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Brazil's Best Counsel 2023: Chapter Opening: Banking & Finance: Regulatory & Legal Opinions
It is impressive the growth of the Payment and Fintechs markets in Brazil.
In the late 1960s, bank cards arrived in Brazil but only gained popularity in 1990. In 2002, Brazil's market carried out 275 million card transactions. Five years later, the transaction volume reached 2 billion.
For almost 50 years, credit and debit cards markets were commanded almost exclusively by Redecard (currently Rede), responsible for capturing Mastercard and Diners transactions, and by Visanet (currently Cielo), accountable for Visa transactions.
In 2010, the Administrative Council for Economic Defense, the Brazilian competition authority (“CADE”), determined the end of brand exclusivity, allowing new players to act in the segment.
CADE's decision increased the competition and the development of new products, which led to official regulation in 2013, by the enactment of Law 12.865/2013. The new regulation empowered the Brazilian Central Bank ("Bacen") with the primary responsibility of issuing standards and monitoring the payments sector.
Since then, the payments market has grown significantly.
From 2018 to 2020, the number of wire transfer transactions grew from 38% to 47% of total transactions. In the same period, the use of prepaid cards increased from 0.4% to around 8%. In 2020, the active card base grew significantly. Prepaid cards increased by 90%, debit cards by 12%, and credit cards by 26%. Another important highlight was the use of mobile devices to carry out transactions, which grew from 41% in 2018 to 59% in 2020.
In 2018, the Brazilian payments market has seen the emergence of Credit Fintechs. Such entities are providing several services at lower costs, exclusively adopting electronic platforms and technology innovation and consequently increasing the National Financial System ("SFN").
The Sociedade de Crédito Direto (“Direct Credit Company” or "SCD"), one of the most relevant entities in the sector, carries out credit operations with its proprietary funding and is authorized to provide additional services (e.g., credit analysis, credit collection for third parties, and the issue of electronic money and payments methods such as credit cards). In addition, SCDs may provide services to other financial and non-financial institutions, such as analysis and credit claim collection operations and the resale of insurance related to procedures carried out with their customers.
The Sociedade de Empréstimo Pessoal (“SEP”) enables peer-to-peer lending transactions. In this financial transaction, the funds received from creditors are transferred directly to debtors through negotiation on an electronic platform. In the SEP, the exposure of a creditor to the same debtor is limited to BRL 15,000.00. This limitation, however, does not apply to creditors who are qualified investors, as defined in the Brazilian Securities and Exchange Commission regulations ("CVM").
SEPs can also issue electronic money, which contributes to the financial inclusion of the population and helps promote and increase the speed of the payments related to intermediate operations.
SCD and SEP can contribute to developing the Brazilian capital market, due to many operations integrated with Credit Receivables Investment Funds (“FIDC” or “Fundo de Investimento em Direitos Creditórios”) and securitization companies.
The growth of Credit Fintechs occurs at a time when fostering innovation and stimulating competition in the SFN are topics of greater relevance within Bacen.
It is essential to mention that part of the banking sector started to incorporate the access standards, costs, and operational structure of fintechs, either migrating to similar models - based on exclusively digital service and differentiated services - or starting, from the initial authorization, as a digital bank, integrated with new technologies for access, transmission, processing, and storage of data and processes and management.
Since the rules that regulate credit fintechs in Brazil came into force, more than four years ago, the Central Bank has already authorized 76 SCDs and 10 SEPs to operate.
Noteworthy to mention that PIX – Instant Payment - is another electronic payment phenomenon in Brazil.
The numbers are impressive. Launched in November 2020 by the Central Bank, PIX soon established its power in Brazil. To understand this strength and its impact, PIX surpassed the volume of bank transactions combined in less than three months. From April 2021, transactions with PIX were also above the bank payment slip ("boleto").
At the end of 2021, PIX already accounted for 72% of all operations, considering TED, DOC, TEC, bank slips, and checks. There were 1.2 billion transactions in one month!
Until August 2022, PIX registered 478,353,231 new keys, and more than 2,068,358,897 PIX transactions!
Currently, 779 institutions offer PIX on the market.
Most of the PIX participants are Credit Unions (609). In second place are Payment Institutions (78), followed by Banks (52) and Fintechs (13).
Also, another interesting product with considerable growth in the market is meal vouchers, a benefit card granted by Brazilian companies to their employees.
Besides the traditional meal vouchers, other cards with multiple functions and services have been offered to companies to their employees, such as food, pharmacy benefits, culture, gym, and many others.
These cards are usually seen in partnerships with major brands, such as Master and Visa, helping promote and increase the extension of this type of service in the country.
Noteworthy that another point of extreme importance and development is in the Exchange sector. The Central Bank constantly issues new guidance updating the exchange rules.
The Brazilian Exchange market expects many changes and improvements starting in 2023.
In addition, international transaction rules are also under study to be updated and adjusted.
Thus, the solid growth of the payments scenario in Brazil is remarkable. PIX, Open Finance, Regulatory Sandbox, and other initiatives are just the starting point for this growing and continuous evolution of the electronic payment market in the country.
The growth of the payment’s environment reflects the increase of new institutions joining this new market, with ensures greater competitiveness and innovation.
Brazil undoubtedly has a vast potential for development and new opportunities for investors and companies. Brazil’s huge population, the increasing payment solutions, the number of new companies offering new services and infrastructure, and the continuous enforcement and regulation of the market by the Central Bank are good indicators of what we can expect in the following years.
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