Payment solutions for the iGaming market in Brazil

Undoubtedly, much of this innovation has been potentiated by the advancement and structuring of new payment solutions, such as PIX, largely spearheaded by the Central Bank of Brazil (BCB), awarded and internationally recognized as one of the most innovation-inclined regulators worldwide.

PIX is the most prominent and significant example of this inclination, but other initiatives cannot be ignored, such as open finance, the CBDC (Digital Real), and the regulation of the cryptocurrency market and tokenization. All of these are distinctive traits of the “BCB way” of regulating and fostering the Brazilian economy.

In the words of COA, PIX “has become a global model of financial inclusion, with central banks in the region (Latin America) and other parts of the world attempting to replicate similar initiatives in their markets.”

Statistical data demonstrates that, since its creation in November 2020, the PIX payment solution has progressively increased its utilization margin by almost 107% per year. In December 2022 alone, approximately 2.9 billion transactions were carried out via PIX, representing a growth of 1,900% compared to its initial month of use in 2020. In terms of transaction values, for the same period (December 2022), PIX was responsible for handling R$1.2 trillion (US$ 242bn).

The usage pattern of Brazilians indicates that 93% of transactions conducted between individuals are facilitated for transfers of values up to R$200 (US$ 40.4)). This data proves to be highly significant when considering the iGaming market, in which the amounts wagered by bettors rarely exceed this amount, given its interactive and entertainment-oriented nature.

In other words, the regulatory policy of the Brazilian central bank revolves around the interest of enabling virtually all Brazilians to engage with this instant payment method. The question is: how could the iGaming sector benefit from this solution?

With the advent of Law No. 14,790, dated December 29, 2023, all operators of sports betting and online gaming will be required to have some form of physical representation in Brazil, with duly established headquarters and registration in the National Register of Legal Entities (CNPJ) – article 7, of the referenced law.

This obligation immediately dispels the need for operators to resort to or demand eFX instruments for the viability and distribution of their revenues.

The “nationalization” of operations brings with it integration facilities and offers the possibility for international players to simply “plug into” existing payment arrangements in the country, including PIX, provided they become qualified before a regulated institution and a direct participant of PIX, equally qualified to offer such functionality and provide transactional accounts to its clients.

Unlike the system applicable to individuals, the BCB allows regulated institutions to charge fees or tariffs for providing PIX to legal entities. Therefore, operators, with the proper establishment in Brazilian territory, will be able to offer PIX services to their clients through negotiations established with financial or payment institutions that enable this operation.

Beyond the PIX solution, it is possible that this industry may also utilize other collateral solutions that allow for the provision of broader services to its users. Payment Institutions (PIs), regulated by BCB Resolutions No. 80 and No. 81, present themselves as one of the best opportunities in this scenario. However, it is important for such an endeavor to “align” with the scale of the envisioned operation, so that this option does not become precipitated.

With faster and less bureaucratic solutions, there are Payment Gateways and PSPs (payment service processors) as alternative exemplars to concretely facilitate operations of transferring resources between operators and bettors. A solution more tailored to the operational needs of this segment, with easy adaptability.

Finally, as one of the most controversial solutions, there is BaaS (Banking as a Service), a business structure that literally allows for the offering of general banking services to users and bettors, through APIs integrated with the operators themselves.

This solution undoubtedly emerges as one of the most comprehensive for this segment, as it constitutes a kind of banking core. However, it is very important for operators to map out costs, as its structuring depends on subcontracting (or rather, offering) these services by institutions authorized and directly supervised by the BCB, upon which the regulatory burden of this activity will fall.

This last alternative is controversial because it concentrates credit activities that, in theory, would be made available to operators. However, it is an alternative that, in some way, has already received negative signaling from the Ministry of Finance in Regulatory Portal No. 1,330, dated 2023, by indicating that payment instruments that “offer post-paid payment accounts to bettors” will not be admitted, according to article 19, section I, of this administrative act.

As seen, therefore, the truth is that financial options and solutions for this industry abound in Brazil, with operators conducting an in-depth business study to understand which solution best suits their immediate needs and demands.

Paulo Portuguez
Partner at Jantalia Advogados, specialist in Banking Law, Administrative Sanction Law, and Regulation of Cryptocurrencies. Currently pursuing a Master’s degree in Law at IDP.