Ralf Germer, CEO and Co-Founder of PagBrasil: 'With instant payments, Brazilians can expect revolutionary changes that will bring financial inclusion for everyone'
Nowadays, there are two types of bank transfers in Brazil: the TED transfer (Available Electronic Transfer), which allows same-day compensation, and the DOC transfer (Credit Order Document), which is compensated for the next business day. However, TED transfers are limited to business days and must be completed between 6:30 am and 5 pm. In addition, the service may cost up to BRL 10 and it requires the recipient’s personal data, such as name, CPF – the Brazilian individual taxpayer registry identification number –, bank and account information. With the new system, real-time money transfers will allow payments to occur instantly, with no restriction regarding date or time of day.
What will improve
With instant payments, Brazilians can expect revolutionary changes that will bring financial inclusion for everyone. The initiative will increase the money flow and stimulate the economy, as small merchants will not necessarily require credit card machines for small transactions. According to the Instituto Brasileiro de Geografia e Estatística (IBGE), 24.2 million Brazilians are self-employed, and a great part of this population work unofficially, as street vendors, domestic service providers, freelancers, and so on.
Cash is the main payment method for over 71% of Brazilians – and 80% of this population are unofficial workers. With the launch of the new payment solution, these people will be able to receive their payments immediately, while scanning a QR code with their smartphones, which not only allows faster and safer transactions, but also increases sales – as credit card and digital payments gain more usage.
In addition, instant payments will also allow market players to tailor solutions that fit this new scenario. Today, Brazil is home to 553 fintech companies, and 115 of them are under the ‘payment methods’ category, with 68 payment processors and 24 focused on mobile payment solutions. With the increase of competition, one effect that is likely to occur is the reduction – or even extinction – of money transfer fees. In fact, Accenture predicts that banks around the globe risk losing up to USD 280 billion in payments revenue by 2025, with the growth of digital payments and the competition from non-banks. However, these financial institutions can tap into a 500-billion opportunity in payments revenue if they adopt new business models.
This ground-breaking solution is similar to the initiatives that are already widespread in certain countries. In China, for instance, private companies such as WeChat Pay and Alipay hold a large percentage of the electronic payments share of the country. The main difference is that instant payment in Brazil is being defined by the country’s central bank. This open system will not be controlled by private companies, allowing all market players to take part in the scenario, with customer needs remaining the priority.
What is shaping payments in Brazil today
Brazil is a country with many particularities, and this is applicable when it comes to payments as well. Digital payments are, in fact, becoming more and more familiar to the inhabitants; on the other hand, cash is still king in the country. Why is this so?
Limited access to credit cards, high bank account maintenance and transfer fees, and unofficial jobs are just a few of the main aspects that contribute to this scenario. Therefore, the boleto bancário remains the second most used payment method in Brazil: this solution allows customers to pay for digital purchases even in cash, if they do not have a bank account or a credit card.
However, custom-developed solutions for the Brazilian market do not only promote digital payments, but also support financial inclusion. It is important to understand how the new model will transform financial operations in a country with a large number of unbanked adults and a high percentage of mobile device usage.
Unbanked population
For the 45 million unbanked adults in Brazil who transact over BRL 800 billion in cash, fintech companies will play a vital role. Services that come as an alternative to traditional bank services – such as e-wallets or digital bank accounts – may change the current cash-based scenario. And, with free, real-time money transfers provided by the instant payment model, cash usage is expected to overall decrease in time.
Becoming more accustomed to digital payments
Even though cash remains the national favourite for daily payments, this does not mean that the population is not keen on digital devices. In fact, boostLAB revealed there are an average of 1.12 mobile phones per capita. In addition, the banking transactions via mobile devices represent 57% of all online banking transactions. According to the Brazilian Society of Retail and Consumer Goods (SBVC), 61% of Brazilians with smartphones from social groups A, B, and C are digital wallet users. With the new model, digital financial products are expected to become widely accepted by the population.
Exclusivity coming to an end
According to boostLAB, today 82% of all financial operations in Brazil are processed by five major banks, but this reality is slowly changing, as digital banks and e-wallets gain strength. The same happened with payments due to the entry of new players, resulting in the top two major card acquirers’ market share in Brazil dropping from 90% in 2010 to 61% in 2017. This shows that, with the increase of competition, Brazilians can expect lower-cost services.
About Ralf Germer
About PagBrasil
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