In the second installment of our series on Pix, Carlos Netto, CEO and Co-Founder of Matera and Sarah Hoisington, Vice-President of Strategy and Marketing discuss what makes Pix “tick”, and the challenges and opportunities presented to the banks responsible to implement this new payment system.

Yvette Bohanan:

Welcome To Payments On Fire, a podcast from Glenbrook Partners about the payments industry, how it works, and trends in its evolution. Hello, I’m Yvette Bohanan, a partner at Glenbrook, and your host for Payments on Fire. Joining me in this series is Elizabeth McQuerry, also a partner at Glenbrook, and the person I would want in the room for any conversation about payment systems, particularly fast payment systems. Elizabeth, welcome and thank you for joining me on this series about Pix.

Elizabeth McQuerry:

Thanks, Yvette. Great to be here. And I tell you this is exciting times. We have so much happening in the US this year, so much perspective that we can still gain from learning more about Pix and the journey that they went through. And I just hear when financial institutions are just asking themselves these questions, now. Sometimes just as we’re getting going, right, depending on where the financial institutions are in their own journey, they have so many questions about what choices should I make? How should I make real-time payments happen in the US environment? And I think we’re going to have a lot of great context for that today.

Yvette Bohanan:

I completely agree. And getting these systems off the ground is multidimensional, it’s complicated. It’s different. I think we’ll be talking about how different it can be. And in that whole value chain, what’s really critical are the banks and the companies that support them, right? So that’s why in our second episode on Pix, we are looking at the launch of the fast payment system through the lens of core processors, one in particular that has very deep experience, from Brazil, and is now bringing that perspective and those insights and learnings to products for the United States.

In case you’re listening and are not familiar with the term core processing, the first thing to know is that a core processor’s customer is, indeed, a bank. So core processing refers to the software that powers a bank’s products and there are a variety of products that a core processor might offer, solutions for checking accounts, loan origination, treasury management services, payment facilitation, or, in the case what we’re talking about today, support for payment systems and payment transaction processing. So with that background, let’s introduce our guests. We are delighted to have Carlos Netto, CEO, and co-founder of Matera, and Sarah Hoisington, Vice President of Strategy and Marketing at Matera, joining us for this episode. Carlos, Sarah, welcome to Payments on Fire.

Carlos Netto:

Okay, thank you very much for having me here and having Sarah, too, now.

Sarah Hoisington:

Yeah, thanks. We’re really glad to be here.

Yvette Bohanan:

Okay, fantastic. So let’s dig in here. Matera has been a core processor in Brazil since 1987. That’s a long time. Carlos, you were like in grade school when you started?

Carlos Netto:

Yeah, I was in last college, last year.

Yvette Bohanan:

And today you’re helping customers process close to 300 million Pix transactions a month, which is a very respectable number.

Carlos Netto:

Yes.

Yvette Bohanan:

So you have a deep understanding of the history of payments in Brazil, which, one of our founding partners at Glenbrook used to say, it was Allen Weinberg, who said,” Payments in Brazil is not for amateurs.” So having that history and understanding and perspective coming out of a rather complex payments’ ecosystem, you also have an appreciation for the perspective of your customers who are the banks.

Carlos Netto:

Sure.

Yvette Bohanan:

So, with all things in payments, launching Pix must have been a very interesting journey filled with ups and downs and lessons learned. So if we start at the beginning, let’s go all the way back. What was the initial reaction of the banking community, your customers, about the idea of supporting a new fad payment system?

Carlos Netto:

Probably the first impression was it’s not going to happen. It’s a Central Bank trying to create something, it’s not going to happen. But we bet a lot. We saw value on this rationality on the thing that was being created, and two years before Pix launched, we jumped into the group that was defining Pix. It was a co-creation between Central Banking and the industry. They opened… Before that, Central Bank used to talk just to banks, and they opened to talk to IT companies and so forth. They allowed other guys to be there, so I could have a chance to be there helping, and after one year working, or one year and a half, banks, okay, it’s going to happen, it’s real, let’s get prepared. But in the beginning, the direction is, it’s not going to happen. It’s not going to happen. But it happens.

Yvette Bohanan:

But it happened. It did. It happened. And when people got together and started talking about it, what did the banks and their partners have to do to actually start to prepare for the launch?

