AROUND THE GLOBE

We can see that the primary opportunity in the cross-border industry is small business exports, which dwarfs other payment verticals. And yet, very little payment innovation has flowed to this vertical. By and large, small business in Brazil depends on international wire transfers to pay invoices abroad and have limited (and expensive) access to the foreign exchange market. And while the Central Bank and other fintechs are making inroads to improve outbound cross-border payments, today the focus is on payments within Latin America, i.e. to Colombia and Argentina. These efforts could be misplaced when it comes to serving small businesses, considering the top outbound corridors for small business invoice payments are China, the US, and Germany.

Why this is changing

Cross-border payment companies, therefore, have the opportunity to disrupt the market for small businesses, streamlining payments, making them more accessible, transparent and affordable, and change may be on the horizon, consider four key trends:

1 - Fintechs dedicated to international payments for small businesses. Some companies are actively working on this. Cross-border banking fintech and licensed foreign exchange bank, Bexs, provides specialized import/export service and international remittances for companies.

2 - International accounts becoming more accessible. Global and local fintechs & medium size banks such as Wise, C6, BS2 make it possible for Brazilian companies to open international accounts to make and receive payments in multiple currencies.

3 - International Pix

The Central Bank has cross-border payments with Pix on its long list of agenda items, but an update came in February this year, when president of the Central Bank, Roberto Campos Neto, said that Brazil is considering organizing with a block of countries to enable international Pix. The central bank has already met with representatives from Colombia, Ecuador, Chile and Uruguay to this end.

4 - More flexible regulation

Brazilian regulators understand that to maintain the competitiveness of their economy, regulation must remain flexible and pro-business. As such, the IOF for credit card purchases abroad was reduced from 6.38% to 5.38% in 2023, and the IOF for all foreign exchange transactions will fall to zero by 2029. At the end of 2022, the Central Bank also become more flexible on offering access to the FX market, enabling acquirers and other regulated payment institutions (most of which are fintechs) to provide cross-border services.

The cross-border market in Brazil still has a long way to go to becoming fully open, transparent and accessible to small businesses. But with 30 million small and micro businesses in Brazil, representing 30% of Brazil’s GDP (north of $500 billion), there is a large opportunity to provide them with better access to cross-border payments. As commerce becomes more globalized and Brazil’s economy grows, small businesses will continue to source goods and services from all other the world, providing a nearly $100 billion opportunity for those who are positioned to capture it.

Lindsay Lehr Managing Director, PCMI