In five months, Brazilians used Pix in 393 million transactions, moving R$ 278 billion. According to the Central Bank (the Brazilian institution similar to the US Federal Reserve System), more than 75 million Brazilians have at least one key registered in the new real-time bank transfer system. The best news, however, is that Pix is not only a new, faster, and more practical way to transfer money, but it is the tip of the iceberg of a wave of innovation and disruption in financial services.
Free, instant, and available 24 hours a day, seven days a week, it’s no wonder Pix has been adopted so quickly by so many people. This phenomenon has also occurred in the more than 50 countries already using the system. Five years ago, there were only 15.
The definition of what is an instant payment system or real time payment was made by the Bank for International Settlements (BIS) in 2016. In real time payment, the money must be transferred in real time, 24h x 7 days a week, and the user must be notified instantly about the effectuation of the transaction.
Among the first to adopt this new modality were the United Kingdom, in 2008, and China and India, in 2010. India is the country that records the highest number of real-time payments, with 41 million transactions per day, and South Korea having the highest number of transactions per capita, with 75 transactions per person per year, according to the Flavors of Fast 2020 report.
The system can be used by anyone, even those who do not have a bank account (a solution to the problem of the so called unbanked). Payments are made on a single platform and can be between individuals, between people and establishments, between companies, and between people or companies and the government. So, the platform can be used by any entity linked to the initiative. Its data base and administration are under the responsibility of the Central Bank.
That is, the platform can be used by large or small banks or fintechs or even by technology companies increasing competition and reducing the concentration of the financial sector in large banks. And, it seems, this is a decisive step in changing to Open Banking.
Open banking: financial information mobility
The Open Banking system assumes that the consumer should be free to decide who he wants to provide his data and financial information to. And for this, institutions must use a layer of standardized technology that allows data portability. This is possible with the use of an API (Application Programming Interface), a software intermediary that allows two applications to talk to each other.
With the adoption of APIs in the financial system, the history of the customers’ credit (the payments, credit, expenses profile) is not held by the bank, but by the customer, who may transfer it to another institution at any time. And no one can access this without the client’s permission.
The banks, fintechs or other financial institutions continue to have autonomy to develop products, define the technology to be adopted, and security procedures in their environment, but are now able to interact in a standardized way with each other.
The changes in the financial sector, with new technologies and systems will expand to offer products and services , the customization of options, an increase in efficiency of transactions and decrease of bureaucracy, both for individuals and companies.
Pix, for example, which contrary to what many people think is not an acronym, will very soon make more expensive and time-consuming payment options such as checks or transfers (e.g. DOC and TED in Brazil) disappear.