By adaptive - May 31st, 2016
Mobile payments are thriving in a country where street-smart Brazilians prefer not to have a lot of cash in their pockets.
And with growing penetration of credit and debit cards even among the smallest of merchants, as well as a myriad of electronic payment options, they can go days without using bills and coins. And as Camila Fontana reports São Paulo, Brazilians may soon forgo plastic as well.
Nearly 80 percent of the adult population has some kind of payment card, and cards are used to pay for 30 percent of all household expenditures, according to the Brazilian Association of Credit Card Companies (ABECS). And while Latin America’s biggest economy struggles with its deepest recession ever, spending on cards increased 9 percent last year to 1 trillion reais (some US$ 280 billion). Now, a small, but growing share of these expenses are made using contactless technologies, such as smartphones, SMS options and credit and debit card apps, leveraging on the nation’s state-of-the-art financial expertise.
“Brazil has a particular inclination to adopt new technologies as companies and consumers tend to welcome pilot projects, such as NFC (Near Field Communication) payments and transactions through smartphone apps,” said Ricardo Orihuela, Commercial Director in São Paulo of M2M solutions provider Wyless TM Data. “Credit card apps, for instance, have wide acceptance.”
The first contactless payment solutions for individuals debuted in the country in 2013. Now, almost two million point-of-sale (POS) terminals in Brazil are ready to handle contactless payments, according to state-owned Banco do Brasil, the biggest creditor in the country.
The bank is also the largest shareholder in Cielo, the leading card-payment acquirer. With more than 60 million clients, Banco do Brasil last year became the first bank in the world to launch a smartphone application for multiple card brands that enables contactless payments using NFC technology. The all-in-one app, named Ourocard-e, “integrates traditional plastic cards with fully-digital cards… and a broad array of solutions for managing the cards,” stated Banco do Brasil Retail Business Vice-President Raul Moreira.
All major mobile carriers in the country have entered partnerships with financial firms to offer mobile payment solutions, with Banco do Brasil joining forces with carrier Oi; Banco Bradesco partnering with America Movil’s Claro; and Vivo, the leading local carrier, making a deal with Mastercard.
While all big issuers have partnerships with cell phone operators, it will take a few years for contactless transactions to become mainstream in Brazil. “Everyone is testing business cases for this product and still trying to come up with a solution that pays off,” said ABECS Executive-Director Ricardo Vieira, adding that mobile discount rates (MDR) and rental fees are set to decline because of the competition.
And competition will soon come from tech giants. In late April, Samsung announced its Samsung Pay service will arrive in Brazil in 2016, getting officially ahead of Android Pay (originally known as Google Wallet) and Apple Pay. Google, responsible for Android Pay, has no timeline for the arrival of the service in Brazil. There are unconfirmed news reports that MasterCard is looking to support Apple Pay in the country before year-end, although people who have set up Apple Pay accounts overseas are often able to use the service in Brazil.
International newcomers will face an uphill battle against the many challenges that locals are used to. Notwithstanding significant growth in financial inclusion in recent years, 32 percent of Brazilians older than 15 are still unbanked, according to the World Bank’s Global Findex 2014 report.
Another matter is the quality of smartphones used by the vast majority of the population. Although there are 1.3 active mobile phone lines per person and smartphone/web-phone penetration is very high (75% of the Vivo subscriber base, for instance), the large majority of devices sold are low-end, with little storage capacity and no NFC capabilities, as monthly income per capita last year was just 1,113 reais ($323). Other headwinds are Brazil’s huge size (the country is larger than the continental United States) and poor or unstable internet service in many areas.
“In large urban centers, the machine network is adapted for contactless payments, but the size of the country means challenging conditions” in terms of offering high-end payment services, said ABECS’s Vieira. That means acquirers deal with expensive logistic difficulties to distribute and manage terminals all over the nation, and complaints from merchants who lose sales because communication service is down.
Simpler mobile solutions replace POS terminals
Still, accepting cash only is no longer an option for even the smallest vendors. Consumers are weary of carrying too much cash and getting robbed, while merchants prefer not having a cash register full of bills and becoming targets of crime. Withdrawing cash has also become trickier. Owners of gas stations and supermarkets often decide against installing ATMs on the premises because these are regularly exploded with dynamite, particularly in smaller cities, where police forces are less prepared and take longer to reach the scene.
On the other hand, regular POS machines are often unaffordable to many small businesses. This has led to the availability of many options of card readers that work in combination with Bluetooth-equipped smartphones and high-speed internet connections (3G/4G or Wi-Fi service) for a fraction of the cost.
A simpler and cheaper card reader seemed a good idea to Bruno Nascimento Ferreira, who along with his extended family, sells caipirinhas, fried shrimp and other refreshments from a stall on a beach in Bertioga, 120 km (75 miles) away from São Paulo. They were paying 180 reais per month for renting a wireless POS machine, plus MDR fees on every transaction, but 20-year old Ferreira researched available options and convinced the family to switch to the Ingenico machine. It charges just 29 reais in monthly rent, but has no internet connection, relying on the user’s smartphone via Bluetooth and the Mobile Rede app, which is backed by Banco Itaú.
“It pays off in terms of cost and there is no need to have a corporate bank account,” said Nascimento, mentioning another point of concern for small entrepreneurs, who often need payment options that transfer the money to a personal bank account. “Other people who sell stuff on this beach, such as magazines and cosmetics, are using the same system,” he added.
Now, there are dozens of card readers being offered to small businesses in Brazil for as low as 10 reais per month. Competition is fierce, but revenues earned regularly from subscriptions are enticing. “Connectivity is a great deal. Services that provide monthly fees are gold,” said Wyless TM Data’s Orihuela.