Gary Schwartz

It all started with inflation math.

As far back as the 1950’s in Brazil “crediários” became synonymous with installment credit payments. For decades Brazil suffered from chronic high inflation. Inflation reached more than 6000% by the late 80s. People spent their money as soon as they earned it and shopkeepers were leery of extending credit.

Merchants realized that by allowing consumers to spread the ticket price over multiple payments there would be less abandonment at checkout. Key was the inflation math. Any credit would be paid off with highly inflated future money. There was a built-in discount.

The credit economy evolved from Brazil’s high-inflation roots. It had become a Pavlovian response at the cash register:  A shopper that wants to flex their wallet is more likely to mentally split the payments on an item before lining up at checkout. Even while inflation declined in the subsequent decades, installments remain a dominant feature of the market, with the majority of online and offline purchases involving installments.

The credit card formalized a method of splitting payments over 4 – 12 months. Today 60% of the purchases nationally are made with credit cards. and more than 50% of those transactions are made in installments. Retailers began providing private label credit cards (PLCC) to manage their installment payments.

Dividing payments applies from travel to trinkets. 45% of travel getaways are carved into 6 or more installments; however, these split purchases are not exclusively for high-ticket items. With the average salary at a little over $500 USD, a soccer ball can easily be divided into a few payments.

(Alternative credit sources have had good growth. Local providers Xerpa, Fácio, Minu, ePesos provide earned wage advance following the crédito consignado (payroll loan) model (where credit is deducted at source). And unsecured consumer lending is offered by the Brazilian incumbent Geru (Like Kueski in Mexico, Zinobe in Colombia, and Afluenta in Argentina) Branch and Tala from the US and domestic players such as Noverde and Rebel have been biting at their heels.)

Enter BNPL online.

BNPL did not need to sell the story. They just made it easier. Quad-payment was ingrained into the DNA of the shopper. BNPL companies like ADDI (that just raised $65mm in new funding to fund growth in Colombia and Brazil) pitched a consumer tired of credit card fees and revolving credit lines. And, crucially, they pitched an easy online experience.

In Brazil paying online is incredibly challenging. For millions of unbanked consumers, shopping online is a clunky two-step process: buying items from a merchant online and then paying for them through cash-based alternative methods, such as boleto bancário (similar to that of wire transfer or cash payment methods.) or a voucher system handled through local convenience stores such as 7-Eleven and OXXO in Mexico, etc.

Companies like ADDI solve this problem. The BNPL is 5x growth since the beginning of the year working with hundreds of merchants in Colombia and Brazil that see their order values double or triple, with similar increases in conversion. The opportunity is evident. PagSeguro, a São Paulo-based e-commerce company,  bought a stake in Brazilian BNPL firm Boletoflex. Customers can use its offering like a credit card, connecting directly with merchants such as Netflix and Spotify. Many users are paying for things like utility bills and cell phone bills, turning them from pay-now to post-pay.

Brazil is not an outlier,  just a front runner.

Nelo is conquesting in Mexico; Winbond in Argentina. While pay-later financing is still a fraction of the credit card industry, the data and analytics company expects BNPL to increase by as much as 15-times globally by 2025.