Back in late May, I shared the news and some observations about new payments legislation in Brazil. Last week, less than four months later, that legislation has now become law. The major tenets of the legislation remain intact and Brazil is now firmly in the small group of countries that is formally coming to terms with emerging developments in the payments system.
Going forward, Brazil has defined its mobile payments environment and placed parameters around participation as well as what is required of those participants. Yet the legislation extends beyond the mobile payment arena into the larger payments space in also creating a new category of payment institutions. Both mobile payment providers as well as other payment services providers may elect to become payments institutions.
In many ways, there is nothing terribly remarkable about the newly created environment – the law provides certainty about rules and requirements, defines some key activities that were previously fuzzy (or completely open for interpretation), attempts to create the conditions for more competition in the payments system, and places those who wish to become payments institutions under the supervision and regulation of the Banco Central do Brasil. These are fairly standard outcomes of legislative activity in the payments area.
What’s really different are the potential implications of a few passages that, along with the rest of the law, will be more fully defined by implementing regulation to be issued by the central bank within 180 days.
First, the law requires “interoperability of the payment scheme and between the different payment schemes”. How will this be achieved? Certainly interoperability is a minimum requirement for any truly meaningful mobile payments system but, in practice, how does it happen. Is this a requirement that the different providers link to each other? Or is this itself a new scheme? Would payments to receivers using other schemes be treated equally?
A second clause that caught my attention was the requirement of “non-discriminatory access to the necessary services and infrastructure for the functioning of the payments schemes”. If, as the law allows, payments institutions can be non-banks, does this mean that banks cannot discriminate against mobile payment providers or other non-bank payments institutions – who effectively are competitors that are also customers – or does it mean that they must offer a form of special access to payments institutions that is superior to other customers? Alternatively, does it mean that payments institutions will have some form of improved access to the national payments system? Today, only banks have direct access to these infrastructures in Brazil.
Regulatory Oversight of Fees
The law also gives the central bank supervisory authority over payments institutions and payments schemes. One aspect of that authority includes “supervision of fees, commissions and whatever other form of remuneration for payments services, including among participants of the same payment scheme”.
This is another hot topic included in this law. To me, this text leaves little room for interpretation – fees for payments (read commissions, but also read interchange) can be subject to central bank input. This should serve as a strong incentive to providers to keep fees reasonable.
Non-Bank Provider Accounts at the Central Bank?
Finally, the central bank is authorized “to collect deposits from non-bank payments providers in the Brazilian Payments System”. This clause falls in the section on payment accounts of the scheme users, or what in the U.S. we often refer to as notional or virtual accounts.
Does this mean that non-bank payments institutions can have an account at the central bank? Supervised but non-bank providers having an account at the central bank – now that’s truly remarkable.
We’ll have to wait for the regulations to see how it’s all interpreted (and we’ll follow up when the regs are issued) but one thing is for sure – the game has fundamentally changed in Brazil.