A financial revolution is underway in Brazil. The core idea is “inclusivity,” which holds that one needs to be connected to the banking system to fully engage with modern economy. Both the public and private sectors in Brazil have worked together to implement this insight with incredible vigour and inventiveness, and the outcomes have been astounding.
Consider those who gain from the Bolsa Familia programme in Brazil, which aids those living in poverty. Of these individuals, only 35% had bank accounts in 2016. These days, that figure is more like 90%, or more than 160 million Brazilians. The majority of this can be attributed to the relatively recent introduction of the “Pix Instant Payment System” in 2020. This quick payment system allows users to transfer money in real-time via a mobile phone interface. This system has accelerated Brazilian commerce and quickly matured the country’s digital payment market.
Not surprisingly, PYMNTS recently ranked Brazil as one of the world’s most digitally connected nations, outperforming the United States, United Kingdom, and Germany. It has cleverly promoted a financial inclusion philosophy and worked tirelessly to give everyone a share in Brazil’s rapidly growing economy.
A booming digital payment landscape
In October 2024, news surfaced about Brazil-based digital bank PicPay offering access to the Pix instant payment system via WhatsApp, as the financial services venture made the best use of its partnerships with Meta and Microsoft. Unlike traditional chatbot assistants, PicPay’s GenAI, developed in-house and powered by Microsoft Azure OpenAI Service, will instantly recognise Pix keys in many contexts, such as complex conversations, audio messages, or even photos and screenshots containing multiple pieces of information.
As per Carlos Netto, CEO of Brazilian fintech Matera, there were more than 5.5 billion Pix transactions just in September 2024, a 41% increase, by the company’s estimates, over 2023. Things have been further boosted by the Southern American country’s central bank’s creation of payment institutions, which managed accounts and payment services, leading to inexpensive accounts connected to instant payment rails.
Another prominent Brazilian online payment service provider, PagBrasil, which handles Brazilian transactions for international businesses, has launched two new solutions to expand the reach of Pix beyond national borders, by partnering with fintechs like B89 and Wipay.
International Pix and Pix Roaming will enable Brazilian tourists to use Pix abroad whilst allowing foreign visitors to utilise the payment system within Brazil. The solutions aim to reduce transaction fees for merchants and eliminate the standard 30-day wait period associated with credit card payments.
Pix, which enables real-time bank-to-bank transfers through mobile applications and digital wallets, has reached 151 million active users, representing 92% of Brazil’s adult population. The system processed 227.4 million transactions in one day in September 2024, moving R$108.4 billion (approximately $18.5 billion).
PagBrasil has partnered with Peruvian B89 to offer International Pix to merchants across Panama, Colombia, Peru and Bolivia. The partnership also enables Brazilian citizens to pay in reais with a fixed exchange rate at purchase. The tie-up with Spanish payments technology provider Wipay has ensured that Pix will be available to Europe-based merchants on a much wider scale. The system will operate in Spain, Portugal and the Netherlands, with plans to expand to broader US and European markets.
How Pix overhauled Brazil’s payment systems
Historically, the high costs associated with credit card and bank transfers have been one of the biggest obstacles to financial inclusion. This issue was essentially resolved in Brazil with the launch of Pix, which charges an average of just 22 basis points to merchants and allows peer-to-peer payments at no cost.
According to data from the Central Bank of Brazil, credit has become a major issue in Brazil. The yearly interest rate for revolving credit card lines is 431.6% or 14.9% per month. However, the Brazilian government is taking steps to cap interest rates on revolving credit card lines. This has an impact on customers and merchants, who must pay the acquirer’s margin and other associated costs.
While over 40 million more people have become bank customers in Brazil in the last two years alone, at the same time, 50 million Brazilians are thought to have made their first digital payment. Currently, four out of five Brazilians have paid with or received money using Pix, and its usage has quickly overtaken that of credit and debit cards. This is impressive considering the historically sluggish global adoption of government initiatives. The way a nation views financial transactions is completely changing, and we are seeing this in real-time.
“Consumers in Brazil are also exploring how these wallets can be trusted for non-transactional purposes. In fact, they are doing so at a much higher rate than their peers in other countries. For example, 34% of consumers in Brazil expect to verify their identity using a digital wallet in the next three years. This suggests that the Brazilian market is ready to use these wallets to hold IDs and other documents,” reported PYMNTS in September 2024.
