A payment scheme is fundamental for any financial transaction that does not involve cash. Whether using a credit card, making a bank transfer, or paying a bill, payment schemes are the foundation of these operations. This article explores the concept, operation, and regulation of payment schemes in Brazil, offering a comprehensive view for business owners, entrepreneurs, and financial sector professionals. Below, we will cover what payment schemes are, how they operate, their types, the institutions involved, and their supervision by the Central Bank.
Content:
- What is a Payment Scheme?
- How a Payment Scheme Works
- Examples of Payment Schemes
- What is a Payment Scheme Setter?
- Central Bank Supervision
- Payment Scheme: Authorization for Operation
- Payment Scheme Exempt from Authorization
- Types of Payment Scheme
- Interoperability between Payment Schemes
What is a Payment Scheme?
A payment scheme is the set of rules and procedures that allow for the provision of payment services, such as deposits, withdrawals, issuance of credit or debit cards, management of payment accounts, among others. These schemes connect users, companies, and government institutions, facilitating financial transactions that would otherwise be made in cash.
Payment schemes cover a wide range of financial operations. They involve not only the use of credit and debit cards but also bank transfers, bills (boletos), and even instant payments like Pix. The infrastructure created by these schemes ensures that funds are transferred securely and efficiently between the parties involved.
How a Payment Scheme in Brazil Works
Payment schemes work by connecting payers and payees, allowing financial transactions to be carried out electronically. When a consumer uses their credit card for a purchase, the payment scheme ensures that the value is transferred to the seller securely and efficiently. This connection is made through a series of steps involving the authorization, processing, and settlement of the transaction.
- Authorization: When the payer uses a payment card, the transaction is initially authorized by the card issuer. This step verifies if the payer has sufficient funds or available credit to complete the transaction.
- Processing: After authorization, the transaction is processed by the payment scheme’s network. This process involves communication between the payer’s bank and the payee’s bank.
- Settlement: Finally, the transaction is settled, which means the funds are transferred from the payer’s bank to the payee’s bank.
Each of these steps is governed by a specific set of rules and procedures, ensuring that the transaction is completed securely and efficiently.
Examples of Payment Schemes
There are several types of payment schemes authorized by the Central Bank of Brazil (BC). Among them are:
- Credit, debit, and prepaid cards: Used for purchases in national and foreign currency.
- Fund transfers: Including TED and DOC.
- Instant payments (Pix): Allow for immediate transfers between bank accounts.
- Checks: Still used in some commercial transactions.
- Bank slips (Boletos bancários): Commonly used for paying bills and online purchases.
Each of these examples represents a different type of payment scheme, but they all share the same purpose: to facilitate the transfer of funds between payers and payees in a secure and efficient manner.
What is a Payment Scheme Setter?
The setter of a payment scheme is the legal entity responsible for creating and maintaining the scheme. They must follow the regulations of the Central Bank, creating rules and procedures that ensure the correct and secure operation of the payment schemes. Examples include credit card brands and the Central Bank itself, which establishes schemes like Pix. The setters have the responsibility to ensure that all participants in the scheme follow the established rules. They also monitor transactions to detect and prevent fraud. In addition, setters are responsible for ensuring interoperability between different payment schemes, facilitating the transfer of funds between different systems.
Central Bank of Brazil Supervision
The Central Bank supervises all payment schemes that do not meet the specific exemption conditions provided for in the regulation, ensuring the security and efficiency of the Brazilian Payment System (SPB). However, some schemes are not directly supervised by the BC, such as:
- Those that have, in the last 12 months, a volume of less than:
- BRL 20,000,000,000.00 (twenty billion reais) in total transaction value; and
- 100,000,000 (one hundred million) transactions.
- Whose cards are issued for exclusive use in a network of establishments of a large merchant, such as department stores, or in establishments belonging to a franchise or licensee network;
- Exclusive for the payment of public services, such as water, electricity, and transport;
- Based on air mileage benefit programs and other programs that aim to encourage customer use and loyalty through rewards;
- Resulting from government benefit programs based on employment relationships, such as meal vouchers, food vouchers, and culture vouchers;
- Intended for the use of food aid for the payment of meals in restaurants and similar establishments or for the purchase of foodstuffs in commercial establishments;
- For withdrawal and deposit in which the conditions for providing these services are established through commercial contracts between ATM operators and financial and payment institutions, and which, currently, are not subject to BC approval; and
- Intended for receiving electoral donations.
The Central Bank’s supervision involves the continuous analysis of the operations of payment schemes to ensure that they are in compliance with regulations. This includes reviewing financial and operational reports, as well as conducting audits and inspections. The goal is to ensure that payment schemes operate securely and efficiently, protecting the interests of consumers and the financial system as a whole.
Payment Scheme: Authorization for Operation in Brazil
The Payment Scheme Setter must request authorization from the Central Bank for operation, unless exempt, when it reaches any of the following values:
- BRL 20 billion in total transaction value; and/or
- 100 million transactions.
This process ensures that only schemes that follow strict security and efficiency standards can operate in the Brazilian market. The authorization involves the submission of detailed documents that describe the operation of the scheme, including its operational rules, security procedures, and governance structure. The Central Bank evaluates these documents to ensure that the scheme meets all regulatory requirements. Once authorized, the scheme must continue to comply with these standards to maintain its authorization.
Payment Scheme Exempt from Authorization in Brazil
Some payment schemes are exempt from authorization for operation, regardless of the volume of transactions or amounts transacted:
- Scheme established by a government entity;
- Closed scheme established by a commercial bank, a multiple bank with a commercial portfolio, a savings bank, a single credit cooperative, and a credit, financing, and investment company; or
- Closed scheme established by a payment institution authorized to operate by the BC in which the settlement of payment transactions within the scheme is carried out exclusively on the books of the instrument issuer, transactions also called “book transfers” (for example, a transfer of values between two clients of the same bank).
Types of Payment Scheme
- Closed Payment Scheme: A payment scheme is considered closed when the services are provided by a single payment or financial institution, usually the same one that established the scheme. This model is common in new schemes, where it is difficult to attract other participants at the beginning. Closed schemes have the advantage of greater control over operations, but may face challenges in expansion and in attracting new users. The centralization of operations can facilitate management and the implementation of new features, but it can also limit competitiveness and innovation.
- Open Payment Scheme: Open payment schemes allow for issuance and accreditation by various financial and payment institutions, provided they meet the established requirements. This model promotes competition and innovation in the payments market. In an open scheme, multiple issuers and acquirers can participate, creating a competitive environment that encourages innovation and the continuous improvement of services. This structure benefits consumers, who have access to a wider range of payment options and financial services.
- Cross-border Payment Scheme: Cross-border schemes are those in which the payment instruments are used in more than one country. An example would be a credit card issued in Brazil that can be used for purchases abroad. These schemes facilitate international trade and travel, allowing consumers to use their payment instruments anywhere in the world. However, they also present additional regulatory and operational challenges, requiring close coordination between the regulatory authorities of different countries.
Interoperability between Payment Schemes
Interoperability allows end-users to make payments using a single account for various payment schemes. The lack of a mandatory rule for interoperability is offset by the incentive to implement unique models that facilitate this integration. Interoperability is crucial for efficiency and financial inclusion, allowing consumers to make payments easily and conveniently, regardless of the payment scheme or financial institution they use. This promotes competition and innovation, benefiting the entire financial ecosystem.
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