How do Brazilians pay for things?
In asking this question, we open Pandora's Box and find a raft of unfamiliar payment types, each with their own idiosyncrasies and profound differences as compared to the features of similar products as used in other countries. All payment types in Brazil function in rather a unique way, and each has to be considered individually.
1. Checks
Most Brazilians to whom you could sell something by mail (meaning literate Brazilians with some money) have a bank account and a check book. Checks are typically printed on demand at the ATM and customers are normally restricted to having 8 or 12 at a time. Bank computer systems keep long term records of blank checks issued. Checks are, despite the restrictions, widely used in Brazil and it is not unusual to see residents using checks to pay for retail purchases at the supermarket or pharmacy. There is a high degree of trust in checks, as a person who bounces two or more is likely to be noted on the national black list (referenced via CPF) and experience both commercial and personal difficulties until the matter is cleared up.
In short, accepting checks in payment for goods is a worthwhile practice, particularly if orders are to be made by mail. However, if you intend or need to accept checks for more than 100 BRL, then you need your own company. Checks for 100 Rs or less can be consigned to a payment processor with a Brazilian unit and deposited on your behalf. Checks for 100 BRL or more, however, need to be either deposited in your own bank account (thus you need a company with a CNPJ) or endorsed by the company named on the front (including the CNPJ).
2. Credit / Debit Cards
Most Brazilians who have a bank account, also have a credit or debit card. Cards are issued largely under the Visa and MasterCard brand logos, though there are other bank debit cards that are not card scheme-branded. This sounds good for international sales until you contemplate several limiting factors. First, most Brazilian cards are enabled for intra-national use only; they only work if processed by a Brazilian company through its acquirer. Second, the banks in Brazil do not provide acquiring services for their merchants; instead, independent acquirers (of which the largest and best-known is Cielo) provide merchant services and only settle the net funds to bank accounts. If, therefore, you accept credit cards through an international acquirer, or try to run them through the machine / software provided by your bank outside Brazil, most of the transactions will be declined.
It gets worse. While most of the world is used to taking single payments on credit cards, the entire Brazilian retail economy runs on a practice of "parcelization" of transactions. That is to say, if you go to a store to buy a pair of shoes, the price will be displayed as something like "Rs.100 / 10 x 10." Meaning, you can buy the goods with 10 payments of 10 Rs. The credit card regime accommodates this, and at the time of sale the machine / software asks the sales person how many parcels the payment is to be split into. This is something people outside Brazil are not used to, and it requires a fundamental shift in marketing thinking to realize it is something Brazilians think of as normal, and expect.
Settlement times are slow. It is not uncommon for new merchants to wait 30 days for their funds from the card processor. And MDRs (Merchant Discount Rates, or the commission charged by the card schemes) are high - quotes of 8 to 10 percent are not unusual.
Basically, if you want to accept Brazilian credit cards, you will need a bank account to receive your proceeds, a company (with CNPJ) to contract with the acquiring company, and the cash flow to fund your sales for a protracted period while the acquirer settles.
And don't forget the tax. You will be required to include the appropriate rate of sales tax (typically about 18%) in your price, and remit it to the government on a monthly basis.
If you use a domestic payment processor for your credit cards, some of these hurdles can be overcome. The taxes and costs will remain, however, and of course be slightly marked up to give a margin to the payment processor - if you sell something for BRL 100, you are likely to see only 70 BRL of that money in your own hands at the end of the process. Your international processor can connect you to the domestic acquiring system, but cannot avoid the taxes or timelines that are intrinsic to Brazilian acquiring.
3. Cash in the Mail
In short, a non-starter. Brazil is a high fraud risk country, and postal losses are frequent. Asking for cash to be put into the mail, especially if sent overseas, will garner no response.
4. Boleto Bancario (aka Cobranca)
According to marketing statistics, 70% of all remote Brazilian payments are made by Boleto Bancario. This is a unique Brazilian payment form (though there are variants in eg Chile, Cupones de Pago), and is best understood thoroughly if you plan to sell to Brazilian consumers.
Imagine if you will a national settlements system. Any customer of any bank can sign up to issue, through the bank, electronic invoices, which contain a bar code and a numerical reference. The boleto can be sent by mail by the vendor, or by the bank, or delivered digitally by email or internet. And once received, it can be paid at any one of literally millions of outlets: grocery stores, in banks, at ATMs, at the post office, at lottery booths, and hundreds of other types of processors. Almost magically, funds paid in at the payment point, sent by electronic banking, or transferred at the ATM, are credited within 5 days to the bank account of the issuer. All of this is made possible because the tax number system is tied into bank accounts; no matter where funds are paid in, if a valid boleto number is either typed or scanned in, the funds will arrive in the issuer's bank account.
