Brazil’s financial sector has always received praise. Not only is it one of the world’s largest and most populated countries, making a strong financial sector necessary, but it is a market constantly pushing itself to improve. This has led to new developments in terms of card and electronic payments, as well as commerce
Following a decline in 2009, real GDP in Brazil grew significantly in 2010 with a 7.5% rise, but the government’s attempt to contain inflation pushed GDP growth down to 2.7% the next year. GDP growth increased gradually and is expect to continue growing a steady level over the next five years. This is set to lead to greater investment in the cards and payments industry, setting up a decent business climate for both existing and new firms.
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Low unemployment levels are also expected to boost growth in cards. The government initiative to issue prepaid cards to low income workers is just one example of how Brazil’s sizable labour market can be reach with the low levels of unemployment set to increase demand for payment cards as well.
The Brazilian market’s openness to competition and its well-developed financial infrastructure makes it one of the most promising payment card markets in Latin America. Consequently, the country has attracted both regional and international banks and card issuers.
In 2014, the Brazilian payment card market accounted for a significant 60.3% and 60.9% of shares of Latin America’s transaction value and volume respectively. A tradition of technological development and a huge population eager to embrace new technology were instrumental in the development of the country’s payment card market during the review period.
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By GlobalDataGovernment policy driving growth in electronic payments
Despite the country’s economic progress, cash is still the primary payment instrument, as consumers – especially in rural areas – still do not have access to basic financial services.
However, payment cards are gradually emerging as a substitute for cash, as the government and banks begin to provide basic financial access to the unbanked population. This includes the government’s policy for financial inclusion, the expansion of banking infrastructure in rural regions, and the appointment of banking correspondents.
The central bank has simplified the process of opening of bank accounts, making access to basic banking products such as bank accounts and debit cards easier. Accounts can be opened by individuals free of charge in government-owned banks, with no maintenance fee charged.
Furthermore, the government introduced the Bolsa Familia programme to help low-income families. Through the program, social security benefits are disbursed by direct fund transfers, which can be withdrawn using a payment card linked to users’ bank accounts.
In addition, the Banco Central do Brasil (BCB) has introduced new regulations that could give a boost to bring full mobile money deployment to scale in a Latin American country for the first time.
The regulations have been described as an innovative mixture of ‘light-touch’ and caution and the BCB has observed the experiences of other mobile money solutions, such as M-Pesa in Kenya.
Non-banks may issue e-money as ‘payment institutions’ and funds entering the system are held at the central bank, but do not form part of the bank’s deposit base. In basic terms, the money cannot be loaned out. This will mean that charging fees is the most obvious way for this to be profitable. However, free-to-use is most likely to be the model, at least initially, as the ventures attempt to grow their customer bases.
‘Light-touch’ related to the fact that the new mobile money systems will operate within a separate regulatory environment from a pure bank and its products. The government has made inter-operability a key goal for this new regulation, a smart move considering the size of the market and a competitive environment which has seen many partnerships develop between all the big players. The importance of allowing innovation and organic development of the evolving ecosystem has not escaped by the regulators.
However, there are some hurdles to overcome. Brazilian banks are yet to demonstrate an understanding on what the consumers, particularly the unbanked population, of Brazil want or need in their mobile money solutions. In addition, a slowdown in the Brazilian economy is not an ideal situation to begin launching a new mobile money market.
While the BCB’s moves into this space are to be welcomes and encouraged, the market needs more for the regulation to fully take hold of the market. Continued innovation from banks, whether they are in the Bank-MNO alliances or not, is integral to bring mobile money to scale in Brazil.
Heavy use of credit cards resulted in growing outstanding balances
In the last ten years, the Brazilian credit card market has recorded robust growth in terms of the number of cards in circulation, and transaction value and volume, supported by high consumer spending. Credit cards have traditionally been most commonly used by high-income consumers, but more recently they have become status symbols for the low- and middle-class populations, which then started to apply for credit cards and loans that were previously out of reach. Banks lowered underwriting standards to encourage these consumers, making credit easily available through credit cards and attractive instalment plans to finance purchases such as new cars.
Over the forecast period, the Brazilian credit card market is anticipated to get tougher as card debt rises. To curb the rising incidences of payment default, the BCB raised minimum payments and increased capital requirements for long-term consumer loans with effect from June 2011.
Despite these regulations, the overall credit card outstanding balance grew from $93.1bn (BRL163.9bn) in 2010 to $146.0bn in 2014. The average outstanding balance per credit card grew from $569.6 in 2010 to $571.9 in 2014. However, these figures are still low in comparison to other developed markets.
M-payments set to shift the cards and payments industry’s dynamics
Mobile penetration in Brazil increased from 100.6% in 2010 to 133.5% in 2014, and is anticipated to increase further to 153.1% in 2019. Despite this, m-payments have been relatively slow to take off. However, this is set to change over the forecast period, as the government approved a bill in October 2013 giving the BCB authority to regulate m-payments. This is expected to encourage m-payments and reduce the use of cash, especially among the unbanked and rural populations. A growing young population, favourable economic conditions and government support to encourage m-payment initiatives should lead to growth in the m-payments market.
