Brazil's efficient payment system : a legacy of high inflation

Brazil's efficient, highly automated payment system developed over many years in response to hyperinflationary conditions. The authors describe the system, its payment instruments, and its links to other networks and the government's payment and collections operations. They examine factors that have affected system development, planned innovations and improvement opportunities. The principal payment instruments used in Brazil are cash, checks, cobrancas (like European GIRO payments) and DOCs (Documentos de Credito). DOCs are used to make interbank credit payments, intrabank transfers of funds between a client's different accounts and client to client payments between parties with accounts at the same banking institution. Although they can be initiated on paper, all DOCs are electronic and processed only by banks. Networks include direct deposit and direct debit services, automated teller machines, credit cards and home banking services. The system is highly automated, with separate systems for clearing and settling checks and credit payments; government securities, private securities, state, local, and municipal securities; government payments; and foreign exchange. Among the lessons learned: a) banks can cut costs by cooperating on check processing and transportation; b) a broad, inclusive approach should be taken to modernizing the payments system, taking into account the needs of all users; and c) a wider menu of payment instruments should be offered.