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UNDERSTAND PAYMENT INDUSTRY IN BRAZIL

The technical evolution of the Brazilian society and of payment instruments have required significant changes in the Brazilian payment industry, which is a very dynamic market. Although cash is still the most used payment method by the Brazilian population, other methods, especially electronic ones, are increasingly used. This guide, developed in partnership with FAS Advogados, describes the current regulation of the Brazilian payment industry – as of December 2018 – presenting the different types and models of services that can be offered in the country and also the legal aspects related to the new technologies applied to this industry, such as cryptocurrencies.

Paulo Mertz Focaccia – Partner, Focaccia, Amaral, Pellon e Lamonica Advogados

The American Chamber of Commerce for Brazil, being the largest Amcham outside the United States is serving its members building bridges for Brazilian businesses worldwide. Our foreign investment attraction efforts are a key mission for Amcham. The “How To” guides published by Amcham Brasil are part of this initiative. With the support of some of our members and Brazilian States and cities, we are putting together strategic information on the most various aspects of doing business in Brazil and its opportunities. As part of BRICS (Brazil, Russia, India, China and South Africa) and representing the 8th largest economy of the world, and the 4th largest destination for foreign investment, Brazil has an intrinsic importance for the global market. More than ever it is a strategic time for businesses opportunities in Brazil. We welcome you and hope that the information you are about to read will contribute to your commercial and investment decisions linked to Brazil.

Deborah Vieitas – CEO, Amcham Brasil

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INTRODUCTION

RELEVANT CONCEPTS AND PREMISES OF THE APPLICABLE LEGAL FRAMEWORK

PAYMENT SCHEMES

PAYMENT INSTITUTIONS

PAYMENT ACCOUNTS

MAIN REGULATORY OBLIGATIONS

MOST RELEVANT CURRENT DISCUSSIONS

ABOUT OUR SPONSOR

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Cash

Debit card

Credit card

Eletronic transfer and automatic debit

Meal vouchers and food tickets

The Brazilian payment industry is very dynamic and has changed significantly over the last 10 years. These changes are closely connected to the technical development of our society, which has

brought the need of using electronic payment methods, in the most

different scenarios.

Although cash is still the most used payment method by the Brazilian

population, other methods, especially electronic ones, are increasingly used, according to studies published by the

Brazilian Central Bank (Central Bank or BACEN) in 2013 and 2018.

01. INTRODUCTION

First, in 2009, anti-trust authorities determined that the exclusivity practice with the acquiring companies should cease. Later that year, the Central Bank determined that all card labels should be transparent regarding their commercial practices, improving other acquirers’ access to information. This allowed other acquirers to have access to the two biggest labels in the Brazilian market, Visa and Mastercard.

In 2013, the Brazilian Government issued a specific legal framework to govern the payment industry through Provisional Measure No. 615/2013, which was later converted into Law No. 12,865/2013, regulated by the National Monetary Council and the Central Bank. Before then, this market did not count on a specific regulation, which created legal uncertainty and doubts among the players of the sector.

The significant increase in the usage of electronic payment methods in the last years relates to a series of interventions from legislators, the Central Bank and the Brazilian Competition Policy System. All these interventions aimed to increase competition in the payment industry, which is a highly concentrated market.

Until 2009, the Brazilian acquiring market consisted of a virtual duopoly. The two main card labels (Visa and Mastercard) – which, together, were responsible for more than ninety percent (90%) of the credit card market and eighty percent (80%) of the debit card – had exclusivity agreements with specific acquirers (Visanet and Redecard, respectively).

Faced with this situation, which had a negative impact over the competition in the payment industry, Brazilian authorities intervened in a way that changed the regulatory payments landscape completely.

Payment methods used (% of the Brazilian population)

Cash

Debit card

Credit card

Eletronic transfer and automatic debit

Meal vouchers and food tickets

Other methods

0 20 40 60 80 100

96 100

52 39

39 11

11 4

7 7

46 35

2013

2018

02. RELEVANT CONCEPTS

AND PREMISES OF THE APPLICABLE LEGAL

FRAMEWORK Law No. 12,865/2013 establishes

that payment schemes and payment institutions become part of the

Brazilian Payments System (Sistema de Pagamentos Brasileiros or SPB), subject

to regulation from the Central Bank, according to guidelines established by

the National Monetary Council.

It also introduces to the Brazilian legal framework a series of relevant

concepts, namely:

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PAY

BANK

1234 5678 1234 5678

$ $$

BILL

PAYMENT SCHEMES

Set of rules and procedures which regulates the provision to the public of certain payment service accepted by more than one recipient, by means of direct access by end users (payers and recipients);

PAYMENT INSTITUTION

Legal entity, adhering to one or more payment schemes, having as main or ancillary activity1 at least one of the following:

a) providing cash-in and cash-out services of the funds held on payment accounts;

b) performing or facilitating payment instructions related to definite payment service, including transfers originated from or intended for a payment account;

c) managing payment accounts;

d) issuing payment instrument;

e) acquiring payment instrument;

f) remittances;

g) converting physical or book-entry currency into e-money, or vice versa, acquiring the acceptance or managing the use of e-money; and

h) other activities related to the provision of payment services, designated by the Central Bank.

PAYMENT SCHEME OWNER

A legal entity responsible for a payment scheme and, when appropriate, by the use of the brand associated with the payment scheme;

1 It is important to notice that, as per the second paragraph of article 6th of Law no.12,865/2013, payment institutions are not allowed to conduct activities that are restricted to financial institutions (as provided for in applicable laws), in spite of the activities listed above. Thus, they are not allowed to use client’s funds to grant loans to third parties, for example.

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It is possible to better understand these concepts by analyzing a prepaid card Payment Scheme, such as the following:

CLIENT MERCHANT

PAYMENT INSTITUTION THAT ISSUES

THE CARDS

PAYMENT INSTITUTION THAT PROVIDES THE POS TERMINAL

PAYMENT SCHEME OWNER (CARD LABEL)

PAYMENT ACCOUNT: book-entry account, held on behalf of an end user of payment services, used for the execution of payment transactions;

This regulatory milestone also sets forth that Payment Schemes and Payment Institutions shall observe the following principles, in order to ensure the capacity for innovation and the diversity of business models:

a) interoperability within the payment scheme and between different payment schemes;

b) soundness and efficiency of payment schemes and payment institutions, promotion of competition and provision for e-money balances transfer, when applicable, to other payment schemes or institutions;

c) non-discriminatory access to infrastructures and services required for the functioning of the payment scheme;

d) meet end-users needs, in particular with respect to freedom of choice, safety, protection of their economic interests, non-discriminatory treatment, privacy and personal data protection, transparency and access to clear and complete information about the service;

e) reliability, quality and security of payment services; and

f) financial inclusion, in compliance with the standards of quality, security and transparency in all payment schemes.

The Law also establishes that the funds held in payment accounts constitute separate assets, and they do not integrate Payment Institution’s assets. Consequently, such funds (i) cannot be pledged and shall not be subject to any judicial restraint, such as attachment, search and seizure, due to debts undertaken by the Payment Institution; (ii) are not part of the Payment Institution assets, for the purposes of bankruptcy; and (iii) cannot be pledged as collateral for debts assumed by the Payment Institution. This is a very important concept introduced by the law that ensures more reliability to customers of services provided by Payment Institutions.

Law No. 12,865/2013 also introduces to