retail payment systems in brazil

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Retail Payment Systems in Brazil

José Antonio Marciano

Payments Week, June 2005

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SPB Reform - Background

1st stage: Improvement of financial settlement infrastructure

Focus: Safety (systemic risk reduction)

– Legal and regulatory framework

– Technological infrastructure

– Central counterparties

– Real-Time Gross Settlement (reserve and settlement accounts)

2nd Stage: Payment instruments

Focus: Efficiency and modernization (increase the relative importance of electronic payment instruments)

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• International experience and academic studies on a selected group of countries show that:– The cost of an electronic payment is between 1/3

and 1/2 of the cost of a paper-based payment (cash and checks)

– A complete migration to electronic payment instruments would produce an annual cost reduction up to 3% of GDP

• Being electronic payment cheaper, why do market forces not promote a massive migration to electronic payments?

Potential efficiency gains

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• Price mechanism does not work in the allocation of resources, because every bank-customer relationship is priced as a whole (information asymmetry)

• There are market failures on the electronic payment instruments supply that limit development and innovation (infrastructure as a barrier to entering)

Answers

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Retail Payment System

• Retail payment systems features– Large number of transactions– Low value transactions– Goods and services acquisition– Variety of payment instruments

• Payment Instruments– Cash, checks, credit transfers, direct debit, credit and debit cards

• Distribution channels– Automated Teller Machines (ATM) networks, Electronic Funds

Transfers at the Point of Sale (EFTPOS) networks and internet

• Clearing and settlement infrastructure

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How to enhance welfare?

Infrastructure arrangements

Bank Other Banks

Payment Services Market (account transactions and individual instruments)

Interchange fees

Cooperativ

e

Sector

Competitiv

e

Sector

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Diagnosis-Report: Importance and Structure

• Importance:– To serve as a starting point for definition of

policies and guidelines on the subject – Periodical disclosure of information and statistics

about the Brazilian Retail Payment System• Structure:

– Payment Instruments and distribution channels– Clearing and settlement infrastructure– Quantitative analysis– Fundamental issues on Retail Payment Systems

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Diagnosis-Report: Objectives

• To obtain a quantitative and qualitative analysis of the current stage of development

• To analyze the international experience

• To identify obstacles to modernization

• To define necessary actions to further modernization

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Diagnosis-Report: Methodology

• Adaptation of international studies that made it possible to obtain a detailed analysis of the Brazilian case and a comparison with the international experience

• Interviews and questionnaires to banks, payment service providers, real sector economy representatives and bank associations

• Analysis of the international bibliography about the subject: publications from international financial organizations, centralbanks and research institutions

• Technical visits to central banks and to retail payment clearingand settlement systems providers in the countries considered to be at the technological “frontier” and with similar information disclosed

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Clearing and Settlement Infrastructure

CobrançaCobrança

DOCDOC

Sistema de Transferência de Reservas – STRSistema de Transferência de Reservas – STR

CIP – SitrafMultilateral

CIP – SitrafMultilateral TECBAN

Multilateral

TECBANMultilateral VISANET

Multilateral

VISANETMultilateral REDECARD

Multilateral

REDECARDMultilateralCOMPE

Multilateral

COMPEMultilateral

Clearin

g

Paymen

t

Instru

ments

TEDTED

CIP – SilocMultilateral


D + 0 D + 0

D + 0 / D + 1D + 0 / D + 1

D + 1D + 1

D + 1D + 1

D + 1D + 1

D + 1D + 1

Transferênciade crédito

Transferênciade créditoCheque

Cheque Cartões depagamento

Cartões depagamentoDébito direto

Débito direto

CobrançaElectronic

Bill DOCDOC

Sistema de Transferência de Reservas – STRSistema de Transferência de Reservas – STR

(Central Bank RTGS systems)

CIP – SitrafMultilateral

CIP – SitrafMultilateral TECBAN

Multilateral

TECBANMultilateral VISANET

Multilateral

VISANETMultilateral REDECARD

Multilateral

REDECARDMultilateralCOMPE

Multilateral

COMPEMultilateral

Settlem

ent

TEDTED



D + 0 D + 0

D + 0 / D + 1D + 0 / D + 1

D + 1D + 1

D + 1D + 1

D + 1D + 1

D + 1D + 1

Transferênciade crédito

Credit TransferChequeCheck Cartões de

pagamento

PaymentCardsDébito diretoDirect Debit

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Payment Instruments - Volume

Source:Central Bank of Brazil, Compe, banks, and acquires.

1999

Credit card13,4%

Debit card2,6%

Direct debit5,3%

Check63,4%

Interbank credit transfer15,2%

2004

Debit card15,3%

Direct debit11,0%

Check35,4%

Interbank credit transfer17,2%

Credit card21,0%

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Clearing and Settlement Infrastructure –Transactions - 2004

Source:Central Bank of Brazil, Compe, banks, and acquires.

ValueSTR

28,7%

CIP – Sitraf 31,9%

CIP – Siloc1,6%

Redecard0,9%

TecBan0,1%

Visanet1,3%

Compe35,4%

Volume

Compe55,8%

TecBan1,5%

Redecard15,7%

CIP – Siloc1,9%

CIP – Sitraf 0,5%

STR0,2%

Visanet24,5%

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Relative importance of cashless payment instruments

Source: Central Bank of Brazil, banks, credenciadores e administradores de cartões, BIS/CPSS, European Central Bank.

