The huge amount of messages that we have been receiving from banks and fintechs to register keys indicates only one thing: the Pix, Brazilian system of instant transfers and payments, it should even change the way we conduct financial transactions. For some, it is the end of DOC and TED. For others, the bank slip is even more threatened with extinction.
But little has been said about the impact of the new system on the cash: comprehensive as it promises to be, can Pix reduce or end the circulation of real banknotes?
This is an unanswered question. The fact is that the advance of electronic financial transactions at the expense of the use of paper money can be beneficial for Brazil, in several ways. Pix has everything to be the little push we need to reach this scenario.
Cash costs… money
On September 2, 2020, the Central Bank presented the R $ 200 note. The banknote, which has been in circulation since then, came to prevent the increase in demand for cash money caused by Emergency Aid payments from causing a shortage of paper money. .
This situation illustrates how dependent we are still on paper money (and that goes for the whole world). For you to have an idea, it is estimated that, just for the production of notes of R $ 200 and R $ 100, the Central Bank will spend R $ 114 million in 2020. In 2019, the entity spent R $ 90 billion on transportation, storage and security of banknotes.
Why cash money resists
Perhaps you are among those who shop at the supermarket with a credit card or use QR Code to pay for the pharmacy. But the fair of the week and the churros on the corner you pay with “cash”, right?
He could. One of the factors that support the circulation of paper money in Brazil is the informality. There are a huge number of people in the country who are engaged in economic activities with low or irregular financial activity. For many of them, the money that arrives in one hand needs to be spent right after the other. Electronic media may simply not be viable in these circumstances.
Linked to this is the situation of unbanked. The difficulty that many people had in receiving Emergency Aid shed light on a problem that has been noticed for some time: the huge number of Brazilians who do not have access to banking services. We are talking about an army of 45 million people, according to a survey published by the Locomotive Institute in 2019.
The research points out that this public is formed mainly by low-income individuals. The little money that goes into their budget needs to be spent quickly for a living. There is not enough financial basis to justify bank transactions.
The low level of education or lack of familiarity with the technology also weighs on the team of the “non-bank”. The survey by Instituto Locomotiva points out that 58% of the unbanked have only basic education or no level of education.
Geographic restrictions, such as small towns or peripheral neighborhoods with little or no banking services, also favor unbank.
Do not think that the consequences are limited to the impossibility that these people have to pay slips without having to queue. Without a bank account, they cannot get credit, for example, and often depend on the famous “spun” to purchase basic goods or basic necessities.
THE cultural factor it also favors the circulation of cash. You are likely to know someone who, even with a good income, prefers to pay bills or receive payments with banknotes simply because they are used to them.
For many people who are part of this group, cash is money received or paid on the spot. There is no need to wait for the TED to fall or the day turns for the bill to be compensated. This weighs more than the convenience of getting rid of the lottery queue.
Pix enters the scene
Although Brazil has a banking system that supports various types of transactions, the country was lagging behind with regard to instant payments. Pix comes to fill that gap. The modality will allow transactions at any time and day, including weekends and holidays.
This characteristic, by itself, is already capable of changing the way we deal with money, since it implies immediate sending or receiving: Pix transactions must be completed within 10 seconds.
Exception when the bank’s system identifies a non-standard movement. Under these circumstances, the transaction will go for analysis and may take up to 30 minutes to complete, explains Leandro Vilain, director of business policy and operations at Febraban.
Pix will support two types of transactions: transfers and payments, the latter of which includes purchases and accounts, such as a electricity bill (thanks to an agreement between the Central Bank and Aneel).
Another important detail: Pix will be free for individuals in most transactions. Contrary to what is possible with DOC or TED, the bank will not be able to charge a fee for you to send or receive transfers via Pix (transactions for commercial purposes may be charged, but it is not yet clear how they will be identified).
Pix keys will make the difference
To have massive adoption and, eventually, to be more interesting than cash, Pix depends on two factors: ease of use and availability. Regarding the first aspect, Leandro Vilain points out that the structure behind Pix is complex, but for the user, the system was designed to be simple, fast and secure.
Simplicity begins with the adoption of the so-called keys. When carrying out a transaction via DOC or TED, we need to provide data such as the name, agency, account and CPF of the recipient. THE Pix key it is nothing more than a shortcut to all this data. Therefore, just entering the key will be sufficient to perform the operation.
For now, you can register four types of information as a key: phone number, CPF or CNPJ, e-mail and EVP (a code for generating a QR Code). Each of this information can only point to a single account. You can use the CPF for your account at bank X and the email for your digital account at fintech Y, for example.
