How Brazil’s New Digital Payments System Managed to Enrage (and Terrify) Both Wall Street and Silicon Valley

A mobile payments system that is publicly controlled, easy to use and without fees (for individuals and small businesses) is “tough to beat.” 

Over the past decade Brazil, like China, has morphed from a heavily cash-dependent economy into one of the world’s most cashless countries. It has managed to do this while significantly reducing its dependence not only on Visa and Mastercard’s global payment card duopoly but also the mobile payment apps of US tech giants. And that, as readers can imagine, has caused consternation on Wall Street and Silicon Valley, and by extension Washington DC.

At the root of the transformation is a three-letter word that has become ubiquitous throughout Brazil: Pix. Launched by the Central Bank of Brazil in November 2020, Pix is, in the central bank’s own words, “an instant payment scheme that enables its users — people, companies and governmental entities — to send or receive payment transfers in few seconds at any time, including non-business days.”

It is similar to US payment apps like Zelle, but instead of being controlled by a consortium of fee-gouging banks, it is controlled by the Brazilian central bank.

Where Are the Fees?

Two things set Pix apart from most other instant payment systems in use around the world: first, it is free of charge to individuals and small businesses while the processing fees for larger businesses are still much lower than those for debit or credit cards; and second, it must be adopted by all licensed financial institutions operating in the country.

Becoming a Pix user could not be easier. All you need is a Brazilian bank account and an email address or a phone number. You can then register a personal or company Pix key using a taxpayer ID number (Brazil’s version of a social security number). There are already 934 financial institutions participating in the system.

As mentioned, Pix was launched in late 2020, coinciding with the government’s pandemic-era emergency aid program that led tens of millions of people to open bank accounts to receive government benefits. They also quickly embraced the zero-contact Pix payment system.

The rate of uptake since then has been nothing short of blistering. A 2022 Bank of International Settlements report found that Pix had the fastest adoption curve among all real-time payment systems in the world. Three years later, the system boasts 175 million users of all income levels — equivalent to around 80% of the country’s population — and accounts for nearly half of the country’s financial transactions, reports the New York Times.

But not everyone is pleased by its success:

[T]he Office of the U.S. Trade Representative is investigating PIX, claiming that Brazil has given an unfair advantage to the digital payments system by requiring all banks to offer it.

U.S. trade authorities also say that, by protecting consumer data that PIX collects, the Brazilian government is hurting American companies that use such information to make business decisions and develop new products.

“U.S. companies see this data as critical,” said Ignacio Carballo, a senior consultant at Payments and Commerce Markets Intelligence, a research firm based in San Francisco. “This places a lot of power in the hands of Brazil’s government.”

PIX is also a monetary blueprint for the BRICS alliance of developing economies, which includes Brazil, Russia, India, China and South Africa, as it seeks to create an international payment platform aimed at reducing reliance on the U.S. dollar.

Trump’s Tariffs

As readers may recall, the Trump administration imposed a 50% super tariff on imports of many Brazilian goods on August 6, just weeks after the Office of the US Trade Representative launched its investigation into Pix.

The ostensible reason for the tariffs was to protect Trump’s far-right buddy Jair Bolsonaro from prosecution in Brazil for trying to organise a coup against Lula. As we noted at the time, Trump had also taken umbrage at Brazilian President Luiz Inácio Lula da Silva’s pronouncements in favour of dedollarisation at the recent BRICS summit.

Could the controversy surrounding Pix have also played a part, though?

While there is no definitive evidence, it is certainly possible, especially given the scale of the threat Brazil’s instant payments system poses to US financial and business interests. What if there was a contagion effect, as other countries in the region and beyond try to develop similar systems. Brazil, after all, is the largest economy in Latin America.

Facebook parent company Meta has already felt the impact of Pix’s success, reports France 24:

The company had planned to introduce WhatsApp payments in Brazil in 2020 but banking authorities delayed the rollout, arguing that it could undermine Brazil’s own payment systems. Meta eventually launched the WhatsApp payments system in May 2021 – six months after Pix entered the market – but it has failed to gain traction. Some in the industry blame the decision to delay, citing the Brazilian government’s vested interest in the Pix programme.

Lula himself released a bombastic statement rejecting any possibility of Pix being altered or privatised in order to benefit US financial interests.

“We defend Pix from any attempt at privatization. Pix is from Brazil. It’s public, it’s free and it’s going to stay that way.”

