Peruvian cards market set for growth. Declining
poverty levels, political stability and solid GDP growth make Peru
an attractive market for credit card issuers. Analysts say there is
a big growth opportunity in Peru, Latin America’s seventh-largest
economy, for credit cards and other forms of unsecured consumer
lending. Robin Arnfield reports.
Go deeper with GlobalData
Peru has a
population of around 30m and, in 2011, its GDP per capita is
expected to rise to $5,593 (in current prices) from an estimated
$5,171 in 2010 and $4,363 in 2009, according to the International
Monetary Fund (IMF).
Peru’s overall GDP grew by 8.9% in
real terms in 2010, following a rise of just 1% in 2009, with
growth forecast at 6.6% in 2011 and 5.9% in 2012, the IMF says.
“Peru wasn’t hit by the 2008-2009
financial crisis as much as other Latin American countries were,”
says John Hiers, senior vice-president at US-based consultancy
Speer & Associates.
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By GlobalDataPoverty
Peru’s Instituto Nacional de
Estadística e Informática (National Institute of Statistics and IT
– INEI) says 31.3% of the population is poor, including 9.8% who
are extremely poor. The level of poverty fell by 17.4%age points
between 2005 and 2010, INEI says.
Centre-left politician Ollanta
Humala was elected Peruvian president in April with a mandate to
decrease poverty levels while maintaining foreign investment in
Peru.
Humala is in the mould of populist
former Brazilian president Lula da Silva rather than Venezuela’s
radical president Hugo Chavez.
“Humala is
working with the existing banking and economic systems,” says
Jeanne Del Casino, vice-president, senior credit officer at
Moody’s.
“He has reassured investors with
his cabinet appointments, for example to the Ministry of Economy
and Finance and to the central bank, Banco Central de Reserva del
Perú.
“Humala wants to be socially
inclusive, but is cognisant of the success of the current financial
framework and regulatory environments.”
Peruvian news agency Andina Agencia
Peruana de Noticias quotes the Ministry of Economy and Finance as
saying its main focus over the next few years will be on greater
social inclusion and faster poverty reduction.
Bancarisation
According to regulator
Superintendencia de Banca, Seguros y AFP (Superintendent of banks,
insurance and pension funds administradoras de fondos de pensiones
– SBS), there were 9.33m debit cards in issue by private commercial
banks in Peru in July 2011. In addition, state-owned Banco de la
Nación issues debit cards under the Multired brand to its 3.2m
customers.
“Banking penetration is low in
Peru,” says Del Casino. “Total consumer and business loans in the
financial system represent 25% of GDP in Peru, compared to the
Latin American regional average of loans representing 50% of
GDP.
“In Chile, which is more mature
than Peru, total lending represents 70-80% of GDP.”
Andreas Suma, senior director,
Latin America, at US-based cards analytics firm FICO, says Peruvian
banks are involved in a major drive to increase bancarisation
(banking penetration).
“The banks are working to get the
underbanked into the banking segment, so they can use cards instead
of cash,” Suma says.
“Consumers who qualify for a bank
account may be offered a credit card with a low credit limit, or
they may be given a debit card or prepaid card. As a third of
Peru’s population lives in the capital, Lima, the challenge is to
get banking services into the regions outside the capital.”
Two characteristics of Peru’s
banking market are the use of cell phones for banking transactions,
and the extensive third-party agent networks operated by the
largest banks in partnership with retailers.
“In Peru, there is a big push
towards mobile banking, as many Peruvians, for example people in
shanty towns, have mobile phones but no landline,” says Suma.
“Cell phones are a great channel to
reach the unbanked and underbanked. Banco de Crédito del Perú [BCP]
and Banco Internacional del Perú [Interbank] both have extensive
third-party bank agent locations, where their customers can top-up
cell phones, carry out a limited range of banking transactions and
pay bills.”
Mobile
payments
Visa Peru offers a mobile payment
service, where a Visa credit or debit card number is associated
with a cell phone number in order to initiate payments via SMS.
The service, Pago Móvil con Visa
(Visa Mobile Pay), was launched in June 2009 in collaboration with
acquirer VisaNet Perú, mobile operator Telefónica Movistar and BCP,
Scotiabank Peru, Interbank and BBVA Banco Continental.
