Payment Institutions (Instituições de Pagamento or “IPs”) are a type of fintech experiencing exponential growth in Brazil, enabling the creation of so-called “digital banks”.
Created from Federal Law 12.865/2013 and regulated by Brazilian Central Bank Regulation 80/2021, there are approx. 90 IPs registered with the Brazilian Central Bank (BACEN), which are being constituted by Brazilian and foreign financial institutions, companies and investors, to offer financial products.
See below 6 important points about what they are and requirements for creating IPs:
1. What Digital Banking services can Payment Institutions (IPs) offer? IPs can (i) offer digital account (payment account) to customers, (ii) be an issuer of electronic money to pay or transfer funds from the digital account, (iii) issue postpaid payment instrument (postpaid card), (iv) acquirer in payment arrangement, (v) initiator of payment transaction, and (vi) offer foreign exchange (forex) service (without physical exchange of currencies).
2. IPs must obtain authorization from BACEN to operate? Yes, they do. IPs must request authorization before BACEN to operate as (i) electronic money issuer (including digital account), (ii) payment transaction initiator and (iii) currency exchange operator.
BACEN stipulated that, for IPs issuing electronic money that were already operating on March 2021 without authorization from BACEN, it must request authorization to operate if it reaches certain volumes of financial transactions and funds kept in payment account, and up to December 2029, all IPs must seek authorization from BACEN to operate. The IP issuing postpaid payment instrument or the acquirer must request authorization for operation when it reaches financial transactions in excess of BRL 500 million.
3. What is the minimum paid-in capital required to incorporate an IPs? BACEN regulation requires that IPs must pay in and maintain a minimum equity of (i) BRL2 million to offer digital account (payment account) to customers, issue electronic money to pay or transfer funds from the digital account, and issue postpaid payment instrument (postpaid card), and acquirer in payment arrangement, and (ii) BRL1 million for payment transaction initiator.
4. What are the corporate requirements for IPs? Some of the key requirements are (i) IPs must be incorporated as limited liability company (Ltda.) or corporation (S/A.), and natural persons are restrited to be sole shareholder, (ii) for IPs incorporated as Ltda., the articles of association must provide that administrator’s term at management must not exeed 4 years, and (iii) that management shall be carried out by at least 3 administrators.
5. Can IPs be owned by foreign investors? Yes, they can. BACEN regulation does not prevent IPs from being partially or fully controlled by foreign capital, and BACEN analyzes, during the authorization process, information about controlling shareholders (whether Brazilian or foreign), their profile, reputation, experience, among others.
6. What compliance policies should IPs implement? IPs are institutions regulated by BACEN, generally requiring compliance policies such as (i) cybersecurity policy, (ii) policy, procedures and internal controls, (iii) governance policy, (iv) policy for preventing money laundering and terrorism, (v) anti-corruption policy, among others.
The volume of IPs already registered at BACEN, added to those that have not yet submitted to registration, demonstrates the potential of the fintechs and digital banks market in Brazil for companies and investors, both Brazilian and foreign.
