Selling through a subscription model in Brazil
“How SaaS companies are solving payment problems in the Brazilian market”.
It is a big challenge to run companies in Brazil. Laws, politics, taxes and bank rules are challenges to be solved by both Brazilian and foreign entrepreneurs, especially when we talk about payments. We have a unique payment system controlled by banks, acquirers, credit cards and by Brazilian culture.
We have some examples to illustrate how SaaS companies are selling in Brazil but at first, we need to understand payments rules and different methods available here. Let’s see.
“Boleto” (or boleto bancário) is a major and preferred payment method of B2B Brazilian companies. It is the most popular invoice solution for payments in Brazil. It is a reality. In addition, this is a big challenge to Saas companies without corporate headquarters here.
In practice, boleto is a financial document (proforma invoice with a barcode) for customers to pay when some product or service are being sold. For this method, companies need a bank account and legal office to sell in our country.
Despite its popularity, the conversion is low. About 30% is paid at maturity (in time), because this method needs an action of customers, who need to go to the bank (or internet bank) to pay the boleto. It’s complicated for subscription models. The churn rate can be disastrous in some segments.
Growing fast in Brazilian market, the credit cards are popular here too but not for B2B yet. Companies are being encouraged by banks to begin using this method to pay services and buy products. But we do not have many companies paying Saas solutions with corporate credit cards here. Businesses like Google Adwords and Facebook Ads are helping to change this mindset, by obligating customers to put a credit card in order to access their services (Google is offering boletos too).
Usually the company’s partner lends their own credit card, and then asks for a repayment by the financial department. This process is inefficient in time. Bad for business.
Installments — “Parcelado”
Here is another big challenge. We have a specific system called “parcelado”, where buyers finance their purchases with monthly installments made during a certain period. It’s hard to explain to foreign companies how exactly it works. For example, people can buy an iPhone for U$399, in ten equal installments during ten months (10x U$39.90). It’s cultural and this is one of the main reasons why indebtedness is common in the country.
If we do have an efficient method approved by banks, this is “debit account”. But the challenge of this method is to get the approval by banks to have this form of collection. Segments like schools, gym clubs and publishing houses are eligible for an easy approval. This method is being more exploited by large Brazilian banks, but most sees it as a high risk because this method does not require customer confirmation (password or signature) to complete the transaction in customers’ accounts.
Boletos, credit cards and debit accounts are the most popular payment methods to a internet company sell in Brazil.
Main challenges to foreign Saas companies and to local businesses
Both sides have challenges. Saas companies to sell, Brazilian local businesses to buy international solutions.
Main challenges to foreign companies
- Infrastructure costs;
- Financial system;
- Be effective against the local Saas companies (who are selling in local currency with local payment rules).
Main challenges to local companies (B2B Customers), that need to buy foreign Saas solutions
- Exchange rates risk (Dollar, EUR);
- Most Brazilian companies do not have international card;
- 99% of Brazilian companies do not have registration in the bank to send wire transfers;
- Wire transfers taxes.
Stay with me.
Subscription billing in Brazil
Before the consolidation of Netflix in Brazil, they tested all the payment methods here. Including boleto. The first tests were a little disastrous. Many new subscribers chose “boleto”, but few people actually paid. Then Netflix decided to take out the boleto and ask the new subscribers for credit card only. Today, Brazilians can pay with debit account on the streaming platform. It’s an advantage to a huge company as Netflix, to nationalize operations because the number of subscribers and potential ones, is a good reason to do it all here. The return of boleto is being analyzed.
Zendesk and Salesforce
Thousands of B2B Brazilian customers, but how? The two best foreign Saas examples in Brazil are Zendesk and Salesforce. But the challenges are big to these guys too. These two companies have their billing outside Brazil. For a customer born amid internet culture, that´s ok. But when they go out, “to sell on the streets”, or to off-line companies (where the billionaire companies are located here) that´s when the challenge begins. Accepting only international credit cards in Brazil, Zendesk and Salesforce are not acquiring customers that pay through “boletos” and debit account because they are not a local billing. Some US Saas companies are selling to wire transfer. Zendesk, for example, is selling through a wire transfer to companies that do not have credit card. It is a solution, but not the most appropriate one for Brazilian entrepreneurs, who need to have a mandatory exchange broker (or bank authorization) for this operation.
