eBanking channel images ATMs mobile bankings impacted by Brazil's PIX scheme

What The Launch of PIX means for Brazil’s Banks

Brazil’s instant payment scheme, PIX, officially launches in November 2020. The system will operate on a 24/7/365 schedule and enables banking customers to make instant transfers in just a few seconds. Transfers can be initiated using either a QR code or personally identifiable information like an email address, phone number, or tax identification number (CPF).

The launch of PIX by the Brazil Central Bank (BCB) promises to significantly shake-up the current state of Brazil’s banking landscape. Analysts expect the most significant of these disruptions to impact the nation’s unbanked population. According to recent figures, approximately 45 million Brazilian citizens lack a bank account. That’s roughly one-third of Brazil’s adult population. The availability of PIX could usher in new customers who once relied on old-school payment methods like cash into the digital banking era and enable them to make payments at a considerably faster pace.

The availability of instant payments and new digital banking customers presents dual challenges for Brazil’s banking landscape. First, new customers who are still learning how digital banking works could be at risk of falling victim to fraudsters. Second, instant payments mean there is little hope of victims getting their money back if a fraudster successfully deceives them.

As Brazil prepares to launch its instant payments scheme, banks must be prepared to understand how the new system promises to change their operations and take specific steps to ensure that their customers’ instant payments do not become instant fraud losses.

What PIX Means for Brazil

The launch of PIX promises to significantly change Brazil’s banking practices by enabling payment transfers on a 24/7 basis. A handful of larger banks have dominated the market for several years. The debut of PIX will mean new financial players, including challenger banks and FinTechs, can offer their own services and compete directly with larger legacy players.

Which Banks Will Participate on PIX?

Several other nations and regions worldwide have already launched their own faster payment schemes, including SEPA in the European Union, NPP in Australia, and Faster Payments in the U.K. PIX stands apart from other faster payment schemes in one key area: participation in the scheme is mandatory for many banks. Banks that are licensed by BCB and have more than 500,000 active customer accounts, such as checking, savings, or prepaid accounts, are required to participate in PIX.

How PIX Will Change Payments in Brazil

BCB also sees the launch of PIX as a way to expand the availability of digital banking services and encourage more consumers to transition away from cash as their primary method of payment. Shifting away from cash to digital payments will enable more users to make digital payments for bills, help banks understand customers’ financial health, and boost financial stability. The central bank has described the PIX scheme as an important step to address “gaps” in the nation’s existing payments infrastructure.

There currently exist several payment solutions in Brazil that enable digital payment transfers, including DOK and TED. These options often require senders and recipients of transfers to know sensitive information such as routing numbers, bank codes, and bank account numbers. Very often, transfers can incur expensive fees. With PIX, banks can offer users a faster, cheaper alternative that does not require them to share sensitive banking information. Funds can be transferred between individuals, businesses, and governments in just a few seconds.

How PIX Will Impact Brazil’s Unbanked

The COVID-19 pandemic has led to an uptick in citizens applying for government benefits online. Brazil’s Digital Government Secretariat (DGS) recently reported that access to its public services online portal increased from 4.1 million in February to 6.7 million in March and again to 9.4 million in April as citizens sought economic relief.

The launch of PIX could help many of the estimated 45 million unbanked citizens to access digital banking products for the first time. Citizens who once primarily used cash and boletos to transact can now access digital banking services to pay bills quickly without running the risk of incurring late fees or having vital utility services shut off.

The Challenges of PIX

The launch of PIX will bring challenges to Brazil’s traditional banks. As noted earlier, banks that have more than 500,000 customers will be required to join the instant payment scheme. This means these players will also have to ensure that their internal banking systems are capable of connecting to the PIX scheme. This is an issue newer FinTech players will not have to address because their platforms are built on newer technology that can more easily adapt to the changes.

The Increased Risk of Fraud

Connecting their legacy banking systems to the new PIX scheme is just one of the major challenges that Brazil’s financial institutions will face. Another significant challenge that awaits banks as they connect to the PIX scheme is the threat of fraud.

