PIX Brazil – Short Blog

Brazil’s Central Bank is now recognized as the leading innovator. Both in PIX and CDBC launch this year.

Identifying new networks is a must for any investor. The growth rate of network businesses dwarf most other models as each node invests something in joining. Mobile has transformed the time for network effects to reach critical mass – moving from 20 yrs (think debit card and mobile phones) to months. When network effects take hold, Investors see opportunity in both the network core (owner) and the periphery. We also look at how new services will impact existing established players

PIX Brazil is an amazing success: launched in Nov 2020 this free payment service rides on top of an instant settlement network (SPI). Brazil’s Central Bank (BCB) provides monthly reporting on PIX volumes, users and transaction types. In under 2 yrs, PIX has gone from 0 to 116M users (population 212M) and Volume of 1.16B $R (~$251M USD),  207 $R (18%) of which are P2B. 

Financial inclusion was a key driver for BCB’s efforts. A 2017 BCB survey showed that 70% of the Brazilian population was “banked” leaving 48M people without any access to a debit card, credit card, or bank account.These unbanked move nearly 204 billion USD of the country’s economy per year, which drove the preferred use of paper-money by the large population. Account registration and opening are greatly simplified (see PAGBrasil link) and PIX payment is now embedded into eCommerce (see Amazon BR and Mercado Libre). 

PIX’s success is not without a few growing pains and detractors. Moving money instantly can also enable other activity. A bill in Sao Paulo proposes to stop PIX until further controls can be placed on use (see Express Kidnappings). 

Internationally, Brazil’s central bank is recognized as the leading innovator both in PIX and Brazil’s impending CDBC launch (this year). I highly recommend reading the thorough “lessons learned” report covering PIX from the Bank of International Settlements (BIS). This report seems overly keen on encouraging other central banks to replicate the PIX scheme. 

Market Impact

PIX is a success. Improving access to electronic transactions is fueling consumer trust in the BCB, and improving access of unbanked to the broader economy. It is very important for investors to note that PIX is also driving further growth of card transactions. From the BIS report

This card growth may seem counterintuitive, but as I outlined in Interchange Going to 0 .. So What? And also in blog covering India’s UPI  instant P2P drives both debit and credit card growth (in emerging markets). Why? I have 4 hypothesis (not yet proven):

    1. Unbanked consumers become banked. Consumers prefer to use a branded card where possible because of both prestige and consumer protections
    2. More merchants accept electronic payments. First phase is accepting the local scheme (at no cost), then small businesses recognize the value of accepting electronic payments and expand to accept cards (ex tourism). This is also case with Indonesia’s payment success story Gojek
    3. Death of cash. As M1 shifts from cash to deposits all electronic access points gain
    4. Credit growth and data (too early future prediction). Electronic payments means more data for intermediaries. Greater data enables better credit decisioning (and availability). 

Investment Opportunities

I will be purposefully vague here as some of my own bets play out, but generally:

    1. Mobile first retailer network – Think of Taobao/Alipay.. Get all small businesses and their services connected
    2. Long tail merchant acquiring – Accept PIX.. now take card (SQ like)
    3. eCom expansion into lower mass
    4. PIX acceptance by recurring billers
    5. Credit – ex PIX data facility with Identity
    6. Physical Security/Insurance – How to prevent express kidnappings
    7. Fraud/Crime analysis – Powered by PIX data and mobile phone location
    8. Social/Reputation – Facebook is still #1 in BR. Ripe for replacement?

Thoughts appreciated.

6 thoughts on “PIX Brazil – Short Blog”

  1. Great thoughts, as always.
    With regard to investment opportunities in your category #2: do you see PagSeguro as a PIX long-term winner? (Hard to weigh the net impact b/w TAM reduction due to tiny merchants relying on PIX alone vs. TAM expansion based on increased digital & cards penetration)

    1. Great point. My view is that a CDBC both solves for other problems and creates a few new ones. For problems it solves (money is immutable): fraud, counterfeit, loss, taxation, holder registration. For example.. in the case of express crime.. the entire path of a CDBC’s journey could be tracked. RTP’s biggest downfall is fraud. For problems it creates: privacy and absolute government control.

  2. for the volume number – their monthly reports are actually showing $ R in thousands, so would be $251 B.. Amazing how this thing has taken off

Leave a Reply

Your email address will not be published.