Even using Zuora (one of the most powerful recurring platforms), Zendesk and Salesforce continue to have some problems in Brazil, to sell to offline companies. The rules and business are different here.
Here at Vindi, the solution suggested by us to these foreign startups, was to create an automatic invoice to wire transfers, with notification and schedule to bill another periods. With this “feature”, sales teams and financial departments could offer to their customers a personal billing, with personalized templates and details like the bank account information, branch and values. We call this “Recurring Wire Transfer”. These feature works with dollar currency. It’s not the best practice, but this way they will not forget to charge their customers, believe me again: this is common.
Look at the following sequence.
Generating the wire transfer bill (recurrent)
Brazilian companies (customers) will receive this message by email (can be edited with logos, banners and customizations)
Check this simulation about the details of wire transfer (branch, swift code, bank account and other can be described in our page payment checkout) in our notification system.
“Simple things are the best solutions”.
In the next charge, we will send a automatic invoice, without human interference.
Saas foreign companies can use our platform to conciliate paid invoices, administrate cycles and recurring charges through this method. In practice, this is the automation of wire transfer invoices. Forget the spreadsheets!
On the next steps, we suggest to integrate with our API, to all features and methods, including international credit card.
Returning to Zendesk and Salesforce
A good practice of these two Saas companies is to sell annual plans on a single charge, anticipating revenue. We are learning that. The startup Jeenga, a marketing services provider, is offering this form of payment. They are selling subscription of monthly plans and doing something very good in annual plans, like Zendesk and Salesforce. Look, we are learning too ☺.
Brazilian Saas companies
The article of Anna Heim to Nearshore Americas, explains well my point of view. In order to do something professional and to be protagonist here, the Saas companies, regardless of which country they are from, must think, and act just like the Brazilian players.
Having companies like Hubspot coming to Brazil is a very good signal. The Market is huge, believe me. But Brazilian Saas companies have a huge advantage in payments, selling to Brazilian customers. They are speaking the same language, in payment methods. They are covering all types of payment, and supporting all kinds of companies: offline and online. Billing through credit card, boletos, debit account and online transfer in some cases.
Two Brazilian Saas companies, Resultados Digitais, (a marketing automation startup) and Contentools (a content marketing provider), are growing strongly in the local market, charging with Brazilian payment methods (boletos and credit card). There will be a hard mission, for foreign competitors to come here and without understanding the needs of the Brazilian B2B market, however good the product is.
One of the best examples of companies coming to Brazil and understanding all the system is Benchmarkmail, a Californian email marketing startup. Before opening their Brazilian office, they prepared the nationalization of the company, the recurring billing and the taxes systems. For the company, there is no barriers to acquire Brazilian customers.
“If you are not physically present in Brazil, you will lose a great part of the cake”. Marcos Vieira (Namoro Online at International Dating Conference.)
Finally, I share with you a paragraph where Netflix explains the reasons for the choice of the Brazilian methods:
“In Latin America, we’ve made steady progress on our consumer payment infrastructure. In Brazil, we’ve recently launched a direct debit consumer payment option with several major banks (“Débito Automático”) and are testing the uniquely Brazilian form of payments known as Boleto Bancário”.
Thank you Netflix.
Rodrigo Dantas — CEO & Co-founder at Vindi, Online Payment Platform focused in Subscription Billing in Brazil.
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*** This article began in “Latin America Claims Part of the ‘Subscription Economy’ Pie, But Challenges Remain” — posted by Anna Heim, and encouraged after discussions on LinkedIn group “Latin America Sales Professional” — posted by Paul Rios (Hubspot).