New MasterCard research predicts prepaid card spending
in Latin America will rise from $8.7bn to $71bn in 2017. It is a
huge opportunity to provide prepaid cards to unbanked Latin
American consumers, but the market will only achieve its potential
if all participants collaborate, writes Robin
Regulators in Latin America are facing a choice which will
shape development of the prepaid market across the continent. They
can choose to keep prepaid the preserve of a select few regulated
banks, who they can easily keep track of, or open the door to a
multitude of non-bank payment businesses to try and bring services
to the unbanked masses.
There is concern from some of the
region’s biggest prepaid players that central banks are being too
restrictive on the types of business which can offer prepaid
products. They say this could hamper growth and see millions of
people miss out on access to basic financial services.
One of those concerned parties is
Anabel Perez, CEO of Latin American prepaid card programme manager
She says one of the drivers for
prepaid cards in the region is the effort being made by Latin
American governments to formalise – remove cash from – their
The continent offers a deep and
receptive market for prepaid products. Transactions using open-loop
prepaid cards are predicted to grow from $8.7bn last year to $81bn
in 2017, according to research MasterCard commissioned from Boston
The Inter-American Development Bank
says 70% of Latin American households, ranging from salaried
managers to labourers, are unbanked. Together, these unbanked
households are responsible for 40% of the region’s GDP. Perez
believes regulators would be foolish to exclude non-bank businesses
like her own from the task of increasing financial inclusion in
“Formalising all that cash and
providing affordable payment services to that many people is a
massive, low-margin business requiring multiple players with
specialised roles,” she says.
“I spend a lot of time educating
Latin American banks, retailers, mobile operators and regulators
about the potential for prepaid cards.
“No single player can make this
market happen on its own.”
Latin American financial regulators
particularly need to understand the role prepaid cards will play in
achieving banking inclusion, she believes.
Some of the continent’s largest
economies, notably Brazil, have government mandates for employers
to pay workers with food vouchers, offering opportunities to
convert voucher and cash-based spending onto prepaid cards.
Perez says regulators have a
choice. They can impose restrictions on the types of non-bank
actors which can provide payment services to the unbanked, or
provide access to a wide range of players including mobile
operators, retailers, and prepaid card programme managers.
“Including bank and non-bank actors
will provide the market with the greatest number of options in
terms of business models,” Perez says. “Limiting the number of
qualified actors risks prolonging the formalisation process and
missing the opportunity for financial inclusion.”
One of the most
promising vehicles for financial inclusion in countries with low
levels of banking access is the mobile phone. Around 90% of Latin
America’s 400m cell phones are on prepaid plans. Since most
unbanked consumers have prepaid cell phones, mobile operators will
play a vital role in the prepaid card market.
“A user’s prepaid cellphone account
can be linked to an open-loop prepaid card,” Perez says.
“Via SMS, users can make mobile
payments to utilities and perform person-to-person transfers from
their prepaid phone account. They can also make a point-of-sale
payment with their (associated) physical card, which they can
reload with cash at a retailer belonging to the prepaid load
“Thirdly, instead of standing in
line to pay utility bills, consumers can set up direct debits for
these bills from their prepaid cards.”
NovoPayment estimates that by 2015,
the general-purpose reloadable utility and cellphone prepaid card
market in Latin America will be worth nearly $160bn a year.
Food vouchers provided by employers
to their staff represent another important segment of the Latin
American prepaid card market. In countries such as Venezuela and
Brazil, employers are legally required to provide food
“When we started offering prepaid
meal cards in Venezuela and Peru, we found that other programme
managers who had previously offered paper vouchers on behalf of
employers switched to cards,” Perez says.
In Brazil, Latin America’s biggest
food and employee benefits market, there are three main prepaid
card brands: Visa Vale, Accor Services’ Ticket card, and Sodexho
VR. According to Accor, the prepaid services business which
recently rebranded to become Edenred, Ticket had 38% of the
Brazilian food and employee benefits card market in 2008, followed
by Sodexho VR with 34%, Visa Vale with 20%, and 60 other regional
players with 8% between them.
Edenred estimates that in 2008 the
Brazilian food and employee benefit card market was worth €6.2bn
($7.88bn), and that it is growing at 10% a year.