When you register a key for an account, that information will appear in the Transactional Account Identifier Directory (DICT), a database controlled by the Central Bank.
Suppose, then, that a friend wants to transfer a value to you via Pix. He will enter your key in the bank’s application. The bank will consult the DICT to obtain the target account data. Then, the application will show this data to your friend so that he can confirm the recipient. All of this will happen in seconds.
That is why banks and fintechs keep sending messages to register keys. Since using them will be easy, accounts without associated keys tend to be in second place. No financial institution wants that.
Individuals can have up to five keys per account. Legal entities can be 20. But be clear: you can transfer a key from one account to another. In addition, it will be possible to carry out transactions via Pix even if you do not register a key. The difference is that you will have to enter all account data for this, as if you were doing DOC or TED.
The availability issue concerns not only Pix’s uninterrupted operation, but also the possibility of accessing it anywhere. Therefore, it is important that the system is present in a wide variety of entities. That is why, in addition to banking institutions, the Central Bank prepared Pix to be supported by fintechs, credit unions, insurance companies, etc.
A scheme of direct and indirect participants is that it will guarantee such coverage. The first group will have direct access to the Instant Payment System (SPI), Pix’s backbone: this is where the transactions will take place. All financial institutions with more than 500 thousand customers must be direct participants.
Indirect participants will have to hire a direct participant to broker transactions. This category is very important, as it will allow retailers, cooperatives and other institutions to be present at Pix.
QR Code: now go!
Keys are important, but not in isolation. There is a great expectation that, thanks to Pix, the QR Code it avenges in Brazil in order to become the preferred means of payment at the expense of credit or debit card and cash.
Today, for a store to offer card payment, the money depends on several actors to reach the destination: purchasers (machine companies), flags, payment processors, among others. With Pix, this “midfield” can be almost completely eliminated.
For a shopkeeper this tends to be positive. He will spend less on payment services and receive money almost on time. For the user, convenience also increases.
Some establishments already offer QR Code via PicPay or Mercado Pago, for example, but you must have an account on these platforms to take advantage of the modality. With Pix, the QR Code will be accepted by any bank, fintech and similar applications.
To Tecnoblog, Bruno Diniz, fintech expert and author of the book The Fintech Phenomenon, highlights that the Central Bank structured Pix to accommodate different types of participants in the system.
“It is different from the Chinese model, where there is basically a duopoly with Tencent, owner of WeChat, and Alibaba, which has a stake in Alipay” (these platforms dominate China’s instant payment, but are private).
Because of this and the costs that tend to be lower for all sides, Diniz believes that traditional companies in the payment segment, such as acquirers, will have to make adjustments in their operations to remain attractive.
At a later stage, payment by NFC will also be possible, but the QR Code does tend to be Pix’s main payment method. Diniz even recalls that the Central Bank announced the BR Code, a set of rules that standardizes the use of such codes in financial transactions.
Is it the end of paper money?
It’s not that simple. Pix was not designed with the sole purpose of ending the current means of payment and transfer, let alone with paper money, but to make Brazil’s financial system evolve and become more competitive.
Despite this, it is no exaggeration to expect that, as the population incorporates the system into their routine, the use of DOC, TED, slips and cards will fall. Eventually, some of these means may be discontinued, but this will not happen anytime soon – see the example of the check, which did not “die” with the arrival of the card.
In the case of bank notes, banks, fintechs and financial market experts point to a decrease in circulation, but not in the near future when paper money will cease to exist. Bruno Diniz stresses that this is already happening (thanks to the use of cards, payment accounts, services like Google Pay, among others) and that Pix will only reinforce this trend.
It is not by chance that Febraban points out that part of the revenue that banks may lose with the reduction in the use of DOC and TED may be offset by the reduction in the costs of money logistics. The organization says that banks spend R $ 10 billion a year to distribute bank notes to branches and ATMs.
In order for this scenario to become a reality, it is necessary, above all, to attack de-banking. Banks like Itaú already develop strategies for this segment, but it is likely that fintechs will be able to fulfill this inclusion role more successfully. They may, for example, enter into partnerships with retailers to offer financial services in regions without bank branches.
Fear or unfamiliarity with technology can be obstacles, but Diniz points out that the new system is so interesting for the country that commerce itself can encourage the most resistant public to join Pix.
In the end, it’s all about convenience. If Pix is as practical or more practical than opening the wallet and taking a note, the preference for the new system will follow a natural course.
Even the withdrawal of money in stores via Pix can contribute to this. It sounds ironic, but Diniz explains that “many times we get a value because we don’t know when we will have another opportunity to cash out. If you have more places to make a withdrawal, you will have less need to carry cash all the time ”.
Pix goes live on November 16th.