Stone and PagSeguro are worth 90% less after Pix and increased competition

Stone and PagSeguro are worth 90% less after Pix and increased competition
Stone and PagSeguro are worth 90% less after Pix and increased competition

Bloomberg — Brazilian fintechs Stone (STNE) and PagSeguro, currently PagBank (PAGS), are losing share to payments companies and Pix, from the Central Bank.

The two companies — which together were worth US$50 billion and attracted investors such as Warren Buffett and Jack Ma — are now valued at just about a tenth of that value. And the bloodletting is expected to continue, as Pix and the Drex digital currency project allow us to envision a future without credit cards.

“The market has changed a lot in recent years and all acquiring companies have suffered,” said Cassio Schmitt, president of Getnet Brasil, a payments company owned by Santander since 2014. “Competition has grown and margins have decreased, while Pix is ​​reducing the use of debit cards.”

Regulators precisely wanted to reduce costs for customers when they opened the acquiring market in Brazil in 2012 beyond the only two participants, Cielo (CIEL3) and Rede, which belongs to Itaú (ITUB4).

Stone and PagSeguro entered the sector and went public in the US in 2018, on the Nasdaq and the NYSE (the New York Stock Exchange), respectively.

Their shares rose after the IPOs, with the two fintechs quickly gaining customers by offering lower card fees and machine rentals. But now companies “remain largely underserved” amid the fierce competition for customers, according to Goldman Sachs.

There are around 300 acquiring and sub-acquiring companies in Brazil, according to Schmitt. Not to mention competitors like Mercado Pago, the fintech owned by online retailer Mercado Livre (MELI).

Pix, launched by the Central Bank at the end of 2020, does not charge fees to individuals and processes instant payments 24 hours a day, including on weekends.

Banks that charged for cash transfers were forced by the BC to offer Pix, which handled more than 8 billion transactions in the first quarter of 2023.

Initially, Pix gained strength among individuals, who used the new feature to send money to other people. Then it took market share away from debit cards, as many self-employed entrepreneurs now only accept Pix as payment for their services.

This allows them to avoid paying card machine rentals or fees to acquiring companies. Now, Pix is ​​accepted almost everywhere as payment for almost all products.

And new options are arriving, including Pix for recurring payments, such as electricity and water bills, and Pix in installments, which will compete directly with credit cards.

All of this “is part of the plan to further increase competition,” said Roberto Campos Neto, president of the Central Bank, last month. The Drex digital currency is expected to connect to Pix, in what could become a cardless future, Campos Neto said.

In an attempt to adapt to changes and compensate for the reduction in the market, some companies are integrating their acquiring businesses with banking services.

This strategy helped Itaú’s Rede achieve first place in the acquiring market in the second quarter.

Three years ago, Rede began integrating its commercial team with Itaú, so that its employees could sell any type of payment solution.

“It doesn’t matter if it’s Pix or a credit or debit card,” said the Network’s director, Angelo Russomanno. The Network has “the largest partnership programs with the largest commercial automation companies in Brazil, so Pix can be integrated into the retailer’s cashier, combining the payment method made with the product sold automatically, and you can see all of this consolidated in a single extract.”

The volume of payments processed by the Network in the third quarter increased 19% compared to the previous year, to R$219.05 billion. The company surpassed Cielo, controlled by Banco do Brasil (BBAS3) and Bradesco (BBDC4), which saw a reduction of almost 11% in processed volume, to R$197.5 billion, from July to September.

PagSeguro managed to increase processed payments, but only by 4%, to R$92.7 billion in the second quarter. Stone grew 7.4%, to R$97.4 billion in the same period.

Getnet’s numbers are not public, but, according to analysts at BTG Pactual, the company appears to be gaining market share. In the first nine months, Getnet’s volume grew 15% compared to the same period last year, according to Santander’s balance sheet.

Getnet is growing its commercial team, focusing less on individuals and more on small and medium-sized businesses, which are “very profitable customers,” Schmitt said.

Pix is ​​free for individuals, but a fee is charged for use by companies. Thus, banks and acquiring companies are trying to charge legal entities almost as much for Pix as they charge for paying with debit cards.

High interest rates also make life difficult for PagSeguro and Stone, as companies owned by large banks can obtain cheaper financing from deposits from retail customers. Default rates, including among small card issuers, are also becoming a growing risk for acquirers.

“We were born serving small and medium-sized companies,” said Angelo Aguilar, director of PagBank. “Our brand recognition is huge among them and we will maintain our focus as we plan to expand among large companies as well.”

PagBank represents 10% of all Pix transaction volume, said Aguilar.

“We see Pix as a tool to improve the customer’s way of paying, and not as a threat to our results”, he said, adding that “there is room for everyone”, as the economy is expected to improve and interest rates are likely will fall more.

Stone declined to comment.

Pedro Leduc, an analyst at Itaú BBA, is less optimistic.

“It’s a perfect combination of a slowdown in the industry, a slowdown in spending on credit and debit cards,” he said in an interview, attributing the situation to a tighter credit cycle, with banks offering fewer credit cards, or to Pix, which is conquering the debit card market.

“At the same time, there is intensifying competition within this industry, so everyone is fighting for a smaller slice of the pie.”

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The article is in Portuguese

Tags: Stone PagSeguro worth Pix increased competition



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