Incentives for Cash as a Payment method in Brazil
While in the United States people are encouraged to acquire their goods using credit cards, in Brazil there are rewards for paying with cash. Learn in this article why this is such a strong payment method in Brazil and what are its advantages and disadvantages.
The culture of paying with cash
The access to credit card and other payment methods by the lower classes is relatively recent in Brazil. The main option for payment was crediários and cash itself. As payment in installments started to become very common and the risk of insolvency became more and more evident, retailers started to add interest rates to the installments and the difference between the real price of a product and the price in installments could reach 100%.
In order to encourage the consumer to buy with cash, retailers would supposedly remove the interest rates of the installment and the consumer would have the impression of paying less. From this perspective, it is a win-win situation, however, this concept has led to another practice, more related to the pricing.
Pricing
Retailers have been advertising the term “no interest rate” in the majority of their sales in order to attract customers. In this practice, the price for the good would remain the same even if it was paid in one or in 24 installments. However, in order to offer the same price regardless on the number of the installments and still avoid losses related to insolvency, the price would be inflated and interest rates would be built-in within the price.
According to IEF – Instituto de Estudos Financeiros (Financial Studies Institute), very often companies have to establish a common price for all payment options (cash, check, crediários, debit or credit cards). This price must include:
- The interest rate to be built-in within the price;
- The number of installments for payments with check, debit or credit card;
- A “bargain margin” for the sales people to work with (in Brazil, customers will always try to get a discount);
- The percentage of each payment option in relation to the total amount of sales.
This price also includes all costs related to financial and operational fees charged by the credit card operator.
“Cash only”
Do you want to have an idea of how much of the product you’re acquiring is related to fees and interest rate? Tell the sales person that you want to pay with cash. Anyone shopping at 25 de Março Street or Brás neighborhood in São Paulo will find stores with the inscriptions “cash only” or with two prices: one for cash and another one for other payment methods.
Another common practice that discourages the usage of other payment methods is the establishment of a minimum fixed price to use credit or debit cards. This is very common in newsstands, hairdressers, bakeries, cosmetic shops, small groceries stores and even school cafeterias. Although illegal, the practice is very common and there seems to be very little supervision. The most commonly established prices are BRL 5,00 for debit cards and BRL 20,00 for credit cards.
Advantages and disadvantages
All these "advantages" deriving from using cash have led Brazilians to think that this is the best payment option when one wants to save some money. This concept is based, among other things, on the idea that one-installment payments with cash would avoid all interest rates involved. However, there is a small detail that is not taken into account: the risk of carrying and receiving money in cash.
According to IPOT – Instituto de Pesquisa de Opinião e Treinamento (Trainning and Opinion Research Institute), 55% of the Brazilian population receive their earnings in cash. The reason why payment with cash is not so incentivised in the United States as it is in Brazil is a basic matter: safety. Having cash in your store and carrying cash can be very dangerous, especially in Brazil, but for some strange reason, it does not seem to be taken into account.