Double-digit growth in various forms of
payment cards mark out Brazil as one of the most dynamic cards
markets in the world. Despite the global economic slowdown, and a
transformation of the country’s banking sector, healthy growth
rates are forecasted for the year ahead. Victoria Conroy


Debit card numbers and spendingPowered by a young and increasingly wealthy consumer
demographic, Brazil’s economy has maintained a healthy growth rate
over the last few years. Its GDP growth rate, while not as
impressive as other emerging markets, has remained steady, reaching
4 percent in 2006, 5.7 percent in 2007, and 4.8 percent in 2008,
according to the country’s central bank. Although estimates for
2009 are certain to be lower, enough people are being propelled
into the ranks of the consumer class and gaining access to
financial services to ensure that the country’s payment card
industry grows steadily year on year.

CI spoke to Diego Juarez, general manager
for the South America region at global payment processor First
Data, about how poverty reduction initiatives have brought more
people into the consumer class over the last decade, and how these
changing consumer demographics are helping to shape card usage

“In Brazil, only 35 percent to 40 percent
of the population has a payment card,” he said. “Not only does the
majority of the population not have a card, but 50 percent of the
Brazilian population does not even have access to basic bank
services. However, due to the rapid economic growth that Brazil has
had in the last four or five years, a significant amount of the
population has jumped from the so-called poverty line to the first
layer of consumption. I would say that almost 20 million people are
starting to use basic financial services such as microloans, credit
cards and particularly private-label cards.”

Card usage trends

Credit card numbers and volumesCash is the predominant method of payment in the country,
with 92 percent of utility bills being paid in cash and 77 percent
of people using cash for all transactions. However, card payments
are making inroads into the usage of cash.

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Purchases made with credit cards, debit
cards and in-store financing totalled BRL388.7 billion ($166.8
billion) in 2008, a rise of 24 percent compared to 2007, according
to ABECS, the Brazilian credit card industry association. Of the
BRL388.7 billion figure, credit card spending represented BRL223
billion, a rise of 22 percent compared to 2007. The industry body
cited the ongoing migration to electronic payments, expansion of
point-of-sale (POS) locations and new banking customers being
issued with payment cards as the major factors behind the

Lower rates of growth are predicted for
2009, largely due to the economic turbulence prevailing worldwide,
and the resulting impact on Brazil’s GDP, but ABECS estimates that
the payment card industry can expect a growth rate of between 15
and 20 percent, with spending volume at around $470 billion. For
credit cards alone, the growth rate is estimated to be between 14
and 18 percent, with a volume of $264 billion.

But overall prospects look extremely
positive. In August 2008, US payment research firm Mercator
Advisory Group stated that since 2001, Brazil has seen a 224
percent growth in the number of payment cards (of all types) in
circulation, a 230 percent rise in the number of card transactions,
and a 270 percent increase in total card transaction value. If
current trends continue, by 2013 Brazil will become the
third-largest card market in the world in terms of the number of
transactions, behind the US and China.

Debit cards have seen the fastest growth
so far, Mercator says. However, credit cards will really take off
in the next five years, due to innovative product and service
launches and infrastructure improvements, such as the expected
introduction of a comprehensive credit bureau.

Credit cards

Brazil’s credit card industry was
initially slow to take off, due to the dominance of Brazilian
retailers offering their own in-store financing to low-income

But the last few years have been
characterised by Brazilian banks teaming up with retailers to
launch co-branded or private-label hybrid card programmes, and
these have been the foundation for the development of stand-alone
credit card products, which have enjoyed rapid uptake over the past
few years. A common feature of credit cards in Brazil is the
interest-free instalment facility, which has helped to increase
acceptance amongst consumers and merchants. As of December 2008,
ABECS reported that instalment purchases on credit cards amounted
to 65 percent of credit card sales volume.

