Colombia, Latin America’s
fourth-largest economy, has a small credit card market which is
undertight regulatory control. Yet the country’s strong economic
performance offers the prospect of growth in credit cards, Robin
Arnfield reports.
Go deeper with GlobalData
Colombia had a
population of 45.8m in 2010, of whom 45.5% were living below the
poverty line in 2009, according to the CIA World Fact
Book. The country’s real GDP rose by an estimated 5.5% between
2010 and 2011, while its per capita GDP rose from $5,312 to $5,424
in the same period, Deutsche Bank says.
According to Standard & Poor’s,
in December 2011 Colombia’s unemployment rate fell by 1.2
percentage points year-on-year to 9%, its lowest in a decade.
Inflation was running at around 4% in January 2012.
“The crime situation in Colombia
has been stabilising, professionals who had emigrated to the US are
returning, and consumer spending has been increasing strongly,”
says Andreas Suma, senior director for Latin America at US-based
cards analytics firm FICO. “This isn’t a bubble. I see a window of
opportunity in Colombia for credit cards and financial
services.”
“Colombian issuers are optimistic
about the credit card market,” says José Vargas, FICO’s client
services senior associate partner. “The fact that there are several
new entrants to the Colombian banking industry shows the cards
market has room to grow.”
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By GlobalData
Banking
penetration
Colombian banks are profitable and
have low levels of non-performing loans, running at 3% of total
loans in January 2012, according to Standard & Poor’s.
However, Colombia is characterised
by a lack of financial inclusion.
“Despite recent growth in lending,
much of the population remains outside the formal banking sector,”
Standard & Poor’s says.
According to Madrid-based
consultancy Tecnocom, 57.6% of the Colombian population has bank
accounts.
“One indication of banking
penetration is the ratio of gross domestic consumer and business
loans to GDP,” says Felipe Carvallo, senior banking analyst at
Moody’s. “Gross loans as a percentage of GDP is 42% in Colombia,
compared to 80% in Chile and 60% in Brazil.”
Cash is the predominant consumer
payment method in Colombia. According to market research firm
Euromonitor International, cited in a MasterCard study on Colombia,
73% of Colombian consumer payments were conducted in cash in 2010.
Between 2009 and 2010, the value of cash transactions dropped by
2%, while debit transactions grew 6% during the same period,
Euromonitor estimates.
“Banking penetration is
increasing,” says Maria Cristina Arrastia Uribe, Bancolombia’s
vice-president of construction lending, mortgages and consumer
lending. “The growth of the economy has led to an expansion in the
middle class, which has meant more people qualifying for bank
accounts.”
“Across Latin America, we’re seeing
high growth in people emerging from lower-income segments into
middle-income segments,” according to Edgar Betts, associate
director of the Smart Card Alliance Latin America (SCALA).
“Banks are offering innovative
services to encourage bancarisation,” Vargas says. “For example, in
2011 Banco Davivienda launched DaviPlata (Davi cash), a mobile
payment service enabling consumers to make purchases and transfer
funds to other people via cellphone. DaviPlata is designed for
unbanked consumers or people in remote areas without bank
branches.”
In December 2011, MasterCard
Colombia launched a pilot with the Grameen Foundation to provide
mobile services offering agricultural information and financial
education to poor farmers in Urabá and Santa Marta.
“We expect to move to service
delivery in 2012, and are developing several other Colombian mobile
initiatives,” says Marcela Carrasco, MasterCard’s country manager
for Colombia and Ecuador.
“The Colombian government has
worked steadily to improve access for consumers to banking
services,” says Arrastia Uribe. “It wants to promote electronic
payments to encourage financial inclusion and economic growth,”
adds Carrasco.
Nicolás Franco Gutiérrez, marketing
director at Colombian processor Ptesa, highlights an initiative by
Colombia’s tax and customs agency Dirección de Impuestos y Aduanas
Nacionales de Colombia, to have all tax payments made though banks,
instead of by cash.
“Acceptable payment methods include
credit or debit cards, cheques, and online transfers,” he says.
Cards in issue
According to
Colombian regulator Superintendencia Financiera de Colombia
(Financial Superintendent), in November 2011 there were 9.4m active
credit cards in issue in Colombia, including 207,072 business
credit cards. In December 2010, there were a total of 8.24m active
credit cards in issue, up from 7.33m in January 2009.
