Payment instruments
Payment instruments used by non-banks1
Cash payments
Cash payments are essentially used in small-value transactions relating to everyday purchases. They account for some 77% of payments carried out by individuals, according to a 2007 Banco Central do Brazil survey. At the end of 2008, the total amount of currency in circulation was about R$ 115.6 billion, approximately R$112.7 billion in banknotes and R$ 2.9 billion in coins. Banknotes are issued in seven denominations (1; 2; 5; 10; 20; 50 and 100), and coins in six denominations (0.01; 0.05; 0.10; 0.25; 0,50 and 1.00). Both banknotes and coins are legal tender in the Brazilian territory, but the acceptance of coins, as a payment instrument, is mandatory only up to 100 units of each denomination.
From 2004 to 2008, in average the currency held by the public stood for 39.5% of the monetary aggregate M1, as shown below:
| Year | Currency held by the public (chp) R$ million | M1 R$ million | chp / M1 % |
|---|---|---|---|
| 2004 | 52,019 | 127,946 | 40.7 |
| 2005 | 58,272 | 144,778 | 40.4 |
| 2006 | 68,925 | 174,345 | 39,5 |
| 2007 | 82,251 | 231,431 | 35,5 |
| 2008 | 92,379 | 223,440 | 41.3 |
| Average | 39.5 | ||
| Source: Banco Central do Brasil
1 At the end of the year. |
|||
Non-cash payments
Non-cash payments are mostly made by means of credit transfers, payment cards and checks. Payments are made in national currency only.
The following graphs show the share of each payment instrument, in volume and value, in 2008:
Relative use of payment instruments - 2008 2
1 - Credit transfers
In Brazil, interbank credit transfers ordered by non-banks include TED (Electronic Funds Transfer), DOC (Credit Transfer Document), TEC (Special Credit Transfer) and those related to “bloquetos de cobrança”3 . In case of both TED and TEC, the related funds are made available at the beneficiary's account on the same day (in case of TED, typically after few minutes from the moment the transfer is initiated by the payer). As to DOC, funds are made available at the beneficiary's account, for withdrawal, on the following day (T+1)4, while in case of “bloquetos de cobrança” availability of funds at the beneficiary's account will depend on the agreement between the beneficiary and its financial institution. Regarding intrabank credit transfers, which are also important, typically the debit at the sender’s account and the credit at the receiver’s account occur simultaneously at the moment the transfer is ordered.
Credit transfers can be initiated either by the payer himself, through an electronic access channel (ATM terminals, personal computers (internet banking) and mobile phones, for example), or by a bank cashier on behalf of him. Even when initiated in paper by the customers, all credit transfers are electronically processed.
In 2008, some 6.7 billion of credit transfers were made, which amounted to about R$ 18.1 trillion (average of R$ 2.7 thousand per transaction).
2 –Cheques
Check still represents an important payment instrument in Brazil, though there has been a decrease in its use in the last years due mainly to its substitution for electronic instruments. Having standardized format and basic features, checks have got what is known as 'Magnetic Ink Character Recognition' (MICR), a device that allows its basic data to be read automatically. Sometimes, checks are written to be withdrawn in a future date (the so-called “pre-dated checks”) and, in this case, they can be seen as credit instruments. In Brazil, sight deposit accounts are the only ones in which check transactions can occur. Checks are still physically presented to the drawee bank, even though they can be truncated according to bilateral agreements.
Check interbank settlement occurs on T+1, observing different procedures according to is value5 . In customers’ accounts, considering the date in which the document is collected as a reference date, entries are normally made:
· in the payer's account, as debit, at the night of T, in case of "above of the limit" checks6, or at the night of T+1, in case of “below of the limit" checks; and
· in the payee's account, as credit, at the night on T+1, in case of "above of the limit" checks, or at the night of T+2, in case of “below of the limit" checks .
In 2008, approximately 2 billion checks were written, amounting to some R$ 2.6 trillion (average of R$ 1.3 thousand per check).
3 -Credit cards
Launched in Brazil in 1956, credit cards have achieved greater importance from the 1990s. The eradication of some restrictions, such as the prohibition on buying fuel by credit cards and also the "private label" requirement, a market condition that existed until 1996 and that prohibited an issuer (bank) from operating more than one brand, contributed to their widespread use7. In Brazil', the credit card holder does not pay financial charges if the bill, related to the goods and services that were bought, is totally paid on the next due date. The average time from the date of shopping to the date of payment is 28 days, according to firms of the credit card sector.
