Brazilian Sugar-Cane Mogul Is Creating the Alipay of Brazil

(Bloomberg) -- The Brazilian tycoon behind the world’s biggest sugar-cane operation is taking a page from billionaire Jack Ma’s playbook for his next project.

Cosan SA, the powerhouse controlled by 68-year-old Rubens Ometto, is launching a version of Alipay to process payments and money transfers through smartphones. It’s a bet that could save the conglomerate millions in fees and give it a foothold in Brazil’s booming fintech scene.

Brazilian Sugar-Cane Mogul Is Creating the Alipay of Brazil

The company, which also has fuel and natural gas-distribution businesses, wants to convince at least some of its 20 million customers to fill their tanks or pay their gas bills using a digital wallet named Payly (a combination of “Pay” and “Daily.”) It’s starting by cutting out the middle man -- namely, credit- and debit-card companies and payment processors -- in some of the 6,300 gas stations it owns in a venture with Royal Dutch Shell Plc. In the long run, it wants to build a larger base of users and vendors on the platform.

Brazilian Sugar-Cane Mogul Is Creating the Alipay of Brazil

Cosan is taking the lead in testing the app for its employees and vendors in smaller cities, including taxi services, sugar transportation and payroll, gradually replacing the costlier traditional payment methods, according to Payly Chief Executive Officer Juliano Prado.

“We had been losing a lot of money, and not making any,” Prado, a former executive at Shell, said in a telephone interview. “We want to get the credit cards out of the play.”

To get business owners to accept purchases made through the app, Payly will charge merchants a fraction of what they pay for credit cards in Brazil -- 0.1 percent per transaction versus an average 2.63 percent on credit cards in 2017, according to central bank data.

Revenue will stem from the returns Payly makes by investing clients’ money into government bonds -- a local regulatory demand for payment institutions meant to protect clients in case the firm goes broke. In the future, it will also get fees by selling other services such as recharging prepaid mobile phones.

Over the past decade, Ometto’s conglomerate has diversified from the industry where it began amid a stagnation in global sugar prices and government policies that curbed the expansion of cane ethanol in Brazil. The move included the acquisition of Cia. de Gas de Sao Paulo, a gas-distribution company known as Comgas, and the takeover of train operator ALL America Latina Logistica SA, now renamed Rumo SA. Raizen SA, its venture with Shell, is Brazil’s second largest fuel distributor and the largest ethanol producer.

On Wednesday, Cosan gained as much as 4.6 percent to the highest intraday level since May 23. The shares have surged 24 percent this year.

Brazil has the most fintech firms in Latin America with 377, mostly in the payments sector, according to a June report by Finnovista, a Mexico-based fintech accelerator, and the Inter-American Development Bank. A Goldman Sachs report from 2017 estimated a 62 billion reais ($17 billion) potential revenue pool for Brazil’s banking and payments industry in 10 years -- which Payly is hoping to tap.

Last year, payment newcomer StoneCo Ltd., raised $1.4 billion in a Nasdaq initial public offering, wooing investors like Alipay’s Ant Financial. Tencent Holdings Ltd.’s, the owner of another one of Payly’s benchmarks, WeChat Pay, also invested in a Brazilian payment fintech last year: credit and debit-card company Nubank.

©2019 Bloomberg L.P.