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Payment instruments used by non-banks in Brazil
Cash payments are essentially used in small-value transactions relating to everyday purchases. At the end of 2005, the total amount of currency in circulation was about R$ 70.0 billion, approximately R$ 68.4 billion in banknotes and R$ 1.6 billion in coins. Banknotes are issued in seven denominations (1; 2; 5; 10; 20; 50 and 100), and coins in six denominations (0.01; 0.05; 0.10; 0.25; 0,50 and 1.00). Both banknotes and coins are legal tender in the Brazilian territory, but the acceptance of coins, as a payment instrument, is mandatory only up to 100 units of each denomination.
From 2001 to 2005, the currency held by the public stood for 39.7% of the monetary aggregate M1, as shown below:
Chart: Share of currency held by the public in the monetary aggregate M11
Non-cash payments are mostly made by means of credit transfers, cheques, debit and credit cards, and also through direct debits. All payments are made in national currency only.
The following graph shows the share of each payment instrument, in volume and value, in 2005:
Relative use of payment instruments - 2005
1 - Credit transfers
In Brazil, interbank credit transfers ordered by non-banks include TED (Electronic Funds Transfer), DOC (Credit Transfer Document) and those related to “bloquetos de cobrança”2. Intrabank credit transfers are also important. TED’s interbank settlement is made in real time, and the related funds are made available at the beneficiary's account on the same day, typically after few minutes from the moment the transfer is initiated by the payer. As to DOC, funds are made available at the beneficiary's account, for withdrawal, on the following day (T+1)3. Funds from credit transfers that are associated with “bloquetos de cobrança”, as in the case of DOC, have their interbank settlement on T+1, but their availability at the beneficiary's account will depend on the agreement between the beneficiary and its financial institution. Regarding intrabank credit transfers, typically the debit at the sender’s account and the credit at the receiver’s account occur simultaneously at the moment the transfer is ordered.
Credit transfers can be initiated either by the payer himself, through an Automated Teller Machine (ATM) or a personal computer (Internet banking), or by a bank cashier on behalf of him. Even when initiated in paper by the customers, all credit transfers are electronically processed.
In 2005, some 10.9 billion of credit transfers were made, which amounted to about R$ 16 trillion (average of R$ 1.5 thousand per transaction).
Cheque still represents an important payment instrument in Brazil, though there has been a decrease in its use in the last years due, mainly, to its substitution for electronic instruments. Having standardized format and basic features, cheques have got what is known as 'Magnetic Ink Character Recognition' (MICR), a device that allows its basic data to be read automatically. Sometimes, cheques are written to be withdrawn in a future date (so-called “pre-dated cheques”) and, in this case, they can be seen as credit instruments. In Brazil, sight deposit accounts are the only ones in which cheque transactions can occur. Cheques are still physically presented to the drawee bank, even though they can be truncated according to bilateral agreements.
Cheque interbank settlement occurs on T+1, observing different procedures according to is value4. In customers’ accounts, considering the date in which the document is collected as a reference date, entries are normally made:
· in the payer's account, as debit, at the night of T, in case of "above limit cheques"5, or at the night of T+1, in case of “below limit cheques”; and
· in the payee's account, as credit, at the night on T+1, in case of "above limit cheques", or at the night of T+2, in case of “below limit cheques” .
In 2005, approximately 2.6 billion cheques were written, amounting to some R$ 2.3 trillion (average of R$ 893 per cheque).
3 -Credit cards
Launched in Brazil in 1956, credit cards have achieved greater importance from the 1990s. The eradication of some restrictions, such as the prohibition on buying fuel by credit cards and also the "private label" requirement, a market condition that existed until 1996 and that prohibited an issuer (bank) from operating more than one branch, contributed to their widespread use6. In Brazil', the credit cardholder does not pay financial charges if the bill, related to the goods and services that were bought, is paid on the due date. The average time from the date of shopping to the date of payment is 25 days, according to firms of the credit card sector.
The number of credit cards units changed from 35.4 million in 2001 (average of 1 card per 4.9 inhabitant) to 68.1 million in 2005 (average of 1 card per 2.7 inhabitant), corresponding to an increment of 92.4% in the period (yearly average growth of 17.7%). In 2005, around 1.9 billion credit card transactions were made, amounting to about R$ 136.7 billion (average value of R$ 73 per transaction). From 2001 to 2005, credit card transactions increased about 127.7% in volume (22.8% yearly).