That's the broad brush description. It will be immediately obvious that to issue boletos you need a bank account; and that to have a bank account you need a CFP or CNPJ; and therefore you need a Brazilian identity or company (or both). Inevitably, the tax authorities have their hands on the whole system and there is no way to avoid liability for reporting or taxes if you collect boletos in Brazil, no matter if your payment processor issues the boletos for you.
In order to issue a boleto you must have the CPF or CPNJ of the customer. Therefore, obtaining this is a fundamental and regular part of the order taking process.
There are several refinements to this general description. At the legal level, when issuing a boleto you can choose whether to have it registered or unregistered. If it is registered, then the bank will maintain a record of it, and issue reminders to the payer automatically if it is not paid. More significantly, if it is unpaid the bank will report the consumer to the Central Bank, and a register exists (not surprisingly, accessed via CPF number) of unpaid boletos; you can therefore assess the creditworthiness of a potential customer by checking their record for leaving boletos unpaid. Access to this database is via a paid subscription to a private third party service, and is surprisingly cheap - a matter of a few dollars a month. This serves as a powerful incentive for consumers to pay boletos.
If the boleto is registered, the bank takes an active role in encouraging its payment. If it is unregistered, then the bank's role is confined to passive acceptance of payment and advising the merchant when the funds arrive. A boleto can be cancelled after issue.
Another refinement is that a boleto can contain a discount for early payment, or a premium for late payment. These terms are at the discretion of the merchant and can be quite generous or severe.
Where boletos issued via a bank by the account holder (which may be the merchant or the PSP) fall down, is that most banks do not have particularly sophisticated software for their creation, especially for providing quick boleto production via the web. A number of third party providers have sprung up to master this process and provide back office support for the related accounting. The best known is probably the giant Braspag organization, but there are smaller (and more nimble) operators providing similar niche products. What happens when they are employed is that a multi-party contract is created allowing the local specialist to link to the bank account and the bank's software; it then works with the merchant's site to create a "pay by boleto" pop-up, captures the boleto data, receives reporting of paid boletos from the bank and provides reconciliation data to the merchant. A payment processing company can be inserted into this process between the merchant and the bank, in which case the merchant's bank account is the one employed. Utilization of such a specialist is a must for online sales organizations and a significant plus for anyone with a high volume of boleto payments to administer.
Compared to the other payment methods in Brazil, boleto is significantly more successful and less expensive than most. Expect to pay less than 3 Rs (1 or $ 2) for issued and paid boletos, a few cents per transaction to a web creation service, and perhaps 2 or 3% to the PSP. All in, for goods sold at 60 Rs or more, your costs should come in below 5% - but don't forget the taxes.
5. Direct Bank Transfer
Brazilian consumers are used to pay for things by direct bank transfer, either from internet banking or from street merchants, particularly for higher ticket, urgent goods like medicines and specialty clothing. If you have a bank account (meaning you must have a CNPJ and Brazilian company) you can provide the details and your consumers can deposit directly to you. Delivery of funds is fast, typically same day (same bank) and next day (different bank). Costs are low for same bank (often free) but expensive for other bank - typically 8 Rs or more. There is also a division of values; most banks make the difference at 3,000 Reales, allowing transfer by DOC (less expensive) up to this value but TED (more expensive) above it.
What makes bank transfers cumbersome for larger transfers, however, is the security surrounding the transaction. Consumers can typically log into their internet banking and make small transfers immediately; for larger amounts, however, the bank usually requires production of a paper authority to register the payee, which must be physically taken to the bank and signed in front of an officer.
Bank Transfers are not a way to avoid taxes; details of every transaction will be logged to your bank account and available to the government for inspection on demand.
6. Direct Debit
Brazil has a well developed direct debit system, and it is on the English model - the main constituency of users is regular issuers of irregular amounts (utilities being the obvious candidate). Direct debit is however largely unsuitable for remote selling as there is a paper burden surrounding the set-up and origination of direct debits. Naturally in order to commence doing business in this manner you need a Brazilian entity, CNPJ and bank account.
Accepting payment in Brazil requires a certain mental agility as you are required to think outside of the regular frameworks and familiar payment structures you've grown used to. Becoming fluent in the unique ways that Brazilians pay for goods and services is mandatory for success in the market. Our next installment in the series deals with getting funds out of Brazil. Remote Selling in Brazil - Taking Money out of Brazil will appear here on Ezine articles in the coming days.
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