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Understanding the “Custo Brasil”
Online merchants operating in different countries are often shocked by the high costs of doing business in Brazil. Not only are banking and payment processing fees much more expensive in the country than elsewhere, but the high tax burden and interest rate, in addition to a complex and expensive process of repatriation of capital, makes the overall costs even higher. Brazilians even came up with the expression “custo Brasil”, which translates as Brazil cost and is used to describe the high cost of business in the country. The Brasil cost originates from different sources, such as excessive bureaucracy, corruption, excessive regulation and lack of infrastructure. In the end, it results in businesses and consumers paying for the infamous custo Brasil.
Why is Payment Processing More Expensive in Brazil?
The Brazil cost reflects directly on the payment processing fees. For instance, Brazil’s tax burden is expected to close 2017 nearly at 33% of the country’s GDP. Because of that, there are significant non-compensable taxes on the transaction fees that each member in the processing chain needs to pay: issuing bank, payment acquirer, PSP. Therefore, the final fees presented to the merchant should cover those taxes.
In addition, a study by the World Bank identified an excess of bureaucracy in Brazil. While businesses in countries like France and the UK need 137 hours and 110 hours respectively for filing and paying their taxes, Brazilian companies spend on average 2,038 hours at this task. The country also finished 2016 in the 123rd position in the ease of doing business index of the World Bank, meaning that the regulatory environment in Brazil is less conducive to business operations than many of the 190 countries analyzed.
Furthermore, high interest rates mean that businesses spend a lot whenever they need financing. For example, the rate known as Selic is currently set at 9.25% – the first time in the last couple of years it is not above the two-digit mark, as it has averaged 13-14% between 2015 and early 2017. However, the Selic is just a base interest rate used by the Central Bank of Brazil to charge the banks. The market’s interest rate is calculated by taking into account the Selic rate as well as other factors such as the macroeconomic scenario and market risks, which can add up to 18% to 20%.
It is important to highlight that as the payouts by Brazilian acquirers are done only after 31 days, PSPs like PagBrasil often need to anticipate some money to make sure merchants receive the remittances in time. Because of that, the payment processing fees generally include the interest rates that apply in this situation.
Additionally, the costs of money conversion and repatriation of capital, added to the complexity of this process, also impacts the total costs of payment processing in Brazil. For this reason, it is crucial for merchants selling to Brazil to choose a payment provider offering a cost-efficient and transparent currency conversion model. It is common to see the exchange rate called “tourism dollar” being used for international remittances. However, there is no such rate as it ceased to exist as an official rate in 2005. Read about the hidden costs of tourism dollar.