The service allows Peruvian Visa
cardholders to use their Movistar phones to pay for taxis and for
purchases such as home delivery of flowers and cooking gas
cylinders, replacing the need for a wired payment terminal.
“Peru is among the 12 Latin
American markets included in a mobile financial services joint
venture deal between MasterCard and Telefónica announced in January
2011,” a MasterCard spokesperson says.
“For competitive reasons, we can’t
disclose the timeframe for launching these services, which will
enable consumers to use Movistar cell phones for transactions such
as money transfers.
“We are also analysing our
MasterCard Mobile money transfer and m-payments pilot in Brazil,
launched in December 2010 with Itaú Unibanco and Vivo, and
considering it for deployment in other countries such as Peru.”
Separately, MasterCard and
Telefónica signed an agreement in 2010 to develop co-branded credit
cards in 11 Latin American countries including Peru.
Credit growth
“Following a slowdown in 2008-2009,
Peruvian banks started to expand their lending as the economy
recovered,” says Moody’s Del Casino.
“In June 2011, Peru saw a 22%
year-on-year growth in lending across all loan categories, consumer
and business. Consumer lending (credit cards and unsecured loans)
is growing at 12-15% a year in Peru. There has been some concern
about this growth rate, but I don’t think there is a risk of Peru
experiencing a credit bubble.”
Del Casino says the level of
consumer lending is fairly constrained in Peru, and the banks’
credit card exposure is manageable.
“Consumer credit cards represent
just 10% of Peru’s total consumer and business lending, while other
forms of unsecured consumer lending account for 9%, and mortgages
14%,” Del Casino says. “The remainder is business loans.”
Franklin Santarelli, managing
director, Latin American financial institutions, at Fitch Ratings,
says that Peru’s credit card market has several characteristics
distinguishing it from other Latin American countries.
“Firstly, credit card penetration
is lower than the Latin American average,” he says. “In other Latin
American countries, credit card lending’s share of overall lending
is in the double digits.
“Secondly, the delinquency rate,
which in Peru is measured as the percentage of loans 30 days past
due, is lower. Thirdly, banks largely market credit cards mainly to
the A and B segments in Peru.”
In Peru, credit cards mainly offer
revolving credit, although instalment loan-based (non-revolving)
credit cards are also available, particularly from retailers.
“In the bank credit card market,
you see revolving loans more than instalment loans,” says
Hiers.
The penetration of non-credit card
consumer loans in Peru is well below the average for the
region.
“Products such as non-revolving
instalment consumer loans repaid by direct payroll deduction are
limited, in contrast to Brazil where payroll loans are common,”
Santarelli says.
“In general, the loan growth
opportunity in Peru is high, both to individuals and corporates.
There will be significant growth in non-revolvable, non-credit card
direct consumer loans, and also in credit cards, as Peru is
starting from such a low base.”
Santarelli argues that the Peruvian
credit card market could sustainably grow by 20% a year, although
this would involve a major effort on the part of issuers.
“The banks are focusing on consumer
lending, as they realise there is a big demand in Peru for credit
cards,” he says.
July 2011 data
According to Peruvian banking
association Asociación de Bancos del Perú (Asbanc), total spending
on credit cards, including consumer and business cards, rose by
0.24% to PEN12.4bn ($4.55bn) in July 2011 from PEN 12.38bn in June
2011 and by 25.73% compared to July 2010. Total credit card
spending in December 2010 amounted to PEN10.99bn.
Thirteen banks, including three
banks owned by retailers, accounted for PEN11.4bn of total credit
card spending in July 2011, with two non-bank credit card issuers
(consumer finance companies) accounting for the remainder.
While non-bank credit card issuers
lend mainly to consumers and medium-sized business (they have a
miniscule presence also in small and micro-business credit cards),
banks issue credit cards to micro-, small, mid-sized and large
businesses as well as to corporations.
Bank-issued consumer credit cards
accounted for PEN8.6bn of spending in July 2011, while non-bank
consumer credit cards accounted for PEN1bn, and non-bank credit
cards issued to mid-sized firms just PEN1m.
The total number of consumer and
business credit card accounts in issue rose by 1.06% to 6.6m in
July 2011 from 6.54m in June 2011 and by 8% year-on-year. There
were 6.51m total credit card accounts in December 2010.
