Brazilian Payments- UBS Evidence Lab inside: Incumbents losing presence and higher MDRs

Survey of 466 merchants across Brazil in Oct-23

The 10th iteration of UBS Evidence Lab's survey assessed the key trends in the payments industry, capturing pricing trends and competitive dynamics. The objective of the survey is to assess the key trends in the payments industry. The sample is composed of 65% small businesses (up to 9 employees), 24% medium-sized (10-29 employees) and 11% large businesses (more than 30 employees), belonging to all retail sectors. The survey showed higher Merchant Discount Rates (MDRs) again in 2023 still reflecting the recent repricing efforts.

Key conclusions from the UBS Evidence Lab survey

• Merchants seem less optimistic, with the percentage expecting an improvement in sales in the next six months falling by -14p.p. YoY;
• MDRs further increased in credit (+40bps) and debit (+20bps);
• Lower payments in instalments but anticipated volumes increased (merchants prepaying >75% of volumes increased to 46%, from 42%);
• Higher expectation for a decrease in rates charged in prepayment, with 32% expecting a decrease in Next Twelve Months (NTM) (vs. 26% in Sep-22);

Higher MDRs again in 2023

According to the survey, post a reversal in the downward trend last year on the MDRs evolution, we saw it further increasing in Oct-23 (to 3.2% for credit and 1.8% for debit, compared to 2.8% and 1.6% in Sep-22, respectively). We note that the portion of merchants that are unaware about the exact rate being charged slightly increased again, to 37% (from 34% previously).

We believe this trend continues to reflect the repricing movements observed since 2022, mainly due to higher funding costs. Although we are seeing the acquiring industry as more rational in pricing now, with the beginning of the easing cycle in Brazil we expect to see lower MDRs in 2024.

We asked for the first time to merchants how often they negotiate fees charged by the acquirer. A great portion (36%) does not negotiate fees at all. Meanwhile, 21% negotiate once a year and 21% once every six months. Lastly, 9% negotiate every three months and only 5% once in a month (probably the most likely to churn).