The final piece in our 3-part series on Brazil payments looks at how Brazilian installments differ from how they’re done in the U.S.
Joining us once more is Matthew Cannon, the VP of business development at GoInterpay, and a friend of Getting to Global. Check out our last couple posts in which we’ve interviewed Matt concerning use of credit cards and boletos in Brazil!
Consumers in the U.S. are accustomed to using credit cards to spread out payments over time. Annual percentage rates (APRs) on U.S. credit cards average roughly 12.5% – a manageable figure for most consumers. In Brazil, though, the average APR is about 450%, making that payment method far less attractive for consumers looking to defer payments.
As Matthew explains here, Brazilian consumers expect a wholly different payment dynamic. In Brazil it’s common to pay for products by a series of installments under agreements with retailers. Unlike in the U.S., where consumers often defer payments for expensive purchases – say, a handsome $250 jacket – via credit cards, in Brazil, they agree on an interest rate and schedule payments to the seller directly.
Consider a purchase in Brazil that costs USD $100. At the relatively exorbitant interest rates that Brazilian credit cards demand, a reasonable payment like $20 per month would never complete the transaction – the interest rate is too high. That discourages consumers from buying via credit card in Brazil.
Instead, Brazilian consumers are accustomed to buying via installments. A buyer might agree with a seller to make that same $100 purchase via six installments of about $18-$20, with a defined interest rate that removes uncertainty for everyone involved. Importantly, these agreements strengthen consumers’ purchasing power, and consequently boost the average transaction value (ATV) per customer.
More broadly, understanding installments in Brazil is emblematic of what retailers need to do as they seek to globalize. They need to understand that in certain markets they must offer in-country payment options consistent with consumers’ expectations.
In Brazil, this means understanding that people expect to pay for purchases in installments without using credit cards to do so. And in order to localize, retailers should know that third parties can process the transactions instead, eliminating the need for registering local businesses or setting up in-country bank accounts.
Tremendous thanks to Matthew for sharing his knowledge of Brazil payments with us. The country’s huge market presents an enormous retail opportunity, but to penetrate the market properly, retailers must have a sophisticated understanding of local culture and payments, not to mention regulatory restrictions that favor local companies.
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