Focus: Brazil's Pix payments are killing cash. Are credit cards next?

Banco Santander Brasil SA

02/04/2024 13:46

(Repeats to additional subscribers)
    By Marcela Ayres
       BRASILIA, April 2 (Reuters) - In just three years,
Brazil's hugely popular Pix payment system has become the
country's favorite way to pay, replacing cash and wire transfers
in many cases and now threatening the dominance of credit cards
in the booming e-commerce sector.
    The instant payments designed by Brazil's central bank are a
boon to online retailers, helping with cash flow in a sector
with tight margins, while undercutting the legacy business of
banks and fintechs built on existing credit card infrastructure.
        "I think credit cards will cease to exist at some point
soon," central bank chief Roberto Campos said 
    nearly two years ago, discussing the potential for open
finance and the Pix platform. "This system eliminates the need
to have a credit card." 
        Market trends have since added weight to his forecast.
  
    Use of Pix surged 74% last year to nearly 42 billion
payments across the Brazilian economy — surpassing credit and
debit card charges combined by about 23%, according to central
bank data and industry group Abecs.
        For buyers, the switch to Pix has been nearly seamless,
as they simply scan a QR code with any banking app instead of
reaching for their wallet. But for sellers, it has turned the
tables on the traditionally lucrative card payments industry.
  
    In online retail, orders paid with Pix surged 22 percentage
points in two years to about a third of all purchases in
December, according to e-commerce research firm Neotrust. Credit
card orders slipped 5 percentage points to 51% in the period.
    That trend is likely to pick up as the central bank teases
new Pix innovations starting this year such as recurring
payments and purchases in installments, which one official said
is likely to boost the system's role in retail.
        Although Brazilian consumers rarely notice, paying with
a debit or credit card requires sellers to pay discount fees
divided between card networks such as Visa  V.N , Mastercard
 MA.N  and American Express  AXP.N ; payment processors such as
Cielo  CIEL3.SA , Rede, Stone  STNE.O , Getnet and PagBank
 PAGS.N , as well as card issuers, which are typically banks.
  
        By removing intermediaries, Pix is putting pressure on
the card networks, which receive no cut of such transactions,
and payment processors, which pocket a much smaller slice than
they get for credit or debit card purchases.
  
        Pix costs an average 0.22% of each transaction for
retailers, whereas debit card fees run over 1% and credit card
fees can reach 2.2% of each sale in Brazil, according to a Bank
of International Settlements (BIS) paper.
  
    The growth of Pix "can limit the use of credit cards and
pre-payment volumes," Goldman Sachs told clients in a note.
Analysts noted that the extra fees for early payment of credit
card sales contribute meaningful revenue to payment processors
Stone (49%), PagBank (34%) and Cielo (9%).
    Those companies declined to comment.
    Major players in Brazil's credit card industry are shifting
their approach as storm clouds gather.
    Cielo's controlling shareholders Banco do Brasil  BBAS3.SA 
and Bradesco  BBDC4.SA  announced in February their plans to
take it private, a path already taken in 2022 by rival Getnet,
owned by Spanish bank Santander  SAN.MC  SANB11.SA . 
    Two sources familiar with the operation told Reuters, on
condition of anonymity, that going private gives leeway to offer
a bundle of integrated products, becoming less reliant on the
traditional business of connecting retailers to credit cards.
    "BB and Bradesco opted to carry out Cielo's public offering
as a way to make the company's governance more aligned with the
new configuration of the sector," Banco do Brasil said in
response to questions, adding that the industry had become more
competitive amid recent "transformations."
    Bradesco declined to comment.
    "Pix has been and will continue to be the most disruptive
technology in the financial segment in the country for the next
few years," said Eduardo Lopes, public policy director at Nubank
 NU.N , Latin America's largest digital bank.
    Nubank launched in Brazil a decade ago, offering one
product: an iconic purple credit card without fees — but it has
now diversified into a range of other segments, including an
embrace of Pix seen at several leading banks and fintechs. 
    The lender ended the fourth quarter with 13.6 million
customers using Pix on credit, which lets customers borrow for
Pix transfers up to their Nubank credit card limit. Customers
using it grew 166% from a year before. 
    Berkshire Hathaway  BRKa.N , the investment firm of U.S.
billionaire Warren Buffett, which has a 2% stake in Nubank, said
in February it had totally divested its position in Stone. 
    
    
    NEW FEATURES PENDING
    Brazil's central bank launched the Pix protocol in November
2020, mandating banks to integrate their accounts with instant
digital transfers that are free for individuals. Users embraced
the alternative to cash and slow, costly wire transfers. 
        A range of payment apps from PayPal to Venmo have sprung
up globally, but none carry the weight of a central bank owning,
operating and regulating the system to guarantee speed,
efficiency and universal integration with banks from day one.
  
        That allowed the central bank to develop the protocol
for less than 14 million reais and impose the adoption costs on
banks, while assuring them the benefits of a more agile and
inclusive financial system.
  
    The success of Pix in Brazil, which moved more than 17
trillion reais ($3.4 trillion) in 2023, has quickly expanded
into payments between people and business (P2B).
    The central bank estimates P2B payments have grown from 5%
of Pix transactions at launch to 38% in March — a conservative
figure given how many small and informal businesses accept
payments to an owner's personal account. 
    Although Pix does not offer the standard fraud protections
on credit card purchases, its broad reach and lower transaction
costs for sellers have helped to make it the preferred payment
system for many retailers. 
    "Pix is definitely a game-changer," said Carlos Mauad, CEO
of Fintech Magalu, the financial arm of retail group Magalu
 MGLU3.SA , which processes its own Pix transfers to cut costs
and offer discounts to customers choosing the payment method.
    Now the central bank is preparing to roll out new features
boosting the appeal of Pix for P2B use, according to Mayara
Yano, senior advisor to the Pix management and operations
department at the central bank.
    The first, Pix Automatico, allows for the automatic payment
of recurring bills and has been scheduled for launch in October.
    It could take the place of the ubiquitous bank invoices used
for tuition, utilities and phone bills — and may also supplant
credit cards used for media subscriptions and online services.
    An even bigger impact could come from a new feature, called
Pix Garantido, allowing for payments in monthly installments — a
major perk of credit cards for Brazilian consumers.
    Those changes are likely to accelerate the rise of Pix,
which is now dictating the payment landscape in Brazil, said
Carlos Netto, CEO of Matera, a tech firm helping companies
integrate with the new payment platform.
    "It is setting the standards for a digital finance
revolution, representing the most concrete threat to credit
cards," he said.
    ($1 = 5.0675 reais)

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Pix payments take off    https://reut.rs/3xiZ435
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 (Reporting by Marcela Ayres
Editing by Brad Haynes and Nick Zieminski)
 ((marcela.ayres@thomsonreuters.com; +55 11 5047-2444;))