All right. So Bruno, thank you so much for joining me on today’s episode. So to kind of get things going here, I’d really kind of like to introduce you to our audience a little bit first, so perhaps maybe you could kind of tell us a little bit about your background and then kind of your role within the payments industry.
Okay, so hello Ryan. Hello, everybody. It’s a pleasure to be here discussing those hot topics with you and with our audience. So I’m Bruno. I’m working at the payments industry since 11 years ago. I started in the more traditional roles, working at banks with credit cards and debit cards and so on. Then, during my career, I migrated toward fintechs. So I worked at MercadoPago with payment development products, services, wallets, and all their fintech services related to it. I also work at Sodexo developing a wallet and a marketplace of services and benefits. And nowadays, I am at Amazon also working with developing products and services.
Excellent. Yeah. And I’m really glad that I’ve got you on the show today, right? Because I certainly think that Brazil is certainly a very big hotbed, especially for fintechs. You certainly see a lot of news circulating around Brazil, especially within the last couple of years here. So perhaps, you know, I kind of want to take today’s conversation and really dive into that part of it quite a bit. So perhaps maybe we could kind of set the table here, so to speak, and really talk about what does Brazil’s payment ecosystem currently look like today?
Okay, so, as you said, Brazil is in a very positive environment for payments since five, six years ago, okay. And well, Brazil, of course, is very well served about payments. So it all started with the most traditional companies and they are also big players in Brazil. So we have card issuers, the most traditional ones are the banks, so have big banks in Brazil, as big card issuers, even credit cards or debit cards. We have also the card schemes. So we have here in Brazil, Visa, MasterCard, and Elo as the most relevant and big players, nationally speaking. And we also have the acquirers. So there are companies that provide POS services and POS machines to the retail, basically to the online and offline retail.
But these scenarios started to change like five to six years ago when the fintechs started to arise, and to offer more and more services. So both traditional companies, banks, card schemes, and acquirers, they were very profitable companies. And well, there were no competitors to fight against them. But because of a positive environment related to legal safety related to technology, more and more companies are willing to solve a customer’s use case. We also have fintechs that were designed since the new regulation, the new central bank regulation. And they’re getting stronger and stronger by offering meaningful use case to users, especially those connected to charity operations that seems to offer a stronger use case and strong cash-in and cash-out methods.
So for example, I would say that to have pure fintechs in Brazil, like Nubank, which is, and it’s funny, NuBank is not only in Brazil now, but maybe it’s in Mexico, it’s expanded to Latin America, so it’s a very well successful company and a FinTech company with the startup mindset. But we also have non-financial only fintechs, like we have iFood, we have Rappi, which are delivery apps but their main goal is not the financial services but they offer financial services through those services and through those apps. So there are more and more people consuming financial services through financial companies like traditional ones, banks, but more and more people are consuming financial products, financial services and payments through non evident fintechs like those I mentioned. And these are getting stronger and stronger because they can offer a meaningful use case. They can offer very, very special offers, promotions, cashback rewards and so on. And people get very, very involved with their daily routines in asking, in ordering food, groceries, whatever, through those apps.
Yeah, and I certainly think that that’s, you know, extremely interesting, you know, that we kind of brought up just like the rise of fintechs. Really, and, you know, you kind of pointed out that it’s really kind of been within the last like five years that you’ve really kind of seen this particular rise, especially in Brazil, itself. So I mean, I think we kind of dove into a little bit of the why so here in terms of just why Brazil has kind of been quite a bit of a hotbed for fintechs here. But now I’d kind of like to do a little bit maybe kind of a compare and contrast here between the United States and Brazil, because I certainly think that there’s a lot of similarities there certainly, and absolutely some differences here. But let’s particularly take a look at the different forms of pays here. Right. So, you know, there’s certainly a lot of wallets that really rely on NFC. But I’m really curious, because what we’re starting to see here in the United States is really the adoption of different payment types, like QR codes. So I’m really curious to get kind of your perspective of how are those different types of payments, specifically QR codes, how are they performing in Brazil? Like, what are you seeing in terms of the the usage of them there?
Okay, so I would say that QR codes [are used] every day in Brazil. So as I said, if we check United States or Europe, we may say that NFC transactions are boosting, because people there have banking accounts and have the right parts. And those credit cards are NFC enabled. So it’s a special credit card that you can just tap and pay and go away. But in Brazil, it’s not the question. I mean, we do have NFC cards, but they’re more expensive cards. And banks, especially those traditional banks are not willing to offer and issue those cards because of the cost. So it’s not it’s not a very popular way of paying here in Brazil, though.
And when we consider NFC payments through smartphones, people in Brazil are also not accessing those kind of payments. Because to have a NFC-enabled smartphone, you have to buy a high-end smartphone which is not the case in Brazil. People here tend to access more affordable and low price smartphones.
