Instant payments are electronic monetary transfers between different institutions in which the payment messaging and funds availability for the payee are real-time, and the service is available 24/7, non-stop. Typically, the funds transfer occurs between transaction accounts (bank, savings and e-money accounts), with the resources being available for the payee in just a few seconds, in any day and hour, including weekends and holidays.
There are some gaps to close in the payment instruments available to the public in Brazil:
Instant payments may be the innovation that will help close these gaps.
Initiating an instant payment should be as simple as selecting a name from a contact list on a cell phone or through a unique ID code, such as a QR Code. Users will only need a smartphone, an account at a payment service provider (PSP) of his/her choice, and the PSP’s app. The experience enhancement provided by the simplified payment initiation is an expected benefit of the instant payments for the payers, and it may be easily achieved through the diversity and innovation of business models. Diversity and innovation are very important features for the goal of promoting competition among payment schemes, thus enhancing efficiency in the Brazilian retail payments environment.
To the payee, the reduction in the amount of intermediaries means lower acceptance costs relatively to other payment instruments, such as credit cards. Merchants may have just a unique ID code so as to enable their clients to read such code using a smartphone. The code will contain all the necessary data to transfer the funds instantly.
The immediate availability of sales funds allows merchants to optimize their cash flow, reducing the need for credit.
Banco Central do Brasil (BCB) is working on the implementation of the instant payments ecosystem in the country. A broad discussion with stakeholders was conducted by a BCB Working Group on Instant Payments (WG-IP). The working group objectives were to determine the guidelines for the Brazilian instant payments ecosystem and to plan the actions needed to adjust the current environment to these guidelines. The urge to design a simple business model, with the least possible amount of intermediaries, as a way of reducing transaction costs for all parties involved, is one of the major principles for the guidelines definition. The Brazilian instant payments ecosystem will be similar to the existing interbank electronic funds transfer (TED) but with greater availability, speed, and simpler addressing of payments. Moreover, the model must allow transactions to be performed in a simple and fast way to different beneficiaries. BCB continues working together with ecosystem potential participants as well as with end users in detailing the basic ecosystem features. Simultaneously to these actions, BCB will develop a single settlement infrastructure.
An instant payment model based on transactions between accounts is favorable to the emergence of fintechs aiming to develop innovative solutions to ease payment transactions, both for payers and for payees. Fintechs will be able to perform either as payment institutions, supplying their clients with payment accounts, or as payment initiation service providers. Furthermore, they may offer other services in addition to payments, such as insurance, credit, investments, reconciliation, tax payments, and many others. Payment services are expected to be the gateway to financial services. There are several business layers where the creation of a competitive environment among different providers (conventional banks, digital banks, credit unions, payment institutions, fintechs, etc.) is expected. The competitive potential is largely due to the existence of different types of agents, both traditional and newcomers, thus resulting in quality enhancement and price reduction to end-users. This creates an environment favorable to the development of innovative and competition-boosting models.
BCB has reviewed the instant payment business models of several countries and regions, either operational or under development. These studies helped define the guidelines for the Brazilian ecosystem.
Instant payments may be used for transfers:
In summary, some on the important features expected for the new system include new ways to address the payments, the use of smartphone apps, and transaction final confirmation for both sender and recipient.
BCB has established a working group with the objective of contributing to the construction of a competitive, efficient, safe and inclusive instant payments ecosystem. The working group helped the Board of Governors determine the ecosystem guidelines. Around 130 institutions, including associations, banking institutions, payment schemes owners, credit unions, government institutions, financial market infrastructures, fintechs, marketplaces, consultancies and law offices, took part in the discussions. The group finished the work by December 21st, 2018, with the announcement of the Communiqué 32,927 and the final version of the guidelines. BCB, in line with other central banks, took the role of implementation leader and catalyst of the instant payments ecosystem in Brazil, with broad discussion with stakeholders, aiming guidelines definition and other relevant matters.
Guidelines for the Brazilian Instant Payments Ecosystem