In May 2015, Visa was involved in a near-field communication (NFC) pilot with Oi and Banco do Brasil, enabling users to connect Visa-branded Banco do Brasil cards to contactless SIM cards in their smartphone via an Oi app. Users can then make contactless m-payments at 1.4 million contactless terminals across Brazil.
Growing banking infrastructure
The number of ATMs increased at a review-period CAGR of 4.33% from 174,920 in 2010 to 207,206 in 2014, and is anticipated to increase further over the forecast period, from 215,610 in 2015 to 236,409 in 2019, at a CAGR of 2.33%. This growth was primarily due to an increase in the banked population, as well as competitive pressures that forced banks to launch ATMs in rural areas to attract new customers.
The number of POS terminals recorded a healthy review-period CAGR of 8.53%, rising from 4.8 million in 2010 to 6.7 million in 2014. With the increased number of POS terminal installations at retail outlets, the potential of card-based payments in the country is also expected to grow. POS terminal penetration – calculated as the number of POS terminals per 100,000 inhabitants – also rose, from 2,495.1 in 2010 to 3,345.2 in 2014. It is expected to expand further over the forecast period, to reach 3,662.5 in 2019. The market for POS terminals is expected to grow significantly over the forecast period due to the expansion of the retail sector.
Brazil has long been considered the leader in bank-based branchless banking, with Brazilian banks’ agent networks having a presence in each of Brazil’s near-6,000 municipalities. While mobile money is yet to be fully installed across the country, the ecosystem is well and truly there.
Expansion of e-commerce market to provide scope for card payments
Growth in e-commerce is a key factor that will lead to expansion of the payment card market in Brazil. E-commerce is benefiting from Brazil’s growing middle-class population, and grew at a review-period CAGR of 15.26%, from $8.4bn in 2010 to $14.9bn in 2014. It is expected to grow over the forecast period as the number of internet users in the country rises.
Credit and debit cards dominate online shopping by providing attractive promotional offers including discounts, coupons and free shipping. The benefits of online retail, such as low costs and high convenience, are expected to draw more customers and spur demand for cards.
The increasing young and urban populations have a strong inclination for mobile devices and online-media use, giving a platform for e-commerce companies to reach more customers. Growth in online shopping is expected to create opportunities for the cards and payments industry over the forecast period.
Banks and card issuers such as Banco Bradesco, Itaú UniBanco, Caixa Econômica Federal (CEF), Banco do Brasil and Banco Santander offer benefits such as instalment facilities, cashback, reward points, discounts, purchase protection insurance, extended warranties, zero card fraud liability and flexible repayment options, to encourage online shopping. The anticipated growth of e-commerce is likely to have a positive effect on Brazil’s cards and payments industry.
Prepaid card market offers significant growth opportunities
The prepaid card market recorded significant growth at a review-period CAGR of 25.26% in terms of the number of cards in circulation, and 8.08% in value terms. Key product categories which supported the growth of prepaid cards in Brazil were travel cards, general-purpose reloadable cards, and prepaid road freight haulage cards.
Prepaid road freight haulage cards are being encouraged by the government as part of the transition from cash payments to a cashless economy. The government issued a regulation in 2011 that mandated cargo payments either through electronic or prepaid cards. Prior to this, transport companies paid truck drivers for expenses with vouchers that could be converted into cash for fuel or other expenses.
The Brazilian government provides numerous social benefit programs, payments of which are made through cards. A popular benefit scheme which issues payments through cards is the Bolsa Familia programme.
Transfers are made to beneficiary families through prepaid cards issued by CEF. Issuance of these benefit cards increased the prepaid card transaction values during the review period, although the transaction values tend not be very high.
The growing number of outbound departures, the unbanked population and the emerging savings culture are driving prepaid card transaction values. Similarly, businesses offer prepaid cards to employees to meet food expenses.
MasterCard, CEF and mobile operator TIM rolled out a prepaid mobile account in Brazil, called TIM Multibank Caixa, in March 2015, targeting the unbanked population. The product enables TIM customers to make payments, deposits and other transactions by mobile phone, including making purchases with a MasterCard prepaid card linked to their mobile number.
Prepaid travel government initiative
Prepaid travel cards are also becoming popular among Brazilian consumers, primarily due to the government’s decision to levy a 6.38% tax on transactions using credit cards outside the country from 2011.
Consequently, most Brazilians opted to buy prepaid travel cards specifically for foreign trips. As the travel cards are loaded in local currencies, transactions are treated as domestic payments and attract a tax of just 0.38%.
From December 28, 2013, the Brazilian government extended the IOF to debit cards’ and traveler’s cheques. These initiatives are anticipated to generate further demand for prepaid travel cards over the forecast period.
MasterCard Brazil launched its first MasterCard Cash Passport prepaid travel card in March 2011, in association with Travelex. Furthermore, MasterCard collaborated with Banco PanAmericano to introduce first general-purpose reloadable prepaid card in 2011.
In the same year, Banco Rendimento launched a travel prepaid card, the Mundo Livre (Free World) card.
Banco Rendimento offers large number of travel prepaid cards in the country. The bank and Visa launched the first Visa TravelMoney prepaid travel card in 2003 and the Visa TravelMoney Platinum card in 2012.
