EXCLUSIVE: “Taking the Lead” – Alexandre Ricio, Inter Bank and Eduardo Goni, ACI Worldwide in ‘Discover Sibos 2022’

Inter Bank’s e-commerce debut was a bold move, but the bank’s Alexandre Ricio, and Eduardo Goni of payment solutions provider ACI, say it’s time for other legacy institutions to be equally dramatic

Brazil has long been regarded as the theatre in which the future of financial services – who the actors are and what roles they take on – plays out.

The backdrop for this drama is one of – if not the most – dynamic technology ecosystems in the world, featuring an advanced degree of integration and interoperability between the country’s diverse payment options. These include Boletos (printed or virtual vouchers, featuring barcodes that can be redeemed via ATMs, bank branches and internet banking), cards, Pix (account-to-account instant payments that can be made via the apps of virtually every payment service provider in the country), and PAGA (the mobile payment company enabling people to send and receive money digitally).

Shaping events on this financial stage, is Brazil’s enabling regulatory system. For years, the star parts have gone to fresh-faced fintechs spinning up instantaneous, app-based payments, easy-to-use credit solutions and more. Meanwhile, there has been endless speculation on legacy banks’ future – will they become ‘stunt doubles’, taking on the risk and anonymously servicing payments of far more exciting consumer brands; will they become supporting players as younger rivals steal the limelight in the fight for customer relevance?

Now, one veteran player has introduced an interesting plot twist: Inter Shop is the online consumer retail marketplace launched by Brazil’s Inter Bank in early 2020. The shopping platform, also accessible to US customers, saw sales of more than BRL 3.5billion (US $665million) during 2021 by offering products from more than 100 partner stores, including Amazon. Its Q4 2021 operational review suggests the concept has become a crowd-pleaser, registering 201 per cent year-on-year growth.

Alexandre Ricio, Inter Bank’s vice president of operations, IT and finance, says building an e-commerce platform fell well outside the bank’s comfort zone when it began the project in 2019. But it had identified a clear opportunity – and a business case.

“We had payments, we had a banking app with very high client and transaction flow. But we didn’t have e-commerce,” he says. “We also recognised there was a risk imbalance between acquirers, banks and merchants. Banks would take a small portion of the proceeds from each purchase via the exchange tariff. The acquirer would take their share, with very low risk, and the retailer was losing out on bounced payments and acquirer fees.

“We realised there was an opportunity for Inter Bank to act as acquirer for our own distribution channel, for which we manage all the payments rather than only generating exchange fees on transactions, and that way we achieve more revenue.”

Such a vertically integrated model could have a big impact on value chains in Brazil. And not before time, says Ricio.

“Acquirers need to think differently from the last 15 or 20 years, which have been based on a little machine with a card for transactions. Eventually, that machine, or even the shopkeeper’s phone itself, will not only be able to absorb credit and debit cards, but Pix and other forms of direct payment, too.

“Banks with a bigger client flow will be integrated directly with acquirers and different payment facilitators will be able to bring solutions that will turn acquirers into managers for the payment flow coming from those diverse arrangements. And there is additional value to be achieved from providing solutions to retailers searching for integrated solutions.

“Previous attempts to bring such solutions to market stopped due to integration issues, and a reticence among retailers that were used to traditional solutions, like Mastercard and Visa. For them, transferring to a different methodology seemed too difficult. In 2017 we tried a product called Inter Pag, for example, a version of Pix that worked for just our customer base, [for transactions] from Inter to Inter customers. “But back then we didn’t have 20 million clients, we only had 200,000-to-300,000. As a consequence, it was really difficult and no one would use it. Now, with Pix and other integrated solutions, everything is less complex, with reduced risk, and all players can operate by sharing the same solution.”

Ricio believes Inter Shop helps retailers, too, with improved customer experience driving loyalty and sales.

“Retailers signing up to our marketplace can execute all their sales through our Inter app, which offers the simplest experience possible. And there’s minimal trolley abandonment, because there isn’t a complicated screen for adding a card number and it doesn’t ask users to log in and create a password,” he says. “If a consumer wants to buy a phone, for example, they just choose a model from the large number of popular retailers within our marketplace. When they go to the payment screen, they are logged in already via their marketplace credentials; they can choose whether they want to pay by credit card, debit card or instalments, then conclude their purchase with one click.

“Our clients also benefit from cashback as a reward for using our e-commerce channel. These are some of the ways in which we believe we’re providing a future model for the industry.”

Inter Bank is understood to have generated around $260million of capital funding to fuel its superapp growth aspirations through the establishment of Inter Shop – with its range of services potentially including travel, food delivery, healthcare and entertainment. It demonstrates that, while non-banking entities like Brazilian retailers Mercadolibre Inc, Magazine Luiza SA and Via Varejo SA have moved into financial services, offering branded credit cards, loans and cheque accounts, becoming quasi banks, the real banks can equally well diversify into the retail space.

A BANKING MODEL FOR THE FUTURE?

Inter Shop is part of Brazil’s endlessly surprising story of innovation in financial services. And, according to Eduardo Goni, payment solutions provider ACI’s country lead, other acquiring banks should take their cue from it.

