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Pix: What Europe could learn from Brazil’s new payment system?

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Starting this month, the new Brazilian Instant Payment Scheme (PIX) developed by the Brazilian Central Bank in partnership with local banks promises to democratize banking....

What is PIX Instant Payments?

PIX is the system created by the Brazilian Central Bank to bring instant payments to life. It is through PIX that all wallets that use QR Codes will be interoperable, meaning transfers and payments will be allowed from one e-wallet to another in real-time, 24/7 without the need for intermediaries such as card schemes, acquirers, or issuers. Another major difference is the fact that the new instant payments scheme will allow the interoperability of all digital wallets, meaning not only traditional banks would be able to connect to the new system but also FinTechs.

 

What are the benefits for consumers?

Instant payments offer many benefits to Brazilian consumers and the financial market. Firstly, transactions will cost less for both consumers and retailers since there's no need for acquirers, card schemes or issuers to participate in the arrangement, the transaction happens in real-time which is a step-up from the current main payment method (bank transfer). Secondly, being backed by the Central bank, the system is robust and safe. This credibility will allow new financial services and FinTechs to connect with the system and provide innovative solutions as Brazil's population is becoming more and more mobile-centric, meaning e-commerce will keep gradually giving space to m-commerce in the future and the payment industry needs to be prepared since customers will expect a simpler checkout process than what they have today on desktop devices. Lastly, it's more convenient for consumers that do not need to carry large amounts of money and their debit or credit cards around and ending up dealing with cancelling those cards when they are misplaced or stolen. 

Additionally, It's also clear that in Brazil a large chunk of the population simply doesn't trust banks enough to open up a bank account, or don't do so because of the idea that the fees that come with it and its credit/debit cards are simply too much to handle with their monthly budget, especially regarding account fees and interest rates for emergency loans. In 2017, only 70% of the Brazilian population was considered bankarized according to the Central Bank, leaving 48M people without any access to a debit card, credit card, or bank account. Regardless, the unbanked consumers in Brazil move nearly 204 billion USD per year, which goes hand in hand with the preferred use of paper-money by the large population. Creating a new payment method that takes out the need of dealing with traditional banks it's possible to bring these people into the financial system legitimizing the way they move money around, reducing the cost of maintaining paper-money in circulation.

 

Opportunities in Europe:

Europe also faces challenges regarding the unbankarized population. Data from 2019, shows that on average only 77,7% of Europeans have a bank account, but the number can get as low as 48% in Romania, 60% in Bulgaria and 62% in Hungary, meaning that roughly 40 million EU citizens are outside mainstream banking - very similar to Brazil's numbers.

Besides, the growth of m-commerce over e-commerce is a global trend. Mobile share of total online traffic continues to grow and to pull away from internet-based e-commerce. At the same time, In-store mobile payments are expected to overtake cash & credit cards by 2021. The Brazilian Central Bank move to bet on mobile instant transfers is visionary because it anticipates a worldwide trend and will put Brazil miles ahead of Europe, even if back in 2009 the European Parliament and Council passed important regulations to prepare and push Electronic money (Directive 2009/110/EC), the ECB hasn't done much to integrate other Central banks in a unified effort to give European consumers more options on this growing market.

Lastly, a unified instant payment system similar to the Brazilian model would help Europe fight against tax fraud and tax evasion. Many European countries are legislating maleficent policies that hurt consumer choice and the economy in the sake of fighting against tax evasion. Italy, for example, has imposed a new limit for cash payments of 2,000 euros, set to drop to 1,000 euros from January 2022, with plans to ban 500 e 200 euro bills from circulation. Those measures are anticapitalist, anti-free trade and undemocratic. New technologies are available to help us move forward to a more liberalized market and union. The Brazilian example shows us how good policies could help the new financial revolution be deployed safely and fast.

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