Have you ever imagined making and receiving money transfers, payments and any similar inter-banking transactions instantly and at any time? Soon, this will be a reality. Brazil’s Central Bank (BACEN) announced, in February 2020, a new tool that will allow transfer of resources in real time between people and/or companies: PIX.
PIX will be operated by the Brazilian Central Bank through the Instant Payment System and will be available to the public starting in November, operating 24 hours a day, 7 days a week, including holidays.
The new system will bring several advantages to both the paying user and the receiving user. One day, it will be possible to converge to transactions with a high level of security and simplicity and PIX aims to be a big step in that direction.
What advantages will PIX bring?
For final users, the goal is to build solutions that allow instant payments to be as easy, simple, intuitive and quick as sending a text message or making a cash payment. Thus, PIX end users will be able to initiate transactions in at least three different ways:
- Keys or nicknames for the identification of the transactional account. Examples of keys are cell phone number, CPF or CNPJ (the Brazilian equivalent of social security number for people and businesses, respectively) or an email address. The user may choose to use only one or multiple keys;
- QR Codes (static or dynamic);
- Technologies that allow information exchange by approximation, such as Near-Field Communication (NFC) technology, already currently used in contact-less
The use of keys or nicknames — the latter of which will be familiar to those who use social networks, after all, is there something simpler than referring to someone using their @? — will facilitate the process of initiating payments and transfers. The speed difference is even more apparent when compared to the current model for TED and DOC (the two money transfer methods used in Brazil).
In these banking transactions, it is necessary to enter multiple pieces of information to identify the receiving user — such as CPF or CNPJ, the institution in which the recipient has an account, the bank branch number, the type of the account and the account number.
From the point of view of fintechs — technology companies focused on the financial segment — one of the advantages is the seamlessness of automation of payment reconciliation tied to business rules of a digital product. In the current model, it is necessary to create transaction mechanisms that suit the inter-bank communication interval, which varies from bank to bank.
Let’s say the user of a digital wallet in a fintech intends, for example, to send money to another bank. Depending on the amount in the transaction, time and other factors, this transaction may take hours to finally be credited to the final destination. This interval results in greater effort to develop mechanisms for reconciling values, scheduling, and, of course, more problems to be solved by customer support — because the client wants to know what kind of limbo their money is in.
All these efforts are unfeasible for a small-sized fintech. With the model proposed by PIX, there will be speed in the processes, as the transactions will be processed in up to 5 seconds, since they will be centralized in this system.
Another great advantage of the PIX is its low cost. The cost for institutions can reach R$ 0.01 every 10 transactions, beating by far the high costs of TED and DOC still used by some players — both for the company that offers the service and for the end user, if it is strategic to pass this cost to the final user.
Currently, if a fintech, especially those just starting out, intends to offer a cashout option to its users, it needs to bear high costs to make these transactions. This can hinder the traction of the business, if there is no dedicated cash to invest in it from the beginning, because institutions that offer Bank as a Service (BaaS) — which function as intermediaries to transactions — can charge up to R$ 5,00 per transaction. In such cases, if the fintech decides to pass on this burden to its clients, the project won’t be competitive in a market where large bidders offer zero rates.
PIX access modalities
There are two ways to join the Instant Payment System (SPI): direct access or indirect access. With direct access, the participating financial institution has an instant payment account in the SPI system. With indirect access, the participating financial institution does not have an instant payment account, but, it hires a direct participant to do its operations on the system.
This other participant — usually another fintech that meets PIX requirements — acts as an approved Bank as a Service (BaaS) and intermediates transactions. In this case, instead of using PIX directly, there is integration to an intermediate service, offered by another fintech that has direct access to the PIX.
What requirements do financial institutions have to meet to be able to join PIX, be they the big banks or fintechs just starting up?
