The democratisation of payments in Brazil – PIX national instant payments system (II)

This is a second part of an interview that means to shed a light on PIX and what it will mean for the Brazilian payments ecosystem. Please visit the first part of this insightful piece here.

According to a press release from 20 February, it will become mandatory for all financial and FIs with more than 500,000 active accounts with the functionalities required to facilitate PIX transfers. What can you outline as the most relevant challenges that the BCB is facing setting up this system, enforcing compliance and making it functional? In short, what is the impact for companies obliged to join the PIX system?

Previous to the coronavirus pandemic, tech companies were already driving closed group experiments, such as Bank Itaú, for instance. This bank is already testing a similar mechanism to PIX among its customers by offering them instant payments between clients of the bank – a closed group system. It worked by using a similar QR code and app, in order to have this kind of interraction between payer and payee.

In terms of challenges faced by the Central Bank, first there will be the issue of notyfying the public. Apart from this new product, there will be natural solicitude for the TEDs (brazil. Transferência Eletrônica Disponível - Electronic Funds Transfer, the most popular payment instrument strictly dedicated for interbank credit transfers in Brazil) and DOCs (brazil.: Documento de Credito – n.e. used to make intrabank transfer of funds between different accounts of a client, and a client-to-client payment when accounts are kept in the same banking institution). We are not talking only about advertisement and popularising the system, but also about educating the users, mainly the unbanked customers, in order for them to be aware it exists, to teach them how to use it and what are the advantages of using PIX. 

The main challenge is definitely educating the target group, the unbanked population. The whole process will naturally take some years. But just by comparing the current existing products, that lead to having transaction fees of up to BRL 10 per payment, they will have access to a service that will enable them to make the same transfer with a fee of maybe only BRL 1 or less. This education cycle will be a challenge both for the Central Bank, as well as for everyone else in the value chain.

Secondly, in terms of functionality, as you know there is DICT repository, which will play a major role in the system, because all PIX users will be enroled there. Not only individual users, but companies, everyone who will need to use the system. Thus, making sure that all the participants populate this database with correct information, in a very secure way, will be a very important part of the cycle.

Will PIX be the new normal for Brazil or will the system by running in paralel with others? What would be the business case for banks and financial services providers that are licenced and for whom the system is mandatory?

For all the direct participants – banks, financial institutions in general – the system will be mandatory. By November 2020 every direct participant has to accept and has to offer this kind of product. First beginning with large banks, and then all the financial institutions. PIX will be rolled out and will function in parallel with TEDs and DOCs.

These two last systems belong to the banks, at the end of the day. These are two very popular systems in Brazil, even for ecommerce transactions. There are many fintechs that manage TEDs and DOCs instead of credit cards. For this reason, it would be difficult to try abruptly replace them with PIX. Maybe banks will be electing TEDs and DOCs for premium services, for instance – of course, with adjusted prices. Maybe they will be adding services to them in order to attempt a relaunch in another format. We need to mention that in spite of every complexity that they come with, they are also very secure, popular, and the banks may leverage this in order to keep them. It would basically be a matter of restructuring their current offers to make sure they can aggregate coexisting instant payments systems with different features. 

PIX, as we know, will be taking a little longer in terms of advertising, not all its features will be released this year. So the parallel system might be coexisting for some years, and not just months. 

What can you name as some specific benefits that will appear for merchants? 

Merchants – and especially the smaller merchants – are very sensitive about prices. As was previously mentioned, TEDs and DOCs are popular, but very expensive, mostly for small businesses. PIX can offer them many advantages in terms of competitiveness.

For ecommerce businesses PIX will be also very beneficial because, as a transaction is confirmed immediately, the stock isn’t retained, the purchase may be sent immediately. This is an advantage, especially compared with Boleto Bancario, which can take up to two to three business days to be confirmed and it’s something that Brazilians use frequently.

What can you name as the most important shifts that a centralized and sole settlement instant payments scheme would have on the Brazilian economy both in the near and far future? How will this change the way people and businesnesses conduct payments?

A good example of how PIX can replace other means of payment is that this system could successfully replace debit cards. For using debit cards, you must be banked. Since to use PIX, you don’t have to have a banking account, you can send and receive money instantly, just like with a debit card. 

In the mid- to long term, all these people that need to manage money will be formalised in some way, because PIX functions under the Brazilian Central Bank system. The aim of the Brazilian Central Bank is also to replace cash, firstly, and then take these people that are either under the law or informal right now and formalise them in a sense. In this way, these people will also have benefits such as pensions, formalised working contracts accorting to working laws.

Moreover, the bank can study the behaviour of banked users and offer many other financial services, apart from merely sending of receiving money. 

What can you envision as the most certain sources of innovation and startup opportunities that derive from the initiative in the financial and payments ecosystem from here on?

There is new money to be found in the ecosystem that is being created right now. PIX can democratise the current payments sphere by bringing in a huge population that is now unknown to electronic payments. In this sense, there are financial opportunities that companies and startup can make us of and explore.

In addition to PIX itself, Banco Central is offering everyone a sandbox, in order to develop and to embed more services and products around the PIX ecosystem – IoT, artificial intelligence, and other technology mechanisms. 

What can you share with us about the future roadmap of this system? [Development, inclusion of other technologies, authentication system, APIs]

The schedule is just under way. Following BCB’s schedule, there are four phases for the roll-out. The first one is the launch in November 2020. This implies the PIX launch with manual insertion, static, dynamic QR codes, along the TED method. PIX is superior to TED in the sense that anyone regardless of whether they are unbanked or not, at any hour can use PIX. 

A thing worth mentioning here is that TED has been successfully functioning for quite some time in Brazil. However the system works only between banks and withing working days and business hours. As far as cost in concerned, it would be a fraction of the current cost of TED, depending on the PSP and the fares it would charge to facilitate the payment.

For 2022, NFC will be employed, along with programmed/scheduled future payments, as features. 

By 2023, the payments will be able to be attached to a document. This means that higher payments (the purchase contract of a house and so on) will be able to be conducted through the PIX system.

Looking at the future, once you have a population without cash – sounds like fiction, but this is the path we are on – then you can provide electronic transaction for every kind of situation. You can pay and receive money instantly, fast transactions with a very small fare – and these are round-the-clock payments. In Brazil there are several establishments were you can only pay with a debit card for a cup of coffee. Credit card fees are too high, and, with PIX, fees will be even lower. For PIX, fees will be even lower than debit cards – so we are looking at an exceedingly higher amount of payments conducted electronically.