How digital payments drive Brazil’s economic transformation

How digital payments drive Brazil’s economic transformation

Brazil dominates Latin America’s economy, with an expected US$2.13 trillion GDP in 2023, elevating it to the world’s ninth-largest economy. Digitalisation and economic diversification are driving the continued expansion of the country’s middle class, and opening up new opportunities.

The shift from cash to digital payments is accelerating, offering Brazilians a faster, seamless and cost-effective way to transact both online and offline. With 165 million residents connected to the internet, newer digital payments are presenting substantial opportunities for businesses to thrive online, expand globally, diversify products and boost revenue. 

Beyond digitalisation, Brazil is streamlining its institutional structures and regulations, simplifying operations for businesses, particularly SMEs and foreign enterprises. This strategic overhaul reduces administrative hurdles and facilitates a more business-friendly environment.   

In this article, we will cover:

  • Overview of Brazil’s economy
  • The digital B2B and B2C landscape in Brazil
  • Key payment trends in Brazil

Brazil’s attractiveness to foreign businesses is undeniable. In 2022, the nation logged substantial trade volumes of US$88.7 billion and US$150 billion, with its top two trading partners, the United States and China. This appeal is driven, in part, by Brazil’s abundant natural resources, including key exports like soya beans, iron ore, crude petroleum and agricultural products. 

Brazil’s vast consumer market, fueled by a booming middle class representing 61.4 per cent of the population, also serves as a magnet for businesses. In 2023, retail sales defied expectations by growing 3.2 per cent from the previous year.

In recognition of the growing influence of digital businesses in propelling and modernising the economy, the government has responded by cutting red tape and simplifying taxes. Over the last decade, Brazil welcomed over 13,000 new startups, with seven securing spots among Latin America’s top 10 unicorn companies. 

Digital businesses in Brazil are also benefiting from considerable investments in IT and telecommunications infrastructure, coupled with widespread smartphone adoption that has connected over 80 per cent of Brazilians to the internet

Brazil’s B2B and B2C digital landscape

As more Brazilians connect to the internet, revenue from the digital economy has steadily climbed, reaching over a fifth of Brazil’s GDP by 2016. 

Brazil commands a one-third share of Latin America’s e-Commerce market. Projections indicate that two-thirds of Brazilians will shop online by 2027, with the e-Commerce market expected to reach US$125.68 billion in value by 2029.  

In the B2B sector, a 2020 McKinsey report reveals that at least 68 per cent of companies in Brazil prefer digital interactions or self-service when talking to suppliers’ sales representatives. Over half of B2B companies have experienced better business operations by transitioning to an online sales model.

Key payment trends in Brazil

Online shopping and digital financial services, including mobile wallets and neobanks, are transforming Brazilians’ payment habits. New local payment methods are facilitating rapid and low-cost transactions and driving financial inclusion for 4.6 million unbanked adults in Brazil.

Here are the key trends in the evolution of Brazil’s payments landscape.

BR – Brazil’s QR code

To enhance the safety and efficiency of digital transactions, Brazil introduced the BR code — a QR code standardising payment initiation. Additional initiatives, such as open banking, PSD2 compliance, a marketplace of receivables and LGPD (the GDPR equivalent in Brazil), aim to fortify payment security, enhance protection against online fraud and safeguard consumer data privacy.

Pix – Powering real-time payments (RTP)

Real-time payments adoption in Brazil has surged, propelled by government initiatives. 

Launched in 2020, Pix, managed by the Central Bank of Brazil (BCB), provides instant settlements, zero transaction fees for peer-to-peer (P2P) transfers and 24/7 availability. With an open banking framework, nearly 800 financial and payment players use Pix’s network, serving 13 million businesses.

Expanding to B2C transactions, Person-to-Business (P2B) payments now constitute a third of Pix’s transactions

Pix has revolutionised businesses, reducing operational costs, streamlining fund settlement and optimising cash flow. With a user-friendly interface and merchant-linked discounts, it boasts the country’s highest shopping cart conversion rate.

Experiencing astronomical growth, Pix is the most widely used payment method, even for in-store shopping. About 80 per cent of adults in Brazil use it, contributing to over three billion monthly transactions. 

Pix will soon offer the option to pay in instalments, aligning with the local preference – 80 per cent of e-Commerce payments in Brazil are made via instalments – and plans to introduce recurring payments.

Although Pix leads as Brazil’s primary RTP platform, TED (Transferência Eletrônica Disponível – Wire Transfer Available) also facilitates real-time bank transfers, standing out with no transaction cap. However, TED has limitations, including operation only during banking hours and associated charges. 

The rise of digital wallets

Digital wallets are gaining popularity in Brazil, with approximately one-third of the population using them. A 2023 Thunes report reveals that at least 20 per cent of Brazilians use digital wallets daily, while 21 per cent use them several times a week. Many people also use more than one digital wallet regularly.

Leading the e-wallet landscape is PicPay, boasting approximately 62 million users and is licensed as a bank. Other popular wallets include PagSeguro, Mercado Pago, and PayPal, collectively used by eight out of 10 Brazilians between 2022 and 2023.

These mobile wallets in Brazil provide diverse financial services, extending beyond payments. PicPay, for instance, offers insurance products for travel and health, investment tools, business management features and the option to buy cryptocurrencies. 

