PIX and open banking promise to revolutionize payments. Initiatives will have an impact on the revenue of large banks, but they will have to overcome unequal access to the internet in the country and millions of non-bankers.
In November, Brazil begins a more concrete phase of its modernization process in the financial system: PIX, the new system of instant payments by the Central Bank (BC), enters the scene. Through a QR code, it will be possible to make payments and transfers 24 hours a day, every day of the week, and at no cost to individuals.
The digitization of money – less and less paper money is used – and making values change hands more efficiently are part of a global agenda, which in Brazil was taken over by the Central Bank during the previous administration of the autarchy.
The so-called “Agenda BC #” joins other points such as open banking – which also starts to be implemented in November -, in an effort to modernize the country’s financial system, with promises to reduce the concentration of the banking market, bring more efficiency and safety, and eventually reducing the Brazil cost.
“A ship with iron ore pays a Union pick-up slip on a Friday and needs to wait at the port of Santos until Monday for the payment to pay off. With the instant payment, this ends”, exemplifies the executive director of the Association Brazilian Banking (ABBC), Cláudio Guimarães Júnior.
But the challenges are not small: one in four people in the country does not even have access to the internet according to the Brazilian Institute of Geography and Statistics (IBGE), and more than 30 million are not bank employees – a necessary condition to have access, for example, the new payment system. And until 2018, the most recent data from the BC, paper money was still the most used form of payment by Brazilians, according to a survey in which 60% said they use cash more.
DW Brasil spoke with economists and representatives of the financial sector to understand the prospects for this journey in Brazil, where the country is globally in the race for “money 4.0” and who is impacted by the changes.
Neither in the lead nor in the flashlight
The system that is now implanted in Brazil has been a reality in China for some years, where everything is paid for with the cell phone, through QR Code. The Asian country is now moving towards facial recognition payments. But, for the experts heard by the report, Brazil is not far behind when it comes to the financial system.
“We are very little behind. In many techniques, such as bank clearing, we are more advanced than Germans and Frenchmen. The contradiction is that banking services were often purchased abroad”, says the professor at the Brazilian School of Public and Business Administration at Fundação Getúlio Vargas (Ebape-FGV) Istvan Kasznar.
A study carried out by the consultancy Bain & Company revealed that the features provided for the PIX put Brazil in a situation similar to that of countries such as Sweden, Australia and India in terms of benefits for users in transactions between individuals, and in an intermediate position, relatively close to Sweden, regarding transactions between individuals and companies.
“Countries where this (payment via QR code) happened with greater acceptance, such as Indonesia and China, was where there was no strong banking system, and Visa and Mastercard, plastics, did not have a strong presence. So they skipped the stage. that QR Code didn’t work in the United States, in England? Because they already had a robust system “, says XP Investimentos analyst Marcel Campos. “The question was whether this was going to work in Brazil”.
To “work”, it is necessary not only that the system works operationally, but that the population also adheres to it. In the country, until Thursday (10/22), the number of keys registered in the PIX reached 48.5 million – registration is not a necessary condition, however, for the use of the system. Although a person can register up to five passwords, the number seems considerable for just over 15 days of registration, and it surprised some economists and market representatives.
The FGV professor considers that the number is “formidable” from the point of view of the population’s reaction to the campaigns carried out by the banks and the Central Bank itself. However, taking into account that the country has 175 million current accounts, the figure does not seem so representative. “If you imagine that a good part of the population is suspicious, you still don’t know what that instrument is, you suspect that this will mean control by the BC, that number seems low”, he says.
There, one of the obstacles of the digital agenda would enter: financial education, in the sense that the population understands what options are available, and to understand how to use the instruments. Among other challenges pointed out, it would also be “the clearing of the locks generated by the big banks”, according to Kasznar.
Who wins and who loses
If a person no longer needs to pay around ten reais to make a bank transfer, someone will stop earning. In a country like Brazil, in which the five largest banks concentrate 81% of the market, and profit high from tariffs, this initiative ended up being taken over by the state, unlike countries like China, where it was the private initiative that gave the cards.
Large banks will be negatively impacted by both PIX and open banking. With PIX, they lose considerable revenue from services such as TEDs and DOCs, although the cost is also reduced – from one real per operation to a few cents.
According to a survey by XP Investimentos, banks in Brazil have between 400 and 600 million reais of annual revenue in TEDs and DOCs. “But the main thing is not this: the main reason for you to pay a current account fee today is the basket of services. They give ‘x’ TEDs and DOCs per month for free. If it’s all free, why pay to have one account?”.
In the case of Bradesco, for example, of the 101 billion in revenues in 2019, 33.6 billion reais were for services only. Of these, 7.7 billion reais came from current account fees. In Bain & Company’s estimate, by 2024 banks are expected to lose R $ 1 billion in operating margin from PIX transactions between individuals.
Although it is necessary to be linked to a current account to have access to the PIX, which could benefit the big banks, it is not necessary that it be paid, of course. With the new “entrants” in the markets, the fintechs, which offer checking accounts at zero cost, the big banks also lose. So much so that, of the keys registered in the new system, Nubank, which offers free accounts, concentrates almost the same number as four large banks combined.
In addition to PIX, open banking moves this highly concentrated market. Through it, the data of individuals and companies became accessible to all financial institutions.
The bank where you have always had your checking account, for example, knows how much you have operated for years, whether you have maintained a stable job or not, whether you are a good payer or not. With information like this, it is easier and cheaper to grant credit, because the risk of the institution giving a credit that does not return is less. With open banking, this information asymmetry, which was a barrier to entry for many smaller institutions in the credit market, is eliminated. In theory. In practice, it can be more complicated.
Open banking started a few years ago in England and has spread to other countries. “The idea is good, but what international experience is showing is that this has not been able to revert to a more efficient market”, evaluates the investor and former partner of BTG Pactual Gustavo Roxo.
According to Roxo, one of the hypotheses for not having been a resounding success, in addition to the economies already experiencing an environment of very low interest rates, is the fact that smaller companies have a more significant barrier to entry: the lack of capital. “They need to find a way to finance themselves, and that is much more complex.”
In the digitalization path, there are still cryptocurrencies, which for the time being still serve more speculation. But several countries and institutions plan to release their versions. BC President Roberto Campos Neto recently stated that Brazil should have its own cryptocurrency in 2022.
Author: Larissa Linder