Carlos Netto:

Well, a lot of things, especially learning. So we had a lot of meetings to understand the consequence of Pix, how it would affect core banking. They have communication, user interface, because Pix is a whole definition. It’s not just the network, it’s not just the reals. You have even rules for the bank app to follow. So the button that you used to transfer money on Pix cannot be hidden. After five levels of manual have, we have to be in the first screen. So just on an example.

So a bunch of professionals from those banks, they were involved with, late, on time, but they had to be involved with not only back of security people, and also UX. But in this group that we’re developing all together, many banks were there, not only our clients. And so it was designed by the Central Bank along with the banks. So it helped the banks to be prepared. And the banks, they were not there in this group. They could not say, I don’t know what’s happening because Central Bank has invited them to be there. So if you’re not here, it’s your call. You decide not to be here, your friends are here, they know what to do, you have to be there. And there was a date, like that date, you have to be, prepared, whether you want or not. So they get prepared.

Yvette Bohanan:

Yeah, there was a regulatory component to it, right? For some banks?

Carlos Netto:

Yes.

Yvette Bohanan:

It was very big.

Carlos Netto:

Yes. Yeah, the rule was every bank with more than 500,000 accounts was obliged to be there. They cannot, I don’t want. If you’re a small bank, that’s okay, it’s your call. But if you have more than 500,000 accounts, you don’t have a call, you don’t have a choice. So it create a market, because most of the DDA accounts in Brazil, they were Pix linked direct, in the first day. So we could use in the first day, it was fundamental for the success of Pix.

Yvette Bohanan:

And they were linked to both send and receive payment?

Carlos Netto:

Yes, we start direct with QR Codes, send and receive, not Request for Pay, but just receive, like the other guys send to P2P, P2M, and so forth. But people started using just P2P in the beginning, and especially because you don’t need to know the bank account of your friend, you just need to have your phone number of your friend. So you just send money to bank, the phone number, that’s okay. So if you want to send money to Sarah, you don’t need to ask Sarah, “Hey, which bank you have account with? What’s your account number? Blah, blah blah, blah.” You just, yeah, with Sarah, I just paid, ’cause I know your phone number, you’re friends, right? It was very important to us, because every time, if you go to a restaurant you’re going to split the bill and so forth. So you have to ask, “Hey. Which bank you have account?” Oh not the same bank I have.” So we have to wait for next business day to transfer and do a wire and pay extra fees for that wire.

And Pix was free and six seconds, 24/7. And they don’t care which bank you have account with. So it create a mass of users very quickly, very, very quickly. So the number of transactions in Brazil grew like crazy in the first month. No, it was incredible. Nobody could anticipate the success that we had with Pix. Nobody. Nobody. We were developing that, design and creating, none of us could say okay, it’s going to be this success. It happened much faster than everybody could anticipate.

Elizabeth McQuerry:

Carlos, looking back, and of course, it’s just two years now, Pix is doing on a monthly basis over 2 billion payments a month. I mean that’s the most remarkable new instant, or new payment system, that I’m aware of, period. And it’s hard to think that the banks weren’t ready for this to take off. I guess there was just a lot of disbelief. It was new. That’s fair. But at what point did it become just so obvious to them, and what changed then, in terms of the banking sector’s response? Just generically.

Carlos Netto:

Yes. Some banks, they were just obliged to do that. It was not an option. But other banks, even big banks, they took advantage on creating new things on top of Pix. Like one of the retail banks here, they starting to say okay, you can pick pay Pix in 10 installments, so Buy Now, Pay Later, on top of Pix, and they start making money on interest, by helping you to pay something using Pix. And other company allowed you to use your Lloyd Points to buy a coffee anywhere because you can pay Pix, and deduct to your balance from your Lloyd points. So some banks they saw into Pix as opportunity to create new products, and new things on top of Pix. Another thing that helped a lot, Pix, was not actually the mainstream banks but competitors like Fintech and digital banks, new banks, they saw this as opportunity for them to start fighting with other banks because now hey, if you have account with my small bank here, that’s okay, your friends can pay you, you can pay your friends. You don’t need to be in the same bank that your friends are.

