The growth of e-commerce has resulted in a massive uptake of alternative payment methods. With the emergence of cryptocurrencies and blockchain tech, many central banks have begun to consider and test central bank digital currencies (CBDCs).
Exploring how the Brazilian market is responding to CBDCs, we hear from Lucio Vargas, head of Brazil at Unlimit, the cross border payment provider. With over two decades of experience in the banking and fintech spheres, Vargas explains how web 3.0 and blockchain tech are impacting Brazil and the devlopment of the Real Digital.
How Real Digital can boost e-commerce in Brazil
Web 3.0 and blockchain go beyond the use of cryptocurrency and NFTs. They can empower e-commerce with the use of traditional currencies, such as the Brazilian Real Digital.
Web 3.0 will revolutionise e-commerce as we know it today, especially with the rise of blockchain technologies that facilitate faster payment transactions, easier international shopping, safer purchasing processes, and greater privacy and data protection. The shift in e-commerce will occur not only because of cryptocurrencies or NFTs, but also with the use of common currencies. For example, the digital Brazilian currency that is already being tested – the Real Digital.
The Real Digital will be equivalent to cash money and also issued and controlled by the Central Bank (BC). Its launch is anticipated to occur next year, following an extensive testing phase. This phase involves conducting transactions of federal public bonds between individuals and thoroughly testing the entire blockchain network and infrastructure required for the smooth functioning of the digital currency.
The Central Bank of Brazil has selected 14 entities, including Visa and Microsoft, for its digital real CBDC pilot programme. The proposal is for the digital currency to be similar to an intelligent Pix, Brazil’s instant payment system that works 24/7, with the possibility of linking a money transfer to certain conditions, such as receiving a product, for example.
Benefits of a digital currency
Besides the competitive advantages that will be developed within Real Digital, there are other major benefits of digital currency in favour of e-commerce. One of the first major benefits of blockchain for e-commerce is the possibility of decentralisation of finance, also known as DeFi. In this context, traditional banks no longer own payment data.
Cross-border payments in online stores, for example, will be more accessible and less costly with DeFi protocols that aim to bring stablecoin foreign exchange markets on the blockchain. Currently, international transactions still rely on traditional banks. This adds cost and complexity for users. It will be particularly beneficial for e-commerce companies, which often face tight profit margins.
The Real Digital will also enable faster cross-border transactions. Cross-border transactions with the Brazilian Real today can also take up to three days to settle, involving five or more intermediaries. This can cause complexities in the process and increase the likelihood of delays.
But the introduction of blockchain and the usage of synthetic foreign exchange on-chain liquidity will bring many more players to the market offering the same services at lower costs and faster processing, with the capabilities of paying in multiple currencies, whether in Brazilian real, dollars, or even cryptocurrencies. At the same time, the Real Digital can further facilitate access to financial services for people who currently do not have access to traditional banking systems, consequently enabling access to potential new customers.
Ensuring greater security
Another noteworthy feature of blockchain is its strengthened data privacy, which will ensure more security in online shopping experiences. Payment transactions would take place in the blockchain, which is all encrypted, without exposing personal data. This simplifies cross-border compliance requirements and facilitates regulatory adherence.
This implies that e-commerce can significantly reduce problems that greatly affect it, such as fraud, chargebacks, and return rates. Real Digital can also incorporate built-in compliance measures, such as Know Your Customer (KYC) and Anti-Money Laundering (AML) protocols.
To get an idea of the urgency for security improvements, last year Brazil registered 5.6 million fraud attempts on credit card payments. This totalled BRL 5.8 billion in fraudulent actions, according to research by Clear Sale. Compared to the previous year, fraud attempts showed a decrease of 0.3 per cent, but the rate is still 4.8 per cent higher than in 2021.
Worldwide, social commerce is expected to grow 30.8 per cent per year between 2022 and 2030, from $724billion in 2022 to approximately $6.2trillion in 2030, according to a study by Statista. Web 3.0, which comes closer to our reality each day due to increased access to mobile devices and high-speed internet, along with the emergence of the Real Digital, will drive this growth.
Therefore, we can expect greater benefits for all communities from the emerging third generation of the internet; from suppliers and service providers, who will get more out of online sales, to customers, who will have more security, financial access, and more personalised and immersive shopping experiences.
Revolutionising the e-commerce landscape
In conclusion, the emergence of Web 3.0 and the development of CBDCs like the Real Digital have the potential to revolutionise the e-commerce landscape. With the integration of blockchain technology, e-commerce will experience faster payment transactions, easier international shopping, enhanced data privacy, and increased accessibility to financial services.
The Real Digital, being equivalent to cash and issued by the Central Bank, offers competitive advantages and benefits for both businesses and customers. Furthermore, the global trend of developing CBDCs highlights the growing recognition of digital currencies as a vital component of the future of finance.
As social commerce continues to expand, driven by Web 3.0 and the Real Digital, we can anticipate a future with improved security, financial access, and personalised shopping experiences for all stakeholders involved in e-commerce.