International online stores are gaining more traction among Brazilian consumers. In 2016, over 21 million e-consumers in Brazil made purchases on an international website, an increase of 21% in comparison to the previous year. In this scenario, the logical step for international businesses selling to Brazil is to use a local payment partner to process payments in BRL, offering local payment methods. However, in order to receive the funds in their respective currencies, merchants must consider currency exchange rates applied to cross border settlement. The costs involved in the currency conversion can reduce merchants’ profit margins significantly, particularly because some banks and payment processing services use the so called “tourism dollar” rate, which is often up to 7% more expensive than the official rate.
However, what exactly is the “tourism dollar”? Historically, Brazil has faced several currency exchange crises, which led the government to impose limits and require paperwork to carry out foreign currency purchases. Such restrictions fomented the development of a black exchange market, also called parallel market. In the 1980s, said restrictions and controls had become more rigid, strengthening the parallel market. As an attempt of regulating the transactions carried out in the black market, a floating exchange rate market segment was created in 1988. The new segment became known as “tourism dollar” and, unlike the official market – also known as “commercial dollar”, its exchange rate floated according to supply and demand, in a similar dynamic to the parallel market.
In 2005, the Brazilian currency exchange market underwent changes that merged both the commercial and the tourism segments. From then on, the country has had only one legal currency exchange market based on a floating rate and the “tourism dollar” ceased to exist as an official rate. However, both terms are still commonly used in Brazil to express different exchange rates. This way, “tourism dollar” is used for operations involving buying and selling currency for international travel, while business transactions such as import/export and funds transfers use the “commercial dollar”.
What is the Difference Then?
The official rate, or “commercial dollar”, is published by the Brazilian Central Bank on its website daily. The average official exchange rate for the day is set based on all the transactions carried out in the marketplace. As this rate serves only as a reference for calculating the rate to be adopted, each financial institution, currency exchange office and payment provider may use their own rates. In general, these players use the official rate and apply a spread to get a new rate that is often called “tourism dollar”. Such spread can increase the exchange rate up to 7%, according to a study conducted by Melhores Destinos. By quickly comparing the exchange rate used on the 2nd May by two of the main Brazilian banks, Banco do Brasil and Bradesco, as well as two currency exchange offices, Confidence Câmbio and Cotação, and the “tourism dollar” rate published at the popular portal Economia.uol against the official rate published by the Brazilian Central Bank, we can see that the lowest spread applied was 4.26%, with Banco do Brasil adding up to 5.31% to its rate.
|Exchange Rate on 02/05||BCB Official Rate||Difference|
|Banco do Brasil||3.347||3.169||5.31%|
Payment service providers that offer cross border payment processing often follow the same criteria. However, when doing so they do not inform the spread added to the exchange rate. This creates a hidden fee model, where processing fees are clear, but merchants end up paying more due to fees hidden in the exchange rate. In addition, the “tourism dollar” rate makes it harder for business owners to foresee the settlement amount.
On the other hand, PagBrasil offers international merchants access to a transparent and cost efficient exchange rate based on the official interbank rate published by the Brazilian Central Bank. As the difference in exchange rates can vary significantly from one player to the other, merchants should always compare it upon choosing a payment provider, in addition to service fees. This way, the decision will be made taking into account all costs involved, from processing fees to currency exchange.