“They need to change,” he says. “Not least because payments are evolving to a point where cards will be less present. A report by electronic payments industry association ABECS, at the beginning of this year, showed that e-commerce and payment links without a credit card being present grew by around 35 per cent, whereas the industry is still basing its assumptions on historic trends of closer to 22 per cent. This represents a green field for acquirer banks to explore, which they are not taking as seriously as they could – for example, embedding cards within bank apps or issuing them virtually in the same way as fintechs like Boleto do; creating microservices for users, including options like buy now, pay later [as Inter has done].

“Someone needs to execute transactions among the high number of consumers using pre-paid cards, too – again, there is a role for the acquirer banks to build relationship, using methods like this, with consumers, the majority of whom aren’t banked but receive government funds that they could be keeping inside a virtual wallet.” Ricio adds: “As an early adopter of digital technology, Brazil is a testbed for a lot of new concepts. A key example of that is the speed at which our population adopted Pix and completely embedded it in our culture.

“Brazilians are particularly inspired by anything that makes life easier, and will adopt it quickly, which is why I think we’re on the right lines with Inter Shop, and why so many companies, like us, are willing to invest in developing new technologies in our country.”

Brazil’s unique innovation status was outlined to the World Bank’s annual forum meeting in May by David Vélez, founder and CEO of Nubank, who suggested that the country is adopting digital payments faster than anywhere else on the planet. Vélez said burgeoning payments innovation is helping to boost financial inclusion and providing access to bank accounts for the first time to millions of Brazilians: 16 million people have been ‘enfranchised into the Brazilian financial system’ since the COVID-19 pandemic, meaning that ’85 per cent of Brazilians now have access to financial services [which] represents one of the highest increases in the banked population in decades’, he told the World Bank.

“We will see a lot more omnichannel offerings, where, for example, consumers can checkout seamlessly using their phones, even when at a physical store”

Alexandre Ricio, Inter Bank

His report cites other initiatives that are helping to resolve the country’s remaining barriers to financial inclusion, including one by his own bank, which was founded in São Paulo in 2013. It has grown to provide one of the largest digital banking platforms in the world, offering financial products to more than 53 million customers with recent data suggesting Nubank has opened access to the financial system for 5.6 million people who had previously been excluded.

Such impressive progress has been fostered in Brazil by the open-minded approach to innovation taken by the Brazilian Central Bank, which is helping to remove barriers such as onerous licensing procedures and high capital requirements, according to Vélez. ACI’s Adriano Goni believes the Central Bank’s approach has paid off, not just in terms of unshackling fintechs and incumbents to innovate, but for the country’s economy, too.

He points to year-on-year growth in gross domestic product of 22 per cent in 2022, which he says is 50 per cent ahead of comparable nations. In terms of what this ‘can-do’ environment means for the future of banking in Brazil, Ricio says:

“We will see a lot more omnichannel offerings, where, for example, consumers can checkout seamlessly using their phones, even when at a physical store. And an increase in the kinds of invisible payments everyone is used to now with ApplePay, extending to the likes of Pix. There are a lot of things, like this, that can simplify the customer experience and reduce the distance between the thing a person wants to buy and executing that purchase, which will represent a gain for all the players involved.”

One of the specific offerings that has helped to boost inclusion in Brazil, by supporting under-banked and cardless customers, is buy now, pay later. Although, in its digital form, BNPL is relatively new to Brazil, the concept isn’t. Brazilians have been paying through the use of multiple forward-dated cheques for years, since 34 million people here don’t have access to credit cards. New BNPL solutions also offer credit lines that are independent of belonging to traditional financial institutions, allowing them to pay through services like Boleto or Pix, which offer full interoperability with banks and fintechs.

Guaranteed Pix, or Pix Credit, due to launch later this year, will also offer bank and fintech customers credit for instant payments. It should result in lower merchant transaction costs and improved access to high-ticket-price items and lower interest rates for consumers. With its popularity increasing, BNPL represents another income diversification opportunity for incumbents, says Ricio.

“Payment solutions must be totally integrated, with merchants able to offer different price points for different payment modalities, based on the inherent risk within each, be it a bank or other player that ultimately funds that sale,” he adds. “Cash will disappear and, by creating that multi-product, multi-way payments gate, we will make it much easier for consumers to buy, with credit built in at the back end.”

Goni says: “The evolution of digital BNPL solutions here was practically inevitable and our unique experience with instalment payments concept will support innovation. Our ACI Pay offering supports providers all over the world, as well as in Brazil, with a range of solutions including BNPL, which are highly secure.”

So where does he think Brazil’s payments story will go next?

“There is a very large space to be explored,” Goni says. “Brazil is highly developed in terms of mobile phone penetration, with almost two per citizen. So, acquirers like ourselves need to focus on mobile first, with solutions that are transparent for the end-user, where the integrations happen invisibly behind the scenes and offer solutions that acknowledge users’ different buying behaviours. For example, Brazilians are among the biggest users of social media in the world. WhatsApp has more than 160 million members in Brazil; Facebook and Instagram almost 120 million each, and TikTok 80 million. We cannot ignore these as payments mediums, given their communities are almost bigger than the big banks’ databases.”

This article was published in The Fintech Magazine Issue 25, Page 38-39