And also, if you open a new bank in a country here in Brazil to pay tax, to pay utilities, and so forth, you have many connections to create. So it’s very tough. With Pix, now you can pay your utility bill using Pix, you can pay tax using Pix now. So everything is going to be paid using Pix. So it’s a huge saving for these banks now, because all these connections, they cost a lot of money, and with a single connection you can satisfy your clients needs, especially for new banks and also global banks. You have top American banks, they are in Brazil, but they’re much more corporate banks. They’re not retail banks in Brazil. So they have difficulties on collecting tax payments for their clients, and now they can collect payments.

So majority of the banks, they love Pix. A few of them didn’t like because they were making money on interchange fees of debit cards and the Pix doesn’t offer interchange fees, so far. But even though I spoke with one of these banks and asked, “Hey, you are losing money on that card, why you are so happy?” “Because I’m saving a lot of money on wire, because wire is so much cheaper using Pix. So in the balance it’s good for me. I’m losing money here, making money there and so far so good is good for me.”

Elizabeth McQuerry:

Yeah, and I think one of the ways that it sort of reinforces itself is it’s very obvious that Pix is hugely popular with the population, right?

Carlos Netto:

Yes.

Elizabeth McQuerry:

Of course, consumers love it when there’s a possibility of an outage or something people take to social media, it’s a national moment, right?

Sarah Hoisington:

Yeah, I think it’s over 75% of Brazilians use Pix, which is a huge number, which, prior to Pix there were a lot of unbanked, and it did a lot to actually bring a lot of those people into the financial system to be able to order an Uber digitally, order something online easily, and pay for it via Pix. So it definitely transformed the economy.

Carlos Netto:

Like Sarah mentioned, before Pix, I believe that more than 50% of our population was unbanked. Now have 75% using Pix, which look at the difference. And it’s very good for e-commerce for example. E-commerce, they were enabled to sell to this population because the population, there are no bank account, no credit card, nothing. Now they can buy online using Pix. During COVID it was fantastic because no stores are open, just online, and so forth. And this population, they were able to open an account on a Fintech and buy online now.

Elizabeth McQuerry:

So you mentioned that one of your initial channels, or use cases early on, was QR focused. And I’d love to hear more about that, and I have seen very little data about how many QR Codes are really transacted. There was a little bit of information, and it’s not as much as I would expect given the phenomenal volumes that Pix is having. So what is the story there? At first it’s… Carlos and Sarah, please let me, please share more.

Sarah Hoisington:

Most of the numbers are, around 20% of Pix transactions are initiated by QR Code. And the one thing I do want to make clear is, the way QR Code payments work in Brazil, it’s different than the way we use QR Codes here in the US. We’re used to going to a restaurant, getting our phones out, getting out the camera, scanning a QR Code, and we get redirected to a menu. Well that’s just a URL type of QR Code. So for payments, the user experience is different. So in Brazil what they do when they want to scan and pay a QR Code, they actually have to log in. A consumer has to log in to an authenticated environment. It’s usually their mobile banking app. They go into their mobile banking app, they find where they can actually scan a QR Code from within the app.

They scan it. What they then are returned with, is the merchant that they’re paying, the amount that they’re paying, and the consumer then reviews that transaction information and then they hit pay, from their mobile phone, and that then kicks off a push payment from their bank account to the merchant’s bank account. So it’s from within an authenticated environment, which is very different from the way we scan and pay QR Codes here in the US. And the great thing is, consumers don’t have to put in a bank account information, their routing number, they call it the branch number in Brazil, but their routing number would be the equivalent here in the US, they don’t even have to put in an alias, a phone number, or an email. So it’s a very easy transaction for them to pay by QR Code.

Elizabeth McQuerry:

Well I’m just totally overjoyed that the QR Code is for something other than reading the menu. The experience you described about the QR Code in Brazil, I mean that’s very different, obviously, from how we’re using them. Do you think that gives the consumer more confidence about using that, or have there been any studies a around this?

Carlos Netto:

Yeah, actually Brazil start with the merchant presented mode QR Code, just because it was a kind of the only way people was using in Brazil just okay, they used to say it, that’s the way they’re use in China. It’s not true. We have Chinese customers, and they made the same question, “Why you Brazilians are so obsessed about merchant presents mode?? And my answer was, “Because you guys do this in China.” He answer, “It’s not true. We do both. We do both. We do merchant present mode and consumer present mode.”