In November 2011, there were 3.05m
active Visa-branded credit cards in issue, followed by MasterCard
with 2.40m, Diners Club with 458,853, American Express with
405,955, and other brands with 2.98m.
Banks can issue both Visa and
MasterCard, and in addition Davivienda issuers Diners, while
Bancolombia issues AmEx.
Davivienda had 1.72m active credit
cards in issue in November 2011, followed by Colpatria with 1.64m,
and Bancolombia with 1.18m. Consumer finance company Tuya came
fourth with 1.27m Éxito (success) cards, followed by the Colombian
arm of Chilean retailer Falabella with 786,063 cards in issue.
Bancolombia subsidiary Tuya issues private-label cards on behalf of
Colombian retailer Éxito.
In November 2011, Davivienda had
18% of total Colombian credit card receivables, making it market
leader, says Standard & Poor’s. Colpatria came second in
November 2011, with 16% of credit card receivables, followed by
Bancolombia with 15%, Citibank with 11%, and Banco de Bogotá with
8%.
In November 2011, Colombian credit
cardholders made 10.86m credit card purchases, worth COP2,005bn
($1.12bn/COP2.005trn) inside the country and 1.1m purchases, worth
COP303.25bn externally. In December 2010, there were 11.35m
domestic credit card purchases, worth COP2,140bn (COP2.14trn) and
774,744 foreign purchases, worth COP215.17bn. This was up from
6.71m domestic purchases, worth COP1,139.5bn (COP1.139trn), and
428,249 foreign purchases, worth COP149.15bn in January 2009.
Visa accounted for 4.26m domestic
credit card purchases in November 2011, worth COP811.93bn, while
MasterCard accounted for 2.85m domestic transactions, worth
COP535.45bn.
In November 2011, there were 16.4m
active debit cards in issue, up from 15.1m in December 2010.
Bancolombia led in November 2011 with 4.9m active debit cards,
followed by Davivienda with 2.8m, Banco de Bogotá with 1.59m, BBVA
Colombia with 1.53m, and BCSC Banco Caja Social with 1.28m.
Debit card purchase transactions
totalled 10.98m, worth COP1,248bn (COP1.248trn) in November 2011,
while cash withdrawals totalled 36.89m, worth COP10,411bn
(COP10.411trn). In December 2010, debit card purchase transactions
totalled 14.35m, worth COP1,665bn (COP1.665trn), and cash
withdrawals totalled 37.84m, worth COP13,839bn (COP13.839trn).
Promotions
Both Visa and
MasterCard, in partnership with banks, advertise heavily in the
Colombian media, says Franco Gutiérrez.
“Promotions include Visa Martes
(Visa Tuesdays), where Visa cardholders are offered discounts every
Tuesday at Visa’s retailer and restaurant partners,” he says.
“Co-branding of cards with specific events is very important, for
example the FIFA Under-20 World Cup tournament that took place in
Colombia in 2011.”
“In 2011, we launched several
initiatives to promote the Maestro brand in Colombia, including
educational campaigns and promotions with key merchants such as
fast food chains and cinemas,” says Carrasco. “In 2012, we will be
promoting Maestro to the mass market, affluent and SME
segments.”
Timothy Murphy, MasterCard’s global
head of products, told a Colombian press conference in December
2011 that 1m MasterCard- and Maestro-branded debit cards were
issued in Colombia during 2011. New Maestro issuers in 2011
included Cooperativa Financiera Confiar and Compañía de
Financiamiento Giros y Finanzas.
“Colombian banks have been very
aggressive in promoting their cards, as demonstrated by the fact
that, between 2005 and 2010, the total number of payment cards in
issue in Colombia doubled,” says Vargas.
“A characteristic of the Colombian
market is that banks offer an instalment loan facility on their
credit cards which is separate from the line of credit attached to
the card. This means a consumer can purchase an item such as a TV
on an instalment loan without affecting their card’s credit
limit.”
“In the last three years, AmEx has
seen over 25% growth in billings (ie, the amount charged to cards)
in Colombia, while the overall credit card market has seen 7%
growth,” says Carlos Pascual, AmEx’s vice-president and general
manager global network services Latin America and Caribbean.
