Instant Payment System PIX: Fintechs and WhatsApp Win, Terminals and Banks Lose

RIO DE JANEIRO, BRAZIL – The Central Bank announced this week that it will advance from November to October the launching of a service that will revolutionize the payments market in Brazil. It is called PIX, the instant payments and transfers system between digital wallets that will work 24 hours a day at zero cost to the end consumer.

It may be the end of TED and DOC, the transfer instruments currently used by large banks with hourly limits, but it will also be a rebalancing of power in the Brazilian financial market. In the end, who gains, and who loses?

A study by the Roland Berger consultancy estimates that the end of transfer fees will cost the big banks and the well-known payment companies somewhere between 18 and 63 percent of their revenues – R$13 billion per year. Among the companies that should be adversely affected are Cielo, Rede, GetNet, Stone, PagSeguro, and Mercado Pago.

At the opposite end, the winners tend to be the institutions, now numbering over a thousand, that have already registered to use the innovation. Among them are retailers like Magalu, fintechs like Nubank and Neon, but also more established financial institutions like Cielo and Itaú.

According to Roland Berger, the PIX should expedite the use of QR Code payments, very common in countries like China. “There is room for a revolution in the payments market that, although silently, had its beginning with Covid-19,” says the Roland Berger report. In China, QR Code payments, with the Ant Financial and WeChat payment apps, have increased from seven to 69 percent of total in-person payments since 2017.

In Brazil, digital wallets, which allow in-person payments through QR Code and also digital payments, boomed during the pandemic. PicPay, one of the country’s main digital wallets, increased the number of monthly account openings during the pandemic by four times and now has over 20 million users.

The consultancy suggests that major buyers “review their strategies to anticipate market transformation.” Among the proposed innovations are “launching attractive current account management offerings and creating comprehensive portfolios”.

This is additional pressure on a market that has undergone a revolution in recent years. The increase in competition has meant that Rede and Cielo no longer hold 89 percent of the payment market, as they did in 2014, down to about 50 percent in 2019. Rates have dropped by about 30 percent, according to Roland Berger, and are now set to drop even further.

In addition to payment terminals, the PIX is expected to impact a number of other companies. Card brands lose space in debit card payments initially, and there is a medium-term risk for credit cards. Card companies will lose market volume. Traditional banks will lose revenues from transfers.

A study released in February by Moody’s risk agency estimates that traditional banks would lose R$4.3 billion in card fees alone if the PIX takes up to 15 percent of their volumes. The losses in DOC and TED fees could reach two percent of the total profits of large banks, according to estimates. “More than the financial loss, the greatest risk lies in the acceleration of digitalization and competition,” says an expert.

According to an investor, WhatsApp could be a major winner. “The messaging service is the one with the longest customer attention span and should be the most widely used platform for the PIX. It will be an intermediary for thousands of fintechs. They currently have the deposit as their main bottleneck, but now they will be able to offer a much wider range of services,” he says.

Source: Exame

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