Pix is now seen surpassing credit cards as the leader in the local online purchase market as soon as 2025, earlier than initially expected, a new study from Brazilian payments firm Ebanx showed.
The study, based on data from research and intelligence firm PCMI, showed Pix is expected to account for 44% of Brazil’s online payment market by the end of 2025, while credit cards were seen with a 41% slice. A previous version of the study released earlier in 2024 had projected Pix to nearly match credit cards in the local online market only by the end of 2026.
Investigating reasons behind Pix’s success
The product designed by Brazil’s central bank has become a boon to online retailers, helping with cash flow in a sector with tight margins, while undercutting the legacy business of banks and fintechs built on existing credit card infrastructure.
The use of Pix surged 74% in 2023 to nearly 42 billion payments across the Brazilian economy, surpassing credit and debit card charges combined by about 23%, according to central bank data and industry group Abecs.
For buyers, the switch to Pix has been nearly seamless, as all they need to do is scan a QR code with any banking app instead of reaching for their wallet. For sellers, the innovation has turned the tables on the traditionally lucrative card payments industry. In online retail, orders paid with Pix surged 22% points in two years to about a third of all purchases in December 2023, according to e-commerce research firm Neotrust. Credit card orders slipped 5% points to 51% in the period.
Amid some of the possible changes teased by Brazil’s central bank, we have things like recurring payments and purchases in instalments. One government official told Reuters in April 2024 that these features would likely boost Pix Payment’s role in retail.
How is Pix putting pressure on the payment card players? Paying with a debit or credit card requires sellers to pay discount fees divided between card networks such as Visa, Mastercard and American Express, along with payment processors such as Cielo, Rede, Stone, Getnet and PagBank, as well as card issuers, which are typically banks. By removing these intermediaries, Pix ensures that users receive no cut of such transactions, and payment processors, which pocket a much smaller slice than they get for credit or debit card purchases.
The credit card industry players are now feeling the heat from the Pix and shifting their approach. Cielo’s controlling shareholders Banco do Brasil and Bradesco announced in February 2024 their plans to take it private, a path already taken in 2022 by rival Getnet, owned by Spanish bank Santander.
According to Reuters, “Going private gives leeway to offer a bundle of integrated products, becoming less reliant on the traditional business of connecting retailers to credit cards.”
“Pix has been and will continue to be the most disruptive technology in the financial segment in the country for the next few years,” said Eduardo Lopes, public policy director at Nubank, Latin America’s largest digital bank.
Nubank launched in Brazil a decade ago, offering one product: an iconic purple credit card without fees, but it has now diversified into a range of other segments, including an embrace of Pix seen at several leading banks and fintechs. The lender ended Q3 2023 with 13.6 million customers using Pix on credit, which lets users borrow for Pix transfers up to their Nubank credit card limit. Customers using it grew 166% from a year before.
A bright future ahead
Brazil is not the only nation that has experienced success with Pix-like technology. The world’s advanced economies have recently made comparable efforts, and emerging markets and developing economies (EMDEs) are also making significant progress in this area. Pix is undoubtedly setting the standard, though, and other nations would be well advised to pay attention.
A range of payment apps from PayPal to Venmo have sprung up globally, but none carry the weight of a central bank owning, operating and regulating the system (like Pix) to guarantee speed, efficiency and universal integration with banks from day one. The success of Pix in Brazil, which moved more than 17 trillion reais ($3.4 trillion) in 2023, has quickly expanded into payments between people and businesses (P2B).
“Pix is definitely a game-changer,” said Carlos Mauad, CEO of Fintech Magalu, the financial arm of retail group Magalu, which processes its own Pix transfers to cut costs and offer discounts to customers choosing the payment method.
According to Mayara Yano, senior advisor to the Pix management and operations department at the central bank, the central bank is preparing to roll out new features to boost the appeal of Pix for P2B use.
The first one, Pix Automatico, allows for automatically paying recurring bills. It can replace the current practice of bank invoices used for tuition, utilities and phone bills, and may also supplant credit cards used for media subscriptions and online services.
Another feature called Pix Garantido will allow its users to execute payments in monthly instalments, a major perk of credit cards for Brazilian consumers.
Matera CEO Carlos Netto, a tech firm helping companies integrate with the new payment platform, said that these changes may further accelerate the rise of Pix, which is now dictating the payment landscape in Brazil.