According to a recent study by Brazilian
issuer Itaú, clothing represents the biggest category of credit
card spending at 26 percent, with food (12 percent) and tourism and
entertainment (12 percent) following. Combined, these categories
accounted for 53.3 percent of card payment turnover in December

Credit card payments are rising rapidly in
tandem with a sharp decline in cheque usage, which showed a 50
percent fall at retail locations in December 2008, with an
increasing number of consumers and retailers preferring to conduct
split tender transactions with both cards and cheques.

According to Banco Itaú, the average
number of credit cards per economically active individual in Brazil
was 1.2 in 2007, up from 1.0 in 2006 and 0.9 in 2005. As of 20
September 2008, 1.4 million Brazilian merchants accepted payment
cards. Credit card usage could also be spurred on by the
introduction of a new law in December 2008, which prohibits
retailers and other commercial establishments from setting a
minimum purchase value for credit or debit card payments. However,
ABECS also expects a rise in default rates, which were at 8.4
percent in October.

First Data’s Juarez told CI that there are
two main characteristics in the usage of credit cards in the
Brazilian market.

“The first is that cardholders like to use
as many instalment payments as possible and the other is that
purchases tend to have low average values,” he said. “These are
also characteristics of the wider South American markets. The
general practice among consumers is to gauge affordability of
monthly instilments over interest rates – it’s a question of

“People don’t tend to pay attention to the
level of interest rates, they tend to focus more on the level of
monthly instalments. It’s also important to say that if you drill
down to the base of 500 million plastic cards, only 25 percent are
branded credit cards. The retailers have developed their own
instalment payment businesses.

“There is also a product in Brazil known
as the hybrid card,” Juarez added. “Retailers are now developing
their own private-label offerings, whose acceptance can be expanded
by badging them with the brand of one of the payment schemes to
issue a hybrid version of that card. The hybrid card continues to
operate as a private-label card in outlets of the original
retailer, while in other merchant locations it acts as a branded
network card. This is a very common product that has been
developing well over the last five years in Brazil.”

Prepaid cards displacing

One effective method of reaching out to
the unbanked has been through social welfare disbursement
programmes that issue prepaid cards to recipients. The most famous
example is the Bolsa Familia scheme, the largest of its kind in the
world, which makes monthly payments to millions of poor families
through the Citizen’s Card, a debit card issued by Caixa Econômica

Another scheme is offered by CBSS, a
consortium consisting of Banco Bradesco, BB Investimentos, ABN AMRO
Real and Visa. This programme offers electronic payments to
beneficiaries of the Ministry of Labour and Employment Workers’
Food Programme, via the Visa Meal Voucher card and the Visa Food
Voucher card.

These examples of prepaid cards being used
as disbursement methods have significantly promoted card usage
while at the same time accelerating the migration away from cash
and paper-based payment methods.

Juarez told CI: “Bolsa Familia is an aid
programme for families with monthly incomes lower than the
equivalent of US$100, involving some 27 to 30 million people. So
far, almost 50 million cards have been distributed through the

“To put that into context, currently
Brazil has a plastic card base of 500 million. The average growth
rate over the last 5 years has been 20 percent a year, with growth
rates in transactions and volumes being around the same.

“Distributing cards to lower income
families has led to a reduction of cash transactions and increased
the use of reloadable prepaid cards,” he continued. “In the past
six years almost 50 million cards have been issued to people who
have never before used any type of payment card. These social
programme debit cards have definitely helped to accelerate the
migration from cash.

“Overall, card-based payments have
surpassed cash and cheque usage in terms of the number of
transactions, but they are still behind in terms of volume. It is
also worth mentioning that the internet is very important in
accelerating the migration from cash and will be even more so in
the future. E-commerce volumes have been growing at rates of 120
percent year-on-year, and that obviously fosters the usage of
credit and debit cards.”

Payment networks and

Visa has been the long-standing dominant
payment network in Brazil, and although it does not disclose
specific figures for its operations in Brazil, the country
nevertheless formed a large part of its growth in the Latin America
and Caribbean regions.

