Payment by installment has existed in Brazil for many years but the buzz currently surrounding buy now, pay later (BNPL) products suggests a different phenomenon is underway, according to the U.S. fintech Sezzle.
The BNPL provider entered the Brazilian market in mid-2021 to offer a new form of credit to people in off-the-books employment, that lack access to credit cards, and who need more flexibility to make payments.
João Pedro Teles, the firm’s local says BNPL represents a gateway for people to access the credit market. It allows first-time borrowers to engage with a simple product that has pre-approved credit limits that can be increased provided users make payments on time.
“There are about 100 million Brazilians who have low credit limits, or do not have a credit card, or do not have a credit score, are negative, or have informal income and cannot prove their income. These people can benefit from BNPL,” Teles says in an interview with iupana.
For banks, fintechs, other financial companies or retailers with large lending activity, the typical BNPL product—for small purchases, with short terms and immediate approval—represents a powerful customer acquisition channel, and one that carries a much lower cost. They also provide companies with a large flow of data with which to hone their algorithms and predictive models for granting credit. “BNPL brings differences and novelties compared to what exists in Brazil,” Teles says.
Sezzle, for example, allows payments to be divided into four installments, with the first one made immediately and the remaining ones every 15 days, using Pix or direct debit. The initial limit of R$400 (US$76) can be increased if the person makes payments on time, up to a maximum of R$1000 (US$190). The retailer is paid by Sezzle one business day later and it’s they, not the end customer, who pay the interest on the credit.
Headquartered in Minneapolis, Sezzle began its integration with local payment and e-commerce platforms after it initiated operations in Brazil last year. In May 2022, it conducted proof of concepts and has begun its integration with the country’s biggest e-commerce platforms, such as Nuvemshop (known as Tiendanube in the rest of Latin America) and VTEX.
Its goal is to reach 10,000 stores by the end of 2024 and an annual sales volume of about R$500 million.
On the merchant side, the fintech wants to accelerate the sales of small and medium-sized businesses that sell online.
“The focus is on the small ones because they are the ones who have the most difficulty negotiating good rates with acquirers and accessing working capital to rotate inventory,” Teles says, adding that store owners can increase their average sales ticket by implementing BNPL solutions.
In Teles’s opinion, BNPL has not come to replace the current means of payment but rather to provide shoppers with an alternative and spur financial inclusion. Pix Garantido will only reinforce the BNPL model, he says.
Pix Garantido allows a fixed scheduling of payments using the Pix platform that’s backed by a financial institution, ensuring that the transfer occurs on time even if the customer doesn’t have sufficient funds in their account. The service is expected to enter into operation later this year.
According to The Global Payments Report 2022 published by Worldpay, buy now, pay later is gaining popularity globally and accounted for 2.9% of the value of e-commerce transactions in 2021. By 2025, that share is expected to reach 5.3% by 2025. The report notes that the movement is being led by companies such as Klarna, Afterpay (which was acquired by Square) and PayPal, along with challengers including Zip, Sezzle and dozens of other smaller, local competitors that are emerging in this fast-growing payment segment.
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Corporate BNPL in Brazil
There’s another BNPL model being developed in Brazil with a focus on business users. Letsbank is one its proponents, having launched a point-of-sale credit solution for micro and small retailers (MSMEs).
The digital bank formed a partnership with Omie, an ERP (enterprise resource planning software) provider for micro and small businesses, to add BNPL to its system. It aims to expand its credit offering with differentiated strategies, delivering fast, digital and unsecured credit lines to MSMEs.
Letsbank Credit Director Bruno Sayão told iupana it introduced BNPL in March and by the beginning of June it was providing the product to a large beverage distributor that sells to businesses such as bars, restaurants and bakeries.
“The distributor was used to selling by installments and wanted to introduce a new form of payment to boost sales. We ended up integrating with them. When the vendors go to sell the beverage, they ask the buyer if they want to pay in installments or extend the payment term, for which they use our BNPL solution,” says Sayão. He didn’t disclose the name of the distributor.
The whole process is digital. Letsbank is responsible for the risk analysis and onboarding of the merchant, which can be done by scanning a QR code with a cell phone.
The distributor receives the funds from Letsbank more quickly and avoids the risk of non-payment. Businesses that are purchasing inputs on credit can better organize their cash flow by accessing longer terms or installments, without the need for a credit card, Sayão says. Letsbank charges the merchant an interest rate starting at 1.99% per month.
While the BNPL offering for consumers is more developed, in part due to e-commerce platforms pushing solutions, the business-to-business market is still emerging, he says.
“In the B2B market, the quota plans in this niche are advancing and have room to grow. We want to be the ones who take advantage of BNPL in B2B,” Sayão adds.