Notably, mobile wallets are increasingly used for in-store payments, with a PYMNTS report indicating a more than 15 per cent quarter-on-quarter increase in 2022. 

Banks powering financial innovation

Brazilian banks are harnessing digital tools to enhance service effectiveness. In 2020, state-run bank Caixa Econômica Federal introduced Caixa Tem, a mobile app enabling users to open a free digital bank account and virtual debit card, providing access to various financial services. Caixa Tem played a pivotal role in efficiently distributing COVID relief vouchers to low-income Brazilians.

Caxia Tem is part of a growing wave of digital banks and neobanks like Banco Original and Nubank, offering personalised insights and loans.

The growth of digital banking has significantly increased bank account ownership, with 88 per cent of Brazilians having a digital account in 2021. PagBank, the digital bank of PagSeuro, recorded a deposit volume of US$4 billion in 2023.

Only three per cent of adult Brazilians (4.6 million people) do not have bank accounts today, a considerable decrease from 2021 when there were 16.3 million unbanked residents

There are currently over 22 digital banks in Brazil. The top five neobanks in the country are Nubank, PicPay, C6 Bank, Banco Inter and Mercado Pago. Due to their nimble structure, these companies have risen quickly in value and can hold their own against established players. Today, Nubank is the fourth most valuable publicly traded bank in Brazil. 

However, traditional banks like Banco do Brasil, Banco BTG Pactual, Itaú Unibanco Holding, and Banco Bradesco still dominate, projected to reach a market volume of US$150 billion this year. 

Facing the digital challenge, traditional banks are adapting their business models, with Banco do Brasil partnering with HCL Technologies to deliver hyper-personalised customer solutions using AI and intelligent tools.

Decline in cash usage

The rise of digital financial services has led to a decline in physical cash transactions. In-person cash dominance, prevalent until 2017, plummeted to one-third of retail payments by 2021. Between 2018 and 2023, cash payments decreased by 26 per cent.

While cash is waning, it remains integral in Brazil’s financial ecosystem. Boleto, a popular cash payment method introduced in 1993 and regulated by the Central Bank of Brazil, utilises barcoded printed or virtual vouchers. Widely accepted at over 40,000 locations, including convenience stores and post offices, Boleto accounted for a quarter of online payment transactions and was preferred by 15 per cent of Brazilians for mobile payments in 2021.

Advances in remittance and cross-border trade 

Brazil’s cross-border payout and remittance industries contribute significantly to its economy. In 2023, international inbound remittances totaled nearly US$5 billion, while outbound remittances reached US$2.23 billion.

An increasing number of Brazilians are turning to digital remittance platforms for speed, security and often lower costs. In 2020, Brazil received US$3.3 billion in inflow remittances, primarily from the United States and the United Kingdom. Digital remittances in Brazil are expected to reach a volume of US$870 million this year.

The cost of remittances to Brazil has become cheaper, decreasing by half in 2020. However, the cost of remittances from Brazil has risen, increasing 40 per cent increase from 2020 to 2021. Despite fintech platforms enhancing efficiency, various factors, including foreign exchange rates and regulations, have caused these costs to rise.

Another rising trend is for Brazilians to take out a dollar or euro debit card when travelling abroad. This service provided by fintechs like Nomad, Inter Bank and C6 Bank, enables Brazilians to pay less tax (IOF) and are very popular.

Cross-border e-Commerce transactions in Brazil constituted only four per cent of all e-Commerce transactions in 2022. China dominated these transactions, representing roughly half, with the United States and Japan in second and third place, respectively. 

Brazil has a thriving content creator ecosystem, with over eight million streamers and influencers. As the world’s fifth-largest social media market, Brazilians are avid consumers and the second-largest user group for streaming giant Twitch, reaching 16.9 million people. 

Content creators

The vast freelancer and content creator market positions Brazil as a crucial destination for mass payouts and microtransactions. Over 12 million Brazilians are mass disbursement recipients, receiving over US$18 billion, with 60 per cent being cross-border payouts, constituting 29 per cent of the total payment volume.

B2B and cross-border payment services

Cross-border B2B payments still pose significant challenges in Brazil, including high fees, regulatory hurdles, compliance risks and transaction delays. These issues can impact business operations and profitability.

But this landscape is changing. Businesses in Brazil recognise the imperative to digitise their payment systems for enhanced efficiency in overseas expansion to new markets. Thirty-eight per cent of Brazilian firms have embraced digitalisation, with 60 per cent prioritising it as a top or key initiative.

Unleashing Brazil’s digital power

From the accelerated adoption of real-time payments to the growth of digital wallets and the emergence of new fintechs, Brazil is charting a course towards a digitally empowered future. 

Thunes is an essential player in Brazil, connecting to the country’s most important payment digital wallets and bank accounts. Thunes provides global access to Pix, Banco Rendimento, Mercado Pago and PicPay. Notably, our collaboration with Bexs and Daycoval in 2022 has empowered real-time payments.

As Brazil embraces its digital renaissance, the prospects for consumers, businesses and global connectivity remain exceptionally promising.

To discover more about how you can leverage payments in Brazil, schedule a call with us.

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