Instant Payments: What FedNow Could Learn From Brazil’s Pix

The Pix system, a joint government-industry project, features mandatory participation by major banking players. That's among suggestions for accelerating growth in FedNow's usage.

Brazil’s instant payment system Pix has become a global success story in real-time scheme implementation. Launched in late 2020, it reached:

  • 42 billion Pix transactions in 2023 vs. 17.8 billion for credit cards and 16.3 billion for debit cards, according to the Brazilian Federation of Banks. That 42 billion represents a 72% increase over 2022.
  • BRL 17.2 trillion (US$3.4 trillion) in transactions made on Pix in 2023 — versus BRL 3.4 trillion (US$677 billion) with cards. (“BRL” stands for Brazil’s currency, the real.)
  • 36% of Pix transactions in December 2023 were made by consumers paying merchants and billers instantly — an increase of 12 percentage points from the previous year.

FedNow, launched in July 2023, has more than 607 financial institutions and service providers that are participating with it, after starting with just 35 in mid-2023. Even with such a powerful start, FedNow might not have the same reach as Pix …

But could FedNow learn some lessons from Pix?

Comparing History of Pix and History of FedNow

Before we get into the issues that may hinder FedNow’s penetration, some context is in order.

Much of Pix’s success relates to how it was built. Despite existing peer-to-peer (P2P) solutions from local digital wallets, the system was co-created from scratch by the Brazilian Central Bank and the industry. Participation of all major financial institutions in the country was mandatory. This made interoperability within the system a must and made Pix available to 90% of adults with bank accounts since its inception. The payment scheme was designed to be inclusive of fintechs from its start, fostering innovation and ensuring a competitive marketplace.

Additionally, the Brazilian regulator decided Pix would be launched with a primary focus on free-of-charge peer-to-peer transactions — banks and payment institutions could not charge any fee. Making zero-fee transfers was decisive for the system to reach the penetration rate it has today, equivalent to more than 95% of the Brazilian population.

Things played out differently in the U.S. Two of the main same-day P2P solutions evolved solely through private lanes. First came Venmo, in 2009, followed in 2016 by Zelle — a solution launched by the largest U.S. banks. Today more than 2,100 banks and credit unions, handling 80% of U.S. deposit accounts, take part. The platform transacted US$806 billion in 2023, up 28% from the US$629 billion reached a year before.

In 2017, The Clearing House, owned by the country’s leading banks, implemented Real-Time Payments (TCH RTP), considered the first new U.S. core banking system in 40 years, with approximately 500 participant institutions today (representing 65% of U.S. checking accounts).

Since 2022, Zelle has used TCH RTP as its settlement network, something that could have led to interoperability between the two rails, but they continue to operate independently.

In Q4 2023, TCH’s RTP network processed 74 million transactions worth US$39 billion. If they followed the same operational standard, the institutions participating in the network could have made it reach a much greater mark.

Read more: PayPal’s Dan Schulman on the Future of Banking: Digital, Seamless and Consolidated

How Can Growth Be Encouraged in the U.S.?

The trends suggest, overall, that Americans are embracing existing P2P solutions, especially when we factor in that digital wallets overtook credit cards as the most used method for online shopping in 2023, accounting for 37% of ecommerce payments, per Worldpay research, and continue to grow. (Dig deeper: Consumers Have Embraced Digital Wallets. But They Also Want Them to Be Better.)

Also, the still-low volume of P2P quasi-instant transactions within the Clearing House’s network means there is a lot of headroom for growth. And the current lower costs to use these services instead of traditional ones may attract more users in 2024 and in the future.

What can be done to accelerate adoption of instant payments in the U.S.? Some fundamentals in Pix’s success story can serve as inspiration for FedNow to become a truly game-changer solution. Among them:

• Fostering participation. Unlike Brazil’s Pix, financial institutions can opt out of participating in FedNow. This respects institutions’ choice, but if FedNow remains in niche mode, it won’t have the range needed for building the interoperability levels required to make it a long-range real-time payment system, capable of replacing other traditional rails.

If participation in the new scheme remains voluntary for institutions and fintechs, FedNow must find ways, however subtle, to ensure that the minimum accessibility, standardization and security requirements are followed by all stakeholders.

• Clarifying purpose. Around 82% of Brazilians had a bank account in 2022, whereas 94% of Americans have a bank account. Credit card ownership is much lower in Brazil than in the U.S.

The qualities that made Pix so attractive to Brazilians because of their relative lack of options are not as compelling to Americans, so they may not see the need to adopt FedNow.

The regulator has not placed enough emphasis on promoting and improving on its advantages — instantaneity and broad, unlimited availability.

• Becoming fintech-friendly. Fintechs played an instrumental part in increasing Pix’s popularity in Brazil. But in the U.S. they cannot access FedNow’s clearing system directly. The Fed should change that in order to allow newcomers to compete with legacy institutions, as this is the way to push for more agile and competitive services to be developed on top of the new payment network rail.

• Aiming for cutting-edge UX. Current P2P services in the U.S. complete most transactions in minutes, sometimes hours. On Brazil’s Pix, transactions take two to three seconds to complete — certainly, a user experience like this would be a big draw for FedNow to take off. Again, requiring participants to follow a minimum set of operational steps and improvements could level the playing field and help the industry reach Pix-like levels of speed much more quickly.

FedNow has tremendous potential and could certainly replicate Pix’s enormous success by following in these footsteps.

About the Author

Cesar Boralli is the associate managing Director of PCMI, a global payments consultancy.

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