Real-time payments continue to gain traction around the world. Case in point: Brazil. The country’s banking system is giving an upgrade to its instant payments system. Called PIX, the new payment rails have been in the works for some time and launched last week. It will be fully operational starting Monday (Nov. 16) and has already processed 10 million transactions a day.
The new system is an upgrade over the current system known as SITRAF, which is akin to wire transfer systems used in the U.S. and is the country’s current domestic clearing and settlement system. Joaquim Kiyoshi Kavakama, CEO of Brazil’s Interbank Payment Chamber (known as “CIP”), told PYMNTS' Karen Webster that the two systems will work together as Brazil’s payments-ecosystem continues to evolve. Kavakama points to the fact that the country’s central bank has mandated that first-tier banks connect to PIX. They also have an obligation to be instant-payments providers to second-tier banks, which Kavakama said means both first- and second-tier institutions can use PIX.
“We are looking to bring many value-added additions to the PIX experience so we will be part of this ecosystem,” he said.
PIX has advantages over SITRAF. It was developed to provide an alternative to the current transaction models, including checks. It takes consumer data to make PIX work. In order to transact through the system, users need to register "keys" with their bank or fintech. Keys can be the user's social security number, mobile phone number, or email address, providing a level of security and identification above the SITRAF rails.
Kavakama added that CIP, a nonprofit association that’s part of the Brazilian Payments System, was also looking at how to use PIX to pay via the payment gateway known as Boleto. That’s a widely used Brazilian billing-and-payment system supported by banks, ATMs, the post office and supermarkets.
“We have 5 billion Boletos registered in our system, [and] we are looking how to use PIX as an alternative way to also pay Boleto,” he said.
But while Brazil’s payments system is undergoing an evolution, Kavakama said that doesn’t mean extinction for older payment methods. He said existing instruments will have to live together to allow consumers to decide what works best for them.
“For instance, if you go to a restaurant and you have a credit card, probably you will use it because it is more convenient than picking up your phone, starting a transaction or things like that,” Kavakama said. “We are going to see what type of use case the population will adopt.”
As for the real-time commercial transactions that CIP runs via SITRAF, Kavakama said he expects some of that to migrate to PIX over time, noting that the low-value ones will probably migrate first. Kavakama also expects entrenched and larger systems such as payroll and in-store sales to take more time to migrate, and require businesses finding the motivation to explore the ecosystem.
“It will depend on the type of business model so that the merchant will be convinced to switch to something that is instant,” he said. “A merchant is not so much concerned about having the money at his accountant at the given second. He's much more concerned about reconciliation of payments and assuring that people have paid so that he can put the goods [on the shelf] or provide service to the people.”
Kavakama also noted that the Brazilian central bank is pushing to standardize the use of QR codes by merchants.
“The central bank is facilitating the use of QR codes, and I think the expectation is that some of the payments being done at merchants by debit cards will migrate to PIX,” he said. “This is a very smart way that the central bank here in Brazil found to push the intermediary fees, and put some pressure on intermediary fees for debits and the credits.”
But as far as that migration being a threat to credits cards, Kavakama said he doesn’t see that happening.
“Credit cards I don't think will suffer too much, because you need credit,” he said. Kavakama said credit cards will remain popular because of the convenience to paying for one’s purchases a month later, coupled with receiving airline miles or other card rewards. “There are many, many incentives to card credit users to keep using their credit cards, which are not present in the ecosystem for PIX,” he said.
The Need For Speed
One of the issues PIX will address, and which Kavakama said he hears about from eCommerce companies in Brazil, are costly processing delays.
“Almost 50 percent of online sales are lost in the time of these delays,” he said. Whether it’s waiting to receive a bulletin from Boleto or an “initiate payment” request from a QR code, “if you give people some time to think, then they think, ‘Do I really need to buy this?’ And then they don't,” Kavakama said.
He said that’s one problem that credit cards are currently better equipped to address.
Cash And Checks
To be sure, Brazil has many payment instruments in place, including debit cards, credit cards, instant payment, ACH and domestic wire transfers for commercial borrowers. And of course, there’s still the use of cash and checks, which Kavakama would like to see go away but knows won’t anytime soon. He said the use of paper checks is decreasing in Brazil and all around the world, but with multiple generations of people coexisting, economies can’t kill the check quite yet.
“We would love to get rid of paper checks and paper money and cash because they are the most costly payment instruments that we have,” Kavakama said. “But the convenience and use case actually takes decades in order to get rid of those types of payment instruments.”
Kavakama said the new system will also provide a new and improved anti-fraud system.
“When you have a transaction that has 10 seconds to be deposited in the destination account, you can imagine the type of creativity that the fraudster will have,” Kavakama said. “We are looking at the ecosystem to see what type of missing pieces we can provide to help the banks and the FinTechs have a more resilient system for fraud and for anti-money laundering and things like that.”
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