Banks accounted for 5.34m credit
card accounts in July 2011, including 5.20m consumer credit card
accounts, giving them an 80.81% market share. Non-banks had 1.27m
credit card accounts in July 2011, mostly consumer cards.
Consumer and business credit
cardholders only used 27.84% of their available authorised line of
credit in July 2011, Asbanc says.
Asset quality
In July, banks had a credit card
delinquency rate of 3.93% across all their card portfolios,
compared to 2.60% for non-bank issuers.
(Asbanc defines the delinquency
rate as the ratio of past-due cards and cards where the issuer has
taken legal action to recover the balance – similar to a county
court judgement – to total credit cards in issue.)
The delinquency rate for all credit
cards issued by banks and non-banks was 3.38% in July 2011.
“Charge-off rates are falling in
Peru, as in other Latin American countries,” says Hiers.
“Currently, the Peruvian charge-off rate is 3.5-5%.”
Santarelli says the asset quality
of Peruvian issuers’ credit card portfolios and their delinquency
rates are very good so far.
“This is due to credit card
penetration being very low, as only the best bank customers have
credit cards,” he says. “The use of credit cards in Peru has not
been very extensive.
“But, even if the credit card
past-due ratio worsened, issuers could still make good money due to
the high interest rates they charge.”
As in other Latin American
countries, Peruvian issuers charge high interest rates so they can
cover potential losses. However, interest rates are lower than
elsewhere in Latin America, says Santarelli.
According to the SBS website, the
average annual consumer credit card interest rate is 37.85% in
national currency and 22.02% in foreign currency.
“There is no significant
competition in Peru on credit card interest rates and fees,” says
José Vargas, client services senior associate partner at FICO.
“Peruvian banks are still
aggressively promoting credit cards into greenfield markets, so
there’s room for growth without issuers needing to undercut each
other. However, some banks do offer balance-transfer credit cards
that have lower rates than cards offered by other banks. But the
balance-transfer market isn’t that big.”
Regulations
“Peru currently doesn’t have a law
setting maximum interest rates for consumer credit,” says Del
Casino.
“However, Business News
Americas reports that, in August 2011, the opposition
introduced a bill into congress which seeks to set a maximum limit
for interest rates.”
“There are currently no plans by
the SBS to impose limits on credit card interest rates or fees,”
says Santarelli.
“But the SBS is keeping a close
watch on the asset quality of Peru’s credit card portfolios. It
wants to be sure the banks don’t overly increase consumers’ credit
card debt, to avoid damaging their portfolio asset quality.”
Santarelli adds that the Peruvian
banking industry is well regulated, and the individual banks are
strong players.
“This all adds up to a success
story,” he says. “If the credit card market continues to grow in a
conservative manner, then Peru will remain a success story.”
Retailers
Store cards issued by cross-border
Latin American retailers Ripley, Elektra and Falabella play a major
role in the Peruvian card market, says Hiers. Ripley, Elektra and
Falabella hold their credit card receivables through their banking
subsidiaries, Banco Ripley, Banco Azteca and Banco Falabella, and
offer both private-label and open-loop cards.
In terms of total business and
consumer credit cards in issue, the largest player in the Peruvian
bank-issued credit card market is Banco Falabella. Interbank, which
focuses primarily on consumer lending and credit cards, is in
second place, followed by Banco Ripley.
Peru’s two largest banks in terms
of overall assets, BCP and BBVA Banco Continental, are respectively
in fourth and fifth place.
Multinationals HSBC, Scotiabank and
Citibank are small players in the Peruvian credit card market.
However, in addition to its Scotiabank Peru-branded card business,
Scotiabank owns a Peruvian consumer finance company, CrediScotia
Financiera, which offers credit cards, direct consumer loans, and
microfinance loans and loans to small companies.
Instant
underwriting
“Retailers offer in-store
applications for credit cards that provide instalment loans, and
consumers get instant underwriting at the point-of-sale for a new
credit card,” Hiers says.
“The segments that retailers offer
credit cards to in Peru are not retail banks’ traditional customer
base. These segments don’t normally enter a bank branch.”
“Retailers are very aggressively
marketing credit cards in Peru, in competition with the banks,”
says Vargas. “When they offer private-label cards to unbanked
customers, the credit limit is small and the underwriting on the
cards is not as restrictive as on regular bank-issued credit
cards.”
Several banks collaborate with
retailers in store cards, for example Scotiabank and its
CrediScotia subsidiary, and Interbank.
