Discover how instant payments named PIX came about and its impact on the future of the payment market in Brazil.
Pix is a new means of online payment developed by the Central Bank of Brazil (BCB). It was born to revolutionize the digital payment market in Brazil, which moved almost R$ 2 trillion in 2019, according to BBC Brasil. Although it will begin to operate on November 16, 2020, user and key registration was launched on October 5. In just two days, over 10 million Brazilians registered identification keys, according to BCB data.
Why are there such high expectations attached to this project? Pix incorporates a series of innovations to computerize the bank transfer and payment market, reducing red tape and making it more dynamic. The system enables direct transfer of amounts between individual and company accounts, cutting out intermediaries and reducing transaction costs. It operates 24/7 and finalizes the activity within 10 seconds. Another difference is in identifying keys for each account, using data from our everyday lives (mobile phone number, CPF – Individual Taxpayers’ Register, e-mail etc.). To make a transaction, the payor simply needs to identify the payee through the key and confirm the transaction.
This is why Pix revolutionizes payment methods, covering financial institutions and all consumers. When making transfers nowadays, people are increasingly less likely to use a credit order document (DOC) or available electronic transfer (TED). Pix, because it simplifies everyday transactions, should come to take the place of bank issue invoices, debit cards and cash, for example.
POS (Points of Sale) terminals, usually called card machines in Brazil, will also be negatively affected by this new payment method. Pix is compatible with contactless payment technology, such as near-field communication (NFC). Identification keys can be converted into static or dynamic QR Codes. Static QR codes can be used by small retailers in transactions of a set or typable amounts. Dynamic QR codes are ideal for e-commerce, creating personalized QR codes for each sale.
According to the Central Bank, Pix operating costs are predicted to be R$ 0.01 every ten transfers. Thus, the service can be free for individuals, except when receiving payment for sales of products or services. For companies, the financial institution or payment company may charge per use. However, BCB emphasizes that the amounts charged will be much lower than those currently charged. Not only is it cheaper, but there are also other incentives for businesses to adopt the new system. Funds are available immediately, and it can be easily automated, and there is a check out option.
The Pix project was born on December 21, 2018, when the Central Bank established the Instant Payment System (IPS). This is the biggest step yet toward an online market in Brazil. Pix encourages the Brazilian population’s financial inclusion, linking the country with global initiatives towards this goal. The European Union, for example, has developed the Single Euro Payments Area (SEPA), an instant credit transfer system between member states. According to InfoMoney, there are around 50 countries worldwide with systems similar to Pix. Cointelegraph also highlights the possibility of cryptocurrency companies entering the Brazilian Financial System.
Any time something new comes along, it brings opportunities and threats for the various market players. The new system should encourage greater competition between payment methods. Bit-tech, fintech, online banks and e-wallets are celebrating its arrival. Purchasers, credit card companies and payment processors may face difficulties with the profound changes Pix will bring about. Traditional banks are also alert to the opportunities and risks of losing market share. According to Moody’s, the risk classification agency, they could lose up to 8% of annual income from transaction charges.
Therefore, the Central Bank ruled that financial institutions and payment companies with over 500 thousand active accounts must adopt Pix. Up to the launch date, 935 adherence processes had been initiated and 667 institutions approved by Bacen – the Central Bank of Brazil. An agreement has been reached with the Ministry of Economy for taxes and governmental charges also to be payable using Pix.
Consumers and companies can also use the new system by registering identification codes, as a nickname for their account, with the financial institution or payment company. There can be up to five keys per account for individuals and up to 20 for companies. And you can have keys at different institutions. But you cannot repeat the same key for different accounts. As this unique “nickname guides the transfer”, the amount is credited in the account corresponding to the key sent. So, it would be best if you had different keys for different accounts.
This peculiarity of the system has led to a race among financial institutions and payment companies to register, as there are only four items that can be used as a key: Individual Taxpayers’ Register (CPF)/National Corporate Taxpayers’ Register (CNPJ), mobile phone number, e-mail address or random number generation.
With this measure, BCB aims to provide greater payment security. Pix creates greater transaction visibility and enables end-to-end tracing. Transfers are made and authenticated in the National Financial System Network (RSFN), a data communication system between financial institutions managed by the Central Bank. All data are protected by the Banking Secrecy Act (Supplementary Law 105/2001) and the General Data Protection Law (Law 13,709/2018).
As with other financial transactions, fraud is the responsibility of the financial institutions and payment companies. They are the ones who must put in place risk mitigation systems, antifraud barriers and transfer amount limits. As the transfers are “instantaneous”, they cannot be canceled, and protocols for returns are unclear. For this reason, BCB has authorized institutions to halt transactions for up to 1 hour in cases of suspected fraud.
Luiz Henrique Didier Jr., CEO of Bexs Banco, outlines a promising future for the payment market in Brazil with Pix’s advent. “Pix is going to revolutionize payment for products and services, making it quicker and more dynamic, but above all increasing financial freedom for individuals, decentralizing and democratizing financial services”.