“We target upper- and middle-income
segments with American Express cards,” says Arrastia Uribe. “90% of
our AmEx portfolio is consumer, and the remainder is
commercial.”
Asset quality
“In November 2011, credit card lending
represented 6.5% of total consumer and business lending and 23.3%
of total consumer lending in Colombia,” says José Manuel Pérez
Gorozpe, an associate director, financial services, at Standard
& Poor’s. “Total consumer loans had a past due rate (over 90
days) of 2.1% and a delinquency rate (over 30 days) of 4.7% in
November 2011.”
Standard & Poor’s estimates
that in calendar 2011, the credit card delinquency rate was 9%, and
the credit card past-due rate was 5%.
“The fact that the past-due rate is
low indicates that banks aren’t lending to risky customers, but are
targeting affluent consumers who are accustomed to paying off their
credit card balances,” says Moody’s Carvallo. “The banks have
conservative credit card lending criteria.”
The credit card charge-off rate
remained static at 0.8% in 2008, 2009 and 2010, falling to 0.5% in
November 2011, according to data from the Superintendencia and
Banco de la República de Colombia (Central Bank).
Market growth
“Colombia’s credit
card market saw double-digit growth in receivables up to 2007,”
says Pérez Gorozpe. “Due to the global economic crisis, growth in
receivables slowed to 9% in 2008 and 8.5% in 2009, before
recovering to 15.3% in 2010. In the year to November 2011, credit
card receivables grew by 24.3%.”
Colombia’s growth in overall credit
card receivables matches growth in consumer lending.
“Over the last five years, the
proportion of credit card loans to total business and consumer
loans and also to total consumer lending has remained stable,” says
Pérez Gorozpe. “We expect double-digit growth in credit card
receivables in 2012 in line with the increase in total consumer and
business lending in 2012.”
In November 2011, credit card loans
represented 6.5% of total lending and 23.3% of consumer loans.
“We don’t expect the proportion of
credit card lending to total consumer and business loans to
change,” says Pérez Gorozpe. “It will stay at around 6.5%.”
“The largest category of consumer
loans in Colombia is payroll-related lending, followed by auto
loans, with credit cards in third place,” says Alfredo Calvo, an
associate director, financial services, at Standard &
Poor’s.
“Banks are more into payroll loans
than credit cards due to the reduced risk. A typical consumer whose
salary is paid direct into their bank account has a payroll loan.
Their bank takes a charge for interest and capital repayment from
the account.”
One factor limiting expansion in
the Colombian credit card market is a law imposing maximum interest
rates, reviewed every three months, for different types of loans.
The Tasa de Usura (usury rate) law, which was passed in 1997, is
administered and supervised by the Superintendencia on behalf of
the Ministry of Finance.
“In the case of
credit cards, the maximum interest rate in effect in February 2011
was set at 29.9%, and interest rates charged by issuers are very
close to that limit,” says Calvo. “Average credit card interest
rates are 27-29%, which is much lower than in Brazil.”
“There isn’t much competition in
credit card interest rates,” says Moody’s Cavallo. “For example,
Banco de Bogotá and Bancolombia both charged 28.57% in November
2011.”
“The cap on interest rates prevents
banks from entering riskier segments of the credit card market, as
they wouldn’t be able to get a return on lending to riskier
customers,” says Calvo. “So they focus on middle-and higher-income
segments. They don’t want to do what the Mexican banks did in the
mid-2000s and dramatically expand the market by issuing credit
cards across the board. It was this indiscriminate credit card
lending that led to enormous charge-offs in Mexico in
2009-2010.”
Store cards
According to a survey by UK-based
consultancy Finaccord, 18 of the 57 major Colombian retail brands
issued credit cards in 2010.
“The cards of three retail brands
were linked exclusively with MasterCard, with a further three
carrying the Visa logo,” says Finaccord director Alan Leach. “In
addition, 11 retailers only issued private-label cards, while one
retailer, Droguerías Cafa, issued both private-label and Visa
cards.”
“Store cards are a powerful tool
for providing unbanked Colombians with access to credit,” says
Euromonitor analyst Marco Salazar. “Both Tuya and Codensa, the
electricity company which issues the Codensa private-label card,
claim that over 90% of their client base is in lower-income groups.
