How increased competition in the meal voucher market impacts the economy

Reducing card fees could save businesses R$7 billion – and mean lower prices for workers.

The meal and food voucher market generates approximately R$150 billion annually in Brazil. This volume of resources is directly linked to the Workers' Food Program (PAT), which encourages employers to cover the cost of workers' health and nutrition.

In practice, the public sector finances this benefit by offering discounts on income tax and social security contributions for employing companies – these companies must commit to providing benefits to their workers that can only be used to purchase food and meals.

No ano passado, um passo significativo foi dado para melhorar essa política governamental: a abertura desse mercado foi oficializada com a lei 14.442/2022. Com isso, é esperado aumento da competitividade no setor de vales-alimentação e refeição, culminando na melhoria dos serviços disponíveis para os trabalhadores beneficiários  e em impactos positivos do aumento do consumo para pequenos e médios estabelecimentos.

Among the changes, portability is the main one. It will give workers the right to choose the voucher company to receive their benefit based on what they deem to be the most appropriate service for their needs and the best conditions.

With the introduction of portability, one of the logical effects is the entry of new competitors into this sector. This cascading effect would be a reduction in transaction fees charged by companies currently offering PAT services to establishments that accept these cards, such as restaurants and supermarkets.

"The creation of portability is valuable. It reduces the ties workers have to their suppliers and promotes competition, as the market ceases to be captive and becomes free. This tends to improve the supply of products and services, raising the quality and commercial terms offered," notes Gustavo Moreira, coordinator of the MBA in Finance courses at Ibmec in Rio de Janeiro.

If rates fall from the current average of 7.5% to 2% (a level similar to credit card rates), we can say that R$7 billion would no longer be spent by restaurants and cafes, which could then be used to invest in their businesses.

Furthermore, many restaurants do not accept meal vouchers, mainly due to the high fees charged by traditional benefit companies – an iFood survey of partner businesses showed that, among those that do not accept this form of payment, 61% say these fees are the reason.

In the same sense, reducing fees can result in more money to reinforce workers' nutrition, since fees are often passed on to the prices charged for food or meals.

The portability bill is scheduled to come into effect in May 2024, according to Provisional Measure 1,173/2023. Before becoming final, the bill must be approved by Congress. Therefore, the PAT is currently being discussed by a joint committee with representatives from the Chamber of Deputies and the Senate.

Experience of portability in the financial system
Currently, the PAT benefits approximately 23.4 million workers, which represents about half of the mass of formal workers registered in the Annual Social Information Report, according to 2021 data. Therefore, there is still a significant portion of the population that could be served.

And although the number of Brazilian workers benefiting from the PAT is already high, the benefit's availability had not undergone the modernizations that have occurred in other sectors—such as the financial system and telecommunications services, which have had the portability option for over a decade and have seen increased competitiveness. Now, this gap has begun to narrow.

In the financial sector, which has already experimented with portability before, the results are positive. According to the Central Bank (BC), in a survey released in June, portability in payroll loans has led to a reduction in loan interest rates and an increase in the volume of these loans.

The results of a study with municipalities where there was more banking competition showed a reduction of approximately 0.8 percentage points in the interest rate on loans in municipalities with at least two banks compared to locations with only one, which represents a cut of approximately 5% in the average spread on loans in the period.

For Crisleine Yamaji, a professor at Ibmec, in the financial sector, portability has increased competition and created incentives to reduce interest rates and fees applicable to products and services.

"Undoubtedly, portability has increased consumer choice, given the increased transparency, comparability, and interoperability. It has encouraged consumers to better evaluate their options and adopt a more active approach when researching and comparing prices, products, and services offered in the financial sector," he states.

"The more options consumers have to choose from, the greater the incentive to improve the quality and price of their products and services. A wider range of choices has a positive impact on competition," he adds.

More competition in the meal and food voucher market
When the planned changes to meal and food vouchers come into effect, experts say they should increase competitiveness in a highly concentrated sector, bringing more dynamism to the sector, especially with the entry of new fintechs, which use technology to lower costs.

"The expected result is intense competition among major players, which will put significant pressure on profit margins and require a creative approach to exploring opportunities for legal commercial incentives, given the prohibitions on any type of discount or imposition of discounts established in the new law," says attorney Daniel Chiode.

The expected increased competition from new market entrants should lead to a significant improvement in services provided. "Many institutions are showing growing interest in the food benefits market, which generates billions of dollars," says lawyer Luisa Albano.

As a result, an increase in competition levels is expected, which will change the current logic of winning customers by offering benefits to the human resources departments of employing companies, a practice prohibited by the new legislation,” he adds.

In return, workers are expected to enjoy more benefits. By having the autonomy to choose their own meal or food vouchers, they will also be sought after by issuing companies. Benefits such as cashback—which has been used on payment platforms, marketplace purchases, and service contracts, for example—have potential for growth in this area.

In this example, the worker's use of the PAT benefit could translate into more resources for them to use on food, furthering the program's goal of ensuring workers' food dignity or other essential care. At the same time, this represents more money injected into the economy, as these resources will likely be consumed.

In addition to portability, interoperability is also worth mentioning, allowing both open and closed card arrangements to use the same network to accept payments. This means that the same card terminal or marketplace will accept any type of benefits card, regardless of the arrangement or brand.

Interoperability also helped revolutionize the payments system in Brazil, when a single payment method began accepting cards from different brands.

This is the third content produced by JOTA with sponsorship from Zetta about PAT regulations.

Article originally published on the Jota website on July 21, 2023.