When Pix was launched in November 2020 it shook the whole payments industry in Brazil. Get ready to discover what instant payments and Pix are, and see all the key benefits for both merchants and consumers.
1. What are instant payments?
Instant Payments are electronic money transfers between different institutions where the payment message transmission and fund availability to the final beneficiary occur in real-time, and whose service is available to end-users 24/7.
The Central Bank in Brazil saw the need to create and regulate this new payment arrangement because of the digitalization of e-commerce and the current gap in payment methods.
2. What is PIX?
Pix is the system created by the Brazilian Central Bank to bring instant payments to life and have been serving as a successful case story to other emerging markets.
One year after its creation in November 2020, Pix increased 14,000% and, by January 2022, it was already used by 71% of the population in Brazil. The last reports from the Brazilian Central Bank showed that Pix generated a monthly volume of BRL 600 million (more than USD 100 million) of funds transferred.
Pix, although it has more features, such as Pix Troco (receive changes after purchases), Pix Saque (cash withdrawal), it basically allows transfers between bank accounts within seconds, at any time or day. It is practical, fast, safe and free to people, while it enables all wallets that use QR Codes to be interoperable. This means that transfers and payments are allowed from one e-wallet to another in real-time, 24/7.
3. Differences between digital wallets and instant payments - including Pix
Instant payments, or real-time payments, are electronic payments that works 24/7, 365 days a year, and allows the recipient to receive funds instantly. Pix is a very good example of a successful instant payment. It has caused a shift in the Brazilian payments industry since it doesn't need intermediaries such as card schemes, acquirers, or issuers to work.
Digital wallets, on the other hand, are online payment tools managed by companies that stores credit card information for users and let them top up the balance of a transactional account to make the checkout process easier.
Another major difference is that instant payments allow the interoperability of all digital wallets, meaning that an account holder of e-wallet A will be able to transfer funds to account holder of e-wallet B without any hassle and in real-time.
Both use the same technology in most cases (QR Code and NFC), but instant payments are the next step of digital wallets.
4. Pix benefits
For digital commerces
- Instant Payins and Payouts
Since Pix is a real-time payment, merchants are able to receive funds anytime after a sale and get rid of intermediaries. Also, companies that offer Pix, can provide a better customer experience since it became a extreme popular payment method in Brazil due to all its features.
Regarding suppliers, digital commerces are able to pay vendors, contractors, gig workers, or any partner instantly, which leverages their satisfaction and improves business relationship. This opens a room for better negotiation and payment conditions.
- Optimized Cash-flows
Pix allows a better cash-flow management because funds become instantly available and can be reinvested or used to pay debits faster. At the end, decision makers will have more flexibility when choosing what to do with the money since they will not struggle with the strict deadlines required by other payment methods, such as credit cards or boletos, to have the funds available.
- More safety
Pix reduces risk associated to sales, especially for digital commerces. It is less prone to frauds since it can be used directly on smartphones and doesn't require a card password or an ATM. Moreover, Pix has a very robust technology, developed by the Brazilian Central Bank.
- Competitive advantage
Instant payments are a great competitive advantage for digital commerces. First, since Pix eliminates intermediaries in the payment chain, digital commerces face less charges and fees. Thus, businesses can offer more competitive prices in their products/services. Finally, bear in mind that Brazil has almost 250 million active smartphones. These devices potentialize the use of digital payments, especially Pix, and fulfills the increasing Brazilian consumer purchasing immediacy.
- Free to use and real-time
Although Pix has some fees for businesses, it is free to people. Aligned with its real-time advantage, it conquered Brazilian's heart and became a tool of financial access and inclusion for those that aren't creditworthy.
- 24/7 availability
Brazilians don't need to worry about making transfers only during banker's hours or waiting up to 3 business days to complete a payment (in case of boleto payments). Pix is always available and the Brazilian Central Bank is currently developing some features which will allow Pix to be used offline and for international transactions.
- As safe as wire transfers
Pix transactions are as safe as wire transfers because it relies on authentication and cryptography. All personal Pix user's data are safeguarded by the Brazilian Central Bank in compliance with all local rules and regulations.
5. The impact on financial inclusion
Another reason to bet on Instant Payments is to include the unbanked population on the financial system. Back in 2017, 70% of the Brazilian population was considered bankarized according to the Central Bank, leaving 48M people without any access to a debit card, credit card, or bank account.
When asked why they don't have a bank account, 49% don't trust banks, 31% say they don't have enough money to do so, and 29% prefer to use cash.
It's clear that our banking system has gaps in terms of payment methods: a large chunk of the population simply doesn't trust banks enough to open up a bank account, or don't do so because of the idea that the fees that come with it and its credit/debit cards are simply too much to handle with their monthly budget.
Pix took out the need of dealing with traditional banks and the cultural baggage that led some Brazilians to not trust them, besides cutting off the high fees of credit and debit card usage. This payment methods has been bringing these people into the financial system legitimizing the way they move money around and reducing the cost of maintaining paper-money in circulation.