Brazil’s economic strength, demographic profile,
technology use and improving payments infrastructure form a solid
foundation for cards industry growth. Foreign entrants may not yet
be competing for cards issuance with Brazil’s big banks, but there
is much to attract them. Sarah Williams reports.

The Brazilian cards market has grown robustly in
recent years, boosted by a large young population, strong economic
growth and considerable investment in the payment infrastructure.
Debit card growth rates are impressive and show no sign of slowing.
Although there are fewer credit cards than debit cards, the market
is growing rapidly. There is also huge potential in the prepaid
market as cards replace voucher-based benefits.

Technology is an important driver of growth, with
mobile payments, powered cards and contactless payments all in the
process of undergoing trials.

The country’s large population and rapidly
growing payment cards market has attracted foreign companies to the
cards industry. However, foreign presence in the credit card market
is limited, with the domestic banks dominating issuance activity in
a very concentrated market.

Debit cards

The number of debit cards in force has increased more than fourfold
since 2000, reaching an estimated 201 million by the end of 2007,
according to estimates by ABECS (Associação Brasileira das Empresas
de Cartões de Crédito – the Brazilian Association of Credit Card
and Service Companies). (See Figure 1.) This represents a 7 percent
rise on the previous year. Brazilians are generally comfortable
with the use of debit cards and the opportunities to use them have
grown in recent years, as both the number of ATMs and POS terminals
has increased.

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While Jan Smith, managing partner at US
consultancy InfoAmericas, believes growth within the Brazilian
cards market will come from the credit card sector in the short
term, he predicts that within five years, debit card growth will be
the primary engine of growth.

Over the period 2000 to 2007, debit card
transaction volumes and values grew at rates of 38.3 percent and
35.4 percent CAGR, respectively: in 2007, transaction values
totalled BRL88.5 billion ($50 billion) and transaction volumes
reached 1.93 billion.

Figure 1: Debit Card Volume and Value

Credit cards

The credit card market is very concentrated, with four domestic
banks accounting for three-quarters of the cards in force (see
below). Although the number of credit cards is much lower than that
of debit, it is a fast-growing market and Brazil is one of the
largest credit card acquiring markets in the world. The number of
cards, transaction volumes and transaction values are all rising
rapidly, with the number of cards in circulation totalling 93
million at the end of 2007 for a total transaction volume of 2.4
billion and total transaction value of BRL182.9 billion. (See
Figure 2.)

A big factor in the cards market in Brazil is
instalment plan purchases. In October 2007, Banco Itaú forecast
that in 2007, instalment plan purchases by credit card in Brazil
will be shown to have overtaken one-off credit card purchases for
the first time.

Brazil is one of the most active private-label
card markets in the world. As of the end of 2007, there were an
estimated 142 million store/private-label cards, up from 50 million
in 2001. The value of transactions using this category of card grew
by 17 percent over 2006/2007.

Cards Market Snapshot

Prepaid cards

The potential for prepaid applications within the Brazilian voucher
system is huge, given that in 2006
estimated the total market for vouchers to be $3.12
billion. Since 2002, several of Brazil’s largest banks have been
partnering with Visa to provide a replacement for paper vouchers
for basic goods and services provided by employers as a fringe
benefit. The banks established the Brazilian Solutions and Services
Company (CBSS) to issue a prepaid card called Visa Vale, which may
be used in restaurants and food stores.

In 2007, Brazilian transit payment company Rede
Ponto Certo indicated that it was in talks with local banks about
opportunities to use its transit smart cards for general-purpose
payments. Rede Ponto Certo has around 10 million Bilhete Único
contactless transit cards in issue, which are used on São Paulo’s
mass-transit system. Most of these users are unbanked, according to
the company. There is the potential to use the cards as either
prepaid or debit cards.

Figure 2

The use of technology

As Brazil has a very large mobile phone market (110 million
Brazilians were estimated to have mobile phones as of November
2007), banks are looking to mobiles as a way of introducing payment
cards to previously under-banked and unbanked customers. Local
software seller VAS forecasts that by the end of 2008, every
Brazilian retail bank will be processing transactions carried out
on mobile devices. In 2007, government-owned Banco do Brasil formed
a mobile phone payment alliance with Visa Brazil, embedding credit
and debit card numbers in subscribers’ mobile phones so that they
can make m-payments. In November 2007, Visa announced that in 2008
it will launch a trial in Brazil to examine consumer preferences
for mobile remote payments and examine consumer preferences for
mobile remote payments.

In February 2007, Visa and local bank Bradesco
announced that they had begun consumer trials of powered cards,
which are payment cards with an embedded battery. Powered cards
include a display that shows updated card account balances as well
as one-time passcodes for online authentication. Visa says Bradesco
is the first bank in the world to test powered debit cards.

Contactless, too, is coming to Brazil. In June
2007 French contactless chip manufacturer Inside Contactless said
it was seeking to win a contract to supply chips for several
Brazilian contactless card trials.