Just as legitimate customers can make payments instantly, so too can fraudsters. If a fraudster successfully deceives a customer into transferring money to another account using the PIX scheme, those funds will be lost forever. With millions of new users still learning how digital banking works, Brazil’s banking environment is likely to become fertile ground for fraudsters to find new opportunities to trick users out of their earnings. Banks need to take steps to ensure that the customers who are new to the concept of digital banking do not fall victim to fraudsters.

4 Tips to Prepare for PIX

The arrival of the PIX scheme will usher in both new customers and new challenges for Brazil’s banks to address. These FIs will face pressure to maintain a delicate balance of delivering fast and innovative digital banking products to their customers while making sure their systems remain safe from fraudsters.

Banks will need to understand who their new customers are, educate previously unbanked users about the threat of fraud, and implement solutions that will help reduce their dependency on manual workflows and transition to automated processes instead. Machine learning solutions will be an essential resource as Brazil’s banks seek to address these priorities.

Here are four essential steps Brazil’s banks can take to prepare for the arrival of the BCB’s PIX scheme.

Know your customer’s normal behavior

PIX will usher in a new era for Brazil’s digital banking landscape. In this new reality, banks must take steps to ensure that instant payments do not become instant fraud losses. This starts by knowing who your customers really are and understanding how they typically use their bank to transact.

This will be especially important for banks that see previously unbanked customers become familiar with a digital banking environment. Banks will face significant pressure to build trust with and a seamless user experience for previously unbanked customers who are still learning how to bank safely using digital technology.

Adopt an omnichannel view of your operations

Fraud can occur on any eBanking channel that your bank offers, including at ATMs, online banking, and mobile devices among others. Banks need to understand vulnerabilities in their operations to ensure that fraud does not occur on any available channel.

Implementing an omnichannel fraud strategy can help protect your organization from fraudsters regardless of which eBanking channel a fraudster might target. Your organization will need a centralized view of your eBanking channel portfolio in order to help you stay vigilant against fraud attacks and emerging patterns.

Reduce your dependency on manual review

If your bank is still manually reviewing transactions to watch for fraud, you could be losing valuable time and resources while fraudsters prey on your customers. The PIX scheme will enable transfers to be made in just a matter of seconds. Banks will have little time to review transactions to determine if they are fraudulent before the transfer is completed and funds are gone forever.

In other words, banks that rely on manual review processes will be at a disadvantage when it comes to stopping fraud. Your bank will need automated solutions that can move at the speed of fraud in order to keep your organization and your customers safe.

Validate your own review process

Bank customers expect a seamless experience from their bank. As more unbanked users onboard with Brazil’s banks, they are very likely to adopt this mindset and expect to complete their business with as little friction as possible. If your fraud review system is the source of friction for your legitimate customers, they might eventually grow tired of your bank and consider switching to a competitor. Your bank will need a system that can challenge your fraud review system and provide confidence that only legitimate customers are transacting on your platform.

Your system can reduce friction by implementing security features that can authenticate transactions based on very personal information. Features like two-factor authentication (2FA), biometric solutions like facial recognition technology or fingerprint scans, or security tokens that can validate a user’s mobile device. These solutions can be used before a transaction is authorized and help your system to build trust with your customers.

Key Takeaways

The purpose of PIX is to make it easier for customers to transact in the digital banking environment. An additional benefit of the system is that people who were previously outside the nation’s banking system will now have an opportunity to access the benefits of digital financial services. This means millions of unbanked users will be empowered to make timely payments on loans, bills, and transfer funds to others without having to rely on cash or checks.

In addition to these benefits, the pending launch of PIX will also prepare Brazil for an open banking initiative similar to what the European Union is experiencing with PSD2. This will mean more FinTech players and challenger banks will eventually offer their own digital-oriented services in the Brazilian market. Legacy banks will need to ensure that they deliver a secure, seamless banking experience for their customers as they prepare for the next stage of the nation’s banking evolution.

PIX will change the way customers bank in Brazil forever. Banks must be proactive in educating their customers and inexperienced unbanked citizens about the risks of fraud in order to help them avoid falling victim to scams. This means banks work extra hard to build and establish trust with all their customers, especially formerly unbanked users who are still learning how to use digital financial tools. Banks that commit to building trust and investing in strong anti-fraud solutions will be able to more effectively distinguish themselves from their competitors.

 

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