Pix Evolution and Implementation

SUMMARY PRESENTATION IDEALIZATION EVOLUTION NUMBERS FUTURE 1. From the Idealization to the Implementation of Pix 1.1 The retail payments market Since the restructuring of the SPB in 2002, Brazil has been recognized for having a robust and efficient payment system, with the BCB playing an important role in this evolution. As of the publication of Law 12,865, of October 9, 2013, the BCB received the legal mandate to ensure the soundness, efficiency and regular functioning of payment schemes and payment institutions and to adopt measures to promote competition, financial inclusion and transparency in the provision of payment services. To exercise this competence, guidelines were established through CMN Resolution 4,282, of November 4, 2013, which must be observed during the regulation, surveillance and supervision of payment institutions and payment schemes that are part of the SPB. Among the objectives established in the regulation regarding the action of the BCB, the following stant out: innovation in payment schemes, diversity of business models, non-discriminatory access to services and infrastructure, and lastly, meet the needs of end users. In recent years, the financial and payment services sector has developed new business models and innovative solutions as a result of the increased adoption of new technologies by individuals, companies and the government, evidenced, for example, by the popularization of smartphones and applications, use of biometric recognition technologies (fingerprint, facial recognition, etc.), implementation of machine learning processes and an increase in the processing capacity of large data sets (big data). However, in 2019, cash was still the most widely used means of payment by Brazilians. Research on the habits of using means of payment revealed that 77% of financial transactions in Brazil was carried out using cash¹ as a means of payment. Empirical evidence points out that cash is one of the means of payment with the highest social cost². Although people do not directly realize the costs, it is extremely expensive to produce, store, distribute and destroy coins and banknotes. In addition, there are still high costs associated with security and handling of cash by retailers who take cash as a form of payment. All these costs end up being incorporated into the prices of banking and payment services and, consequently, into the final prices of goods and services. Cash also has other limitations, such as the impossibility of being used in electronic commerce, which is increasingly relevant in the country, as well as the unviability of installment payments. Additionally, a diagnosis carried out by the BCB identified that other means of payment, including electronic means, had relevant flaws, mainly in terms of convenience and costs for end users. The main flaws identified in each payment method are presented below: • . • • • Check: inconvenience related to printing and transporting check sheets; receiving the amount depends on clearing and settlement times; high costs to the financial system in terms of processing; limited acceptance and user experience demands filling out a good deal of information. Prepaid card: high costs for payees (discount rates), limited use on person- to-person (P2P) transfers, acceptance in commercial establishments depends on a specific device (POS devices). Debit card: high costs for payees (discount rates), limited use on (P2P) transfers; acceptance in commercial establishments depends on a specific device (POS devices); limited acceptance in electronic commerce. Credit card: high cost for payers (annuity) and for payees (discount rates); delayed payment to merchants (within 28 days on average), resulting in financial costs (e.g. float and advance on receivables); limited use for for P2P transfers; acceptance in commercial establishments depends on a specific device (POS devices). Credit Document (DOC) 3: not an inherently purchasing instrument, not used in electronic commerce, high costs for payers (service fee), availability restricted to a specific period of the day, initiation requires typing a good deal of information, settlement takes place on the next business day following the completion of the transaction and transactions have a value limit of up to R$4,999.99; • • • Electronic Funds Transfer (TED)4: compared to DOC, has the advantages of not having a value limit and settlement occurs on the same day, but has all the other limitations listed as on DOC transfers. Transfers within the same institution: compared to the TED, has the advantage of being fully available (24 hours a day, every day of the year). However, unlike TED and DOC, both payers and payees need to be hold account on the same institution in order to the transaction take place. Boleto: settlement takes place on the next business day following the completion of the transaction, high cost for payees, not suitable for P2P transfers, difficulties in conciliation and inconvenient to use (typing or reading a bar code on a specific device). Billing agreement: has similar disadvantages to the boleto. However, depending on the negotiation between parties, the agreements may have a lower cost for payees and faster availability of resources. On the other hand, these agreements do not allow payments through any institution and the process of celebrating the agreement is expensive and time-consuming. Automatic account debit: possibility of making undue and unauthorized billing, mostly used only for payments related to public concession services (e.g. water, electricity, telephone, etc.), available only through the establishment of an agreement, high operational complexity for recipients, lack of standardization between different institutions, difficulty in offering the service by smaller institutions. In short, the context at the time (2019) was one of excessive use of cash in the country, leading to inefficiency in the retail payments market due to the high social costs derived from this use, as well as the flaws present in electronic means of payment that existed before Pix, muddling the desired reduction in cash usage. Additionally, the digital revolution was taking place, with the adoption of new technologies by the population, and the possibility of payment services acting as strong inducers for financial inclusion. In a 1 The report with the main results of the survey is available at < https://www.bcb.gov.br/content/estabilidadefinanceira/Publicacoes_SPB/ Relatorio_Decem_2157_2021.pdf>. 2 See, for example, Banco Central do Brasil. Cost and efficiency of using retail payment instruments, July 2007; Banco de Portugal. Study on the social costs of retail payment instruments in Portugal, October 2016; and Humphrey, D.; Willenson, M.; Lindblom, T.; Gerghendahl, G. What does it cost to make a payment? Review of Network Economics, vol. 2, no. 2, June 2003. 3 Electronic transfer mechanism created by the BCB and operating in Brazil since 1985. 4 A newer electronic transfer mechanism with more advanced functionalities than those on the DOC, launched by the BCB in 2002. TED is a real time transaction scheme allowing transfers between users of different financial or payment institutions. Although being a real time transaction, the settlement takes place during specific time windows throughout the day and are not available during weekends or holidays, while transfers on Pix are settled instantly and are available 24/7. 5 A standardized mean of payment created by the BCB. In order to be accepted by any payment or financial institution, the boleto must be issued following predefined standards and registered on a centralized database operated by the CIP (Interbank Payment Clearing House). 5