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Installments in Brazil Explained in Details

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I’ve been talking to clients and prospects for almost four years, trying to explain why installments in Brazil and other Latin American markets are so important. But today, as I was watching this YouTube video, something just clicked; and it came to me that this might be it, this might be how I will explain why it’s so important.

The title of the video on YouTube is “Why you NEED an emergency fund.” You can judge me, but I went to school for finance, so every single title that is related to money will get my attention as this one did. A survey asked people if they were in an emergency and needed to come up with 400 USD right now, could they do it? Shockingly, only 40% of Americans said they could.

Nearly half of Americans have no financial flexibility nor freedom, and it’s no different in Brazil. It’s a possible and realistic situation that can happen to every car owner, anywhere in the world. We face the same issue down here, but while we face the same problems, we approach how to buy things differently. Most people would have to rely on their credit cards to be able to afford such expenses.

Now, let’s get back to the point, let’s say you want to buy a 1000 dollar TV, but you do not have the money. You can buy this TV on your credit card and keep paying 100 bucks per month until you pay it off. The typical credit card interest rate in the US is 20% per year, which means that in 12 months, you’d have it paid off.

In Brazil, we have pretty much the same situation with people buying consumer goods. One of the differences is that a 1000 dollar TV in the US would probably cost 4500 BRL in Brazil because of the currency, duties, and taxes. The most significant difference is that interest rates in the US are 20% per year; in Brazil, though, they can reach up to 500% per year.

Yep, you did not read that wrong, five followed by double zero. If you are part of the top 1% and have a fancy Mastercard Black or Visa Infinite card and your credit score is exceptional, you could lower it to 100% per year.

Since it would not be possible for a regular person to buy a 4500 BRL TV by paying the minimum amount on their credit card statements every month until it’s paid off, banks came out with installments. Merchants have better leverage and pay much lower interest rates, so they sell their product in installments and negotiate the receivable with banks.

In essence, the seller sells the 4500 Reais TV in 12 installments. The buyer pays 12 payments of 375 BRL, and the seller pays a fee of 9% per year to bring it to the present value and get settled 4095 BRL the next day. If they have the cash flow, they can wait 12 months to receive the full amount and not pay the 9% called “anticipation”.

With that in mind, it’s important to say that 80% of all sales in Brazil are made in installments. Online or via POS at the store, it does not matter the price of the product. Buyers have the option of paying 60 BRL in 12 installments of 5 BRL in some online stores.

So if you have a considerable amount of visits to your website from Brazil but a lower conversion rate at checkout, installments could be an alternative to boost sales to Brazilian customers.

Alexandre Pereira
Driving Payment Success with Banks, Acquirers and Card Schemes 🏦💳 | Payments Strategy ♜💡 | Global Cross-Border Payments Expert 🌎 | Payment Partnerships 🤝 | Payment Consulting 📋🎯


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