Will Pix replace cards in Brazil?

In the vibrant landscape of Brazil's economy, where cash and credit markets have long reigned supreme, a new contender emerged in 2020, shaking up the status quo. The Brazilian Central Bank introduced Pix, an instant payment platform designed to modernise the country's payment industry. With the ability to make payments quickly by scanning QR codes or utilising 'Pix keys' via mobile phones, Pix aims to reduce reliance on cash, bolster financial inclusion, and inject healthy competition into the country’s banking sector.

Since its inception, Pix has skyrocketed in popularity, challenging the dominance of cash and card markets. The numbers are staggering, with Pix's usage surging by 74% in 2023 alone, facilitating close to 42 billion payments across Brazil and surpassing the number of debit and credit card payments by 23% according to the country’s central bank. This growth has spurred intense speculation among banking and payment experts, raising the question: could Pix replace cards in Brazil?

On one hand, Pix boasts an array of advantages. Offering instant transactions round the clock in less than 10 seconds, Pix enables consumers to make payments quickly and conveniently, eliminating slow and costly wire transfers and reliance on often unreliable card machines. Moreover, it expands online shopping access for those without access to the credit products that Brazilians typically use for online purchases, which has opened avenues for financial inclusion in e-commerce among previously underserved populations. Pix transactions are also characterised by minimal fees, further enhancing its appeal to both businesses and consumers.

However, Pix is not without its drawbacks. Concerns regarding security and fraud loom large, as Pix scams have spiked post-launch due to its simplicity and widespread use, attracting fraudsters. The lack of digital banking experience among newly banked consumers who adopt Pix makes them vulnerable to social engineering and other online scams. Banks estimated potential losses of 2.5 billion Brazilian Real or ($500 million US dollars) last year, with 70% originating from Pix transactions, highlighting ongoing security weaknesses despite its many benefits. Furthermore, Pix currently remains confined within Brazil’s borders, rendering it ineffectual for international transactions and foreigners seeking to make purchases within the country.

In contrast, debit and credit cards exhibit their own set of advantages. Credit cards offer robust fraud protections, making them a more secure payment choice for consumers for those with access to them. As Pix transactions are instant, they don’t offer the same assurances: there are no reversals and refund protocols are unclear. Moreover, credit cards provide the convenience of breaking down purchases into instalments, a feature currently exclusive to this payment method, although on the roadmap for Pix. Additionally, both credit and debit cards facilitate international transactions, enhancing their utility for global purchases and use abroad. Lastly, these cards often come with enticing loyalty and reward schemes, providing added incentives for consumers to utilise them.

Nevertheless, cards are not immune to criticism. Accessibility remains a big issue, especially for those living in rural areas who face issues obtaining payment cards, or those who are ineligible for credit products and services, which is a recurring issue as just 50% of credit cards are approved for use according to the central bank. Moreover, higher transaction fees from card networks and other FIs in the payments chain is always a consideration for both businesses and consumers.

As the future of payments in Brazil unfolds, it becomes evident that Pix and cards are not mutually exclusive. Pix continues to evolve, incorporating new functionality such as recurring payments and subscriptions and monthly instalment plans, however, the card market retains its resilience. In 2023, the card sector witnessed a robust growth of 10.1% and currently boasts a remarkable 209 million active credit cards and 160 million active debit cards.

Ultimately, both Pix and cards harbour distinct advantages that cater to the needs of consumers and businesses. While Pix may herald a new era of digital payments, consumer behaviours and habits are hard to break and while issues around security remain, cards aren’t going anywhere.