Country

1999 2003 % 1999 2003 % 1999 2003 % 1999 2003 %Belgium 5,8 1,4 -75,9 28,9 32,8 13,5 51,9 46,7 -10,0 10,2 11,2 9,8Brazil 62,5 39,4 -36,9 16,5 32,2 95,7 15,6 16,8 7,8 5,5 11,6 111,3Finland 0,1 ... ... 38,4 40,5 5,5 56,8 54,6 -3,9 4,6 ... ...France 40,1 29,7 -25,9 26,1 27,8 6,5 18,4 17,7 -3,8 15,5 17,8 14,8Germany 3,8 1,0 -73,7 11,0 16,9 53,6 47,2 42,6 -9,7 37,8 39,3 4,0Italy 25,2 15,6 -38,1 18,0 21,2 17,8 38,0 36,6 -3,7 18,8 22,3 18,6Japan 8,2 4,3 -47,6 51,9 58,2 12,1 39,9 35,2 -11,8 ... ... ...Netherlands 1,0 0,0 ... 27,7 29,3 5,8 41,2 40,4 -1,9 29,3 27,8 -5,1Portugal 34,1 ... ... 47,2 50,6 7,2 6,3 7,7 22,2 11,9 ... ...Spain 10,7 ... ... 24,3 22,9 -5,8 14,5 15,2 4,8 50,5 ... ...Sweden 0,3 0,0 ... 22,3 26,7 19,7 69,6 65,4 -6,0 7,4 9,9 33,8Switzerland 0,8 0,4 -50,0 26,0 28,4 9,2 68,4 62,9 -8,0 3,5 5,3 51,4United Kingdom 28,8 18,6 -35,4 34,3 36,6 6,7 18,1 17,8 -1,7 18,8 20,1 6,9USA 61,7 45,3 -26,6 31,4 35,2 12,1 4,5 4,8 6,7 2,4 4,1 70,8

Direct DebitDebit Card/Credit Card

Credit TransferCheck

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ATM – Number of terminals

Source: Central Bank of Brazil, banks and ATM networks

0

20

40

60

80

100

120

140

160

1999 2000 2001 2002 2003 2004

Thousands

Open access Restrict access Total

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ATM – Transactions in 2004

Credit Transfer1,6%

Bill Payment3,4%

Deposit11,5%

Balance/Bank statement

41,2%

Cash withdraw31,7%

Others10,6%

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ATM – Interoperability Average of transactions per terminal - 2004


44

-

10

20

30

40

50

60

70

80

n1 n2 n3 n4 n5 n6 n7 n8 n9 n10

n11

n12

n13

n14

n15

n16

n17

n18

n19

n20

n21

n22

n23

n24

n25

n26

n27

Networks

Thousands

Average per network Average of the system

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Source: Acquirers, Card Associations, BIS/CPSS, European Central Bank

ATM – Number of transactions - 2003

USA

Japan

Italy

SwitzerlandFrance

Belgium

Brazil

UKGermany

Netherlands

Sweden Portugal

Finland

Spain

0

10

20

30

40

50

0 300 600 900 1200 1500Number of terminals per million of inhabitants

Transactions per inhabitant

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Payment Cards: debit and credit

Source: Acquirers, Card Associations

0

20

40

60

80

100

120

140

160

1999 2000 2001 2002 2003 2004

Millions

Credit cards Debits cards

10

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POS - Number of terminals

Source: Acquirers, Card Associations

0

200

400

600

800

1.000

1.200

1.400

1999 2000 2001 2002 2003 2004

Thousands

Debit cards Credit cards

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Debit card transactions International Comparison - 2003


Spain

FranceSweden

Netherlands Finland

USAUK

Portugal *

Belgium

Switzerland

Italy

Germany

Brazil0

10

20

30

40

50

60

70

80

0 5.000 10.000 15.000 20.000 25.000Terminals per million of inhabitants

Transactions per capita

11

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Credit card transactions International Comparison - 2003

Germany

BrazilSweden

JapanPortugal

Finland Spain

UK

USA

0,0

10,0

20,0

30,0

40,0

50,0

60,0

70,0

0 10.000 20.000 30.000 40.000 50.000 60.000 70.000Terminals per million of inhabitants

Transactionsper capita

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Volume (millions) Value (R$ billions)Transactions 2001 2004 2001 – 2004

(%)2001 2004 2001 – 2004

(%)Total volume: 1.281 3.311 158,5 175 1.881 976

Payment 88 585 566,6 175 1.836 4.511Credit transfer1/ 33 339 927,8 26 1.099 4.116Electronic bills and agreements2/ 55 246 349,0 149 737 395

Non-payment: 1.193 2.725 128,4 ... 45 –Balance and bank statement consultings 733 1.475 101,3 – – –Others 460 1.250 171,6 ... 45 –

Source: Banks.1/ TED, Doc and inter accounts transfers.2/ Taxes, fees, contributions, etc.

Remote Access

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Main Conclusions

• Barriers to the development of electronic payment instruments

– Infrastructure as a competitive factor (barrier to entry) in the payment services supply

– Settlement infrastructure fragmentation

– Low level of interoperability on ATM networks

– Low level of interoperability on POS networks

– Price system does not work in the allocation of resources (indirect pricing and cross-subsidies)

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• Establish guiding principles: policies, guidelines and objectives

• Foster cooperative and market solutions

• Coordinate expectations and investment decisions

• Act as a catalyst among the involved participants and other public authorities

• Regulation, when necessary

The Role of Central Bank

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Central Bank Actions

• Coordinate and act as a catalyst of changes

• Promote business governance cooperation on the ATM network and POS network

• Stimulate system investment costs optimization

• Foster cooperation at upstream network and competition at downstream market

José Antonio Marciano

[email protected]++55 11 414 1340

Payments Week, June 2005

retail payment systems in brazil

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