This has prompted banks such as Bancolombia to begin offering
credit cards to people earning the legal minimum wage.”
According to Euromonitor, the total
number of store card transactions in Colombia grew from 19.4m in
2010 to 19.8m in 2011, while the value of these transactions rose
from COP2,966bn (COP2.966trn) to COP3,058bn (COP3.058trn).
Euromonitor predicts that the Colombian store card market will grow
by 2.5% between 2011 and 2016.
Euromonitor says that Tuya had
31.3% of total Colombian store cards in issue in 2010, followed by
Falabella with 18.1%, Colpatria with 16.2%, Grupo Char with 10.2%,
and Colsubsidio with 8.3%. Colsubsidio is a non-profit organisation
that provides social services and amenities to Colombian workers,
and owns supermarkets and pharmacies.
Acquiring
Colombia currently has a duopoly in
acquiring. Visa franchise-holder Credibanco Visa has the exclusive
right to acquire Visa credit and debit cards, while MasterCard
franchise-holder Redeban Multicolor acquires MasterCard- and
Maestro- branded cards.
“Bancolombia has the exclusive
acquiring franchise for AmEx, and uses Credibanco as its
processor,” says Arrastia Uribe.
In order to be able to accept Visa,
MasterCard, AmEx or other brands, merchants only need one
terminal.
“If a cardholder pays with Visa at
a Redeban-affiliated merchant, Redeban routes the transaction to
Credibanco,” says Francisco Amaro, vice-president, Latin America
operations, at payments software vendor ACI Worldwide. “The same
applies if a MasterCard is used at a Credibanco-affiliated
merchant.”
In July 2010, the Ministry of
Finance published a directive requiring credit and debit card
issuers and acquirers to publish their interchange rates and
merchant fees in Colombian newspapers. In its Trends in
Electronic Payment Instruments 2011 report, Tecnocom says the
greater fee transparency resulting from this directive will likely
stimulate the use of payment cards in Colombia.
According to the Superintendencia,
there were 10,344 ATMs and 169,385 POS terminals in Colombia in
June 2011. In the first half of 2011, there were a total of 277m
ATM transactions (including non-monetary transactions such as
balance enquiries) worth a total of COP58,595bn. The total volume
of POS terminal transactions in the first six months of 2011 was
130m, worth COP23,852bn, the Superintendencia says.
Colombia has three ATM switch
operators: Redeban; ATH, which is owned by Banco de Bogotá’s parent
company Grupo Aval; and Serviban.
EMV
“The
Superintendencia’s Circular 052 directive sets the end of 2013 as
the deadline for all Colombian banks and acquirers to migrate their
cards and POS terminals to EMV,” says John Carlos Muñoz, general
manager, Caribbean, Central America and Andes, at POS terminal
vendor VeriFone. “But the big banks have until October 2012 to
complete their migration to EMV.”
Circular 052 gives Colombian ATM
operators until October 2014 to be EMV-compliant, says SCALA’s
Betts.
“Colombian banks are very
interested in using EMV for securing card transactions at
unattended kiosks,” says Muñoz.
“These kiosks could be used for
selling parking or concert tickets, topping up cellphone airtime,
paying utility bills and carrying out banking transactions. For the
banks, rolling out unattended terminals in malls, petrol stations,
transit stations, buses and taxis, will be a way to increase their
cards revenues.”
“Virtually all Colombia’s POS
terminals have been upgraded to EMV,” says Betts. “Circular 052 has
made EMV migration in Colombia take effect much faster than in
other Latin American countries where the only drivers are the
liability shift and high fraud rates. The international card
schemes have set October 2012 as the date for the liability shift
to come into effect in the region.
“Another benefit of Circular 052 is
that it’s forcing Colombian private-label card issuers to migrate
to EMV, as otherwise they wouldn’t have been obliged to comply with
the international schemes’ migration deadlines.”
“About 35% of MasterCard-branded
cards in Colombia have been migrated to EMV, while the country’s
ATM migration is starting,” says Carrasco. “In addition, the
implementation of MasterCard PayPass contactless and mobile
payments in Colombia is on the horizon. At the end of 2011, Redeban
began installing contactless POS terminals in select retail stores
in Bogotá.”
