Brazil’s Pix raises hopes of digital payments system

Brazil has a new instant payment system, which is backed by the central bank. It is called Pix. Majority of Brazilians are using it to buy vegetables as well as do high-end shopping with it.

When people offer to pay, the immediate question the vendors ask is, “Do you have Pix?” To use it requires a simple registration process. It requires a bank account, email and a phone number. One registers for Pix through a tax identity number, akin to the social security number in the United States.

Usually, such instant payments systems are managed by a consortium of banks. But in Brazil, the central bank is the chief backer of the payment mode. It was launched in 2020, and it picked up momentum during the Covid period.

While it has digitized transactions, Brazil seems to have made the Big Brother in the neighbourhood, the United States, hostile. Meta was planning to launch a WhatsApp payment system around the same time in Brazil, but the Brazilian authorities delayed in granting permission until 2021.

The WhatsApp payment system could not match the popularity of Pix. The Office of the US Trade Representative had issued a statement in July saying that it was investigating whether Brazil had indulged in “unfair trade practices” by privileging its own digital payment system over that of the American big tech companies like Meta. It said that Brazil through Pix “may harm the competitiveness of American companies”.

Brazil hit back when a government-run social media ran a campaign with the slogan “Pix is ours, My Friend.” And an Instagram message of the government said, “Seems like our Pix is causing a lot of jealousy abroad, you know.”

American Nobel Prize winning economist and columnist Paul Krugman is all praise for Pix. He has quoted an International Monetary Fund (IMF) report which said that the transaction costs of Pix are lower and free for individuals.

For merchants and firms, the transaction cost is 0.33 per cent, while it is 1.13 per cent for credit cards and 2.34 per cent for credit cards. Individual users do not have to pay any transaction costs.

He also said that the Pix processing time is three seconds, while it takes two days for debit cards and 28 days for credit cards. While Krugman speculates on the possibility of creating a Central Bank Digital Currency (CBDC), and the obstacles in the way of US Federal Reserve to implement such a plan, Brazil is moving towards a digital currency of its own called Drex. This is seen as a way to complement Pix.

Nathalie Janson, professor of economics at NEOMA in France, says that there is no demand for a mode of digital payment like Pix in Europe as most Europeans have bank accounts. In Brazil, Pix is open to people without bank accounts. She says, “Pix was a voluntary project by the Brazilian authorities to expand banking access.”

It is interesting that the Indian digital payment system, UPI, has become popular too and widespread, but there is competition through the privately-managed PayTM. And the Indian digital payment system is becoming acceptable in some other countries like Singapore, Bhutan, Nepal, France, Mauritius, Sri Lanka, Oman, UK, Malaysia, Japan, Thailand and the United Arab Emirates (UAE).

So, the digital payments system is gaining acceptance in the Global South. Whether this will lead to a digital national currency remains to be seen. The United States is interested in pushing cryptocurrency. But the risk factor is greater in it. Only when a central bank backs a digital currency that it will gain trust and confidence of market players, and not just the speculators.