The Economist - USA (2022-05-14)

70 Finance & economics The Economist May 14th 2022

Cashlessness

Pix perfect

F

oryearsBrazilianshadlittleincentive

toabandoncash.Wiring 50 reais($10)

toa friendwouldsetyoubackanextra16;

swipinga creditcard,2%ofthecostofyour

purchase.Fore­commercefirmsthismade

doingbusinessparticularlycumbersome.

Customerswantingtobuysomethingon­

line,butnotwantingtoincurthecostsofa

digitalpayment,couldchooseinsteadto

printa paymentslip(boleto), takethatslip

toa shoporpostoffice,andhandoverthe

cash.Theproblemfore­commercefirms,

however,wasthatnoteveryonewhoprint­

edaboletoendedupgoingtoa shoptofork

overthecash—meaningthatmanytran­

sactionswerenevercompleted.

Thencame Pix, an instant­payments

system operated by the central bank.

LaunchedinNovember2020,ithastrans­

formedthewayBraziliansmakepayments.

Theplatformallowsconsumersandmer­

chantstosendandreceivemoneyviaaqr

code,withouthaving toshare detailsof

theirwallet,fintechproviderorbank.In

Aprilaround118mpeopleusedtheplat­

form—ormorethantwo­thirdsofBrazil­

ianadults.Inthelastquarterof 2021 they

madea staggering3.9bnpayments.Alrea­

dyPixhassurpasseddebitandcreditcards

asthemostpopularmethodofpaymentin

Brazil.Oneinfivetransactionsnowtakes

placeontheplatform’smobileapp.

Asanidea,Pixisnotneworunique.In­

dia’s  Unified  Payments  Interface  (upi)  be­

gan  life  in  2016.  Other  countries  have  es­

tablished  similar  schemes.  Nonetheless,

Pix  has  been  a  remarkable  success.  For

years the central bank sought to make Bra­

zil’s  financial  system  more  competitive,

digital  and  inclusive.  Pix  has  helped

achieve  those  aims.  Its  rapid  adoption

could also contain lessons for others. 

Several  factors  explain  why  Pix  has

been so popular. For a start, it is easy to use.

Setting  up  an  account  takes  a  matter  of

minutes. A user’s identifying “key” can be a

cpf(a sort of tax id), a phone number or a

randomly generated string of digits. Send­

ing money to recipients at another bank is

quick and painless.

Policymakers  also  acted  to  encourage

adoption. Unlike its Mexican counterpart,

whose  Pix  equivalent  has  been  less  suc­

cessful, Brazil’s central bank compelled big

banks  and  fintech  firms  to  join  its  plat­

form.  During  the  covid­19  pandemic  it

mandated that emergency payments made

by the government should also be available

through the app. In this way, up to 30m un­

banked Brazilians received a cashless pay­

ment for the first time. 

Most  payments  are  of  small  value  and

take place between individuals. The ubiq­

uity of Pix is such that beggars often ask for

money with a qrcode. These transactions

are possible because they are so cheap. Pix

is free to use for individuals, and is by far

the lowest­cost option for firms. 

The introduction of Pix has had a mixed

effect  on  the  country’s  banks.  Current­ac­

count  service  fees  charged  by  Brazil’s  five

biggest  lenders  were  almost  2.7bn  reais

lower  in  2021  than  the  year  before.  But

banks  insist  that  Pix  also  presents  them

with opportunities. For one thing, as soci­

ety goes cashless, they are spending less on

transporting lorryloads of banknotes. And

although it is not necessary to have a bank

account  to  use  Pix,  the  platform  seems  to

encourage  people  to  open  one.  According

to  Mastercard,  a  credit­card  giant,  Brazil

reduced  its  unbanked  population  by  as

much  as  73%  during  the  pandemic.  There

are  now  more  potential  customers  to  sell

credit products to, says Julio Paixão of Bra­

desco, one of the big five banks. 

One of the biggest surprises is that de­

spite  the  astronomical  success  of  Pix,  the

number  of  credit­card  transactions  has

continued to grow. Pix is not just serving as

a  substitute  for  other  cashless  payment

methods, but increasing them.

There have been some unforeseen pro­

blems. Since Pix has been introduced, the

number  of  “lightning  kidnappings”  has

surged, as criminals forced users to trans­

fer  large  sums  of  money.  In  response,  Pix

has introduced a night­time limit on tran­

sactions.  Staff  at  the  central  bank  have

been on strike, on and off, since early April,

raising  concerns  about  the  operability  of

the  system.  Others  worry  about  the  pos­

sibility of a data breach (though so far there

do  not  seem  to  have  been  any).  By  and

large,  however,  shortcomings  are  being

rapidly addressed. 

The  central  bank  has  plans  for  further

expansion.  By  the  end  of  this  year  Pix

should be available offline and further in­

tegrated  into  open  banking,  a  system  that

allows  customers  to  share  their  transac­

tion data with fintechs. Soon there will be

an option to pay for things in instalments.

And in the coming years, there are plans to

make  the  app  available  abroad,  which

would  facilitate  remittances  and  other

cross­border payments. 

The  success  of  platforms  such  as  Pix

may have far­reaching implications. Hyun

Song  Shin  of  the  Bank  for  International

Settlements,  the  central  bank  for  central

banks,  considers  them  “a  huge  leap”  to­

wards the adoption of central bank digital

currencies (cbdcs). A retail cbdcrequires a

register of users and their real names, and

a full record of who pays what to whom and

when,  he  explains.  With  Pix,  you  have  all

that already, as well as the technical stan­

dards that govern the exchange of informa­

tion; it is 80% of the way to a cbdc, he reck­

ons. Brazil’s central bankers, who are work­

ing on a cbdc oftheir own, seem inclined

to  agree.  ThePixrevolution  could  be  just

the beginning.n

S ÃO PAULO

Digital payments have gone viral in Brazil

Scaling up the market