So there we come to QR codes because almost every smartphone can access a QR code. And when we consider the Brazilian population, we may say that we have 135 million people accessing the internet. And 97% of those people may access the internet through smartphones. So that’s the perfect storm. I mean, we have people accessing internet, and they’re accessing through smartphones. So QR codes are becoming more and more popular in Brazil, people are getting used to it. I have to say, initially, people suffered a little with the UX because every app and every fintech mainly had different experiences and different user experiences and user interfaces. So that confused a little people in the beginning so they had to get us in on how to access, how to pay, and how to feel safe about paying through smartphones. Because in Brazil, we have a lot of online scams. So people in the beginning were a little afraid about it, but they got used to it and they are now more comfortable in paying through QR codes. And if we consider the last six to seven month, the COVID-19 scenario boosted the usage of QR codes. I mean, QR codes usage is increasing double digit month over month in Brazil. And the central bank, the local central bank, the Brazilian central bank, is launching the next month PIX. PIX is the National Instant Payment System. So it’s a network guarded by the Central Bank so it’s completely safe. And this network will enable all people to transfer online money to everybody and also to companies and make purchases and payments and so on and so forth through smartphones, even through QR codes or through peer-to-peer transfers.
So it tends to boost more the payment through QR codes. And this is actually really good news here in Brazil because we think that it will democratize more and more payment access, especially when we think about low income people. And when we think about cash-based people. When we check the numbers, Brazil had 45 million people that did not access any kind of online payment. So its only cash-based people. If we consider people that have some access to traditional payments, even credit cards, debit cards, or some smartphone, 6% of them tend to rely on cash to do their daily purchases, like markets, restaurants and so on.
So we have a very, very positive scenario to increase, significantly increase QR code payments, peer-to-peer transfers and payments also, especially when we see that the central bank is pushing more and more instant payments, not only from traditional companies or traditional banks, but also on fintechs.
Yeah, and I think that you brought up a lot of very interesting and great things there. One, first, I mean, obviously I kind of want to bring up the education aspect of it here, right? Because, you know, as you pointed out, like, hey, initially, it was a little bit difficult for consumers to understand the UX. But I think that that’s a very similar story across the globe. You know, once something new gets introduced, there is that education phase that all consumers go through. I mean, with a comparison in the United States, when we had the EMV conversion, there were certainly a lot of confusion of “Okay, like my card has the chip. Does the terminal itself accept the chip? Do I still need to swipe? What is it that I need to do? Has this particular merchant implemented EMV on their end?” And so I think that the education story is something that that’s universal across all new payments that are introduced into a region.
And the other thing that I think was really interesting that you brought up there was the cost side, not only from just the consumer end, where you’re saying, hey, look, in order to be able to use NFC payments, you need a higher end smartphone, which there’s a cost associated with that, you know, certainly higher end smartphones are not inexpensive; they’re relatively expensive. For but then also the same on the issuing side, you know, and I think that that’s very interesting that a lot of the banks are coming out and saying, hey, because of this cost, we’re really not willing to go that extra step to say, “hey, yes, we’re going to issue these,” where I think in the United States, you’re starting to see a lot of organizations push NFC cards on our end. I certainly know that Visa and MasterCard have come out with their numbers in terms of issuance, and the growth of issuance there.
And then there’s also when COVID-19 happened, which I think, again, is a little bit of a global story in terms of COVID-19 happened and consumers looked at other forms of payments, whether it be by choice, that they said, “hey, look, you know, I no longer want to handle cash or I can’t be in stores, therefore, I need to pay for things digitally,” and you can’t, you know, shop e-commerce with cash, or it’s very difficult to be able to do so for it. So I certainly think that there’s a lot of interesting things there.
And then as you pointed out at the end there with that new payment system that’s coming out from the central bank, I certainly think that is a very positive sign up for the region in kind of the bank saying “Hey, look, we certainly understand that we need this digital infrastructure here, because we see, okay, this is the way to go forward and to move forward.”
But then the next kind of question that then comes after that kind of takes a look at the, you know, from your perspective, how long do you think it’ll be until Brazil reaches ubiquity with those digital payments that we’re talking about?
Yes, so as I said, here in Brazil, we have a very established EMV card issuance and users; people are very used to it. Even payers or buyers, they know how to pay and how to buy with EMV cards on offline every day in brick and mortar stores. So it’s very easy. And also for sellers, they know exactly how to sell through EMV cards. And the experience is the same; every store you go, you pay the same way, and if you are selling gas, or food, or clothes, or whatever, the experience is the same. So I think on the card side, we are very, very good with it. And when people see that the experience of EMV cards, I would say that it’s even a faster payment than NFC, at least here in Brazil, because it just insert the card, enter the PIN and go away. But sometimes with NFC in Brazil, we have some steps that some sellers are not used to it.
But when we consider cash-based people, that’s the challenge. Because those people do not access any kind of checking account or savings account. They cannot access any kind of debit card or credit card, and they usually have low credit scores. So no traditional financial institution would accept those low income people or cash-based people as customers. So there is a really good scenario there for fintechs to rise and to offer more and more and more services for those kind of people. I mean, people that do not enter a bank branch; they simply do not feel comfortable in accessing those spaces, but they do have a smartphone, they do want to buy online, as you said, especially in the COVID-19 scenario.