The number of credit cards changed from 53.5 million in 2004 (average of 1 card per 3.4 inhabitant) to 137.8 million in 2008 (average of 1 card per 1.4 inhabitant), corresponding to an increment of 157.6% in the period (yearly average growth of 26.7%). In 2008, around 2.5 billion credit card transactions were made, amounting to about R$ 217.9 billion (average value of R$ 86 per transaction). From 2004 to 2008, credit card transactions increased about 101.2% in volume (19.1% yearly).
4 -Debit cards
Debit cards are typically issued as bank cards, many times having credit and cash withdrawal functions as well. As payment cards, they are used mainly in POS terminals located at the commercial firms’ premises.The main brands are Visa Electron, Mastercard's Maestro, and TecBan's Electronic Check. As in the case of credit cards, debit cards with microchips have been gradually replacing the ones with magnetic band.
Payer account is usually debited at the moment of the purchase, while credit in the payee account is made in a certain term, shorter or longer depending on the agreement between the commercial firm and the respective acquirer.
In 2008, around 2.1 billion debit card payments were made, amounting to a total of about R$ 105.3 billion, with an average value of R$ 50 per transaction. From 2004 to 2008, the number of debit cards increased from 149.1 million (average of 0.8 card per inhabitant) to 207.9 million (average of 1.1 card per inhabitant), which is equivalent to a growth of about 39.4% (8.7% yearly). In the same period, debit cards payments increased around 129.9% in volume (yearly average of 23.1%).
5 - Retailer cards
Retailer cards, which are mainly issued by major stores, can usually be used only at the shops of the same group, i.e., they are “in-store” cards. The use of this instrument implies payment deferment, since the cardholder can usually settle his total obligation between one and two months later, generally without charges, or pay it in installments. On the due date, having to return to the shop, the payer normally uses either cash, check or debit card to settle his obligation
Retailer cards units evolved from 86 million in 2004 to 173 million in 2008, which is equivalent to a 101.1% increase in the period (yearly average of 19.1%). In 2008, there were around 1,019 million retailer card transactions, amounting to some R$ 53 billion (average value of some R$ 52 per transaction).
6 - Charge cards
Charge cards are used for payment of specific services, mostly related to telephone and public means of transport, or bulk value goods shopping. In the first case, which is the most common, public service companies issue their own cards, which can be acquired at some accredited shops. In this case, services are pre-paid and the card becomes disposable when its charge runs out. In the second case, the card is issued by a financial institution, which charges it up to a limit, for the use of its customer at accredited shops. Such type of card, usually an embedded microprocessor card, can be re-loaded many times. At each time, the charge limit determined by the issuer must be observed. In Brazil, though, charge cards are at a very early stage in its development, having pioneer projects by Visa and Mastercard as good examples.
Financial institution-issued charge cards amount to some 472 thousand units, through which some 2.5 million transactions were carried out, in the value of about R$ 535 million (2008).
7 -Direct debits
Direct debit is normally used for recurrent payments, that is, those that are made on a periodic basis, mostly related to utility services (water, electricity and telephone, for example). For such payments, the payer should preauthorise his bank to accept funds transfers initiated by the payee, which should previously send to the payer, for his control, the correspondent invoice. The authorization is usually for an indefinite time, therefore valid until not cancelled. On the day that the payment is due, there is an automatic and direct debit on the payer's account.
In 2008, around 871.3 million direct debit transactions were made, amounting to about R$ 217.9 billion (average value of R$ 250 per transaction). From 2004 to 2008, direct debit transactions increased about 33.5% in volume (yearly average of 7.3%).
1 All economic agents but sight deposit taking institutions.
2 Comprises credit, debit and retailer cards.
3 Bar-coded standardized document that allows bills to be paid in any bank.
4 Though interbank settlement takes place in the morning of T+1, some banks consider that funds have been transferred at the night of the previous day (T), as it used to be before the existence of TED.
5 From 02.18.2005 on, checks which value are equal to or larger than a referential value (R$ 250 thousand, presently) are settled bilaterally among banks, without netting, through STR. Checks which value is lower than this referential value are settled with multilateral netting in a specific clearing system (COMPE).
6 "Above of the limit" checks are the ones which value is equal to or larger than a referential value (R$ 299.99, presently).
7 The main brands are Visa, Mastercard, American Express and Hipercard.