1680. Brazil's Efficient Payment System: A Legacy of High Inflation

Robert Listfield and Fernando Montes-Negret
(November 1996)

Brazil has an impressive, efficient, highly automated payment system, driven at least in part by the need for rapid payment clearing and settlement in a high inflation environment. There is much of value to learn from the Brazilian system, but also room for improvement.

Brazil's efficient, highly automated payment system developed over many years in response to hyper-inflationary, or near-hyperinflationary, conditions. Listfield and Montes-Negret describe that system, its payment instruments, and its links to other networks (markets for money, foreign exchange, capital, futures, and commodities) and the government's payment (payroll, social security, and the like) and collection (taxes) operations. They examine factors that have affected the development of the system, innovations Brazil plans to introduce, and opportunities for improving the system.

The principal payment instruments used in Brazil are cash, checks, cobrancas, and DOCs (Documentos de Credito). Cobrancas — barcoded remittance documents used to pay bills — are handled much like European GIRO payments. DOCs are used to make interbank credit payments, intrabank transfers of funds between a client's different accounts, and client-to-client payments between parties with accounts at the same banking institution. Although a client can initiate a DOC on paper, all DOCs are electronic and processed only by banks.

Networks include direct deposit and direct debit services, automated teller machines, credit cards, and home banking services.

The system is highly automated, with separate systems for clearing and settling checks and credit payments (clearinghouses); government securities, private securities, state, local, and municipal securities; government payments; and foreign exchange.

Among the lessons from this review of Brazil's check-based payment system:

• Brazil's system shows that banks can cut costs by cooperating on check processing and transportation. The difficulty lies in structuring incentives and reaching agreements on how to allocate benefits fairly.

• A broad, inclusive approach should be taken to modernizing the payments system, taking into account the needs of all users, from individuals and participants in capital markets to enterprises and government.

• A wider menu of payment instruments should be offered than just checks. The use of cobrancas and DOCs provides certainty of payment and gives those without checking accounts access to the payment system.

This paper — a product of the Financial Sector Development Department — is part of a larger effort in the department to examine factors constraining the development of countries' financial infrastructure. Copies of the paper are available free from the World Bank, 1818 H Street NW, Washington, DC 20433. Please contact Tomoko Ishibe, room G8-136, telephone 202-473-8968, fax 202-522-3199, Internet address fmontesnegret@worldbank.org. (29 pages)

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