BRASILIA (Reuters) – In just three years, the popular instant payment system Pix has become the favorite form of payment in Brazil, displacing cash and bank transfers in many cases and threatening the previously undisputed predominance of credit cards in the e-commerce.
The system developed by the Central Bank has increasingly been seen as a strong ally for online retailers, helping the cash flow of a sector that operates on tight margins, while threatening business models associated with credit card infrastructure for banks and fintechs.
“I think credit cards will cease to exist at some point soon,” said the president of the BC, Roberto Campos Neto, almost two years ago, discussing the potential of the Open Finance tool and system. “This system eliminates the need for a credit card.”
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Market trends since then have corroborated his prediction. The use of Pix soared 74% in 2023, reaching almost 42 billion of payments throughout the Brazilian economy – exceeding combined charges with credit and debit cards by around 23%, according to data from the BC and the payments sector association Abecs.
In online retail, the number of orders paid with Pix increased by 22 percentage points in two years, reaching more than a third of all purchases in December, according to e-commerce intelligence company Neotrust. Credit card orders fell 5 percentage points, to 51%, in the period.
This trend will likely intensify as the BC hints at more innovations for Pix starting this year, such as recurring payments and installments, which, according to a bank official, will likely increase the system’s role in retail.
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Although the consumer does not have visibility into who is paying when using a debit or credit card, the retailer bears a discount rate that remunerates the card brand, such as Visa, Mastercard and American Express; the acquirer that processes that payment, such as Cielo, Rede, Stone, Getnet, PagBank; and the card issuer, which are usually banks.
By removing intermediaries, Pix puts pressure on brands, which receive no part of these transactions, and acquirers and banks, which take a much smaller share than they usually receive for purchases with credit or debit cards. Pix costs retailers an average of 0.22% of each transaction, while debit card fees exceed 1% and credit card fees reach 2.2% of each sale in Brazil, according to an article of the Bank for International Settlements (BIS).
The additional rise of Pix based on the news signaled by the BC “may limit the use of credit cards and prepayment volumes”, Goldman Sachs told clients in a note, adding that the anticipation of credit card receivables contributes with significant revenue for acquirers such as Stone (49%), PagBank (34%) and Cielo (9%). The companies did not comment.
New functions ahead
Since launching in November 2020, a variety of payment apps have emerged globally, from PayPal to Venmo, but none have carried the weight of having a central bank as their creator, operator and regulator like Pix, which ensured speed, efficiency and universal integration of the system with banks since its inception.
This allowed the BC to develop the protocol for less than R$ 14 million and impose adoption costs on banks while guaranteeing them the benefits of a more agile and inclusive financial system. Over time, the dizzying success of the payment method, which moved more than R$17 trillion in 2023, it spread to P2B payments, from people to companies, as they adapted their systems to Pix and realized how they could earn with it.
From 5% at the birth of Pix, P2B transactions accounted for 38% of total operations in March this year, a conservative number as it does not include informal businesses that massively embraced the instant payment system.
Now, the BC is preparing to launch new features that will increase Pix’s appeal for P2B use, according to Mayara Yano, senior advisor at Pix’s Management and Operations Department.
The first, Pix Automatic, which should be launched in October. It could replace the ubiquitous bills used for monthly payments and electricity and telephone bills. An even greater impact could come from Pix Garantido, which will allow payments in installments, entering the credit card territory in what is its main differentiator for a large part of Brazilian consumers.
In this new reality, companies that fundamentally depend on the current credit card model “will not have the value they have today in the future, unless they transform into another business”, predicted Edson Santos, founder of Colink Business Consulting and former -CFO of the Network.