Those people entered in a forced learning curve. I mean, they will never access online shopping. Okay, but with COVID-19, they had to. They had to learn how to access internet, how to buy online and how to buy online without a credit card. So in Brazil, for those who do not want or those who can’t access a credit card, you can buy online and pay a banking invoice. It’s a barcode that you generate and you can pay almost everywhere in banks or in bank branches also, but it’s not a very good user experience because you have to take that barcode, take the cash, go to someplace, enter a line, which is challenging in a COVID-19 scenario, and then pay with cash.
So people, because of these [factors], are getting more open to try to test new online services, a new fintech services also. So I think that would be the direction for ubiquity in payments in Brazil. So people are accessing fintechs for basic services like payments. And when we think about it, the cash in and cash out are the biggest challenges because in Brazil, the number of people who are cash-based is very, very relevant. If someone is cach-based only, how do they cash in. I mean, how do they take those physical money, those bills and how do they transform those bills in digital money. So this processes is very important. And I would say that is the key to success or to failure when we talk about fintechs and financial services.
But solving these parts maybe through a more smoothly cash in method or partnering with retail, or maybe be paying salaries or paying benefits, or other kinds of reimbursements, through the wallet, or through some kind of additional account may solve part of this problem. And the other part is okay, I also have my money, I also have my funds, and my additional account—how do I use it? Where do I use it? Then comes again the user experience. Okay, I can use it, or I can access it to buy food, to buy groceries, to pay some bills, to pay my water bill, my cooking, or to buy some clothes.
And this is very important. When we talk about online shopping, there’s of course the user experience. And the user experience is also related to the shipping, which may also face some challenges depending on the place you live. And also the security part. So people have to feel safe about online shopping. So they will buy, they will feel happy about buying at some particular website or marketplace, and then they will shop again.
So when we we think about this whole scenario, you have more people buying online, which is good. And of course, the COVID-19 boosted it. And we have more people accessing QR codes because first, they know how to use it, they are more comfortable about using it. Second, there are more sellers accepting QR codes. And of course, these sellers, they also have to learn how to sell through QR codes. Imagine that you have your cash machine, you have your cashier, and now you have a QR code yourself. So you have to consolidate all those payments, you have to consolidate all those receivables. Sometimes sellers pay different MDR rates in each one of them. So also the sellers had to understand, they had to learn, okay, how do I sell through QR codes? And how do I consolidate all these payment methods? And third, people are, of course, afraid of getting money and touching it so it’s also a strength of QR codes. And we cannot forget that many, many fintechs, especially those who are starting their operations in Brazil, they are offering cash back rewards and other promotions to get people more involvedand creating that use habit. So people are being convinced of Okay, if you buy now you receive like 10% or up to 50% on cashback, but you will receive it in your next purchase. So they are trying to turn those users into recurrent users. And then now we have recurrent users, we have people that access our apps and websites every day or every week, how do we make money with them?
And if we consider this new scenario, I would say that high-end people, people that are used to credit cards, and financial products, financial services, investments, and so on and so forth, they will keep accessing the traditional payments like credit card because they have rewards, like mileage programs, like VIP services related to that credit card, so people will keep accessing it. Of course, they will also try new payment methods because it’s worth it. But the very big targets to these new fintechs and this new QR code payment will be the low income people or cash-based people.
And I would say that those people will access their very first financial services not through the traditional companies and not through the traditional banks, but through non-evident players like food delivery, like transportation, mobility, or so on, because they will access those apps, looking for some kind of service, and they will end up paying through those apps, or getting credit through those apps or through those tools. So that will be how ubiquity will be here in Brazil.
Non-evident players, non-evident fintechs that attract people with many services, delivering financial services to those people through their environment. And we can see that, we can see mobility companies, I would say like Uber, offering more and more financial services to drivers and to customers also. I can say that iFood, which is the biggest food delivery app in Brazil, is also offering financial services to buyers, payers, gift cards, wallets, and so on, and also offering financial products to restaurants or to the sellers, so credit, POS, offline POS solutions, also corporate cards and so on. So we can see no boundaries at all. I mean, 10 years ago, we would never say that maybe Uber would be a competitor to a big bank in Brazil– but now it is because Uber can understand the customer, Uber can understand the payer and the driver. Uber knows all activity, for example, that the driver does, and Uber can offer credit to this driver. And I have many examples of it, like food delivery, which is iFood. We have also a specific service here off taxis in Brazil. We also have groceries delivery. So ubiquity is being delivered in Brazil, not by the traditional companies, not because they are unwilling to do it, but because of fintechs. And those traditional companies, they’re trying to catch up, to not lose relevance, that’s their fear. And of course, fintechs, each day, they come up with new technologies, new services, and so on. And people are trusting them more and more. And that’s a good sign. That’s a good sign because central bank is also working to make those fintechs more and more safe. They hey have to be compliant with local laws with the money laundering laws, and so on.
And they can deliver also payment services, credit services, maybe insurance, investments, and so on, in a way that’s much more smoothly than people would access the traditional banks or traditional institutions.
Excellent. Well, thank you Bruno, for taking the time today for speaking to me about the Brazil payment system and the radical change that it seemed to be going through and I hope to have you back on the podcast real soon.
Thank you, Ryan. Thank you everybody—it was a pleasure.