Moody's expects Brazilian banks to suffer a loss of 16 billion reais in the next 12 months, or about 10% of total fees, due to the impact of the Pix instant payment ecosystem on the generation of fee income.
In general, the Pix payment system has "wide-ranging" effects on potential competitors including banks, payment acquirers and fintech companies, offering both threats and opportunities in the payments sphere, Moody's said in a Nov. 3 report.
For banks, one of the impacts will be reduced fee income, stemming from lost money transfers between retail customers, including individuals and small businesses, who will have fee exemptions under Pix. Meanwhile, banks with cards and card acquiring operations will drop interchange fee income from debit card payments and lower net merchant discount rates, or MDRs, Moody's said. Pix seeks to serve as a substitute for invoices through the use of QR codes or payments, another loss for fee-income-earning banks.
The cut in MDRs will also adversely affect payment acquirers through payment volumes transfer to the Pix system.
The rating agency expects heightened competition for fees to continue, given fewer barriers to entry as nonfinancial institutions will be able to enroll as "payment initiators," a new entity created by the central bank, in order to offer Pix. Product innovation could also accelerate under Pix through the form of direct debits as well as prepaid receivables between banks or acquirers and the receiving company.
However, Pix's goal of financial inclusion by requiring customers to register a bank account will possibly prompt increased usage of banks, according to Moody's. The rating agency also expects increased efficiency, given a decline in cash usage that will lead to lower security and transport costs.
"The gain in flexibility for citizens, companies and governments will foster financial services providers to compete more effectively by delivering products, services and experiences that are more convenient for their customers," Moody's noted.
Moody's, however, believes that banks will be challenged to adapt retention strategies, especially if they have used cards for customer loyalty. "Once Pix is up and running, it will become harder to retain customers because payments and transfers will become a commoditized service operated by a public entity – namely the central bank of Brazil," Moody's added.
Given this scenario, the rating agency expects banks with leading digital applications and product offerings to be best positioned to offset the loss of fee income and increase cross-selling opportunities.
The central bank has approved 762 institutions to join the Pix system, which started Nov. 3 but will fully launch Nov. 16. Pix will cater to peer-to-peer, business-to-business and government services through a smartphone application.
As of Nov. 2, US$1 was equivalent to 5.74 Brazilian reais.