Pix — a simple way to understand it

The payments industry is evolving at exponential speed toward a faster, interoperable, inclusive, online, user-centric world. New technologies and business models will, in just a few years, dramatically change how transfers and everyday purchases happen.

The standout among these innovations is instant payments: payments authorized and settled in real time, available 24/7, and typically requiring only a mobile app and a QR code.

In 2018, the Banco Central do Brasil (BCB) launched the project to build Pix, Brazil's instant payment ecosystem. It went live on November 16, 2020.

What problems with traditional payments can instant payments solve?

The BCB identified three major gaps in today's payment systems that instant payments and the new wave of companies behind them can help close:

• Heavy reliance on cash: Physical cash is shrinking but still accounts for more than a third of Brazilian private consumption, according to Fisher's payments report. Cash carries unnecessary costs around printing, logistics, and destruction — plus the immeasurable cost of enabling money laundering, corruption (cash leaves almost no trail), and tax evasion.

• High cost and friction in interbank transfers: DOC and TED, the main ways to move money between banks, carry steep fees. They also force the user to fill in a long list of fields (name, CPF, bank, branch, account) to identify the recipient — increasing the chance of input errors and delivering a poor payment UX.

• High card-acceptance costs: Credit and debit cards carry high acceptance costs for merchants, and funds take significant time to land in the account. Instant payments don't just solve these three problems — they bring a series of additional benefits for end users.

What does QR Code have to do with instant payments?

Instant payments remove the need to store data like account and branch numbers. They let you address transactions with nothing more than a smartphone and a piece of common identifying data: email, CPF, mobile number, or a QR Code scan.

The technology is open to any user — business or individual — and funds always land in the recipient's account within seconds.

When it comes to QR Code payments, the trend is already visible in the explosion of digital wallets across different segments: Ame (B2W Group), Mercado Pago wallet (Mercado Livre Group), iFood wallet (Movile Group), the Alymente corporate benefits wallet, Rappi wallet, Payly (Cosan Group), Cielo Pay, Iti (Itaú), InterPag (Inter), and PicPay (Banco Original Group). In São Paulo, some merchants already feel like shops in China — QR Codes lined up across the counter:

Photo taken on 08/22/2019 in Vila Olímpia, São Paulo.

Another clear signal of the digital wallet boom is the fierce competition for end users. Companies pull every lever: cashback (returning part of the spend), instant on-bill discounts, and aggressive loyalty programs.

The photo above is reminiscent of Brazilian payments before Law 12,865/13 (which regulated the electronic payments sector), when merchants had to keep different POS terminals to accept different card brands (Visa only ran on Visanet, Mastercard only on Redecard). The same pattern is playing out in the digital wallet market today: the merchant has to display every QR Code to accept every wallet.

Instant payments aim to enable immediate, transparent payments between users of different wallets — so the merchant only needs one wallet/QR Code to receive payments from all of them.

This brings the payments industry closer to true interoperability and financial inclusion, fueling innovative solutions to the problems of the traditional market.

What are the main advantages of instant payments for businesses?

Lower or no transaction fees: because so many intermediaries take a cut of each financial transaction, today's prices for accepting online card payments are high.

Using Open Banking alongside instant payments via new entrants will drive fees down and open new monetization paths — including data-based opportunities that can even eliminate the need to charge for the transaction itself.

Acceptance across any channel: because instant payments only require a phone plus an identifier, any business can transact with anyone, easily.

Instant payments also remove the risk of online merchants not getting paid, because releasing goods or services can be tightly synced with the payment landing.

For business-to-business payments, instant payments improve cash flow, simplify fund management, reduce payment delays, and accelerate invoice settlement.

What are the main advantages of instant payments for consumers?

Ease of use and financial inclusion: the ability to send and receive instant payments from a smartphone is a powerful on-ramp to financial services.

According to BCB data, 96% of the Brazilian population still uses physical cash. With more than one smartphone per inhabitant in the country — over 220 million active devices — mobile instant payments can drive unprecedented financial inclusion and open explosive growth for new businesses.

Instant, cheap credit at checkout: the speed and identity certainty of instant payments, paired with sensible BCB regulation, can create new market models that offer credit instantly to consumers at the point of purchase.

It would also let multiple financial institutions — from banks to new fintechs — compete in real time to analyze consumer data and offer the best price for that credit.

Pix benefits according to the Banco Central do Brasil.

A promising future for companies that commit to these new business models

Launched in late 2020 in Brazil, instant payments open up several business opportunities for companies across the payments industry. Reinforcing this path, BCB president Roberto Campos Neto stated in a Senate hearing:

"It is critical […] to prepare the BCB to play its role properly in this new environment, which will certainly be based on technology and the rapid flow of information."

Understanding the shift and positioning correctly is the key to capturing the upside of this new trend, defending existing market share, and building new solutions and fintechs.