With Brazil’s Pix payments killing cash, are credit cards next in the line?
The instant payments system designed by Brazil’s central bank is a boon to online retailers, helping with cash flow in a sector with tight margins, while undercutting legacy business of banks and fintechs built on existing creditcard infrastructure; Pix
n just three years, Brazil’s hugely popular Pix payment system has become the country’s favourite way to pay, replacing cash and wire transfers in many cases and now, threatening the dominance of credit cards in the booming ecommerce sector.
The instant payments system designed by Brazil’s central bank is 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 creditcard infrastructure.
“I think credit cards will cease to exist at some point soon,” central bank chief Roberto Campos said nearly two years ago, discussing the potential for open finance and the Pix platform. “This system eliminates the need to have a credit card.” Market trends have since added weight to his forecast.
ISuring use
Use of Pix surged 74% last year to nearly 42 billion payments across the Brazilian economy — surpassing credit and debitcard 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 they simply scan a QR code with any banking app instead of reaching for their wallet. But for sellers, it has turned the tables on the traditionally lucrative card payments industry.
In online retail, orders paid with Pix surged 22 percentage points in two years to about a third of all purchases in December, according to ecommerce research firm Neotrust. Creditcard orders slipped 5 percentage points to 51% in the period.
That trend is likely to pick up as the central bank teases new Pix innovations starting this year such as recurring payments and purchases in instalments, which one official said is likely to boost the system’s role in retail.
Discount fee
Although Brazilian consumers rarely notice, paying with a debit or credit card requires sellers to pay discount fees divided between card networks such as Visa, Mastercard and American Express; payment processors such as
Cielo, Rede and PagBank, as well as card issuers, which are typically banks.
By removing intermediaries, Pix is putting pressure on the card networks, which receive no cut on such transactions, and payment processors, which pocket a much smaller slice than they get for credit or debitcard purchases. Pix costs an average 0.22% of each transaction for retailers, whereas debit card fees run over 1% and creditcard fees can reach 2.2% of each sale in Brazil, as per a Bank of International Settlements paper.
The growth of Pix “can limit the use of credit cards and prepayment volumes,” Goldman Sachs told clients in a note. Analysts noted the extra fee for early payment of credit card sales contribute meaningful revenue to payment processors Stone (49%), PagBank (34%) and Cielo (9%). Those companies declined to comment.
Major players in Brazil’s creditcard industry are shifting their approach as storm clouds gather.
Cielo’s controlling shareholders Banco do Brasil and Bradesco announced in February their plans to take it private, a path already taken in 2022 by rival Getnet, owned by Spanish bank Santander.
Two sources familiar with the operation told Reuters, on condition of anonymity, that going private gives leeway to offer a bundle of integrated products, becoming less reliant on the traditional business of connecting retailers to credit cards.
“BB and Bradesco opted to carry out Cielo’s public offering as a way to make the company’s governance more aligned with the new configuration of the sector,” Banco do Brasil said in response to questions, adding the industry had become more competitive amid recent “transformations.” Bradesco declined to comment.
“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 the fourth quarter with 13.6 million customers using Pix on credit, which lets customers borrow for Pix transfers up to their Nubank credit card limit. Customers using it grew 166% from a year before.
Berkshire Hathaway, the investment firm of U.S. billionaire Warren Buffett, which has a 2% stake in Nubank, said it had totally divested its position in Stone.
Brazil’s central bank launched the Pix protocol in November 2020, mandating banks to integrate their accounts with instant digital transfers that are free for individuals. Users embraced the alternative to cash and slow, costly wire transfers. 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 business (P2B).
Now, the central bank is preparing to roll out new features boosting the appeal of Pix for P2B use, said Mayara Yano, senior advisor to the Pix management and operations department at the central bank.
The success of Pix in Brazil, which moved over 17 trillion reais ($3.4 trillion) in 2023, has quickly expanded into payments between people and businesses