And for stores actually consumer presents mode is better. You have situations where merchant present mode is better. You have situations where consumer present mode is better. So for example, if you want to use a QR Code for utility, for sure, reading the QR Code you pay is better. But if you are getting into a bus or subway station, reading the QR Code to open the turnstile is going to be slow. The line is going to be huge. So it just like when you go to board your flight, you just show your screen and they scan your QR Code. It’s faster. Can you imagine you boarding a flight reading QR Codes? Probably is going to take longer to board, to fill the airplane, right?

But Brazil start with the merchant present mode. But we are going to launch here the consumer presents mode, as well, in the future. It was supposed to be launched this year but to some strike and Central Bank and elections and so forth, they postponed that. But the consumer present mode you’re going to have in Brazil is going to be offline. So the cell phone can be used with no data plan, which is very important for peer population. And that was not only QR Code but NFC, as well, because the QR Code, just a matter a way to transfer data. So there is a data there when you show your screen, and the merchant reads actually the merchant acquire the bench of data from your screen that is encoded in that barcode, that is a QR Code. But if the same data is transferred using NFC, what’s the difference? The merchant has your data, the data necessary to make the payment.

So for the consumer presented mode, you’re going to have both ways NFC and QR Code. So either you show your screen or the back of your phone, depending on… it is going to be just NFC, because some peer population have cell phones with no NFC support. So having the screen is good. And now also because for merchant they just need the barcode reader, they read half. So it’s just a matter of using the same barcode reader used to read the products you’re buying or you’re selling, if for seller, use the same gun to read the screen of the payer. So we’re going to have both, but they start with this merchant present mode. But to be honest, in the beginning, nobody was using that. Just peer to peer. Just P2P, because now, it takes time. It’s like a chicken and egg problem.

You cannot, you’re not going to have, a store receiving some payments if they are no payers. You’re not going to have a payment method if there is no way to use that. So P2P was the foundation for P2M in Brazil actually, because by P2P, everybody start sending money to friends. And once everybody was there, operating Pix, and familiar with Pix, we found, oh there is a laptop here, 15% discount if I pay Pix, okay I pay because I know already how to pay. So merchant, they came like six months, a year, after the launch of Pix, and today it accounts for more than 20%. And last, statistically software this month, that’s any, it’s growing like crazy, because for merchants it’s incredibly better. No charge fees, no MDRs. Nothing. They just get the money immediately in six seconds.

So when they want to sell something with a huge discount, they say okay, that’s a huge discount but only for Pix payers. I don’t want to give this discount for other guys. So it’s very important today and for this population. Remember, Brazil is a poor country. So we have a lot of people with no bank accounts in the past, and they still don’t have credit cards. They don’t have credit. So the only way for them to pay is using Pix.

Some of them, they don’t have even a house address. So you cannot ship the card to their house because they don’t have a house. So in our situation there are some factors that are unique to Brazil, not United States that influenced a lot, our adoption of Pix. But it’s very important to say that’s not that, not all this. We have a lot of people, younger people, they are using more Pix and debit cards, just because they want to use, they have address, they can receive cards but they don’t want carry a wallet anymore. They just want to carry the cell phone and they don’t want a card.

Elizabeth McQuerry:

Well the clear evidence of how well this is working is now we’re looking at like 20% of all transactions are P2M or P2B. That’s also pretty significant. So many of those could, of course, be made online, but the QR Code will help in the retail environment.

Carlos Netto:

Yeah, I have one client that’s not largest have, this client should have read 60 million QR Codes in last year, and it’s not a large, just a startup. So I don’t have data from other banks because we license software to the banks, but that’s their business. They don’t disclose their data with us. So I cannot guess how many, I don’t have a clue how many QR Codes most of my clients issued so far, but one of them disclosed to me, 6 million QR Codes.

Sarah Hoisington:

It’s incredible. I mean it’s kind of hard to believe, but if you buy from Amazon, Brazil, and you get to check out, you’re presented with a QR Code to pay that way. So it’s just commonplace there.

Carlos Netto:

And some stores, you go to the store, like small stores, and they used to say “We just take cash.” Now they say, “We just take cash or Pix.”

Sarah Hoisington:

It’s a lot cheaper and easier to process than cash.