“We’ve already migrated our
MasterCard and Visa cards to EMV, and by June 2012 will have also
migrated our AmEx cards,” says Bancolombia’s Arrastia Uribe. “We’re
also talking to American Express about rolling out its ExpressPay
contactless technology in Colombia.”
“Contactless cards will be big in
Colombia in 2013-2014,” Muñoz says. “All the new terminals that
Credibanco is installing have a contactless capability, and all the
banks I’ve spoken to, say they will be issuing contactless
cards.”
Transit will be a major driver for
contactless cards in Colombia.
“Transmilenio, the Bogotá transit
scheme, has announced plans to accept contactless open-loop cards,”
says Betts. “The other mass transit scheme operators in Colombia
are considering migrating to open-loop cards and will be watching
Transmilenio’s progress.”
Smart card vendor Gemalto announced
in September 2011 that it would supply Colsubsidio with Colombia’s
first multi-application contactless EMV cards. The Multi Service
Membership Card includes an e-purse, an application that enables
admittance to parks, and sport and convention centres, plus
contactless public transit access in Bogotá.
The internet
According to US-based research firm
ComScore, the total number of Colombian Internet users grew by 24%
in the year to 31 January 2011 to 12.42m. A study carried out for
Visa Latin America and Caribbean by América Economía Intelligence
estimates that the Colombian e-commerce market grew from $150.3m in
2005 to $435.0m in 2009.
“Although Colombia’s e-commerce
market is growing rapidly, there are specific challenges regarding
online payment methods and habits in Colombia,” says Jean Christian
Mies, head of online payment processor Adyen’s South American
office.
“For example, Colombian consumers
are very concerned about internet fraud and security, especially
for credit card transactions.”
Mies says that, because of security
concerns, the penetration of alternative online payment methods in
Colombia is high. “For example, cash-based methods are a popular
way of paying for online purchases,” he says.
In Colombia, a consumer can order
an item online, print out an invoice, and take it to a merchant who
is affiliated with a cash-based bill payment service such as Via
Baloto and Efecty. Once the consumer has paid, their goods are
shipped to them. Redeban and Credibanco also offer cash-based bill
payment services at merchant outlets.
New banks
In 2011, Macrofinanciera, a Colombian
consumer finance firm owned by Panama’s Multibank, applied for a
banking licence from the Superintendencia. Macrofinanciera, which
specialises in remittances and payroll loans, had 30,066 active
debit cards in issue in November 2011.
In May 2011, the Superintendencia
granted a banking licence to Banco Falabella, the Colombian banking
subsidiary of Falabella.
The bank launched its Colombian
operation in July 2011, and according to press reports, plans to
open 33 branches initially in the country. In Colombia, Banco
Falabella issues the CMR Falabella private-label credit card, as
well as MasterCard-branded credit and debit cards.
“Banco Falabella is in the process
of converting its private-label cards to MasterCard-branded card
credit cards,” says Carrasco.
Finandina, a consumer finance
company specialising in auto loans, has applied for a banking
licence and wants to issue credit cards, an industry source told
Cards International.
Bank
acquisitions
In October 2011, Scotiabank entered
the Colombian banking market when it paid $1.1bn for a 51% stake in
Colpatria. As of September 2011, Colpatria had 175 branches and 308
ATMs.
According to Canada’s Globe &
Mail newspaper, Mercantil Colpatria, which holds the remaining 49%
in Colpatria, has the option to sell its stake to Scotiabank within
seven years.
In January 2012, Davivienda agreed
to buy HSBC’s Costa Rica, El Salvador and Honduras subsidiaries for
$801m. Business News Americas quoted Davivienda’s president Efraín
Forero as saying the Colombian bank wants to buy additional Latin
American banks.
In 2011, Spain’s Santander reached
an agreement to sell 98% of its subsidiary Banco Santander Colombia
to Chile’s CorpBanca for US1.23bn.
The transaction is expected to be
completed in the first half of 2012.
According to Business News
Americas, CorpBanca intends to use Santander to target low- and
middle-income consumers in Colombia, complementing Santander’s
existing focus on high-income Colombian consumers.
In November 2011, Santander Colombia had 160,568 active credit
cards and 176,762 debit cards in issue.
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