Cross-border payments between consumers and suppliers located in different geographical areas were once a challenge for both suppliers and consumers. This scenario in the Brazilian market has dramatically changed in recent years and is still evolving. 

An analysis of fintech mapped by the Fintech District in the Fintech Report 2020 shows that Brazil had more than 743 fintech companies, of which 122 (15%) were in payments and only 15 (2%) in foreign exchange markets. 

The great boom in the surge of fintech companies in Brazil occurred between 2015 and 2017. In those years, we also saw a consolidation of the few companies processing cross border payments

Why did cross-border companies begin to consolidate mainly between 2015 and 2017? 

Until then, theregulation of cross-border payments was not exceptionally well defined for this business model. At that time, it was not uncommon for the few companies operating in this segment, to be supported by legal opinions or to be forced to wait for the banks to accommodate and homogenise the model they were willing to promote. 

In 2013, Bacen (Central Bank of Brazil) established the concept of payment facilitator in the regulation of payments. And in 2017, it implemented the model of international payment facilitator in the foreign exchange regulation.   

With changes in regulations, payments and foreign exchange, the companies operating in the sector could now start working in a regulated environment, which brought the possibility of expanding and consolidating their business. 

Where do we stand?  

The past few years have undoubtedly brought many advances for the cross-border payments industry and I believe we are in one of the best moments so far. 

The Central Bank of Brazil is still highly vigilant and active in the payments and foreign exchange sectors

With several working groups, it invited associations, legal bodies, foreign exchange banks and big players to understand how this market was evolving

It made significant changes in the regulation of payment institutions, allowing companies to act as payment providers, processors, and payment initiators to act in a more transparent, smooth, andprofessionalized manner.  

The responsibilities and duties introduced by the regulation allow the segment's players to grow according to their capacities and to what is determined by law.  This sets out the rights and duties, limits on volume and number of transactions on these institutions. Thus, they can operate without generating systemic risk and become licensed once the volume or quantity processed reaches certain thresholds. 

PIX 

While a transparent regulation also helps the development and competitiveness of a sector, the launch of new, ultra-modern and fast payment methods has the consumer as the principal beneficiary. 

The launch of the PIX, a payment method developed by the Central Bank of Brazil, with its own clearinghouse, the Directory of Transactional Account Identifiers (DICT), in November 2020 is a revolution in payment methods in Brazil. It can be compared to moments like the creation of credit cards and the breaking of the duopoly of payment acquirers in Brazil. 

Instant payments occurring every day of the week, at any time of day, including weekends and bank holidays, is really an instant payment method, which takes up to 10 seconds to process.  

The adherence by the public was significantly high. According to Radar Febraban, a survey conducted in partnership with IPESPE (Institute of Social, Political and Economic Research), released on 30/03/21, estimated that after only three months of operation of the PIX, almost 2/3 of the people had adopted the new payment method. 

Once again, clear rules for the use and provision of the method have allowed for new and exclusive services to be offered. Cross-border payments operators (many of whom are still adapting), can now provide the instant method to people who are used to paying by bank slip, or to international companies that need to instantly pay their Brazilian beneficiaries. 

What is next? 

While we may seemingly think we have reached the end of a regulatory process, much is yet to come.  The evolution in the payments and foreign exchange segments is nowhere near an end.  

BACEN has plans to globalise the PIX. With no information yet on which countries would be the first partners, we can think that countries like Chile or England, which have instant payment methods (even if with reduced capacities and less adherence from the population than the PIX) could participate in some pilot test. 

But this, undoubtedly, is not the crucial thing that cross-border payment companies are waiting for. The big expectation is for the new regulatory framework for foreign exchange, especially in implementing the EF-x. 

In short, the EF-x are the international payment facilitators which may act in an autonomous position in foreign exchange. It establishes the rights and obligations of regulated and non-regulated payment institutions in foreign exchange operations within pre-established limits and in using payment accounts (currently, the regulations deal only with deposit accounts, the traditional bank accounts). 

It allows these companies to combine payment processing and foreign exchange operations, both in the commercial segment of cross-border products and services. Moreover, these companies can also operate in one of the most traditional foreign exchange markets, the remittance market (maintenance of family members and transfers between the same holders). 

In a recent event, organised by ABFintechs - a renowned Brazilian association of fintech companies), Fintouch 2021, sponsored panels dealing with the change in this regulation and counted with the participation of players and experts in the segment, such as Wise (Pedro Barreiro), Bacen (Lucio Holanda) and Pinheiro Neto advogados (Bruno Balduccini). 

It is a common opinion that the changes in regulation and the creation of EF-x will bring innovations and new business models and payment services, leading to an increase in competition and favouring the final consumer. They will have more options, leading to greater customisation, cost reduction, improved services, and faster communication between parties. 

Conclusion 

This segment is booming, but who wins? Everyone who is involved in this ecosystem. The end consumer, the national IPs, the EF-x, the exchange banks, and ancillary services such as Money laundering prevention (PLD) and KYC. 

In the coming years, we will observe an increase in competition and the creation of new business models and service delivery

Not only will those who take advantage of changes in regulation have a competitive advantage, but also those who understand that we are moving towards an increasingly niche market. The specialisation will be necessary to ensure that your target audience perceives the appropriate value in consuming a particular model and service rather than another. 

Segmentation and specialisation promote greater collaboration between the various market players, making room for all those offering quality and excellent services and products, and creating an ecosystem of win-win relationships. 

Article written by our co-founder, Fernanda Zago, for the Brazilian Chamber of Commerce in Great Britain. Read the full publication here.

Fernanda Zago - CEO WePayOut 

With 10 years of experience as an executive in the cross-border payments sector, Fernanda Zago strives to develop strategic partnerships and win-win relationships for business growth. She also coordinates the expansion of the brand in the domestic and international markets. 

If you need to increase conversion in payments to suppliers and partners, visit the WePayOut website now and contact us