Brazil’s Pix is Coming for the Card Industry

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    The real-time payment system Pix is competing with the card networks. How should they react?

    Brazil's Pix Impacts the Card Industry
    Lindsay Lehr photo

    Lindsay Lehr

    Managing Director

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    Cesar Boralli

    Associate Managing Director

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    Nearly two years ago, when speaking at an event about the transformation potential of Pix and the open finance framework, Brazil’s Central Chairman Roberto Campos Neto said1 that “credit cards will cease to exist at some point soon.” In personal conversations with acquirers and bankers in the Asia Pacific region this year, we heard comments like, “soon there will be no more international card schemes,” and “cards be a tool only for travel, no longer used for domestic purchases.” These comments are startling, considering the entrenched nature of card networks, acquirers and issuers. And yet this reality appears to be coming closer and closer, particularly in Brazil, with every historic milestone achieved by Pix.

    Brazil’s card industry seems to have already come to terms with the loss of market share to Pix. For 2024, Abecs sees2 the debit card “moving sideways,” growing only between 0.4% and 0.7% compared to the previous year. This trend is consistent globally: Visa earnings reports reveal that its debit volume has been in monthly decline since February 2024.3

    The numbers around Brazil’s RTP are indeed superlative. Central Bank data shows that over 40% of all payments in the country are currently made through Pix. The system is used by more than 90 percent of the adult population, has over 15 million businesses and moves 20% of the country’s total transactional volume.

    Cards, direct debit transactions vs. Pix (in BRL billion)

    As it gains new features, Pix will continue to cut into banks’ interchange revenues and compete with the card industry, not only in terms of ‘stealing’ transactions from these legacy players but by allowing a new stack of solutions to be built on top of its scheme. What the Brazilian Central Bank created is a new payment rail that allows for fewer intermediaries and, therefore, for cheaper solutions.

    For example, the system is set to launch in the second half of this year a new feature called “Automatic Pix,” which will enable the system’s auto-debit function, allowing users to authorize the payment of utility bills and recurring services with direct debits from their bank accounts. This feature’s potential to replace other forms of debit is enormous, not to mention credit cards: the number of direct debit transactions (automatic debit authorization that people in Brazil often use to pay utility bills, taxes, etc.) grew from 4.2 billion in 2012 to 10.5 billion in 2023.4

    What should the card industry do about Pix?

    Automatic Pix will handle a series of bill payments and transactions that card networks seem to be ignoring. Pix is growing much faster than credit and debit card volumes and what the card schemes are banking on—that fraud and customer protection concerns will slow Pix growth—has yet to transpire. This begs the very serious question, what should the card industry do?

    The main thing Visa and Mastercard are doing already is attempting to compete directly with RTPs, especially in the cross-border space, where they have a competitive advantage. They are both heavily investing in money movement solutions, including Visa Direct and Mastercard Move, aiming to capture non-cardable flows.

    The question PCMI poses is: should this be their primary strategy? Can money movement solutions depending on intermediaries really compete with centralized RTP schemes, especially in a market like Brazil, where Pix is already a universal reality?

    In PCMI’s view, to compete with real-time, mobile-forward payment schemes in Brazil and beyond, companies like Visa and Mastercard (and any legacy player under threat) have three paths to follow:

    1. Do nothing and keep things as they are. There is an argument to be made for this. Despite the worldwide growth of RTP schemes, they are only achieving mega-scale in India and Brazil, while at the same time, card volumes continue to grow. Both leading schemes had impressive financial results in the beginning of Q1 2024. If a rising tide lifts all ships, the growth of digital payments will expand card volumes even as competing solutions also blossom.

    2. Improving existing products while applying them in new ways. This refers to playing the infrastructure game: while maintaining their traditional businesses and revenue streams, they can venture into helping issuers and governments scale real-time payment schemes. It also means embedding new technology to improve the card payment UX and embed card payments in increasingly niche commerce opportunities.

    3. Reinvent themselves, opening new companies focused on other financial businesses, which could include becoming data & digital identity service providers, creating their own wallets, or evolving into financial institutions. This implies breaking the famed B2B2C model, serving end users directly, and going head-to-head with banks and BigTech (but this is a topic for a future article).

    A lot of #2 is already taking place at the global level. In the Visa Payments Forum that took place in San Francisco on May 14-16th, the company announced the rollout of several new products, including:

    • Visa Flexible Credential, a single card product that will allow users to toggle between different payment methods.

    • Tap to Everything, enabling more functionalities when using Tap to Phone, like ID authentication, adding a card to a wallet, and P2P transactions.

    • Visa Payment Passkey Service, a new security product that “confirms a consumer’s identity and authorizes online payments with a quick scan of their biometrics like a face or fingerprint.”

    • Pay by Bank, via Tink, an open banking enabling acquired by Visa in This is Visa’s open banking solution in 2021, set to expand from Europe into the US market.

    • Visa Protect for A2A Payments, AI-based fraud solution for RTP schemes.