4 -Debit cards
Debit cards are issued as bank cards, many times having credit and cash withdrawal functions as well. As payment cards, they are used mainly in POS terminals located at the commercial firms’ premises. Cardholder's account debit usually happens at the moment of payment, while credit to commercial firm’s account occurs at a specific time, depending on the agreement between the firm and the card administrator. The main brands are Visa Electron, from Visa, Maestro and Redeshop, from Mastercard, and the Electronic Cheque, from TecBan. As in the case of credit cards, debit cards with microchips have been gradually replacing the ones with magnetic band.
Payer account is usually debited at the moment of the purchase, while credit in the payee account is made in a certain term, shorter or longer depending on the contract between the commercial firm and the card administrator.
In 2005, around 1.2 billion debit card payments were made, amounting to a total of about R$ 53.2 billion, with an average value of R$ 46 per transaction. From 2001 to 2005, the number of debit cards increased from 101.1 million (average of 1 card per 1.7 inhabitant) to 155.6 million (average of 1 card per 1.2 inhabitant), which is equivalent to a growth of about 53.9% (11.4% yearly). In the same period, debit cards payments increased around 254.5% in volume (yearly average of 37.2%).
5 - Retailer cards
Retailer cards, which are mainly issued by major stores, can usually be used only at the shops of the same group, i.e., they are “in-store” cards. The use of this instrument implies payment deferment, since the cardholder can usually settle his total obligation between one and two months later, generally without charges, or pay it in installments. On the due date, having to return to the shop, the payer normally uses either cash, cheque or debit card to settle his obligation.
Retailer cards units evolved from 50 million in 2001 to 99 million in 2005, which is equivalent to a 98% increase in the period (yearly average of 18.6%). In 2005, there were around 600 million retailer card transactions, amounting to some R$ 22 billion (average value of some R$ 37 per transaction). In the same period, retailer card payments increased some 100% in volume (19% yearly).
6 - Charge cards
Charge cards are used for payment of specific services, mostly related to telephone and public means of transport, or bulk value goods shopping. In the first case, which is the most common, public service companies issue their own cards, which can be acquired at some accredited shops. In this case, services are pre-paid and the card becomes disposable when its charge runs out. In the second case, the card is issued by a financial institution, which charges it up to a limit, for the use of its customer at accredited shops. Such type of card, usually an embedded microprocessor card, can be re-loaded many times. At each time, the charge limit determined by the issuer must be observed. In Brazil, though, charge cards are at a very early stage in its development, having pioneer projects by Visa and Mastercard as good examples.
Statistics related to the use of such instrument in Brazil are not yet available.
7 -Direct debits
Direct debit is normally used for recurrent payments, that is, those that are made on a periodic basis, mostly related to utility services (water, electricity and telephone, for example). For such payments, the payer should preauthorise his bank to accept funds transfers initiated by the payee, which should previously send to the payer, for his control, the correspondent invoice. The authorization is usually for an indefinite time, therefore valid until not cancelled. On the day that the payment is due, there is an automatic and direct debit on the payer's account.
In 2005, around 768.7 million direct debit transactions were made, amounting to about R$ 145.9 billion (average value of R$ 190 per transaction). From 2001 to 2005, direct debit transactions increased about 99.4% in volume (yearly average of 18.8%).
1 All economic agents but sight deposit taking institutions.
2 Bar-coded standardized document that allows bills to be paid in any bank.
3 Though interbank settlement takes place in the morning of T+1, many banks consider that funds have been transferred at the night of the previous day (D0), as it used to be before the existence of TED.
4 From 02.18.2005 on, cheques which value are equal to or larger than a referential value (R$ 250 thousand, presently) are settled bilaterally among banks, without netting, through STR. Cheques with value lower than this referential value are settled with multilateral netting in a specific clearing system (Compe).
5 Above limit cheques" are the ones which values are equal to or larger than a referential value (R$ 300, presently).
6 The main brands are Visa, Mastercard and American Express.