Payment Methods in Brazil Equals Credit Cards and Boleto
Online payments in Brazil are dominated by credit cards and Boleto Bancário, accounting together for more than 93% of all online purchases in Brazil (see Chart 1). Credit cards are the main payment method for online purchases in Brazil.
However it is important to differentiate between national credit cards and international credit cards. National cards, while they are used by almost half of the purchases, can only process in Brazilian Reais (BRL). International credit cards can both process in foreign and local currency. But as only 20% of Brazilian buyers have access to international credit cards, this payment method has a limited reach.
Boleto Bancário, with 24% market share, has become the second most important payment method in Brazil. Boleto Bancário is a payment slip issued through banks with all the relevant information for purchasing a product. In online purchases, allpago’s research suggests Boleto’s market share is even higher ranging from 27% in eLearning and 57% in software purchases (see Chart 2). Although Boleto has consistently lower conversion rates (see Chart 3), it is a great alternative to credit cards. Boleto reaches customers who don’t have a credit card or are unable to make successful debits. It is also used for a 100% of the B2B payments in Brazil, because it allows companies to avoid Brazilian interbank costly fees when making wire transfers.
Many merchants believe that Boletos cannibalize credit card revenues. allpago’s research has studied the correlation between the two payment methods.
Boleto and Credit Cards Are Complementary
By early 2012, an eLearning client was concerned that despite the continuous growth in revenues, Boleto was cannibalizing credit card revenues. allpago proposed to channel all the operations though credit cards for three months and reintroduce Boletos after that period. The results of the test were impressive (see Chart 4). Credit card revenues still increased by 5,5% after the reintroduction of Boleto, showcasing Boletos don’t cannibalize credit card revenues. Furthermore, the Boleto reintroduction increased overall revenues by 39%. allpago has consistently noted similar results among all its clients, proving Boleto is a key payment method in Brazil and generates a 100% additional revenues.
Furthermore, allpago’s research has found out that products and services bought through Boleto are consistently higher than those via credit card (see Chart 5). In dating, eLearning and software industries Boleto average ticket sizes are around twice more than the one in credit cards. In ticketing, Boleto and credit cards are used for similar amounts. Interacting with end buyers, allpago has arrived to the conclusion that Brazilian customers consider Boleto a safer payment method for high ticket sizes.
As Boleto and national credit cards can only process in BRL and represent the majority of the market, it has become key for international merchants to find ways to successfully offer their products and services in BRL. Some merchants have until recently operated through DCC transactions. However these transactions, although not officially prohibited, are no longer possible in Brazil.
Multicurrency Transactions Blocked
In September 17, 2013 the Association of Brazilian Credit Cards and Services Companies (Abecs) suggested financial institutions to decline DCC transactions. DCC is a financial service in which holders of credit cards have the cost of a transaction converted to their local currency when making a payment in a foreign currency. Although the change in the normative is optional, Itaú, Bradesco and Santander, three of the major banks in the country, are currently following the recommendation. Banco do Brasil and Caixa Econômica have not yet communicated their decisions.
Visa and MasterCard have contacted merchants using DCC in other countries to ensure that Brazilian consumers make purchases only in foreign currencies. The Abecs took the decision of changing the rule after noticing the confusion of Brazilian consumers. The purchase was in BRL, but the consumer received the invoice in foreign currency and the debit of the 6,38% IOF Tax (Financial Transaction Tax on purchases in foreign currencies), which is mandatory on foreign transactions (see Chart 6). This generated many complaints at the consumer protection bureau and triggered the Abecs decision.
The full consequences of blocking DCC are still unclear. allpago predicts a very significant drop in revenues for merchants converting to BRL. In these cases, Brazilian consumers will only be able to purchase through international credit cards. As mentioned earlier, only 20% of Brazilians own cards enabling them to purchase in foreign currency. These cards are subjected to a floating exchange rate. This means that the date of the credit card invoice, not the date of the purchase, is used by the banks to calculate the final price in local currency.
In addition to the floating exchange rate, the Brazilian cardholder will also need to pay the 6,38% IOF Tax on the total value of the purchase. Finally, the issuing banks apply the more expensive tourism exchange rate meaning that the buyer is charged around 15% more at the end than initially thought at the time of the purchase.
Recommendations to International Merchants
Merchants with a legal entity in Brazil can switch to a local acquirer and process all their payments in BRL. Merchants who cannot open a legal entity in Brazil will need to find a local payment service provider (PSP) who can process the transactions and collect the funds in local currency.
Processing in BRL will open access not only to national credit cards but also to Boleto, which has been proven a key payment method in Brazil.
About allpago
allpago international operates as a payment gateway and only white label payment service provider (PSP) in Brazil serving merchants and payment service providers with its products and services.
allpago‘s features include one-click payments, recurring payments, instalments, dynamic descriptor and mobile payment solutions. The company`s html 5.0 code allows multiscreen and is as easy to implement into the store through the “plug and pay” feature. Furthermore, the company offers a fully integrated Risk Management Solution with more than 70 checks. allpago has recently become the first LATAM payment solution provider of the Merchant Risk Council (MRC).
Current clients include BlueSnap, Busuu.com, McAfee, Skrill (Moneybookers), Teamviewer, Twoo.com and many other leading payment or digital companies from various sectors.
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