This article aims to explore in detail what a Payment Institution is, its various modalities, the limitations on offering loans and financing, the requirements to request authorization from the Central Bank of Brazil, as well as the compliance policies and regulatory routines that must be followed.
Content:
- What is a Payment Institution?
- Modalities of Payment Institution
- Can a Payment Institution offer loans and financing?
- Payment Institution Authorization Request to the Central Bank
- Transaction Limits to request authorization for a Payment Institution
- Compliance for Payment Institution
- Regulatory Routines, Policies, and Procedures of a Payment Institution
What is a Payment Institution?
A payment institution, as defined by Law No. 12,865/12, is a legal entity that offers payment services to end-users within the scope of the Brazilian Payment System (SPB), through its adherence to payment arrangements. Its main objective is to allow end-users to carry out payment transactions through its operational structure, such as transactions involving the act of paying and/or receiving, issuing payment instruments, and accrediting establishments to accept payment instruments issued under a payment arrangement, among others.
Modalities of Payment Institution
The activities operated by this type of institution were regulated by Bacen through BCB Resolution No. 80/21, which defined, based on the activities carried out, the modalities of payment institution that can be exercised, cumulatively or not, being:
Issuance of Electronic Money: manages end-user payment accounts, in the prepaid modality, allowing payment transactions that involve the act of paying and transferring, through prior contribution of funds (e.g., prepaid cards).
Issuance of Post-Paid Payment Instrument: manages end-user payment accounts, in the post-paid modality, allowing payment transactions based on this account (e.g., credit cards).
Acquirer: enables receivers to accept payment instruments issued by a payment institution or by a financial institution participating in the same payment arrangement, participating in the settlement process of payment transactions as a creditor to the issuer (e.g., Cielo, GetNet, among others).
Payment Transaction Initiator: allows the initiation of a payment transaction, without managing a payment account or holding the transacted funds (e.g., WhatsApp Pay).
Can a Payment Institution offer loans and financing?
A Payment Institution cannot grant loans or financing to its customers. However, one of its main advantages is that, with much less bureaucracy, it can offer its users payment services that are usually offered by traditional banks, such as: TED (Electronic Funds Transfer), DOC (Credit Document), boleto (bank slip), Pix (instant payment system), and credit or debit cards.
Payment Institution authorization request to the Brazilian Central Bank (Bacen)
It is emphasized that for a company to file an authorization request with Bacen to operate as a Payment Institution, it is essential that it is very well advised in all areas – whether with the compliance, legal, or accounting sector, due to the existing details that must be heeded to avoid losses during the process.
Central Bank of Brazil Resolutions No. 80 and No. 81 present all the necessary details to make the authorization request to operate as a Payment Institution. In this case, we mention some main points:
Identification of the company’s controllers and holders of qualified participation, with the respective corporate participations: indicate name/corporate name, CPF/CNPJ (individual/legal entity identification numbers), and respective corporate participations;
Fully paid-up share capital of the institution;
Description of all services provided or to be provided in each modality, including in payment arrangements that are not part of the Brazilian Payment System, especially those provided within the scope of limited-purpose payment arrangements, as provided for in current regulations;
Payment arrangements of which it is or will be a part;
Volume of payment transactions for each payment service modality provided, according to the method of calculation;
Identification of foreign authorities that supervise the controllers, when applicable;
Corporate act that resolved on the election or appointment of administrators: inform the date and type of act (e.g., ordinary general meeting, extraordinary general meeting, meeting of the board of directors); and
Administrators elected or appointed: provide the name, CPF, body, position, and term of office of all administrators elected or appointed.
All this information must be indicated through the submission of an Authorization Request to the monetary authority, together with declarations related to the aspects indicated throughout such Request, namely:
- Declaration of compliance with financial capacity;
- Declaration of lawful origin of funds;
- Declaration of sustainability of the business model;
- Declaration of unblemished reputation of controllers and authorization to access information;
- Declaration of unblemished reputation of administrators and authorization to access information;
- Declaration of conformity of administrators;
- Organizational chart of the group; and
- Authorization for the use of information by BACEN.
Transaction Limits to request authorization
For those Payment Institutions that operate as Issuers of Electronic Money (the most common modality), Resolution No. 80 of the Central Bank of Brazil, which in 2022 was amended by Resolution No. 257/2022, established criteria to request operating authorization:
- if it reaches, between January 1, 2022, and December 31, 2024, financial transactions exceeding at least one of the following values: a) R$ 300,000,000.00 in payment transactions; or b) R$ 30,000,000.00 in funds held in prepaid payment accounts.
- if it reaches, between January 1, 2025, and December 31, 2025, financial transactions exceeding at least one of the following values: a) R$ 250,000,000.00 (two hundred and fifty million reais) in payment transactions; or b) R$ 25,000,000.00 (twenty-five million reais) in funds held in prepaid payment accounts;
- if it reaches, between January 1, 2026, and December 31, 2026, financial transactions exceeding at least one of the following values: a) R$ 200,000,000.00 in payment transactions; or b) R$ 20,000,000.00 in funds held in prepaid payment accounts;
- if it reaches, between January 1, 2027, and December 31, 2027, financial transactions exceeding at least one of the following values: a) R$ 150,000,000.00 in payment transactions; or b) R$ 15,000,000.00 in funds held in prepaid payment accounts;
- if it reaches, between January 1, 2028, and December 31, 2028, financial transactions exceeding at least one of the following values: a) R$ 100,000,000.00 in payment transactions; or b) R$ 10,000,000.00 in funds held in prepaid payment accounts; and
- until March 31, 2029, if it does not reach the financial transactions indicated in the criteria above.
Previously, all fintechs that operate as Electronic Money Issuer Payment Institutions were required to request authorization from Bacen to operate from 01/01/2023. With the modification of the deadlines by the publication of Resolution No. 257/2022, extending the deadlines for those that have already exceeded the limits provided above, and until March 31, 2029, for those that have not reached the indicated financial transactions, the fintechs covered by the transition schedule will have more preparation time and peace of mind to structure themselves adequately.
Therefore, it is noted that there are a series of issues to be taken care of by the fintech when carrying out its business activities, and it is essential that the entrepreneur is equipped with qualified professionals to help in preparing the fintech for the authorization request to operate as a Payment Institution with the Central Bank.
Compliance for Payment Institutions
The implementation of the compliance program aims at the observance by an institution of the rules and regulations provided for in legislation or administrative norms, through the implementation of internal and external controls and policies and procedures adopted by the institution, which must be constantly updated and disclosed internally, to guarantee compliance.
To this end, it is necessary to analyze the institution’s operating segment to verify the rules applicable to it and obtain procedures that allow for the continuous analysis of legislation and regulations issued by regulatory bodies, which deal with the topics applicable to the company’s reality, so that it can be defined how the compliance program will be structured.
Compliance can have several fronts in an institution based on the reality of its business model, and can be focused on compliance with data protection, labor standards, anti-corruption law, among others.
