Brazil is a country where consumers are accustomed to paying by installments and although the acronym BNPL isn’t yet well known, experts expects this payment method to make waves as it has elsewhere in Latin America.
Many Brazilians already pay by installment, even for small-ticket items, using credit cards or plans offered directly by retailers. So, the buy now, pay later (BNPL) concept isn’t new.
“Basically, BNPL is a digital payment plan. People think they invented the wheel, but we’ve been doing it here for 60 years,” says Carolina Rezemini, regional sales director for Latin America at Credolab, a Singapore-based credit analysis startup.
However, even without the novelty element, this form of credit can still represent an interesting alternative for both retailers and consumers. The hook is traditional disintermediation: it’s an alternative to credit cards or installment plans.
“When we talk about BNPL, we talk about a different risk assessment and another way of splitting payments,” says Bruno Diniz, a partner at financial innovation consultancy Spiralem in Sao Paulo. It also allows retailers to offer customers a convenient payment option, thereby increasing the chances of a sale.
That can increase the conversion rate and, over time, foster customer loyalty and recurrence.
In the case of consumers, BNPL can plug a financing gap for those who don’t own a credit card, don’t want to commit to the card limit, or for whom installment plans aren’t even an option. “It favors those who lack access to credit, because they have this other means of payment,” says the Credolab executive.
Specialized platforms and fintechs evaluate these customers’ profiles using analytics, for example.
“It’s a viable alternative, but it requires a different analysis than the one done for credit cards and you have to be extra careful,” adds Rezemini.
Platforms that gained traction with parceled payment products, such as Sweden’s Klarna or America’s Affirm, have begun to show cracks amid more challenging market conditions. Klarna announced last week that it laid off 10% of its workers and Affirm has lost about three-quarters of its value in the capital markets since the start of the year.
It’s also a business model that polarizes opinion. Detractors of BNPL warn it can encourage indebtedness, especially in vulnerable economic groups. But enthusiasts consider it an important alternative payment tool that aids financial inclusion.
“With the rise of digitalization, customers began to search online for high-value products, and the offer of online financing options has become fundamental to winning over the consumer,” says Rezemini.
Financing options with BNPL in Brazil
BNPL sprang up in the U.S. as an alternative to revolving loans, offering an installment plan with a maximum term, for example, says Gastão Mattos, founding partner of Gmattos Consultoria.
“This was born outside the big banks. It was started by fintechs doing disintermediation at the store’s check-out, and offering the possibility of installments,” he says.
Mattos points out that the system of installments on a credit card offers identical conditions to all users, which spurred interest in developing alternative modes of financing.
The consultant says the introduction of BNPL in Brazil is good for competition, particularly among providers of solutions to retailers, which currently have to pay large fees to give customers the option of payment – and installments – by credit card. BNPL solution providers can gain market share if they offer lower advance fees, he says.
Mattos says he’s evaluated payment practices at major stores and has seen greater incentives for paying with PIX, the instant payment system. But BNPL is on the radar. “We see big banks starting to offer it as well as retail chains such as Via, which is clearly investing heavily in the area of direct credit plans. Casas Bahia is also investing in its own installment plan with direct financing and is becoming increasingly digital,” he says.
In addition to the existing methods of payment by installment, Brazilian consumers will soon have the option of using PIX Garantido, a new system of staggered payments. This method, which is expected to start operating this year, requires a qualified financial institution to broker the transaction and ensure payments are made on schedule, even if the user’s account doesn’t have sufficient funds.
Spiralem’s Diniz says BNPL will gain ground in Brazil if it is integrated into PIX Garantido. “BNPL has been growing organically in Brazil and, judging by what we are are seeing abroad, it could take some time. But when you factor in the possibility of paying by installment in PIX, it could expand more quickly, because people are already using PIX,” he says.
“The banks themselves will explore the possibility, competition will increase, and merchants and retailers gain. It’s a fundamental tool for the retail sector,” Diniz says.
Fintechs, meanwhile, are also planning to enter the BNPL market because of demand from retailers and consumers, Mattos added.
“Whoever manages to develop a machine, an engine that can meet the existing demand in a profitable way will succeed,” he said.
Read next: Digital payments get aboard public transport