It took less than a year for the Central Bank of Brazil’s instant A2A payment tool to become the talk of the streets. Now everyone knows you can “make a PIX” anytime, anywhere. But how has the payments industry reacted to this? Edson Santos, Founder of Colink management consultancyand Eduardo Goni, Country Manager for Brazil ACI worldwideconsider the opportunities and risks.
The success of the Central Bank of Brazil’s PIX instant payment system is breathtaking.
Within six months of its launch during the late 2020 chaos, the new mobile service, using a simple QR and codekey-driven interface, had moved more than BRL1.109 trillion ($220 billion), mostly person-to-person (P2P). . A year later and with more than six billion payments, the total value of transactions processed through the line had tripled and it was being used by six out of ten Brazilians – increasingly also for bulk payments, both domestically and internationally.
It didn’t take much to convince ordinary people – many of whom received support from the COVID-19 government could only be unlocked instantly digitally – that a payment method that is not just instant (in about two seconds), but available 24/7, free of charge and available to anyone with or without a bank account was a good idea. But for the payments industry, the speed of adoption came as a shock – especially since PIX could theoretically shut down acquirers, card schemes and issuers: they don’t need account-to-account tracks.
According to a January 2022 survey of 90 executives from Brazil’s top payment institutions, published by ACI Worldwide (Brazil) and local Colink Business Consulting, “PIX’s success poses an imminent threat to maintaining margins for current acquirers.” Perhaps that’s because they can see what fintech commentator David Birch has called “cardmaggedon on the horizon.”
“Ninety-five percent of executives we surveyed believe PIX will cannibalize debit card transactions,” said Edson Santos, founder and partner of Colink Business Consulting. “They understand that the acquirer as we know it today, which only captures, processes and settles payment card transactions, may not survive. In 2020, the vast majority weren’t worried about PIX; They thought it would affect banking services more than the acquirer world. It’s an incredible change of attitude.”
To be fair, 2020 has been busy. Concurrent with the launch of PIX, the industry has had to come to terms with legislation that requires acquirers to publish data in an accounts payable ledger – a record of future payments accruing to merchants from acquirers for credit card sales (typically in 30 days) and against which the traders can raise liquidity. And, of course, all financial institutions have been affected by the advent of Open Banking, which since 2020 has required large banks to integrate a standard set of APIs for the legitimate exchange of customer transaction data.
The Brazilian payments Apple Cart is now finally being overthrown and the industry – particularly the country’s 35 acquirers and 350 sub-acquirers
– have to think about how to react to it.
What worries Santos, however, is that the Colink Business Consulting/ACI study found that only 47 percent of payment executives still see a business opportunity in integrating PIX at the point of sale. With the new receivables registration, on the other hand, 95 percent have already developed a strategy to use it to issue loans to dealers.
The report points out: “In general, there is a consensus that the best way to monetize the new service should be through value-added services on top of PIX transactions, and not solely through transaction capture and processing. Therefore, the opportunities depend on the integration of the payment method with the store’s automation system to enable the reconciliation of payments with sales and improve the store’s operational processes.”
“Many acquirers become take PIX in the point of sale, in the terminal, which can be a palliative solution, but not a definitive one,” says Santos. “The current experience of a merchant without an integrated POS terminal is that they use two systems: one for proof of payment and another for reconciliation. If the customer wants to pay with PIX, there is a third system to confirm the payment. It is the biggest risk and also the opportunity that we have identified.”
The interplay between PIX, where funds are instantly transferred from payee to beneficiary and available immediately, and traditional credit/debit payments, where this is not the case, is important in a country where Santos says transactions involve credit upfront Getting paid cards has always been one of the most important revenue streams for acquirers. “To the point that for many sub-buyers, paying up front was a raison d’être,” he says. “Often the transaction is completed at cost and they get the margin by paying up front, [representing] up to 70 percent of the total transaction value.”
As a result, acquirers are less focused on PIX and more on trying to stay ahead of a potentially dwindling loan revenue stream by providing advances to merchants. And that was exactly as the central government intended; it has long wanted to undermine the dominance of the five local banks (Itaú Unibanco, Bradesco, Banco do Brasil and Caixa Econômica Federal and Santander), which together own more than 80 percent of the credit market.
“And it addresses something really important, which is that small and micro business owners have not been well served,” notes Eduardo Goni, Country Manager Brazil at ACI Worldwide.
“They didn’t have that many credit options available. I think it’s a big driver for the Brazilian economy – new entrants are working in credit to improve and expand lending, mainly related to receivables.”
Coupled with open finance rules, this could be transformative, agrees Santos.
“We’re starting with banks, but it will extend to all financial services, eventually allowing me, as a merchant, to authorize a creditor [acquirer] who makes me an offer to access all my transactions with other acquirers. That can generate more value for me as a retailer – and [this change] worried the majority of executives we spoke to. It will be very easy for a trader to ‘sell’ his receivables and that will bring competition.”
So PIX is part of a much broader game plan: a crucial element in the central bank’s strategy to ultimately distribute cash (although PIX allows users to withdraw cash from ATMs and as cashback from merchants) and draw everyone into the financial system, while simultaneously improve competition in financial services.
As Goni says, current players must “open up their strategic thinking” if they are to survive and thrive against such a backdrop.
One that is proving it can think beyond the threats to the golden plateau of opportunity is Itaú Unibanco, which has used the central bank’s first regulatory sandbox to explore using PIX as a vehicle for consumer credit now. The ITAUCARD project was the only one of seven projects in the first sandbox cycle that dealt with the use of the PIX rails. But as a series of changes to Brazil’s payments systems and broader financial infrastructure begin to take hold, and as companies move from compliance to innovation, there will undoubtedly be more, especially as acquirers step out of their traditional roles.
“If acquirers don’t leverage their technology to improve their services and broaden the scope of their product offerings, they’re going to miss the historic bus, that’s for sure,” says Santos. And in his opinion, proprietary platforms will not be enough. They must encompass entire ecosystems – integrated communities of providers, some of which will offer a high degree of specialization.
“Cooperate and cooperate,” he says. “Sub-acquirers in particular can specialize in different segments and in this way offer the merchant much more value than the main acquirer can achieve. In this way, the sub-acquirer becomes an important partner in providing a service for a very specific economic segment or perhaps even a specific region. Brazil is very big. We have a huge territory; There are many “Brazils” in Brazil. Each region has a different need and the sub-acquirer can benefit from that.”
So what does PIX teach the rest of the payments world? This decisive action by central authorities can bring about a rapid, positive and seismic change for ordinary consumers, giving the old players a chance to catch up. That such an intervention is best undertaken as part of a well-designed broader strategy. That you should never underestimate how quickly users are switching from payment methods that have proven themselves for years on multiple channels – this rug can be pulled at any time. And that account-to-account payment rails like PIX are just as much an opportunity as