Prepaid cards provide a means for Latin American banks to reach
low-income, unbanked consumers. Banks have the option to cross-sell
prepaid cardholders other products once their banking behaviour has
been established. But Tangioni argues that prepaid cards also offer
a lower-cost alternative to the DDA (demand deposit account)
services which banks currently offer some low-income consumers.
“Lower-paid Latin American workers
whose salary is deposited to bank accounts, commonly use their
debit card just once a month,” Tangioni says. “Once they’re paid,
they withdraw the money from an ATM. Providing DDAs to these
consumers is costly, whereas prepaid cards are more efficient.”
Among the bank providers of prepaid
cards, Mexico’s Banamex is one of the largest. In July 2010, it
launched Perfiles Ya (translation: profiles, for sure), a
MasterCard-branded reloadable prepaid card. The card bears the same
Perfiles branding as Banamex’s Cuenta Perfiles DDA (profiles
account) product and associated debit card.
Banamex aims to have 500,000
Perfiles Ya prepaid cardholders by the end of 2010, with a total
load of MXN250m ($19.57m). Customers can apply for the cards
without the need for documentation at Banamex’s branches and its
4,000 Banamex Aquí agent locations. To upgrade to a DDA, Perfiles
Ya cardholders need to provide Banamex with proof of address and an
Perez at NovoPayment
says that Latin American unbanked consumers are very aware of the
Visa and MasterCard brands. “There’s an aspirational aspect to
prepaid cards, in that giving an unbanked consumer a Visa-branded
prepaid card means that they have social status,” she says.
Elo is another bank-run project
looking to benefit from and promote the growth of prepaid. Owned by
Banco do Brasil and Banco Bradesco, Elo was launched in April 2010
to offer credit, debit and prepaid cards to unbanked Brazilian
consumers in competition with Visa and MasterCard. Elo’s prepaid
business unit is called Elo Vale.
Banco do Brasil and Bradesco also
operate Brazilian processor Cielo, and Companhia Brasileira de
Soluções e Serviços (CBSS), which issues Visa Vale’s social benefit
Riley says Elo is likely to export
its platform to other Latin American countries. “Where low-income
consumers are making an in-country purchase on their debit card or
prepaid card, why should the issuer pay a fee to MasterCard or Visa
for a transaction that doesn’t need to leave that country?” he
asks. “If the card was badged as Elo, then it would be an
Wal-Mart is one of the leading non-bank providers in the Latin
American prepaid market.
“Wal-Mart will aggressively launch
prepaid cards in countries such as Brazil and Argentina, which are
both countries where it has bought local retailers,” says
“If it only offers closed-loop
prepaid cards, it wouldn’t need a banking licence.”
In Mexico, where Wal-Mart has had a
bank licence since 2006, the retailer offers open-loop prepaid
debit cards as well as WalMart-branded reloadable gift cards.
“Mexico is the largest gift card
market in Latin America,” First Annapolis principal Nelson Irizarry
A First Annapolis survey in the
first quarter of 2009 found that 56% of Mexican retailers offered
plastic gift cards, compared to 47% in Chile, 44% in Colombia and
20% in Brazil.”
For currently unbanked
consumers, Banco Wal-Mart offers the Super Debito savings account,
which can be opened with a deposit of MXN50. The account offers a
MasterCard-branded debit card paying a 1% bonus on purchases at
Wal-Mart’s Mexican outlets. Cardholders can add funds to the card,
or make withdrawals, at Wal-Mart stores and (Banco Wal-Mart)
Perez’s NovoPayment is another of
the many non-bank providers. It has prepaid card programmes in
Venezuela, Peru, Mexico and Colombia. As well as general-purpose
cards, it offers utility and cellphone; meal/food; payroll,
corporate incentives, petty cash and prepaid fuel; and electronic
benefits cards. Its portfolio comprises 960,000 cards on the
MasterCard, Maestro, Visa and Visa Electron platforms, representing
30m transactions and $620m annually.
In October 2009, NovoPayment
received a principal member licence from MasterCard for the
issuance of MasterCard-branded prepaid cards in Latin America. The
designation means NovoPayment no longer needs a sponsoring bank
when it offers MasterCard prepaid cards.
However, Perez stresses that
NovoPayment continues to work closely with bank partners such as
Peruvian processor Interbank.
We can now give banks the option of letting us manage their
whole prepaid card programme on a turnkey basis. Alternatively,
banks can remain in charge but operate on our platform.”