Brazil is also at the forefront of the global
migration to chip and PIN technology. According to Visa, as of May
2007, some 98 percent of the country’s POS network accepted chip
cards. As early as 2005, Visa member banks issued over 5 million
chip cards, of which 80 percent were credit cards. Visa and

’s current EMV migration deadline in Latin America is

The role of Redecard and Visanet

There are two bankcard acquirers/processors in Brazil.
is the exclusive acquirer for MasterCard/Maestro while

is the exclusive acquirer for Visa. Both acquirers have
been owned historically by a coalition of banks and card

Redecard held an initial public offering (IPO) in
July 2007, the largest in the country. (Prior to the IPO, it was
jointly owned by Citibank, Banco Unibanco, Banco Itaú and
MasterCard.) Redecard’s recurring net profits rose by 30.3 percent
in the third quarter of 2007 to BRL191.3 billion. As of 30
September 2007, the company had a total of 1.1 million affiliated
merchants, 9.9 percent higher than in September 2006. Redecard
processes MasterCard and Diners Club transactions. In the second
quarter of 2007, Redecard processed BRL23.9 billion ($11.82
billion) of credit and debit card transactions.

VisaNet has been operating in the market since
1995, when Visa International joined a group of Brazilian banks
(Bradesco, Banco do Brasil, Real and the extinct Banco Nacional) to
create a company dedicated to capturing and transmitting credit
card transactions made at commercial establishments. Until then,
this work had been jointly performed by banks and Visa; each
financial institution launched its own cards and created its own
solutions to capture payment information at stores. Today, VisaNet
has 20 associated financial institutions, and a network of 790,000
POS terminals interconnecting more than 1 million

Profitability issues

In general, VisaNet and Redecard do not share terminals, meaning
that merchants have at least two terminals at their cash registers.
This makes Brazil a relatively high-cost market. In addition, there
are different acquiring products than in North America or Europe
(POS-driven instalment lending, for example) that create costing

According to consultancy First Annapolis,
merchant pricing in Brazil is high by international standards, as a
result of the market structure (ie, VisaNet vs Redecard). Acquirers
are estimated to receive a net spread (gross revenue less
interchange and scheme fees) of over 200 basis points. This
structure is under pressure from several parties including
regulatory authorities, as well as banks that wish to compete
directly in acquiring, and from international acquirers that wish
to enter Brazil.

MasterCard has revealed that regulatory
authorities in Brazil are reviewing its interchange fees.

Foreign players

Brazil has attracted a number of foreign companies involved in
business activities associated with the cards industry. For
example, French card manufacturer Oberthur Card Systems has a bank
card personalisation centre in Brazil. Similarly, in October 2007,
UK-based credit reference agency Experian paid BRL138 million for
an additional 5 percent stake in Serasa, taking Experian’s total
stake in the Brazilian credit bureau to 70 percent. (Experian
acquired an initial 65 percent in Serasa in June 2007.)

In the same month, Postilion, which is a
subsidiary of US-based banking software company S1, announced that
it is to market its card-processing software in Brazil through an
alliance with local reseller VAS Consultoria Empresarial.

In July 2007, global electronic payments
processor First Data announced it was acquiring Check Forte
Processamento de Dados, a Brazilian provider of payment transaction
processing services.

In the same month, US computer services company
EDS launched a card processing platform in Brazil that is designed
to allow a wider range of financial institutions and retailers to
offer credit cards. The system allows EDS to offer card issuing,
authorisation, acquiring, settlement and processing services at a
lower cost than platforms running on more powerful computers. It is
aimed at banks issuing credit cards and at retail chains wanting to
enter the private-label card market.

In terms of credit card issuers, there is
considerably less foreign presence and domestic banks dominate
issuance activity. Citibank plays a key role in the Credicard brand
and as of 2009 it will have exclusive use of that brand. Other
foreign players include HSBC (which launched its first corporate
credit card in Brazil in 2007, targeted at SMEs), GE Consumer
Finance and BNP Paribas’s consumer credit subsidiary, Cetelem. The
latter markets its co-branded credit cards with over 70 retail
partners. In mid-2007, Mexican retail and financial services
company Grupo Elektra received a banking licence to offer consumer
credit services in Brazil.

Major Players

Banco Itaú

Banco Itaú issues cards under two brands: Itaúcard and Credicard.
Existing bank customers with current accounts are primarily served
through the Itaúcard brand, while the Credicard brand mostly serves
non-account holders. In 2005, Itaú and Citigroup began partitioning
the portfolio between themselves, and finalised the split in
mid-2006. Itaú received the TAM, CBD and Fiat card portfolios, as
part of the division of the Credicard credit card portfolio. The
Credicard brand is currently jointly owned by Citigroup and Banco
Itaú. (Both banks issue cards with both the Credicard brand and
their own brand.) However, as of 2009, Citigroup will have the
exclusive right to use the Credicard brand.