Carlos Netto:

And one company that’s losing market in Brazil, is it our ATM machines, because medium class you don’t go to ATM machines to get cash anymore, because they used to go there to pay cash to pay unbanked population. But there is no more unbanked population, so everybody will pay with Pix. So we don’t need to go to the ATM machines anymore. And another factor for not having ATM machines that you can withdraw money from your account through Pix. You go to a merchant, like it’s 100 bucks, you pay 200, they get you back 100. Or you can just go there, “Hey, I want 100, I don’t want to buy anything, I just want 100 from you.” And the merchant loves that, because merchant used to pay those trucks through, to carry cash, payment for that insurance and so forth. And now they get rid of the cash, just serving their clients. So cash is dying. We predict in the past that cash would be third thing to die, but actually believe that cash is the first thing that’s dying. And that’s good because cash costs a lot of money for society.

Elizabeth McQuerry:

Well, and big savings for the financial institution that you have to take cash around to fill up the ATMs, which, of course, are themselves a security issue, right? Well what else were the financial institutions in Brazil learning along the way? I mean what sort of back office type learning might we have here?

Carlos Netto:

Going to back office, that’s my area, is like core bank solutions. They were not designed initially to support this level of transaction, because you are using credit card every day, and paying the credit card bill once a month. So the number of transactions on the DDA of a bank was very small, very low. Or a seller used to sell a million items during the day, just one credit, total amount of sales on that day. With Pix is a counter account payment. So every payment is a new entry on their statement. So now a company that used to have one credit a day is having a million a day. So the statement’s getting very long. The internet banker for the bank is crashing or the DDA is saying, “Oh stop, I cannot hold all these numbers of transactions.” Excess of transaction in a single account, is another case that nobody anticipated that would be a problem.

So on this point it was very important to have core bank solutions capable of supporting all these number of transactions. Our solution could subside, thanks God we’re supporting closer to 200 million transactions a month. So your software is doing well. But I know that we had to invest a little bit on the solution to support that. It’s not the same solution you had before, but some companies they cannot do that. So world solutions impossible to make improvements. So some banks, they will have to replace DDA solutions for example, or use the standard solutions, or use another kind of solutions to support this level of transaction. And it’s not only the DDA, like if you have a corporate bank solution you’re offering and you have a intraday limit, so you have 100 companies from a same economic group, they share a million dollars limit for intraday.

So during the day, every payment has to check if you still have balance on your limit. The system that is intraday limit is struggling, because they cannot survive this number of transactions. So Pix is pushing a lot, the core banking solutions, for another level of requirements in terms of volume of transactions. Credit card solutions, they were designed by that for this. But core banks, they were not designed. So Matera invest a lot on having core bank to support that, because we learned from having all this volume that it’s a requirement, and also there is fraud. Another thing we learned in the beginning is that you send the money, there is no charge back, no way to get money back. That’s done. Like cash. But no bad guys. Oh, good. And they start creating fake accounts like asking, you go to your mom, “Hey, I’m your son with a new phone number. Send me a Pix.”

And it wasn’t me, actually. It was somebody else with my picture. They took my picture from Facebook. A scam. And I saw situations where the bank, they knew it’s a fraud. I know the money that was sent to that other bank is consequences of fraud, but I cannot get money back, because the regulation was not supporting that. And then Central Bank had to change regulation very quickly to enable a bank to get the money back in case it’s a fraud.

So one thing we learned that we’re not prepared. We have a lot of problems for that. Another thing, like IT problems. So some banks with some IT problems, they sent Pix that was not supposed to be sent, and I want my money back, I sent you accidentally. No, I can’t, because that money is an account of a client, it belongs to the client. I cannot touch the money for my client. And then Central Bank launched another rule. If the Pix was launched by an operational problem, the bank that’s saying I send this money by operational problem, he has the right to request it back. And it means adaptations on the core banking solutions, like, are not only a bunch of new rules, but also adaptations on the core bank to support this use case.

Yvette Bohanan:

That’s interesting. So this is a very timely discussion, Carlos. We, in the United States, we’re about to launch our third fast payment system if you’re counting, but who’s counting? But we are. So we have Zelle, we have RTP from The Clearing House, and we’re about to launch FedNow in the springish timeframe, spring, summer, early summer timeframe. What similarities and differences are you seeing between what’s going on in the United States and what you’ve been describing to us about the journey of Pix in Brazil?

