations and Solutions, speaking to <strong>The Brazilian Report</strong>.&nbsp;</p> <p>&#8220;Open banking and real-time payments are unequivocal demonstrations of innovation, so it would not be, at the least, coherent to not approve our project,&#8221; said Mr. Jatobá, making a reference to the monetary authority&#8217;s own innovative agenda.&nbsp;</p> <p>When asked about the overall impact of a tool of the likes of Whatsapp Pay on the startup environment, president of the Brazilian Startup Association (Abstartups) Amure Pinho believes it may lead to consolidation, with more fintechs merging operations. He mentions, for example, the case of payments processor Stone, which bought software solutions company Linx for BRL 6 billion this week.&nbsp;</p> <p>&#8220;At the same time, these smaller payment companies, that boasted faster approval of payments, or a shorter payment time for the businesses when compared to traditional banks, will have to find new differentials to stay competitive,&#8221; said Mr. Pinho.&nbsp;</p> <p>Other sectors, such as telecoms, are also willing to explore possibilities within such tools. Vivo, one of the leading telecom companies in the country, said it is negotiating partnerships with financial institutions. <a href="">In a live online broadcast this week</a>, the company&#8217;s president, Rodrigo Gruner, said that digitization brings telecoms firms closer to the financial system, with plenty of potential for business deals.&nbsp;</p> <h2>New trends for the payments market</h2> <p>This year alone, the country has seen the advance of contactless payments and, boosted by the pandemic, the adherence of new consumers to e-commerce, which has sped up the use of debit cards in online transactions. The latter involves an authentication protocol called 3DS 2.0.&nbsp;</p> <p>For Mr. Pinho, the pandemic has forced movements that were already trends. &#8220;Digitization, the use of apps, remote activities, online logistics, I think this has all been sped up,&#8221; he tells <strong>The Brazilian Report.&nbsp;</strong></p> <p>&#8220;There are so many changes that it is difficult to grapple the developments of this, but I think there are behavioral changes that will stay rooted,&#8221; says Mr. Pinho.

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Laís Martins

Laís Martins is a Brazilian journalist pursuing a master's degree in Media and Globalization. Her coverage is focused on politics, human rights, and society. Previously, she worked for Reuters Brasil.

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