    These products leverage the best of Visa and aim to tackle frictions taking place in digital payments related to identify, fraud and user experience. They are ambitious and compelling, offering the promise of an improved digital payment experience. A potential kink in this plan, however, is that these products stay loyal to the decades-old 4-party model, channeling innovations through issuers and acquirers. Will such an approach be sufficient in a market like Brazil, where no-intermediary Pix is growing unfettered, with new disruptive features on the horizon?

    PCMI’s guess? Probably not. Brazil’s open banking is already creating an environment where a consumer can access all its payment products and accounts via any one of his online banking accounts (removing the need for a flexible credential) and the eventual launch of contactless Pix would dilute a Tap to Everything solution.

    In PCMI’s view, the most urgent things the card industry needs to address immediately in Brazil are:

    Defensive moves. Things that should have been done long ago

    Defend their position in the affluent market. This is done by delivering excellent service. Experiences rife with transaction declines, waiting on hold, and irrelevant offers do not feel ‘affluent’ to the consumer. The card industry needs to be legitimate in honoring top-tier customers to keep them loyal.

    Simplify and modernize rewards. Beyond the 5% cash back or airline rewards, cardholders are ignorant of their credit card rewards, for three reasons: 1) they are not transparent (no single portal to visualize everything); 2) they are impossible to access (endless bureaucracy); and 3) too many irrelevant offers. Consumers today are begging for simplicity and personalization. Instead of providing a list of 100 ways my credit card can save me money at 500 different merchants, can it provide me with one optimized path to get what I want? Can it tell me which card to use when for maximum value? Can it combine all my loyalty programs into one elite, AI-driven value maximization tool? An option like this would get our business.

    Make cards (or the digital equivalent) cool again. We talk about the “card” business because it originated in plastics. But plastic is not cool, and it is not appealing to youth. The industry needs to rebrand, not thinking about new “value propositions” aka card products, but rather mobile experiences based on the highly valuable Mastercard and Visa brands. While focusing on being aspirational, card brands have lost their sex-appeal to mobile-based options. Pix doesn’t refer to a physical—or any—credential, after all. It signifies a system of money movement, of getting people closer to the goods and services they want.

    Proactive moves. Forward- thinking innovation to advance the payments industry

    Innovate within embedded finance and IoT. Make card payments transparent and effortless in increasingly niche and embedded contexts where the RTP UX can’t compete: on airplanes, at self-service kiosks, inside cars (especially technology-laden electric vehicles), within social media environments.

    Create an aspirational product for GenZ. GenZ loves credit and a rich interactive user experience, and they don’t like banks or cards. With their whole life online, they also need access to security that doesn’t feel stuffy and boring. Could this be an entry point into a B2C product?

    Bet on SaaS and the platform economy. By monetizing payments, SaaS companies exponentially increase their revenue potential. The card industry should focus on the vertically-focused platform economy to drive new growth, with an eye to companies like Ambar (construction), ContaAzul (accounting), HiPlatform (CRM), Hotmart (digital goods), Neoway (business insights).

    BNPL on debit. Leveraging Pix for installments is still not a reality. Enabling credit might be the only way to support the longevity of debit cards.

    Things to deprioritize. Don’t bother

    • Enabling debit for e-commerce. This ship has already sailed;

    • New flow products for domestic use cases. It is too difficult to compete with Pix;

    • Offering services to the Central Bank. The Central Bank has a clear and very nationalistic agenda that does not involve the services of international legacy companies, no matter how much value they may offer.

    This is a pivotal and unprecedented time for the card industry, with new competition and the threat of slowing growth. Globally, Visa and Mastercard continue to have impressive quarterly earnings reports—in March 2024 Visa reported YoY 10% increases in revenue and net income and on May 1st 2024,5 Mastercard announced 10% YoY growth in revenue and 16% growth in adjusted net revenue.6 But in markets like Brazil, where RTPs have found a welcome home, the prospects are not as rosy. We at PCMI applaud the networks for their striving thus far and encourage them to be bold in their next moves in Brazil. This is to preserve the legacy they have already built and prevent the full commoditization of payments over time.

    Next Steps

    These are just some of the tactics networks and the card industry can adopt to face competition from fast-growing RTP schemes like Brazil’s Pix. We identified many others. If you are interested in finding out more, contact us!


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    Sources

    1. Reuters, 2022. “Brazils-central-bank-chief-says-credit-card-will-cease-exist-soon.” ↩︎
    2. Valor Económico. (May 21, 2024) “Abecs projeta crescimento entre 8,5% e 10,5% para a indústria de cartões em 2024↩︎
    3. Payments Dive, 2024. “Visa debit card volume growth keeps sliding.” ↩︎
    4. Central Bank of Brazil ↩︎
    5. Visa Inc. Second Quarter 2024 Financial Results Presentation ↩︎
    6. Mastercard Incorporated First Quarter 2024 Financial Results Conference Call ↩︎

    Lindsay Lehr
    Lindsay Lehr
    lindsay@paymentscmi.com

    Lindsay Lehr is the Co-Founder and Managing Director of PCMI. With 15 years’ experience, Lindsay is specialized in the region of Latin America, executing over 400 consulting engagements for Fortune 500 clients in the region.