Carlos Netto:

I’m going to allow Sarah to talk more about that, because it’s comparing between US and Brazil, but just beginning, I feel I missed the directory service, like wiring money to my friend, by just knowing his phone number was fundamental for us. So very important. I’m not sure why I don’t have this in United States. QR Codes, a huge opportunity for banks to pay merchants directly. And once you have people using P2P, next phase would be QR Code. But I’m going to hand over the comparison to Sarah.

Sarah Hoisington:

Yeah, well, so let me see if I can run through a few of them. I mean credits Carlos mentioned, right, Pix was mandated. It was mandated mostly for the top five banks in Brazil. We don’t have that in the US, so it is really up to the industry to adapt instant payments. Also, the Central Bank of Brazil, they created standards. So even for the Mobile UI experience for Pix and for the QR Code standard. So we don’t have that in the US. They do have the directory, as Carlos mentioned. So I don’t know if you know, but I mean the Central Bank manages this huge directory of aliases of everyone in Brazil. And then every local bank has their own directory. And so everyone has an alias. It could be a phone number, it could be an email address that represents their bank account. So they can actually use that alias to send money instantly via Pix.

And also the way that… we have some directories in the US, I mean Zelle would have a directory, but there’s not a lot of information in it. My understanding is that you only have the actual, the alias, the phone number, the email, and then the name of the bank. That’s it that’s within the directory. We have a lot more information that’s in the directory in Brazil, which actually helps to mitigate fraud through some of the transactions, actually. Some of the… I mean if you want to throw Zelle into the instant payments, if you’re defining them as instant payments, which some would and some wouldn’t, but that’s mostly P2P. And then instant payments in Brazil is for every use case. So P2P, P2M, B2B, as we’ve been talking about.

And then, I mean, as Carlos mentioned, there’s a method for fraud and disputes. So you can actually file a claim if you think that a Pix was sent fraudulently, or if you’re a bank and you go, “Ugh, that was a mistake, I actually need to get that money back”. So there’s a process. The Central Bank created that process. We don’t have those things in place yet in the US. I think some of these things are on the roadmap. The directory is on the roadmap. Potentially QR Codes are on the roadmap for things like FedNow and RTP. So those are some of the differences.

Similarities, they are based on the same ISO 20022 messaging. So the way Pix works, the engine very, very similar to how both FedNow and RTP were. It is also truly, in terms of similarities, a true account to account transfer of money. We’re not talking about a platform, a PayPal, that’s not your bank account. We’re talking about moving money instantly from bank account to bank account. Those are similarities between Pix and what’s going on in the US. And even, I mean if we talk about like RTP, RTP, the instant payment rail that has been around here in the US, I mean, it’s intended for all use cases. I think it’s more of kind of a business use case today, but could be used for all kinds of use cases, and not just limited. So I would consider that a similarity. I mean, the other thing, I guess, in terms of Pix versus FedNow, which as you said is coming online soon, those two are incredibly similar, just because it’s sort of the Central Bank that’s running it, that’s owning it, that created it, is managing it.

And honestly, when we first kind of started, when Matera first started looking at the US market, the intent was “Hey, we’re just going to support FedNow, because hey, this is really what’s super similar to what we’ve been doing in Brazil. The Central Bank, they run it, they own it, they manage it. Same with the Federal Reserve. This makes sense.” And then as we started talking to banks in the US, they said, “Well, wait, I want RTP also.” So I think that difference right between the two markets, we’ve got more than one instant payment rail that’s getting settled instantly in a bank account. If you just consider RTP and FedNow for example, most banks we’re talking to want to actually have the capability to offer both.

Elizabeth McQuerry:

How does Matera respond to that? It’s a very different environment for the financial institutions. What do you do to help the US financial institution that wants to do, well, one or more?

Sarah Hoisington:

Yeah. So we actually are adapting our solution for both. So initially we thought we’ll just do FedNow, but we are going to be going through the RTP process as well, to enable any bank who wants to get an instant payment, if it’s being sent from a bigger bank that may already be on RTP, we can process that. If it’s coming… I mean, we know FedNow is kind of driven by smaller institutions, so maybe more likely for more of them to maybe just be looking for FedNow. But we want to make sure anyone that works with our solution can take either, can receive or send FedNow or RTP.

