Welcome to another issue of CTPI Insights, your premium newsletter on tech design and policy.

Today, we'll cover:

Pix users behaviors
Pix opportunities
The impact of a 24/7 availability rail, and more.

This week, we are preparing to make a few adjustments to our newsletter. The first is that we are changing the name of our premium newsletter to CTPI Insights. We are also exploring changing the cadence to biweekly instead of weekly (and adjusting the pricing accordingly). We are working on increasing the kind of content we deliver in our CTPI Membership, as well as the different ways we can deliver them. Let us know what you think.

Now, let's get to it.

M. and J.

The Pix Management Report 2023 is out

Untitled

This week, the Brazilian Central Bank published the Pix Management Report 2023. The document is full of interesting data and insights, and we definitely suggest our fintech-focused readers take a look at the full report.

There are, however, a few points that we want to call out and discuss a little bit with all of you. If you want to learn more about Pix, remember to check out our e-book Lessons From Pix.

Transactions profile

According to recent statistics, the vast majority of transactions sent by individuals are for amounts below BRL 100.00 (USD 20.00), which is approximately equivalent to the cost of 3.5 Big Macs in Brazil. A significant 76.1% of these transactions fall below this threshold, with 31.4% of them being less than BRL 20.00, which is roughly USD 4.00. On the other hand, for company payers, more than 9% of all transactions exceed BRL 5,000, which is equivalent to approximately USD 1,000.00.

Payment initiation methods

Pix offers five different options to initiate transactions: manual entry of the payee's data, Pix alias, static or dynamic QR Code, and the payment initiation service.

If we consider the amount of information a user has to insert to complete a payment, the easiest way of making Pix payments is by scanning a QR Code. The difference between static and dynamic is that the latter can be more flexible and data-rich, while the first is the simplest for the merchant to generate. After that, Pix alias is simpler than the manual input of all routing data.

In December 2022, about 65% of all Pix transactions were initiated using an alias, while 15% were initiated manually and 21% via QR Codes. These numbers make a lot of sense, considering P2P payments are still so prevalent in the Pix rail. If anyone is still wondering where the business opportunities are in the Pix market, we'd say it's in leveraging QR Codes to make Pix payments even more seamless for all other use cases outside P2P.

Untitled

Notably, payment initiation via Open Finance APIs doesn't even show in the chart. About that, BCB maintains it's an issue of awareness and education:

Another way to initiate a Pix transaction is through the payment initiation service, a functionality introduced in October 2021 (see Section 2.4). November 2022 was the month with the highest number of transactions with payment initiators, having registered 126,000 transactions totaling R$27 million (Chart 3.1.11). It is expected that this Pix initiation mode will gain relevance as users become more familiar with the concepts and rules of Open Finance and with the convenience of transactions through the Pix payment initiation service.

That does not convince us for one second. Customers didn't need to be convinced that using an alias key is better than imputing all routing information to make a transfer. They did it once, and the benefit was self-explanatory. The lag in payment initiation evolution tells the story that API payments are either too complex or simply not reliable enough to make the cut for users.

The impact of 24/7 availability

When taking a closer look at the transactions made through Pix, it is interesting to note that a significant proportion of these transactions happen during the period when other transfer rails are closed.

Specifically, when we consider the number of transactions made before 09:00 and after 18:00 on weekdays, as well as all transactions made on weekends, we find that this accounts for about one-third (33%) of all transactions. According to BCB, 8,000 transactions are settled, on average, in the last minute of each day.

This suggests that users are finding Pix to be a convenient and reliable way to transfer funds, even outside of traditional banking hours. This trend could have important implications for the future of banking and financial services, as it highlights the growing demand for flexible and accessible payment options.

Penetration

Pix has a remarkable market penetration rate of almost 70% among adult individuals in all states. This means that the majority of the population in every state is using Pix as a payment method, which marks a significant shift in the way people conduct their financial transactions. This high level of usage can be attributed to the ease and convenience that Pix offers, as it allows users to make instant payments anytime, anywhere, without the need for cash or a credit score.

Another interesting finding is that the states with the highest transaction rates per capita are also the least wealthy and have worse infrastructure available. This data suggests that Pix is particularly appealing to people living in these areas, suggesting it's addressing a demand that is greater the further away the user is from the major economic areas in Brazil.

Payer-Payee message field

Untitled

Pix transfers allow payers to send short messages to payees along with the transaction. The report shows a word cloud with the 100 most used words. These are interesting because payers often use this field to add information about the transaction. So, the most used words relate directly to the users’ habits while using Pix. Here is a list of some of them, translated and categorized:

Words related to identifying persons:

First names
Mother
Father

Words related to utilities:

Gas
Light
TV
Internet
Water
Cellphone

Words related to purchases:

Order
Installment

Words related to services:

Cleaning
Nail

Words related to the household:

House
Grocery

Words related to activities:

Lunch
Meal
Game

Words related to financial transactions:

Alimony
Loan
Salary

Most of them indicate Pix is used a lot to settle split payments among friends and family, as well as to purchase items and pay for routine services.

There are some words, though, that may sound a little weird to most people but oddly make a lot of sense in Brazilian culture. Words like “Hi”, "Love”, and "Lover” are also among the most used. Why, you ask? Well, because the instant Brazilians realized they could send any message to payees by transferring just BRL 0.01, they immediately started using it for flirting. This trend got to the point where terms like PixTinder and PixSexual became a thing. I mean, really:

Pix P2M

Untitled

Another interesting data to understand customer behavior using Pix is the number of merchants using the rail and the classification of companies that receive the most Pix transactions.

As of December 2022, almost 12 million companies have used Pix to make or receive payments, which is about two-thirds of all firms with bank accounts. Most companies that use Pix for receiving payments are retailers. Other segments include office services, administrative support, professional activities, scientific and technical activities, food, and financial services.

Competition

According to the latest report, the market concentration indicator HH Index for the market is below 1000 points (10%) both by number and value of transactions. This means that there is a fair distribution of transactions among the different players, and the market should be considered unconcentrated. By the end of 2022, there were already 793 institutions participating in the Pix rail.

Cost for merchants

Untitled

By the end of 2022, the average credit card fee had reached 2.34%. In contrast, the average Pix fee was 0.33%, which is seven times lower. It should be noted that this data does not account for anticipating payment fees and the fact that bigger merchants who receive more payments pay less in card fees, which significantly drags down the average. For SMEs, the cost is much higher, at around 5%, which could mean an even greater difference in Pix fees.

Wrapping up

After reviewing the Pix Management Report 2023, it's clear that the payment system is being widely used in Brazil. It's especially popular among people living in less wealthy areas with limited infrastructure. The report also reveals that people are looking for more flexible and accessible payment options, even outside of traditional banking hours. Since Pix fees are significantly lower than credit card fees, it's no surprise that merchants find it to be a compelling option. Overall, the report shows that Pix is a reliable and straightforward way to transfer funds, and we can expect its popularity to continue to rise in the future.