Itaú has strengthened its presence in the South
American cards market with the acquisition of BankBoston’s
operations in Brazil, Chile and Uruguay. As a result, Bank of
America, BankBoston’s previous owner, now owns a 7.4 percent stake
in Itaú. In 2005, US consultancy Interbrand rated Itaú as the most
valuable Brazilian brand. Banco Itaú acquired credit card processor
Orbitall in 2005.

Banking service fees earned from credit cards
amounted to BRL581 million in the third quarter of 2007. The bank’s
credit card portfolio grew by 6.8 percent in the same quarter and
by 18.7 percent over the 12-month period ending September 2007. Of
the bank’s 13.8 million credit card customers, 6.5 million were
non-account holders and 7.3 million were account holders. According
to the bank, active accounts represented 80.1 percent of total
accounts. Of this share, 81 percent of account holders carried out
transactions during the month of September 2007, with an average
activity of BRL1,463 per account in the third quarter. The bank
says its share of credit card transactions (on a transaction value
basis) was 22.7 percent in the third quarter of 2007, down slightly
from 24.1 percent during the same period in 2006. Bank Itaú had
23,424 ATMs as of the end of September 2007.

In late March 2007, the bank formed an alliance
with American Express under which Banco Itaú issues cards with the
Itaú brand and the American Express logo; the cards function on the
American Express network. Itaú will market the co-branded cards
through its distribution network, which includes over 3,000
branches. It will also be responsible for billing, customer service
and charge authorisations, and will own the cardmember loans and

Figure 3: Credit Card Issuers Market Share

Banco Bradesco

Bradesco estimates its combined market share in the
credit/debit card market was 18.6 percent as of September 2007, up
from 16.6 percent 12 months previously. In terms of credit cards in
force, CI estimates its market share at 17.5 percent. Fee and
commission income from cards was BRL623 million in the third
quarter of 2007 while credit card loans on the balance sheet
amounted to BRL5.27 billion. Bradesco had a combined card base of
67.2 million as of end-September 2007. This indicates strong growth
from the 53.3 million 12 months previously and can be broken down
into 16.3 million credit cards, 42.1 million debit cards and 8.9
million private-label cards. The number of credit cards grew 49.5
percent from September 2006 to September 2007.

The bank had 3,067 branches and a network of
24,911 ATMs at end-September 2007. It has a card processing joint
venture with ABN AMRO and Fidelity National Information

Bradesco offers a wide range of cards, including
Visa, American Express, MasterCard and private label credit cards.
In 2007 it launched the FixCard which, in addition to offering a
lower interest rate, allows cardholders to plan their expenditures
knowing ahead of time what the monthly payment will be. In the
third quarter of 2007, Bradesco launched the American Express Blue

Bradesco had a base of 1.5 million Visa Vale
prepaid cards in 2007, representing a growth of 26.5 percent
compared to the same period in 2006. Sales in the nine months to
September 2007 reached BRL1.5 billion, a growth of 24 percent
compared to the same period of 2006.

Banco do Brasil

As of September 2007, Banco do Brasil had 44 million debit card
customers and 15.7 million credit card customers. Receivables from
credit cards were BRL2.06 billion as of that date. Fees from cards
were BRL208 million in the third quarter of 2007, while operating
income from credit card transactions was BRL34 million over the
same period.

In June 2007, Banco do Brasil signed an ATM
network-sharing agreement with Bradesco, allowing their customers
use both banks’ remote ATMs located in places such as airports,
train stations and supermarkets. Initially, the agreement covers
200 ATMs in São Paulo and Brasilia, but eventually around 8,200
ATMs will be included across Brazil.

By the end of the second quarter of 2007, the
number of Visa Vale prepaid cards issued by the bank rose to
986,000, with billings of BRL623 million over the latest 12-month

Unibanco (União de Bancos Brasileiros)

As of September 2007, credit card loans outstanding at Unibanco
totalled BRL5.68 billion, up 31.2 percent on the previous year.
Credit card loans represent around 10 percent of the bank’s total
loans portfolio and 17 percent of revenues. Fee income from credit
cards was BRL144 million in the third quarter of 2007.

Unibanco’s credit card business is composed of
Unicard, Hipercard and Redecard. Together, these companies posted
net income of BRL184 million in the third quarter of 2007 and
BRL565 million in the first nine months of 2007. Unicard issues and
manages both MasterCard and Visa cards, and is a major player in
the co-branded card market. Hipercard is a credit card acquirer and
issuer, in addition to being a flagship credit card brand. The
combined billings of Unicard and Hipercard – measured by the total
of cardholders’ charges and cash withdrawals – reached BRL6.38
billion in the third quarter of 2007, representing annual growth of
37.6 percent. As of September 2007, Unibanco had 24.3 million
credit card customers, of whom 16.4 million held MasterCard/Visa
cards and the remaining 7.9 million held Hipercard credit

In addition, the bank had 8.7 million
private-label cards.