Brazil’s market for payments is now becoming what many call a revolution. This word is certainly powerful and, of course, there is a long path ahead, but the technology recently launched in the country also gives me the same expectation. I am talking about Pix, the instant payment system created by Brazil’s Central Bank and which makes it possible to transfer money between people and companies in up to 10 seconds, 24 hours a day, seven days a week.
Besides the fact it is an innovation designed by a regulatory agency (and not a chimerical start-up with ground-breaking formulas, as most of us would expect these days), there are three facts about Pix that should move us headstrong into this so-called revolution: wide-reaching access to technology, the dramatic cost reduction for transfers, withdrawals and payments, as well as implementing new features in e-commerce.
First, however, let me explain how the technology works to better understand the steps toward such a market change. Imagine that a friend has paid for dinner, and you need to pay him back. Instead of asking for all his bank details (account number, branch number, full name etc.), all you need to ask is: what is your Pix code? All your friend will need to do is give you one of the following pieces of information: his cell phone number, his individual tax identification number (known as a CPF in Brazil), his e-mail, or a random number generated by the system.
Now, imagine the same dynamic between an individual and a company. When it comes time to pay for a product, a consumer can open their cell phone, scan a QR Code, and make payment in a few seconds, since all the information about the purchase will appear automatically on the screen of their phone. Soon, users will also be able to withdraw money in regular stores. With this feature, cash is handed over by the cashier in a store while the consumer scans a QR Code with his cell phone, similar to the payment process.
The logic is based on practicality, and here is my first point: the entire population will have access to this technology. By February 12, Pix was already plugged into the platforms of more than 738 institutions in the country,including large-scale banks, small fintechs, and even financial sites of companies in the fuel and foodstuff sectors.
This means that Pix will be everywhere. To use this technology, consumers just need a Pix code that is registered in any of these institutions – as well as a smartphone, of course, which does not seem to be a problem in a country where 88.5% of cell phone owners have access to the Internet on their handhelds, according to the Information and Communication Technology numbers presented in IBGE’s Continuous National Household Sample Survey (PNAD Contínua TIC) in 2018. That is quite a number, considering that close to eight out of 10 Brazilians over the age of 10 have a cell phone.
This is an important step toward including those outside the banking system, which was close to 30% of Brazil’s population, according to the most recently available study conducted by the World Bank in 2017. This number is certainly smaller today, after the requirement to open a digital account in order to receive the emergency aid from the government during the new coronavirus pandemic. But we can say we are still talking about millions of citizens who operate mainly in cash payments and who conduct very few banking operations – if any at all.
You may be bewildered by this scenario, given the variety of cost-free accounts offered by the digital banks and fintechs in the country. How is it possible that there are so many outside the system? Well, besides the fact that using a cell phone to do your banking is still just catching on, it is important to point out that not all the operations in these institutions, despite being digital, are free of cost. Charges on transfers, withdrawals and cards is still a constraint.
Pix is here to change the rules of the game. It will no longer be necessary to pay for a money transfer (DOC or TED, the two forms of transfers used in Brazil) to send money to someone or to make a payment. Also, withdrawing cash to make purchases will no longer be needed, as Pix will be in all retail stores in the near future. In this same vein, debit cards can become obsolete. And, if a retailer pays a fee on card transactions, why wouldn’t he encourage consumers to make payment using Pix, which will cost the retailer less and be instantly paid into his account?
This takes me to my second point: the dramatic reduction in costs for all those on this playing field (consumers, retailers, banks, fintechs etc.). Ten transactions received from Pix will cost institutions one centavo of the Brazilian real (BRL$ 0.01). This is much less than the current DOCs and TEDs, which can cost between thirty and fifty centavos per digital transaction (BRL$ 0.30-BRL$ 0.50). In a physical environment, these operations are even more expensive – much more. An express wire transfer (TED) done with a teller can cost close to one hundred Brazilian reais (BRL$ 100.00) for a bank, and this includes the costs for a brick-and-mortar structure needed to serve customers.
Essential utility companies, such as providers of water, electricity and phone lines, should also save billions, according to market estimates. They just need to invite customers, using a QR Code on their bills, to make payment using Pix. The potential for reducing the number of unpaid bills is staggering. Given the 24/7 availability of the service, a debt can even be paid on the weekend.
With this, surcharges become cheaper. Consider that the telephone companies in Brazil alone fork out close to one billion Brazilian reais per year to issue invoices to partner companies, such as lottery stores and commercial establishments, so they can receive the commission payments for credit put on pre-paid cell phones. Pix will cut such intermediary costs from the system.
It is important to remember that low costs mean even more competition. The less paid to conduct transactions, the more start-ups will be able to offer financial services to the population. You may be thinking, “so banks, up until recently, dominated the market with no bother; they probably won’t like this.”
I believe that this new reality is beneficial to everyone, or at least to the majority. The more citizens that are familiar with the digital world, the better. For those already in the market, there will be savings. For newcomers, it is an opportunity to captivate new customers and to grow.
More people with the ability to open a digital account and more confidence to conduct financial transactions this way is a momentous step forward. Once they feel at home with the digital dynamics, the next step for them will be to evaluate which bank or fintech best meets their needs. In this competition, the company with the best offer and which can prove their worth to the consumer will reap the rewards.
The third factor that denotes a revolution in the market is the use of Pix in e-commerce. With this, invoices, which is one of the most popular methods of payment used by Brazilians, will no longer make sense. This is great news. Invoices are trouble. They give buyers close to two days to make payment, which is enough time for half the people to simply not make the purchase. This means that retailers are obliged to reserve merchandise in stock for 48 hours or even longer. This is an eternity compared to what Pix offers.
Pix will allow instantaneous payment for e-commerce purchases. It will be much better for retailers and those who use invoices, who often have to wait a few days for payment to be cleared. Merchandise will leave the stock more swiftly and will arrive in the hands of the consumer much faster than before.
Expectations are that Pix will encourage more people to make on-line purchases, boosting Brazil’s already extraordinary upward curve of e-commerce even more. On-line retail sales reached 14,4% in November 2020, compared to 9,6% in November 2019, according to IBGE. The pandemic, obviously, played a significant role in this.
I believe that Brazil will not be the only place to acknowledge Pix as a crucial innovation in the financial sector. The whole world will share the same opinion. Back when the express wire transfer (TED) was launched, in the early 2000s, that was the consensus. On that occasion, we presented a system in which a money transfer took place on the same day, within an hour (up to 5 p.m. on business days). It was really cutting-edge. The most common transactions in the foreign markets were the standard money transfer (DOC), in which the amount was only cleared and deposited into the account on the next business day, and checks, now completely discarded.
Now, Brazil presents Pix, not only with instantaneous, low-cost transactions (anytime, anywhere), but also extensive access to the population and simplified use via a pin number or a QR Code. The user experience, without a doubt, will be much better. And what is more revolutionary than delivering the best experience to the largest number of people possible?