In the quarter ended June 2008, Visa
reported card payment volumes of $155 billion, a rise of 35.40
percent over the year-ago figure, and representing 14 percent of
global Visa volumes. In the Latin America and Caribbean region,
Visa stated that debit cards grew by 39.20 percent, with credit
growth of 21.7 percent.

Visa has made debit card growth in Brazil
a key priority, and has worked with member banks in the country to
help educate consumers about the benefits of debit cards when they
open a current account. To this end, Visa has worked on an
initiative enabling debit cardholders to use instalment plans much
in the same way as credit cards, although the dominance of cheque
and credit card payments at merchant locations will take some time
to give way.

There are two bankcard
acquirers/processors in Brazil. Redecard is the exclusive acquirer
for MasterCard/Maestro while VisaNet is the exclusive acquirer for
Visa. Both acquirers have been owned historically by a coalition of
banks and card associations, but in 2007 Redecard held an initial
public offering (IPO) and VisaNet is likely to follow suit later
this year (see CI413). Because of their competing nature and their
non-interoperability, many merchants in Brazil have terminals for
both networks in-store, leading to complaints that the fees they
are charged on each network make card acceptance uneconomical for

Juarez told CI: “In Brazil, merchants have
to pay the equivalent of US$30 to 35 monthly to rent a POS unit.
There are often merchants with two, three or four POS terminals and
I have even seen merchants with as many as eight. They have to pay
a monthly fee for each of those terminals. That is a problem in
Brazil and it’s an issue that the government is examining.”

The fact that Redecard and VisaNet have a
merchant acquiring duopoly in the Brazilian market represents a
huge obstacle to new entrants who wish to gain a foothold, as
Juarez testifies to.

“Visa and MasterCard are by far the most
accepted credit cards along with the Maestro and Visa Electron
debit brands. This is in spite of the high level of acceptance of
local and regional brands. I don’t know the historical reasons, but
the merchant acquiring market is very concentrated. VisaNet is the
world’s seventh-largest acquirer, with Redecard being the
eleventh-largest. They both have a base of almost 1.3 million
affiliated merchants. There are also a few other acquiring networks
providing services for private label cards and mobile top-ups.

“I would like the acquiring business to be
opened up because this would give us an opportunity to work closely
with banks and help them develop their acquiring business. The
Brazilian market is huge. On the other hand, there’s no doubt that
the position of First Data in Brazil as a card processor is key to
our growth strategy. We have a big competitive advantage in that we
are the owner of VisionPLUS, a processing platform that is the
industry standard. It has a very strong brand in Brazil and across
South America. Our best opportunities in the near future will be
private-label and hybrid card projects from retailers and from that
base we will move to processing branded network cards,” Juarez

Redecard’s recurring net profits rose by
47.3 percent year-on-year in the third quarter of 2008 to BRL281.8
million. In the third quarter of 2008, Redecard processed BRL31.3
billion worth of credit and debit card transactions, up 23.6
percent on the third quarter of 2007. Redecard’s installed base of
POS terminals rose by 25.7 percent year-on-year to 919,400, while
the number of merchants on its network rose by 18.8 percent to 1.3
million at 30 September 2008 compared to a year earlier.

In November 2008, Cetelem Brazil, one of
the country’s largest consumer finance providers and issuer of the
popular Aura card, announced that from December 2008 Aura cards
would be accepted on the MasterCard network of nearly 1.3 million
locations in Brazil. Cetelem’s agreement with MasterCard will see
the conversion of more than 3 million Aura cards in the co-branded
Aura-MasterCard portfolio over the next 5 years. Cetelem says it
expects to issue 2 million new Aura-MasterCard cards by 2014.

