PIX: Your ticket to the Brazilian market

Summary

If you have a few minutes to spare, here's what you need to know about PIX and its importance for e-commerce in the Brazilian market.

- PIX is the fastest growing real-time payment system in the world, used by more than 140 million people (approximately 80% of the adult population) and 14 million companies, according to BCB statistics as of March 2024. More than 4 billion transactions are made every month, with an average ticket of around US$88.

- PIX payment volumes surpassed debit and credit card payments for the first time in the fourth quarter of 2021, just 15 months after its launch. These volumes are now 23% higher than debit and credit cards combined.

- Person-to-business (P2B) transactions through PIX experienced substantial growth, capturing 36% of all PIX transactions and reaching a volume of US$330 billion. This marked increase underscores the widespread adoption of PIX in the commercial sector, highlighting its efficiency and the cost benefits it offers over traditional payment methods.

- Companies are convinced of the benefits of accepting Pix. Its popularity, instant funding times and significantly cheaper processing fees have led many to offer Pix as a payment method at checkout. These time and cost savings have enabled merchants to offer free shipping or attractive discounts to shoppers who pay with Pix, making it an integral part of payment and sales strategies.

- In 2023, PIX became a major force in Latin American e-commerce, securing 16% of the region's total e-commerce volume. This achievement highlights its rapid growth, overtaking debit cards as the preferred payment method among users and demonstrating its wide acceptance and effectiveness in the digital marketplace.

- Future features of PIX include PIX Automatic, which will manage recurring payments, and PIX Credit, which will enable installment payments. These enhancements are designed to increase PIX's versatility and convenience for users, further integrating it into everyday financial transactions and expanding its utility in Brazil's evolving digital economy.

What is PIX?

PIX is an instant payment system introduced by Banco Central do Brasil, Brazil's central bank, which was officially launched in November 2020. It allows users to make and receive payments in real time, 24 hours a day, 7 days a week, including weekends and holidays. The system is designed to work across all banking and financial institutions in Brazil, making it universally accessible to anyone with a bank account, whether individuals or businesses.

Payments through PIX can be initiated using multiple identifiers, such as a tax identification document (CPF or CNPJ), cell phone number, email address or a randomly generated PIX key. The system is designed to be highly secure, using end-to-end encryption to protect transaction data. PIX supports not only transfers between parties, but also bill, tax and purchase payments, among other financial transactions. It was developed to be a faster, more efficient and cost-effective alternative to traditional payment methods such as bank transfers (TED and DOC) and card payments, with the objective of increasing financial inclusion and reducing cash dependency within the Brazilian economy.

How to make a payment with PIX?

Paying with PIX is simple and easy to use. Users can scan a QR code with their smartphones or use a PIX key, such as the recipient's phone number or email address, to complete transactions. For online purchases on a computer, the process mimics physical store purchases: select PIX at checkout, scan the displayed QR code with your banking app, and confirm details before finalizing payment. Mobile shopping further simplifies this process; after selecting PIX, the device displays all supported apps, allowing users to choose one and confirm transaction details directly.

Potential for P2B payments with PIX

Fifty-four percent of Pix transactions in 2023 were person-to-person (P2P). However, person-to-business (P2B) payments with Pix are gaining momentum, gaining a 36% share of the number of transactions during 2023. P2B payments are becoming the fastest growing use case for Pix as billers and merchants realize material cost savings with Pix versus other payment methods.

In terms of transaction volume, P2B payments through Pix accounted for 12% of its total in 2023, reaching US$330 billion. This P2B payment dynamic reveals Pix's potential as an e-commerce instrument.

How PIX is transforming e-commerce in Brazil

The integration of Pix in Brazilian e-commerce is now complete, achieving 100% acceptance among the nation's 59 largest online retailers, including giants such as Amazon and Americanas. This milestone, noted by Gmattos Payments Studio, marks a significant shift from September 2022, when 18.6% of these stores had not yet adopted Pix. The transition to Pix has catalyzed a shift in payment habits, offering discounts of 5% to 20%, which has not only driven adoption, but also encouraged higher conversion rates due to its lower costs compared to other methods.

Retailers are leveraging Pix to improve cash flows and minimize shopping cart abandonment. Unlike credit card transactions, which can involve chargebacks and higher costs due to Merchant Discount Rates (MDR) and receivables assignment, Pix transactions are instant and secure, significantly reducing the risk of chargebacks and improving cash flow.

The trend toward fewer interest-free installments on credit cards in favor of discounts on immediate payments underscores a broader movement toward more transparent and economically sensible pricing models. This shift could further boost Pix's role in the market, especially with upcoming features such as Pix Automatic and installment payments, which promise to enhance the user experience and match the benefits currently exclusive to credit cards.

Finally, Pix has scaled astronomically and alone has claimed 16% of Latin America's e-commerce volume by 2023, surpassing debit cards, which until now have been the second largest payment method.

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Why did companies adopt PIX?

- Zero Cost to Consumers: While merchants may incur some fees, the use of PIX is free to consumers.

- Agility and Simplicity: Payments are quick and easy, simply by scanning a QR code or copying and pasting a PIX key.

- Transaction Size Flexibility: There is no upper limit on transaction sizes in PIX. This approach gives the system the flexibility to cater to a variety of users, from individual households to large corporations, who often have different transaction requirements.

- Payment Guarantee with Real-Time Confirmation: PIX ensures that funds are available almost immediately, facilitating better cash flow management for companies and confirming transaction completion to all parties.

- Enhanced Security: Because payments are made directly from the user's smartphone, PIX reduces the risk of fraud and protects sensitive financial information.

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What's next for PIX?

PIX Automatic / PIX Recurring: This new feature will allow PIX to handle recurring payments for SaaS services, streaming and more, greatly simplifying the process for those without credit cards who currently rely on cumbersome alternatives such as tickets and gift cards. The introduction of PIX recurring payments has the potential to significantly increase adoption in Brazil, leveraging one of the most robust subscription economies in the world.

PIX credit for installment payments: Paying for purchases in installments is a popular practice in Brazil, with up to 50% of online credit card purchases made in this way. The Central Bank's inclusion of PIX installment payments could expand this option to more consumers, especially since only 36% of Brazilian adults have credit cards. Currently, some financial institutions offer PIX installment payments, but these are handled internally without regulation by the Central Bank, a situation that could change in the future.

PIX international: PIX international would enable cross-border payments with currency conversion. Brazil's central bank is exploring agreements to connect PIX with platforms around the world. Italy has already expressed interest in a bilateral agreement with PIX. Five Asian countries are already testing the platform for instant cross-border transactions.

Verdict

PIX has emerged as the leading force in Brazil's payments market, reaching unprecedented levels of relevance and adoption. Although recent trends toward interest-free installments on credit cards have slightly diminished PIX's usage, it remains well positioned for a strong comeback. By introducing new features and expanding into additional markets, PIX is poised to maintain its pivotal role in the financial landscape.

As I explore the rapid evolution of Pix and its profound impact on Brazil's payments landscape, I invite you to join the conversation about this transformative financial technology. How do you see Pix shaping the future of e-commerce and beyond? Share your thoughts and experiences with me on social media - let's explore the opportunities and challenges Pix presents and spread the word about this innovative payment system! Share this newsletter and join the dialogue today.

If you have questions or would like to continue the discussion, feel free to contact me directly at tony@rebill.com.