Pix is also attracting significant interest from other countries, notes a recent article in IPS Noticias (machine translated):

According to the Central Bank, there have already been more than 50 expressions of interest in learning about the system, through consultations and even visits to the bank.

For retail companies, the benefit is obvious: the payment is instant in contrast to payment by credit cards that delay payment for several weeks and charge a 5% commission.

For consumers, the ease of payment, through a smartphone, is the main attraction. It is no longer necessary to carry a credit card, which is vulnerable to theft and fraud [NC: surely the same applies to cell phones; in fact, more on that later]…

More than half of the purchases for delivery to customers’ homes are currently paid for by Pix…. In [a restaurant consulted by IPS] it still represents a minority of payments; credit cards still predominate, but the difference is shrinking.

Use is not totally free for companies,… because banks charge them for Pix operations, but it is much cheaper than other means of payment and can be reduced to zero if the bank account maintains a certain sum in monthly deposits.

Pix’s success has raised “debates on public digital goods,” Gisele Truzzi, a digital law expert at Truzzi Advogados, a private law firm based in São Paulo, told Rest of World. This is in reference to burgeoning discussions over whether more countries should consider developing their own real-time payments systems instead of relying on private players.

Disintermediating the Global Card Duopoly?

And that is why payment card companies like Mastercard and Visa are up in arms. But the  competition they face in Brazil could be about to get even more intense if a new plan to offer Pix payments in instalments takes off.

Pix in instalments is essentially a new financial product that will be linked to the customer’s personal credit status while the interest rates will be borne by each bank based on the payer’s risk profile. All of this will be done without charging additional user fees and without the intermediation of card operators.

As a recent article in Veja Negocios contends (machine translated), Pix in instalments has the potential to become a genuine alternative to credit cards:

“The objective is not to eliminate any means of payment, but to expand the options available to the population,” says Breno Lobo, deputy head of the Department of Competition and Financial Market Structure of the Central Bank.

The expectation, also shared by the Brazilian Federation of Banks, is that the new feature will further boost the already widespread adoption of Pix. By June 2025, more than 168 million Brazilians had already made or received at least one instant transaction.

Today, the system leads by far among payment methods in the country: 46% of the population uses the tool as their main form of transaction, even though it was launched less than five years ago. Debit and credit cards, despite decades of presence in the market, are preferred by only 17% and 11% of users, respectively.

By embracing a largely publicly led digital payments infrastructure that cuts out the usual middle men, Brazil has turned financial innovation on its head. In most advanced economies, cash’s dominant role in the retail payments system has been eroded by digital payment alternatives, mainly from the private sector, in particular contactless debit and credit cards. Mobile wallets operated by US tech giants are also on the rise.

This has been a massive boon for Visa and Mastercard, which have done everything they can to supplant their biggest rival (to date), cash. In Brazil, however, Pix has not just overtaken cash; it has overtaken everything. As an article in Rest of World notes, it overtook debit card transactions in January 2022 and credit cards in February 2022, and now dwarfs transactions via credit cards, debit cards, bank slips, wire transfers, prepaid cards, and checks combined.

As John P Ruehl writes for Economy for All, “Fast payment systems exist worldwide. However, Brazil’s Pix stands out for its rapid mass adoption, massive user base, international standing, and high degree of central bank control.” And the fact that it is free of charge for most users.

To compund matters for the Visa and Mastercard duopoly, Brazil also recently opened the doors to their biggest global competitor, the Chinese card company Union Pay. According to an article by Tribuna de Minas, after striking a strategic partnership with Brazilian fintech Left, UnionPay plans to offer more competitive transaction fees as well as payment solutions that go beyond traditional physical cards, including digital wallets and mobile payment platforms.

Pix’s success is also preventing Silicon Valley firms from being able to hoover up vast reams of consumer data in Brazil, notes the New York Times:

U.S. trade authorities also say that, by protecting consumer data that PIX collects, the Brazilian government is hurting American companies that use such information to make business decisions and develop new products.

“U.S. companies see this data as critical,” said Ignacio Carballo, a senior consultant at Payments and Commerce Markets Intelligence, a research firm based in San Francisco. “This places a lot of power in the hands of Brazil’s government.”

And out of the hands of US companies, which “never managed to gain a strong foothold in Brazil” anyway, Daniel Santos Kosinski, a professor of economics at the State University of Rio de Janeiro, told Rest of World. Because Pix is free to use, it “is an extremely capable competitor and tough to beat.”

