Brazilian SMBs are unimpressed with traditional banks’ service offering. As Pix becomes the default option for Small and Medium-sized Business (SMB) payments, banks face a serious challenge. In this article, we explain why the country’s fintechs and neobanks are best positioned to deliver for SMBs.
The astonishing growth of Pix in Brazil has created a threat to the relationship the country’s established banks have with SMBs – but also opened up opportunities. While fintechs and neobanks are embracing Pix to create new products and services, incumbent banks have been slower to react. Given that established banks retain the highest market share in terms of SMB customers and transactions, the opportunity to leverage Pix remains theirs to lose – for now.
Conceived as an instant payments platform by the Banco do Brazil (BCB), Pix has seen astonishing growth in recent years, with 65% of SMBs in the country registered for use and 100% growth in transaction volumes since 2021. While adoption of Pix among SMBs now ranks as high as their ownership of payment cards, SMB card usage lags behind both Pix and cash, as the graph below shows:
The clear message is that Pix is supplanting card use for Brazil’s SMBs. To date, the response from Brazil’s established banks has been sluggish: although SMBs account for 30% of Brazilian GDP and more than 50% of formal employment[1], their satisfaction with traditional banking services remains low. 2022 research carried out for one Brazilian bank suggests[2] that 72% of SMBs say fees charged by banks for business products are too high, while more than half (53%) believe it’s more convenient for them to manage their business through their personal account.
If banking services have languished, then Pix has been busy adding features and upgrades that are attractive to SMBs, such as Pix Automatico and Pix Garantido. Most recently, new fintechs and neobanks are emerging that offer fee-free card products, expense management, and payment tools alongside access to Pix. In doing so, they’ve created competitive difference between their offerings and the undifferentiated, expensive SMB products on offer from banks.
SMBs prefer the new offering from neobanks and fintechs: our analysis suggests that more than a third of SMBs are open to switching their main banking provider, and only 34% say they prefer traditional banks – with no fewer than 54% of SMBs expressing a preference for neobanks. As cash and card use decline, this makes the dominant position of established banking providers look distinctly vulnerable.
However, the fact that banked Brazilian SMBs use 2.8 financial service providers on average suggests that there’s still everything to play for – especially during a period in which Pix continues to transition. Despite its recent rapid growth, Pix is only now approaching the same levels of market share as the banking sector, and continues to look for ways to add more value, improve transaction security and offer richer transaction data to SMBs.
As Pix refines and improves its SMB service proposition, the banking sector should seek to reinforce its leading position in SMB services by working with fintechs and other players. For example, banks should create better API sets to make partnerships easier, and seek to deliver more value-added services through these partnerships – especially in those areas Pix has not yet touched such as loyalty and reward schemes. By partnering with online B2B marketplaces – such as Bees or other 50+ marketplaces in the country, banks could offer payments and other financial services to a much wider range of SMBs more effectively and at lower cost.
Alongside partnerships with fintechs that position payment services as part of a wider proposition, banks should also consider reducing the cost of cards and payments, using them as a hook to attract SMBs to their portfolio of loans and other products. If at present fintechs and neobanks are leaning into Pix to create new products and services, then Brazil’s banks also have the chance to capitalize on this seismic market change – but this opportunity won’t last forever.
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Pix: The Core Of Brazil’s Future Payment System
Pix was conceived by the BCB as the key pillar of their BC+ Agenda, which aims to improve financial inclusion, competitiveness and transparency through data protection, the development of Open Banking, and delivering instant payments.
For a discussion about how to counter the threat posed by new providers to your SMB business, get in touch with KoreFusion at information@korefusion.com.
KoreFusion optimizes SMB payments strategy across 80 countries. We help banks and fintechs with their digital strategies and products for SMBs across cards, real-time payments, overlay services, and cross-border.
[1] US Embassy in Brazil, 26 January 2022: “US-Brazil Co-operation on Entrepreneurship”: https://br.usembassy.gov/u-s-brazil-cooperation-on-entrepreneurship/
[2] 2022 survey of 359 SMBs across Brazil carried out by a Brazilian financial institution.