Carlos Netto:

And also you’re exploring the QR Code opportunity. Instant payment can start in a closed loop way, like if you have a bank in a region, in that region, all the merchants, your clients, and allow the payers, so your clients, to… actually payers are paying merchants just moving money from your account, from your bank to other accounts, from your bank through some other rail. So if with QR Code you know you can enable a region that are using your bank to transfer money account to account inside your own institution. And it can be a first step for plugging into a network. Is like you have clients of your bank paying other clients of your bank, but eventually, if that bank is connected to a network, now that that client can send money to another, a client from another bank. It’s like text in United States. I believe that text in the beginning was like AT&T to AT&T, T-mobile to T-Mobile. Eventually, okay, you can send to both.

But the market start just sending text to your friends using the same carrier. And we have the patent for… USPTO just granted the patent like October last year for this offline payment method on QR Code. So it’s got an edge advantage for us, to offer this. There are some use cases, even in United States with a big infrastructure. For example, football games, 100,000 people in an arena, no internet, or a subway station, a bunch of others. And I believe also that for the United States with this reality of three instant payments solutions, if you have a one single standard QR Code, it can be tricky, because if you go to a merchant and you read that QR Code, perhaps your bank uses true networks, the other bank use other true networks. But there is one network in common so they can settle the payment.

So no matter the networks being used FedNow, RTP or Zelle, if the QR Code is the same, I know the destination of the money using this pull method, push method, sorry, I can push the money to the merchant using the network I prefer. And if I have true networks I can make a choice, which is cheapest for this time. So it happens in Brazil sometimes, because you have Pix, and have SPB, that is similar to Swift, and during the day some banks they like if you want ask the bank to send money through one network, the bank choose the other network, because it’s cheaper and the destination of the money is the same, the amount is the same, that’s fine. So we believe that having this standard QR Codes is very important for the country, to the economy, and we are betting on that. So we are helping, we are exploring opportunity on selling closed-loop QR Code solutions, as a preparation ground for this more national stuff.

Sarah Hoisington:

It was super interesting as we’ve sort of started talking to banks, and credit unions about instant payments, and we talked about how we had this QR Code payment as part of it. They were like, “Wait, tell me more about that QR Code payment function, and how does that work?” And there were plenty of places that we talked to who already had, or were moving, on instant payments, but they were like, “Wait a minute, what’s that QR Code payment function? Well how does that work?” And so that was interesting to us. We didn’t realize there would be such a response in the US, because in Brazil, our QR Code payment functionality, it’s embedded in our Pix instant payment software. So we thought, “Oh we’ll do the same thing in the US. But there are definitely interest in saying, “Hey wait, I just want that QR Code payment capability to be able to use it in other ways that I want to do either in closed-loop or I wanted to use it to kick off an instant payment transaction or something else.”

Carlos Netto:

Like in Brazil, I want to… when you are reading a QR Code from another merchant that has an account, the same bank you have, you don’t use Pix network. You’re just using the QR Codes they call intra PSP transfer. So it can work even if your Pix is out of the network, because you’re sending money between two accounts from the same bank. And if you get back before Pix in Brazil, you usually have five QR Codes standards, or even more, but five big standards, big companies. And they start putting their own standard proprietary QR Codes on merchants. They dropped that when Pix launched, they adopt this standard.

But guess what, these guys are leaders on Pix today. So because they start before Pix with a proprietary QR Code that they could create a market. And that market was like they haven’t start from the zero when Pix appeared. They just took out the merchant, they have a read with their proprietary QR Code, switched to the standard one, and just increased the number of transactions. So for a bank in United States offering a kind of proprietary QR Code for closed-loop, is a way to get better prepared for the future.

Yvette Bohanan:

And in Brazil, the code that they standardized on is sort of based on the EMV Code standard? And a lot of what we’re seeing now is this sort of potential evolving of cross-border transact?

Carlos Netto:

Yes. Yes. That’s the main reason for using EMV code. We adapt the EMV code. Think about the future. Many other countries are doing the same. So for cross-border it’s going to be very important.

Yvette Bohanan:

And Pix is going cross-border in a way already, right? It’s really… we used to have to wait decades for these use cases to evolve, and to go cross-border and now it’s years and months.