Contrast this with the European Central Bank’s plans around the digital euro. One of the main justifications trotted out for launching a CBDC in the euro area is to protect Europe from the domination of US banks, card companies and payment apps. Yet as the German financial journalist Norbert Häring notes, the ECB does not want to compete with the US banks and payment service providers or cause any trouble:

The ´´[US players] will be integrated into the project and their systems will be closely connected. The large US IT and payment transaction groups are involved in the project development, and the ECB wants to have the data stored in US cloud services so that customers do not shift their balances en masse from less secure bank deposits to secure e-euros, with relatively low holding limits for the latter.

The Downsides and Dark Sides of Pix

There are some problems with the Pix system, however.

For a start, Pix appears to be accelerating the demise of cash, one of the last vestiges of privacy and anonymity. According to a payment survey by Google (of all companies), just 6% of Brazilians regularly used cash in 2024, compared to 43% in 2019. But this is Google we’re talking about, and Google, like all Silicon Valley firms that have created mobile payment apps, has a clear interest in driving out cash.

The central bank’s 2024 survey, “Brazilians and their Relationship with Money”, presents a very different picture: in 2021 cash was used by 83.6% of the population; by 2024 that number had fallen to 68.9%. However, the proportion of people who never or rarely use cash had gone up to 68% in 2024 from 55.7% in 2021.

Needless to say, the breathless findings of Google’s payments survey were reported more widely than the central bank’s.

As is happening in many other less-cash economies, it is becoming harder to pay with cash. Just yesterday, it was announced that physical currency will no longer be accepted as payment at tolls along one of Brazil’s busiest highways, the BR-101 Sul/RS.

As we reported in 2023, there have been a flurry of legislative proposals over the past decade aimed at limiting cash use or doing away with it altogether:

The first proposal, presented way back in 2016 by deputy Gilberto Nascimento of the Social Democratic Party, seeks to eliminate the use of coins and cash bills completely. All financial transactions, it says, should be carried out virtually, through applications and electronic platforms. The bill is under consideration by the Constitution, Justice and Citizenship Committee.

The second proposal, tabled by Paulo Ramos in 2020, a former deputy of the Democratic Labour Party, prescribes a more incremental approach. First, the three largest denomination bills (R$50, R$100 and R$200) should be abolished, and then over the next two years the remaining banknotes and coins should be gradually phased out, This project has been under discussion in the Finance and Taxation Committee since last year.

The third proposal, also from 2020, is under the purview of the Economic Development Commission. Proposed by Reginaldo Lopes, the current leader of the governing PT caucus in the Chamber of Deputies, recommends setting a “deadline for the elimination of all production, circulation and use of cash and that all financial transactions after that date take place only through the digital realm.”

An Epidemic of Digital Fraud 

Like largely cash-free Sweden, it is grappling with an explosion of digital fraud. Its success as a “fintech hub” has attracted hordes of cyber criminals, The Economist reported in January. According to El País, Pix is fuelling an epidemic of digital crime, with 1,640 mobile phones stolen every hour.

The target, of course, is not the device itself but its applications, contacts and passwords, possession of which has helped Brazil’s criminal gangs to exponentially increase their profits. Each victim loses an average of 1,500 reais ($275, a little more than the monthly minimum wage) in addition to the smartphone.

The costs to the public are spiralling. As with the digital fraud cases in Sweden, the financial losses from these scams fall exclusively on the victim. The Brazilian Forum of Public Security estimates that losses resulting from digital fraud amounted to $34 billion last year. According to the NGO’s calculations, this is more than the total sum of money spent each year on public security by Brazil’s central administration, states and municipalities.

The security flaws became even more apparent in July when a group of sophisticated cyber-criminals managed to hack and empty the central bank reserve accounts of at least six financial institutions. After getting access codes to the Pix and central bank payment systems from an employee of a third-party provider, the thieves walked away with more than 800 million reais ($148 million).

The central bank responded to the attack by temporarily suspending the use of Pix for a few hours for several institutions, leaving millions of users in the lurch. The attack revealed serious vulnerabilities in the Brazilian payment system’s IT infrastructure, particularly among private-sector external providers. The giant hack also underscored one of the biggest dangers of real-time payment systems: immediate settlement prevents corrections for errors and scams.