In Payments

We are about to experience a revolution in payment methods in Brazil. On Monday, November 16th, Pix, the Brazilian Central Bank’s instant payment system, was officially launched and offered by 734 institutions for its clients.  

Some say that the last revolution similar to the one introduced by Pix was the one brought about by the Brazilian Payment System (SBP, using the Portuguese-language acronym) in 2002. And by all appearances this is true…

In addition to allowing instant transfers 24 hours a day, 7 days a week, Pix allows for payments to be made:

(i) via cell phone, using one’s bank’s or service provider’s application;

(ii) via chaves (“keys” in English, see below); recipients will no longer need to share their bank details with senders;

(iii) via QR codes.

And all of this is free of charge for individuals. Institutions may end up charging a fee to legal entities, but as of this writing the details on this have not yet been disclosed. While these are the  initial functionalities of the system, additional ones are already planned to be integrated into Pix, according to the timeline below:

What Are the Chaves for?

The Central Bank defined chaves as “nicknames” to identify an account and initiate a transfer, and these are their main features:

  1. A chave can be a phone number, an email address, an individual or corporate taxpayer’s ID number, or a random number
  2. Only one chave can be registered per bank account, and each individual will be allowed to register up to 5 chaves, while legal entities will be able to register up to 20.

The chave is a facilitator and is not mandatory. In other words, one can continue to make transfers using specific bank information, though using the chaves is recommended so users can take advantage of all the benefits afforded by Pix, including easier transactions.

As of November 15th, more than 71 million chaves have been registered with various financial institutions, clearly demonstrating that Brazilians are ready and eager to experiment with Pix.

During the first weeks of November 2020, some clients were invited by their institutions to test Pix. As a result, some 1.9 million Pix transactions totaling R$780million (USD 140MMM) have been duly completed.

Where Are Pix’s Biggest Impacts Expected to Occur? 

Despite the advantages of Pix, large institutions have been concerned about the impending loss of revenue they may suffer, since banks cannot charge for P2P transfers [1] via Pix. According to a report by Morgan Stanley, in 2019, Brazilian banks earned an estimated R$2.2 billion (USD 550 MM) in wire transfer fees and R$5 billion (USD 1.25 BN) from issuing payment slips (boletos bancários).

When it comes to boletos, it’s true that we could potentially see a reduction in their use, especially in e-commerce. According to AMI, in 2019, 17% (or USD 6.5 billion) of all e-commerce purchases in Brazil were paid by using boletos. Considering that Pix will allow instant payment, including on holidays and weekends, consumers won’t need to generate boletos and then wait until the next business day to finalize their purchases. If this trend is confirmed, Pix will help mitigate one of the main problems of e-commerce in Brazil, given that boletos create a logistical problem for sellers who reserve goods until payment is confirmed, only to have the buyer fail to follow through with payment.

In fact, thus far there is no strong short-term incentive for the payments industry to join the Pix system; on the contrary, it will suffer a loss of revenue from the outset for not being able to charge fees on transfers from users of the system.

However, thinking more in the long run, it is assumed that Pix will benefit the payments industry and the financial system by boosting the capture of transactions that are outside the payment system today, such as P2P transfers, which are mostly carried out in cash. As such, Pix will promote a higher level of digitization and customer engagement with the institution they choose to register their chave with. And this does tend to provide a great advantage in joining Pix, as it will make it possible for institutions to obtain more data and information about their clients. As a result, institutions that manage to process this data better and use it more strategically will have greater capacity to develop and offer increasingly appropriate value-adding products and services to their customers, which is the key to loyalty.

In short, joining Pix is likely to bring competitive advantages to participating institutions, but not immediately. On the other hand, not joining is certainly a disadvantage, since it would exclude non-participating players from the game at a time when the biggest decisions are being made and consumer loyalty is being generated.

The Race for the Chaves

On October 5, the registration of chaves with the Central Bank system began. What has been observed since early September is a movement by major players in the payments industry to launch educational campaigns on Pix — but with a bias toward inviting customers to register the chaves with them.

But what is the purpose of this movement? It is currently common for payment recipients to ask payers which institution they prefer to rely on to make a transfer/payment. This is because transfers between the same institutions are free of charge, faster, and can be carried out during extended hours. Therefore, recipients — including both individuals and corporations — tend to have more than one account to give payers a choice. This behavior is similar to that of cellphone users in Latin America, who usually have more than one phone number from different carriers to take advantage of unlimited free calls and messaging between numbers from the same carrier.

With Pix, this will no longer make sense and therefore one of the biggest incentives for payers/recipients to have more than one bank account will be lost. In other words, Pix may lead to a consolidation of bank accounts, making users choose to maintain their relationship with their primary bank account and to use it more frequently as a result, which will increase their engagement. In this case, institutions where customers don’t register their chaves will lose their customers’ loyalty.

In this environment still full of uncertainties, coupled with the imminent loss of revenue for institutions, what we are seeing is the beginning of a race between institutions to ensure that customers register their chaves with them. In addition to educational campaigns, most institutions, including Original, Nubank, Inter, Bradesco, Santander, and Neon, got an early start, pre-registering keys in their digital channels.

Other ways in which banks competed for consumers’ chaves include:

(i) Santander: the bank created its own brand, SX, which is referred to as “Santander’s Pix,” and promises special advantages for customers, albeit these have not yet been disclosed.

(ii) Nubank, the first institution to announce a cost exemption for everyone, including businesses

(iii) C6 Bank announced that it will award points from its “Atomos” loyalty program to customers who pre-register their chave by email address or cell phone number. 

Ultimately, Pix is a means of payment that will coexist with all the others. Along the same disruptive line, we have recently followed the dragged-out case of WhatsApp Pay, which for the time being is in still in the testing phase after initially being blocked by the Central Bank and the Administrative Council for Economic Defense (CADE).

Pix Vs. WhatsApp

Both Pix and WhatsApp Pay are new products that promise to revolutionize the experience of paying and receiving for Brazilians. The big difference is that WhatsApp is a very strong and well-known brand used by 130 million Brazilians, which speeds up and facilitates the adoption of the payment service. In contrast, Pix still has neither a brand nor a relevant user base and its rules have not yet been defined. That said, it does employ a better-known payment/transfer format that is already widely used by Brazilians: the electronic money transfer, aka TED (to use the better-known  Portuguese-language acronym for this method).

In addition, at least initially, Pix is likely to attract more users who already have a bank account and are familiar with TED wire transfers. Despite requiring a debit card under its announced arrangement, WhatsApp Pay is likely to become more popular with consumers starting the journey of financial inclusion and who are very familiar with WhatsApp.

Much is yet to come, but for now we will continue to monitor developments in the implementation and start of operation of the Pix system. We will also follow the new steps taken by the payment industry players in their struggle to ensure some competitive advantage and their promotions of exclusive experiences for customers. This leads us to a single conclusion: consumers will be the greatest beneficiaries of the system and will surely enjoy an increasingly simpler and faster payment experience.


 [1] P2P or person-to-person payments take place between dos people with no third parties involved.

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