Pix: how the Brazilian instant payment platform became a success story
With over 114 million users, the Pix case confirms that technology can be an important instrument to democratize finance.
During BIS innovation Summit 2022, the Governor of Central Bank of Brasil, Roberto de Oliveira Campos Neto, explained how the Pix project was born and developed.
Why the Central Bank of Brazil created Pix
Why did Brazil decide to create a new payment infrastructure from scratch?
In early 2019, all emerging markets were witnessing a convergence between content, payments and social features in mobile applications.
The Asian model of the “super app” was growing and both Big Techs and startups were working on transversal mobile services. Offering a mixture of sales, payments and advertising, powered by AI to better understand the needs of the customer.
Each service was developing its own, vertical solution. And this could have hindered competition in the future.
That is why the Central Bank of Brazil decided there was a need for an instant payment project that could create a common ground and promote competition.
How does Pix work?
Individuals and business can get a Pix “key” and quick response code: each user is identified by an alias, like the phone number, the email address, tax IDs or random generated keys, like a QR Code.
The identity of each user is verified using KYC processes provided by their bank or their payment service provider.
Once activated, a Pix account allows users to transfer money to friends or family, from one account to the other. Instantaneously.
Pix is free for individuals and very cheap for businesses.
There is no need to know the bank account number of the recipient. The only information needed is the key used to register to Pix. So if the user is buying something in a shop, it can Pay by Pix scanning a QR code.
And if someone used a mobile phone number to register to Pix, you can send him/her money straight from your smartphone’s Contacts in a few taps.
The main challenge: get Brazilian banks in the ecosystem
Such an open instant payments infrastructure must be easy to use, open to participation and inclusive, either free or very cheap.
We now know Pix is a success. But in 2019, many banks were skeptic about the initiative. They feared Pix could take away some of their revenues.
To reach a minimum critical mass of users, the BCB mandated participation in Pix by banks and payment institutions with more than 500k transaction accounts. This started a network effect that incentivized smaller players to join the project.
When the platform was launched, the Central Bank expected to reach 20 million customers in 6 months. It only took 3 weeks to get to this target.
New Business Models based on Pix
Nowadays, Brazilian banks love Pix. Yes, they did lose some revenews from fees applied to payments. But the amount of digital transactions in the country rose incredibly thanks to Pix.
And the instant payment platform created new business models. Even street sellers accept Pix Payments. Pix can be used to make credit and transaction can be programmed to schedule the installments.
Why Pix was successful
According to Governor Roberto de Oliveira Campos Neto, these were the key factor for the success of Pix:
- Transparency: rules were clearly defined from the beginning. Pricing didn’t change during time (and won’t in the future);
- Security: the user must know the system is secure and money must be immediately visibile in their accounts;
- Openness: the platform must be open for quick innovation, so people and companies will know the infrastructure is there to stay and can adapt to the evolution of technology;
- Engagement: the public and the banks were involved in consultations to engage everyone in the designing process;
- Be forward looking: the regulation and the infrastructure created today must allow competition in the future, too;
- Privacy: there are clear rules about the use of personal data and the information involved (email, phone number, tax ID) is not very sensitive.
Why Pix is a public infrastructure
A frequently asked question about payment infrastructure is: should it be public or private?
Why did the Central Bank of Brazil get involved? To provide a common ground and Forster competition in the future.
Private initiatives were creating numerous vertical chains. Pix ensures a common and standardized playground.
Also, the Pix brand can be used alongside a financial institution’s one, but belongs to the government.
What about a Brazilian CBDC?
Pix already offers smart contract and programmable money: what can a CBDC provide that Pix doesn’t?
This question, posed by Governor Roberto de Oliveira Campos Neto, is still open.
According to the BCB’s Governor, a Central Bank must also ensure that issuing a digital currency won’t affect the ability of banks to leverage on the deposits and provide credit. A possibile solution lies in the issuing of StableCoins by banks. These StableCoins would be guaranteed by the CBDC. Preserving the role of banks in the economy.
Still, there are many open opportunities that may arise from the combination of Pix and a CBDC. Decentralized Finance and DAOs (Digital Autonomous Organisations) are quickly growing. And so are new technological trends, like the Metaverse.
In the near future, companies will find new ways to monetize money.
And this new economy will need standardization, so it can provide innovative products and services at a much cheaper price. Banks should consider the re-use of protocols to speed up the innovation.