Requirements for PIX membership and implementation
The regulation of the Brazilian Central Bank’s Instant Payment System establishes some measures for institutions that will offer instant payment and transaction services. Among the requirements is that the participant has to have technical and operational capacity to fulfill the duties and obligations in the regulation and proof of a capital of at least R$1,000,000.00 (one million reais).
In addition to adhering to the terms of the regulation, the institution must obtain approval from the Brazilian Central Bank regarding compliance with the requirements of the enrollment steps — which involve sending the institution’s identifying data, such as CNPJ, company name, contact addresses, number of active customer accounts, among other information — and homologation of the enrollment process.
For the approval stage, tests of technological and operational capacity will be required, homologation tests between the indirect participant and the direct participant that provides the settlement service in the SPI. In addition, it is necessary to check the adherence of the solutions developed for end users, which involves sending preliminary draft (firstly) and the mobile app design (lastly).
The preliminary draft must include the plan for the provision of PIX in the mobile app of the financial institution (or bank, fintech etc.), presenting, at least:
I — The dynamics of the environment dedicated to PIX. This dynamic includes descriptions of what the user interface and experience will look like in the PIX section of the institution’s app;
II — The placement of PIX functionalities in the overall app environment;
III — The general presentation of the app options that involve PIX-related functionalities (e.g. payments, transfers etc.), including menus, shortcuts and quick access buttons, if any. The project must adhere to the obligations and recommendations detailed in the Manual of Minimum Requirements for a User Experience (or Manual de Requisitos Mínimos para a Experiência do Usuário), which is part of the PIX regulation.
This minimum regulation includes rules that take into account some points: operational risk management and liquidity structure; cyber security policy; action plan and response to incidents; contracting of data processing and storage services and cloud computing; policy; procedures and internal controls aimed at preventing the use of the financial system for the commission of crimes of laundering or concealment of goods; rights and values; in addition to other matters that the Brazilian Central Bank will indicate.
Who will offer PIX services
The Brazilian Central Bank announced that all banks, financial institutions and fintechs with more than 500 thousand active accounts need to adjust to offer PIX to their customers. This transaction option will become mandatory for organizations of this size. For other institutions that meet the requirements of this system but do not manage this amount of active accounts — the case of most fintechs — integration is optional.
Thus, by applying for enrollment in PIX, these smaller payment institutions — that choose to join PIX, but do not meet the criteria set out in the regulations to be authorized to carry out inter-bank transactions — can enter the SPI and, consequently, become members of the Brazilian Payment System (SPB or Sistema de Pagamentos Brasileiro).
SPB is the current payment system in Brazil. It has is composed mostly of large banks, because it has a rather rigid structure, which makes it difficult for smaller institutions to become members. SPI, in turn, has a more flexible regulation, allowing smaller financial institutions to also be included and offer their services in the market.
PIX hasn’t even been released yet and we are already able to see that it will totally revolutionize the way we handle banking transactions. Being able to make transfers or payments only at specific times (as is the case with DOC or TED transactions) and on weekdays will become completely obsolete.
The technologies involved in PIX — almost immediate transactions, no date or time restrictions and based on identification keys — are nothing new. Several fintechs already offer this type of transaction to their customers, such as P2P (Peer to Peer) transactions — which are transactions between clients of the same financial institution, instantaneous, without time restrictions and can be based on keys, such as CPF etc. — or features like “Send money to friend”, offered by some digital banks.
However, the possibility of carrying out fast, simple and less bureaucratic inter-bank transactions is only possible when they are operated and made available by the Brazilian Central Bank. Therefore, PIX is, in fact, a great achievement for the segment and its users, as it allows transactions between different institutions to be as seamless as internal transactions.
Over the past few months, since PIX was announced by Brazil’s Central Bank, we have been following the updates on the subject and, it seems, the new system of instant payments has great potential to provide lower costs, more agility and more satisfaction to all parties, in addition to using technology to their advantage and innovating, which promises to improve the financial system of our country greatly.