Carlos Netto:

It’s happening. It is not mandated by the regulator. It’s incredible. Like the regulator mandated the beginning of Pix, but now Pix is moving ahead. Just companies creating new products. Innovation and so forth, and social bank just know how beautiful ideas they’re getting. So with this Pix International, cross-border you have today is like Brazilians going to places where a lot of Brazilians used to go to buy stuff. Brazilians are shoppers. We love shopping things. If you go to a resort in Orlando and say, “Hey, how many bucks here from Amazon Brazilians?” “90%.” Incredible.

So there are some areas where Brazilians, they go like crazy, you know, and they paying with a credit card. For Brazilian is expensive because they pay tax 6% or 30% on tax. This spread is high and so forth. Then the merchant says, “Okay, you can pay Pix here, you can pay Pix in your own currency.” Brazilian reacts, “Okay, so the currency conversion is good. Okay, I pay with Pix”. What happens is that actually that QR Code is a Brazilian facilitator, that’s receiving Brazilian rise here in Brazil. But the QR Code is generated in the United States, for example, or in Paris or in Paraguay, whatever. They just received the money here in Brazil, they wire it to United States and the same minute it’s under account of the merchant. So there is a FX operation. Everything behind the scenes. The user just press the button.

But after pressing the button there is a huge bureaucracy because Brazil is very controlled on this FX operation and they follow everything by the book. All the bureaucracy is done automatically behind the scenes and it’s enabling Brazilians to buy around in other countries paying Pix. So you have a kind of international Pix and it’s like… it’s inspirational because when you see that, you can see, okay, so big deck, one of these three, four big decks, they can create a universal payment app. Because where I go, I don’t care. I go to a country, there is one standard QR Code, I really pay there. I go to another country, another standard, I can’t decode the other standard and pay there, too.

So even before having this interconnectivity between all these networks like Pix, FedNow, and so forth, you’re going to see some apps that are going to provide that for the user, like you’re providing today for Brazilians to pay out of Brazil in Pix. So a lot of things are going to happen. It’s incredible the creativity you can have on this. The Central Bank just launched a seed of something and now it’s growing.

Sarah Hoisington:

And that’s my favorite element of that story, is the cross-border, the BNPL, the Pix credit. These are innovations that went on top of the rail. They weren’t mandated. So when we do get questions around, well, okay, gosh, in Brazil it was mandated, and that’s why everything happened the way it did. It’s like there’s a lot that happened because of innovation that wasn’t mandated. The Central Bank had nothing to do with it. They just laid the rails and the innovation came in on top of it.

Yvette Bohanan:

I think that is a marvelous way to leave our listeners, because it’s very inspiring about what the potentials are. And as we say, payments as an industry, it is always evolving, ever-changing. And the rate of change in evolution right now is faster than the last few decades. And it hasn’t really been slow then either. So with that, let me thank you both. This has been an incredibly interesting conversation, hasn’t it, Elizabeth?

Elizabeth McQuerry:

Absolutely. Thank you.

Yvette Bohanan:

We have learned so much here, and I hope our listeners have learned a lot, too. That’s what we’re here for. So Sarah and Carlos, thank you so much, and we wish you every success in your journey and congratulations on that patent, and we look forward to catching up with you again in the future to hear how things are going, and maybe make a couple more predictions for the future of this instant payment, fast payment world that we’re all embarking on here.

Sarah Hoisington:

Sounds good. Thank you so much for having us. This was great.

Yvette Bohanan:

Our pleasure. Thank you.

Carlos Netto:

Yeah, yeah. Thank you very much for the time. Thank you very much for the opportunity.

Yvette Bohanan:

Thanks so much for listening. We have a lot of information on our website about instant payment, fast payment systems, PV posts, more podcasts, of course the series that we’re doing on Pix. And we invite you to peruse at glenbrook.com. And if you have questions or thoughts or ideas for a future podcast, please send them our way at paymentsonfire@glenbrook.com. Thank you everyone, and until next time, stay safe, be well, and do good work.

Yvette Bohanan:

If you enjoy Payments on Fire, someone else might, too. So please feel free to share this podcast on your favorite social media outlet. Payments on Fire is a production of Glenbrook Partners. Glenbrook is a leading global consulting and education firm to the payments’ industry. Learn more and connect with us by visiting our website at glenbrook.com. All opinions expressed on our podcast are those of our hosts and guests. While companies featured or mentioned on our show may be clients of Glenbrook, Glenbrook receives no compensation for podcasts. No mention of any company or specific offering should be construed as an endorsement of that company’s products or services.