Learn why debit cards are about to disappear from Brazil. And credit cards are next on the list. Are PagBrasil serious about their written report of recent which provides statistics on the way the payment market is going?
Pop culture loves a good serial killer thriller. Well, if we could make a movie about Pix, the Brazilian instant payment system, it would definitely fall into that genre. After all, Pix has been eliminating some major payment methods in Brazil. First victim: cash. Since its introduction by the Central Bank of Brazil in 2020, the Pix payment system has become the country’s favorite way to pay, replacing cash and wire transfers (the second victim).
Pix usage increased by 74% last year, reaching nearly 42 billion payments in Brazil. It surpassed the combined total of credit and debit card transactions by about 23%, according to data from the Central Bank of Brazil and the industry group Abecs (Brazilian Association of Credit Card and Service Companies). The system has become a standard in the largest country in South America, allowing over 167 million Brazilian users to conduct e-commerce and in-store transactions using their mobile phones.
Now, we face a new death sentence (following the words used by The Brazilian Reporter). On August 2, the Brazilian Central Bank issued new rules for Open Finance, which regulate the voluntary sharing of banking customers’ information among financial institutions. These updates pave the way for innovations within the Pix system. This includes No-Redirect Payment Journeys, which allow transactions to be completed without leaving the app or website, such as Contactless Pix, a threat to debit cards (we will discuss this more in the next topics).
And that is not all: credit cards are next!
According to Reuters, Pix charges retailers significantly less per transaction compared to traditional payment methods. For example, processing a payment with a credit card can cost retailers up to ten times more than with Pix. Some of the new Pix features planned by the Central Bank might offer an even better and more affordable experience. With these upcoming Pix categories on the horizon, the decline of credit cards could be closer than we think.
So now let’s go back to the debit card murder scene and talk to the killer – Contactless Pix, also referred to as Pix by Approximation.
Before talking about Contactless Pix, it is important to understand what NFC Technology is – it’s a type of contactless technology that allows devices to exchange information without needing to physically touch each other. To use it, you simply bring your device (like a phone or smartwatch) close to the receiver, usually within 4 cm. The data transfers almost instantly when they are close enough.
Contactless payments (using NFC) are growing quickly in Brazil. By June this year, 61.1% of all in-person transactions used the technology. In June 2021, it represented just 14%. By June 2022, it had risen to 34%, and by June 2023, 48% (data made available by Abecs).
Among NFC payment methods, cards are the most popular, with 78% usage, followed by mobile phones at 30%, and smartwatches at just 1%. According to a Datafolha survey commissioned by Abecs, 63% of Brazilians who use contactless payments do so always or almost always.
The technology is already being used in different ways – but how is it going to work in Contactless Pix?
The Pix by Approximation allows you to complete payments in-store without having to use the bank app. Here’s how it functions: First, you’ll give permission for your bank account to be used for direct payments, linking it to your bank app or digital wallet (like Google Pay, Apple Pay, or Samsung Pay). After setting it up, you can make contactless payments in stores by holding your device close to the payment terminal.
OK, but might ask why contactless Pix is going to kill debit cards? Well, customers are driven by convenience. And an enhanced payment experience takes it into account. This is exactly what makes Contactless Pix a threat to debit cards.
As said before, using Pix for purchases, both online and offline, can be more time-consuming because users need to open their banking app to complete the payment. Especially in payments made in physical stores it’s still more convenient to use debit or credit cards stored in digital wallets.
Despite the current less convenient payment experience, Pix usage has grown rapidly, as reported at the beginning of the article. However, it is important to point out that, in the fourth quarter of 2020, Pix accounted for just 1% of payments, while debit cards held 26%. By the fourth quarter of 2023, Pix had risen to 41%, and debit cards dropped to 13%. In June 2024, 39% of all Pix transactions in Brazil were from individuals to businesses (P2B). When Pix gets its Approximation feature ready, it will be as convenient as debit cards – but less usage costs.
So, it is true to say that Contactless Pix will offer a better experience for the shopper. How about the merchant? Well, they also will help bury debit cards – because, like their customers, they will also prefer Contactless Pix due to the cost-effectiveness: processing Pix payments costs up to 14 times less than card transactions. Merchants are going to have more conditions to offer discounts for Pix payments, encouraging impulse buys.
And Why Are Credit Cards Facing Death?
So, why are credit cards facing death? Credit cards might face obsolescence in Brazil in the near future due to the fast-changing payment scenario in the country, led by Pix’s new features agenda. The Brazilian Central Bank plans to launch new categories, such as PIX Garantido, also known as PIX Credit. This specific solution could represent the “coup de grâce”, as said by The Banker, for credit cards (see that everyone is making death references?). This new feature allows payments in installments, a very popular payment behavior among Brazilians, without the use of credit cards, making it especially attractive for the segments of the population that cannot afford credit cards.
Moreover, the introduction of Recurring Pix, which enables automatic scheduling of payments for recurring expenses, further reduces the reliance on credit cards. This feature enhances convenience for users and offers merchants a cost-effective alternative by minimizing credit card transaction fees.
As Pix continues to gain traction and surpasses traditional payment methods in transaction volume, credit and debit cards are becoming increasingly obsolete, as happened to cash. If we now ask ourselves “who in Brazil uses paper money to pay for anything?”, soon we are going to think that credit and debit cards are things from the past.
The Central Banks plans to get Pix stronger and stronger. And it is impossible to not wonder: who will be the next victim?
Take care!
Prof. Carl Boniface
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