When you think about electronic payments, whether they are between people or businesses, most likely the options that come to mind are TED or DOC transactions and use of credit or debit cards. But such payment systems are evolving at a rapid pace toward a more interoperable, online, user-oriented world.
New technologies and business models, in a few years, will dramatically change the way daily transfers and purchases are made. One of the new alternatives that has been gaining prominence is the instant payment, which should come into force in November this year under Central Bank (BC) regulation, which will open the testing platform in February.
These are transfers of resources made digitally and electronically. Simply put, value transfers are made in real time. This means that the payee will have the amount transferred in their account after a few seconds.
Such a change in the means of payment is a consequence of today's payment systems with their high billing rates, slow processing of transactions incompatible with the reality of the banking industry. Reality driven by consumers increasingly concerned about the speed, convenience and affordability of services.
What is the difference of an instant payment?
In addition to being authorized and settled in real time, transfers are available to users 24 hours a day, 7 days a week, unlike DOC and TED, which can only be done during business hours. You will only need a mobile app and a QR Code to do them. Another feature of instant payments is that the transfer can be made regardless of source and distinct destinations.
One of the most striking points is the time of each transaction. Today you need to wait 5 to 30 minutes, while instant payments will reduce this time to up to 10 seconds.
How can a real-time payment help me?
The purpose of the project is precisely to alleviate some of the main problems of traditional payments. The Central Bank has identified the top three issues that can be addressed thanks to new instant payment technologies:
1. High use of cash: Paper money remains the most widely used payment method in Brazil. According to a survey by the Central Bank, 96.1% of Brazilians say they use cash to make payments, despite using other means. 60% say they prefer paper money for their transactions. However, its use is gradually decreasing.
This is because its use generates unnecessary costs with the creation, logistics and destruction of cash. Other problems arising from physical money are facilitation of money laundering and tax evasion.
Another relevant issue is a debarred portion of the Brazilian population. A survey conducted by the Locomotiva Institute reveals that Brazil has approximately 45 million debarkers, ie people who have not moved their bank accounts for more than six months or have opted not to have a bank account.
Although this portion is unlinked from any financial institution it deserves attention, as it moves more than $ 800 billion annually. This makes the debarred audience of digital banks and fintechs.
2. High cost and difficulty of interbank wire transfers: The main ways to transfer money are known as TED (Available Electronic Transfer) and DOC (Credit Order Document), but they have some disadvantages.
In the case of TED there is a time limit (up to 17h) to transfer and only on business days. There is no cancellation in case of error after sending, in this case to receive a refund the person will depend on the authorization of who received the money incorrectly. And one of the things that bother you most is its expensive fare.
DOC, on the other hand, takes time to clear and only credits next business day. But its biggest drawback may be that it requires some data (name, social security number, bank, branch, and account) for bank transfers. This increases the chances of misidentification, meaning it is not the best of payment User Experiences.
3. High Card Transaction Fees: Performing a debit or credit card transaction entails problems beyond data transfer and confirmation, but also at high rates for each transaction performed, which results in higher operating costs for stores and service providers, and even higher consumer prices. .
It is worth mentioning that real time payments are not just a solution to these three problems, but offer benefits to different players involved:
- Faster and safer
- Lowest cost
- Practicality (using mobile contact list or QR Code to initiate payment)
- Possibility of integration with other smartphone services
- immediate availability of resources transferred
- ease and speed of checkout (no POS required)
- payment reconciliation facility
For the ecosystem:
- Greater competition between payment methods
- Encouraging entry of fintechs and big techs
- Greater potential for financial inclusion
- Digitization of means of payment
Technology development was responsible for breaking down various physical barriers, making different actions faster and more immediate. The financial industry has been trying to keep up with this evolution to the same extent, but it needs solutions as it suffers from its time-consuming, bureaucratic and costly maintenance transactions.
Thus, the implementation of real-time payments emerges as a way to change this reality, making the system more agile, optimized and secure. In addition, the instant payment ecosystem has the potential to increase financial inclusion, decrease the circulation of cash, increase the competitiveness of the means of payment and improve the customer experience.
If it is so advantageous why this delay for implementation in Brazil?
Although it is a necessary and advantageous change for Brazilians, it involves a whole payment infrastructure that needs to be organized and centralized, in this case in Brazil by the Central Bank. The solution will need to go through regularization and oversight and all players involved must speak the same language so that the new financial system is actually aligned.
The official arrival in Brazil will still take months, but this does not mean that companies cannot start the process of implementing the instant payment system. Some have actually taken their first steps. Nubank, one of the largest fintechs in Latin America, announced in 2019 the beginning of a series of changes to adopt the instant payment system. So much so that the company is working with the Central Bank to create real-time payment regulation.
About the author
Text written by David Ruiz and originally published in the author's Medium. Ruiz is CTO of Paraná Banco and specializes in innovation combined with software development and entrepreneurship.