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August 31, 2010

Collaboration needed in LatAm prepaid

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 Arnfield. Regulators in Latin America are facing a choice which will shape development of the prepaid market across the continent

By Verdict Staff

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 Arnfield.

 

Anabel Perez, NovoPaymnetRegulators 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 Novopayment.

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 economies.

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 Consulting Group.

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 Latin America.

“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.”

Latin America: Prepaid general-purpose spending – prepaid card forecast for 2015One 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 network.

“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 vouchers.

“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.

 

Quote from Anabel Perez, CEO of NovoPaymentBanks’ cross-selling option

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 identity document.

Market sizing: Prepaid GDV – Latin America as proportion of global gross dollar volume (GDV)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 card products.

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 in-country transaction.”

 

Non-bank prepaid providers

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 Riley.

“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 says.

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.”

Quote from Les Riedl, Speer & AssociatesFor 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) branches.

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.”

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