How big is the transformation in the financial system?

When the Central Bank announced the new Brazilian instant payment system, the famous Pix, many speculations and discussions about what would be the impact of this tool in the financial sector started to emerge. After completing one year of operation, can we already see if, in fact, changes and foreseen competitions have taken place? Before answering that question, I think it’s important to remember that when we’re in the field of economics, it’s difficult to accurately establish the impact of a single event because there are so many variables operating at the same time.

Just to start, this last year, for example, much more than the launch of Pix, the economy faced the consequences of a devastating pandemic, significant changes in the financial sector with the arrival of Open Banking, significant investors’ bets on Neobanks, among others decisive factors that directly affect the behavior of people and companies. So it’s hard to isolate the individual impact of a single system, but I dare try.

Analyzing in a practical and direct way the effects of Pix in Brazil, we realize that yes, changes are happening and we have some official figures that demonstrate this.

At its launch, much was said about the possible positive effects on competition and the consequent democratization of financial services. A very important indicator that reflects the banking concentration of a market is the percentage that the five largest banks in a country represent in total credit (or deposits). If we compare this number, we see that Brazil, in 2016, had 86% concentration.

In the last five years, however, this indicator has been reduced by seven points – and increasingly faster – reaching in 2021 close to 79.5%. Even so, progress is slow: the country is still an extremely concentrated market, second only to the Netherlands, which has almost 90% banking concentration. In the United States this number is close to 40%, while China and India are between 35% and 37%.

Looking at the issue of adherence, Pix was an absolute success and is one of the best cases of voluntary adoption of a financial “product” in the world. In one year of operation, nine out of every 10 transfers are already made by the system and 105 million people, that is, more than half of the Brazilian population, have already used it. At first, almost all transactions in the system were made from person to person, but now 16% are payments to companies.

The product is improving a lot and soon it will be possible to ask for change, make withdrawals and pay in installments. The consequence of these changes and the wide acceptance is also the impetus for competition. If before, large banks always had very expressive advantages in their payment means networks, today they lose importance when there is a faster, more comfortable, cheaper and safer alternative, and above all, that any medium and small-sized bank can offer.

Within this scenario of changes in the last year, the pandemic was also a determining factor for financial competition, not only in Brazil, but especially here. Large Brazilian banks have historically had gigantic distribution and service networks, in line with the size of the country. Twenty years ago, it would have been impossible for a bank without branches to capture clients.

Within this scenario of changes in the last year, the pandemic was also a determining factor for financial competition, not only in Brazil, but especially here. Large Brazilian banks have historically had gigantic distribution and service networks, in line with the size of the country. Twenty years ago, it would have been impossible to bank without branches to capture clients.

Still on competition, we cannot fail to mention other examples that are impacting the market and will still have a large share in future changes within the financial sector. Neobanks have enormous resources to compete with the big banks, being able to invest much more in advertising and technological development. That’s because they don’t care about profit as much as traditional banks do. Big bank investors demand profitability, of course, but neobank investors want market share growth, service quality, etc. That is, they allow them to lower prices to levels that direct competitors cannot keep up.

With so many events and happenings this past year, change in general is being possible thanks to the share of responsibility of each one of them, whether Pix, Pandemic, Open Banking and Neobanks. The fact is that everyone encourages a more competitive market, which plays a fundamental role in the country’s economy.

Editorial: InfoMoney