Brazil’s PIX a threat to credit cards, but a boon for banks

The market for credit cards and debit cards is going to get smaller in Brazil, as PIX, the country’s instant payment system, expands its reach and features. 

Launched in November 2020 by the Brazilian Central Bank (BCB) to foster competition in financial services, PIX became so popular that, by the end of last year, 77% of the Brazilian population had used it. 

The central bank is also studying new functionalities such as PIX International and PIX Automatico, with the latter to be launched next year to facilitate recurring payments.

While credit cards are growing alongside electronic payment systems in the country, they are losing ground to PIX. 

The first quarter of this year was the first where the number of PIX transactions surpassed those made with credit and debit cards combined. PIX transactions for the first quarter of 2023 totalled 8.1 billion, versus 4.2 billion credit card and 3.8 billion debit card transactions, according to BCB data. 

Challenges for card networks

PIX Garantido, also known as PIX Credit, another modality in the making, could represent the coup de grâce for credit cards as it will enable payments by instalment without the use of one.

This makes the solution especially attractive for the segments of the population that cannot afford credit cards. 

“Brazil is on the verge of a potential revolution in payments as people will no longer need credit cards to do instalment purchases,” says Carlos Scharfstein, partner at Stocche Forbes Advogados.

“When you use a credit card, you are paying fees to at least three service providers. PIX is a system created by the government that is free and that can do the same thing. It means that credit card companies and related businesses, such as credit card machine readers [so-called ‘POS machines’] may suffer and will have to reinvent their business model. And if you take a look at the stock market, you’ll see how the companies that rely very heavily on the use of credit cards are suffering,” says Mr Scharfstein.

Therefore, “MasterCard and Visa are presenting themselves more and more as technology companies instead of credit card networks”, Mr Scharfstein remarks.

Despite this, it seems card schemes do not realise what is happening, “because they’re increasing fees and coming up with new ones”,  says Ralf Germer, CEO and co-founder of payments platform PagBrasil.

PIX makes banks stronger

Banks have proved to be more resilient to PIX’s success despite initial woes. 

When PIX was launched, Brazil’s banks worried about losing all of their revenues from transfers. “But now, most payments go through banks,” says Mr Germer. 

For instalment purchases, the banks where the PIX key for the transaction is registered will guarantee the payout to the merchant in advance. As a result, lenders charge fees to merchants in exchange, to cover the risk. This means PIX Credit will bring additional revenue streams from payments to banks, says Mr Germer.

The larger revenue stream of banks doesn’t come from the use of credit cards, but rather credit itself, explains Mr Scharfstein.

A lot of challenger banks and neobanks in Brazil — such as BS2, Neon, Original, Next and Nubank — among others, started with the belief that they could build a sustainable business model by only offering credit and debit cards to low-income customers. 

After four or five years, they came to the conclusion that such a proposition was not feasible, Mr Scharfstein adds, and they either changed their business model or broadened their services to rely more heavily on credit and other services not related to payments. 

Meanwhile, some banks have already leveraged the open-source technology of PIX to release their own versions of PIX credit, which are often referred to as PIX Parcelado: literally “PIX in instalments”.

Original Story: The Banker | Barbara Pianese 
Photo:Deposit Photos
Edition: Prime Yield