The Brazilian payments industry is experiencing significant changes, as shown by a recent survey conducted by UBS Evidence Lab. The survey, which engaged 466 merchants across the country, highlights key trends in the industry, particularly in pricing dynamics and competitive pressures. The sample included businesses of various sizes and retail sectors.
One notable finding from the survey is the decreasing optimism among merchants regarding future sales. The percentage of merchants expecting an improvement in sales over the next six months has dropped by 14 percentage points compared to the previous year. This shift in sentiment coincides with the increase in Merchant Discount Rates (MDRs) for both credit and debit transactions. Credit MDRs have risen by 40 basis points to 3.2%, while debit MDRs have increased by 20 basis points to 1.8%. These changes reflect ongoing repricing efforts driven by higher funding costs.
The rising MDRs are a significant concern for merchants, especially after a brief period of decline. The survey also reveals that a growing number of merchants are unaware of the exact rates they are being charged, which now stands at 37%. This lack of awareness contributes to the challenges merchants face in managing their payment processing costs effectively. Additionally, while there has been a decrease in payments made in installments, the volume of merchants prepaying more than 75% of their transaction volumes has increased to 46%.
Interestingly, there is a growing expectation among merchants for a decrease in rates charged for prepayment in the coming year. Approximately 32% of respondents anticipate a reduction in these rates, compared to 26% in September 2022. This shift in expectation may indicate a more competitive environment as the acquiring industry becomes increasingly rational in its pricing strategies. As Brazil enters an easing cycle, there is cautious optimism that MDRs may begin to decline in 2024, providing some relief to merchants grappling with rising costs.
The survey also reveals that many merchants do not negotiate fees with their acquirers. Approximately 36% reported that they do not negotiate fees at all, suggesting an area for improvement in cost management. Only a small fraction of merchants engage in frequent negotiations, with 5% negotiating monthly and 9% negotiating every three months.
Overall, the findings from this survey emphasize the importance of understanding pricing dynamics and merchant sentiment in the evolving payments landscape. The increasing MDRs and declining sales optimism highlight the challenges faced by businesses in Brazil's competitive retail environment. With the potential for lower MDRs in the future, merchants may need to reassess their negotiation strategies and payment processing practices to navigate the changing landscape effectively.