The major players: top Brazilian banks

Major issuers

Banco Bradesco

As of September 2008, Banco Bradesco had
80.2 million credit and debit cardholders in total, with credit
card receivables of BRL5.93 billion, and with 20.3 million credit
cardholders. In terms of total credit and debit cardholder numbers,
Bradesco has seen a growth rate of 19.2 percent since September

In mid-2008, Bradesco launched a Visa
payWave contactless card pilot in association with VisaNet.
Starbucks’ Brazilian coffee house chain was the first retailer in
the country to accept the contactless cards. Visa says the cards
can be used without a PIN or signature for all purchases below
BRL100 at any Starbucks location in Brazil. Separately, in May
2008, Bradesco launched a credit card made from recycled

In September 2008, Bradesco’s American
Express card base recorded a growth rate of 63.5 percent in the 2
years since Bradesco assumed control of the operation in 2006.

Banco do Brasil

As of September 2008, Banco do Brasil had
a combined credit and debit card base of 75.7 million cardholders,
compared to 59.7 million in the year-ago period, with credit card
receivables of BRL2.2 billion as of September 2008, compared with
BRL2.06 billion the previous year. In June 2007, Banco do Brasil
signed an ATM network-sharing agreement with Bradesco, allowing
their customers to use both banks’ remote ATMs located in places
such as airports, train stations and supermarkets.

In late 2008, Banco do Brasil began
offering improved terms for the working capital line of credit it
offers to merchants who deposit their credit card receivables from
Brazilian acquirers VisaNet and Redenet with the bank. Merchants
can now repay their loans in 24 monthly repayments, which compares
to 12 monthly repayments for those retailers who only deposit their
VisaNet receivables with Banco do Brasil.

It also launched a card for Brazilian
exporters and importers that functions as a combined credit and
debit card as well as a bank account-to-account funds transfer
card. The Ourocard Comércio Exterior card contains a digital
certificate in its chip, which enables the card to be used
digitally to sign contracts over the internet, without the need for
a paper signature.


The Brazilian banking industry and credit
card industry was instantly transformed in late 2008 by the merger
of two of the biggest card issuers, Itaú and Unibanco, which also
created the largest bank merger in Brazilian history. The merger
created a giant with $575.1 billion in assets, enough to put it
among the 20 largest financial institutions in the world. The
merger also made it the largest issuer of credit cards in the
country, with a combined base of 33.5 million Visa- and
MasterCard-branded cards as of September 2008, including cards of
the Hipercard brand. Both Itaú and Unibanco already have extensive
relationships with some of the major retailers in Brazil, such as
American Stores and Sugar Loaf, Ponto Frio and Ipiranga.

For its third-quarter 2008 results, Itaú
reported net income of BRL132 million, a 7.2 percent fall from the
second quarter of 2008. Active accounts represented 67.9 percent of
total accounts. Credit card billings in the third quarter of 2008
amounted to BRL12.6 billion.

In October 2008, Itaú announced an
operating agreement with Marisa, the largest women’s apparel retail
network in Brazil. The 10-year agreement is aimed at creating a new
co-branded Itaú/Marisa credit card.

The partnership will enable expansion and
improvement of the existing offer of financial products and
services to Marisa’s customers (such as credit cards under widely
accepted banners, personal loans, payroll loans, among others)
through the latter’s distribution channels.

Unibanco’s credit card business is
composed of Unicard, Hipercard and Redecard. Together, these
companies posted BRL158 million net income in the third quarter of
2008. The credit portfolio posted a 26.8 percent growth over the
past 12 months, amounting to BRL7.2 billion.


The Credicard credit card brand was the
first well-known credit card offering in Brazil, the result of a
partnership between Citi, Itaú and Unibanco. Citi was initially
sole manager of the brand due to its expertise in credit cards in
other parts of the world. As the credit card market grew in Brazil,
Unibanco developed its own card business and sold its share to the
two other partners. Citi and Itaú then divided the brand into Itaú
Credicard and Credicard Citi, although Citi always had the option
to purchase the brand.

Which is exactly what it did in January
2009. Citi has now relaunched the Credicard brand with a new
national advertising campaign in the hopes of increasing its card
numbers from 6 million, as of November 2008. Citi’s goal is to grow
the cardholder base to a 50 percent market share over the next
three years.