“A major domestic player in the
Peruvian store cards market is Supermercados Peruanos [Peruvian
supermarkets], which is owned by Interbank Group, Interbank’s
parent,” says Hiers.
“Supermercados Peruanos’ credit
card-issuance is handled by Interbank.”
Cencosud is planning to expand its
Chile-based Paris retail store chain to Peru. According to
AméricaEconomía magazine, the first Paris stores will open
in Peru by the end of 2012.
“Cencosud already owns Peruvian
retailer Wong, which operates under the Wong and Metro brands,”
says Hiers.
In May 2011, Andina Agencia
reported that Cencosud had received permission from the SBS to set
up Banco Cencosud in Peru. The new bank, which will start
operations by the end of 2011, will offer credit cards that are
separate from Cencosud Peru’s own credit card business.
Andina says Cencosud has launched a
Visa-branded card under the Wong label, as well as a private-label
Metro card.
Mario Campodónico, the managing
director of Cencosud’s Peruvian financial services unit, told
Andina that the retailer’s objective in setting up Banco Cencosud
is to make the group’s credit cards the main means of payment in
its Peruvian stores.
Segments
Excluding private-label credit
cards issued by retailers, most Peruvian credit cards in issue are
for the A and B segments, says Santarelli.
“There isn’t much credit card
issuing in the C+ segment,” he says.
“The A segment is saturated with
credit cards,” says Hiers. “The B segment isn’t saturated yet, but
this will happen next as retailers are flooding the B segment with
store cards.
“So the banks are starting to
market credit cards to the C and D segments in an effort to
increase card usage in these lower-income segments.”
In August, Peruvian newspaper
Gestion reported that Credicorp, BCP’s holding company,
had formed an alliance with Tarjeta Naranja (orange card), the
Argentinian and Dominican Republic private-label card issuer owned
by Argentina’s Banco Galicia.
By October 2011, Credicorp and
Tarjeta Naranja will launch a Tarjeta Naranja-branded credit card
aimed at Peruvian low- and medium-income independent
(self-employed) workers, Gestion said. Credicorp wants to
offer consumer credit to informal independent workers, as this
segment represents around 80% of the unbanked population in
Peru.
Acquiring
Unlike Brazil, which since July
2010 has allowed individual acquirers to process cards for both
Visa and MasterCard, Peru does not have dual-acquiring.
“The banks outsource acquiring to
two processors, VisaNet Peru and Procesos MasterCard Peru [PMC],” a
spokesperson at point-of-sale terminal vendor VeriFone says.
“VisaNet Peru acquires for Visa and
American Express, and PMC acquires for MasterCard, Diners and
private-label cards.”
According to VeriFone, there are
around 105,000 POS terminals in Peru in total.
“VisaNet has 55,000 terminals, 90%
of which were supplied by Ingenico and the remainder by VeriFone,”
the spokesperson says.
“PMC has 50,000 terminals, all of
which were supplied by VeriFone. “There are also around 50,000
teller PIN pads installed at bank agent locations on behalf of
banks such as BCP and Banco de la Nación. VeriFone installed 97% of
these PIN pads, with the remainder being installed by
Ingenico.”
UK-based consultancy Retail Banking
Research says there were 5,069 ATMs in Peru at the end of 2010.
Each card-issuing bank does its own ATM acquiring in Peru.
According to the Central Bank,
monthly average cash withdrawals on debit cards, including ATMs and
cashback at stores, totalled PEN8.6bn in December 2010, up from
PEN7.4bn in December 2009.
Average monthly ATM cash
withdrawals rose from PEN4.48bn in December 2009 to PEN5.6bn in
December 2010, according to Central Bank data (no breakdown is
provided as to credit card and debit card ATM withdrawals).
EMV
According to VeriFone, 90% of
Peru’s POS terminals are already migrated to EMV.
“ATMs are just starting to be
migrated to EMV,” the spokesperson says.
“The leader in terms of migrating
cards to EMV is BCP, which has issued around 3m EMV debit and
credit cards. Other banks are taking longer to migrate their cards
due to budget and regulatory issues.”
Compared to other Latin American
countries, card fraud is low in Peru, Suma says.
“Purely in terms of fraud rates,
there isn’t a compelling reason for issuers to migrate to EMV,” he
adds.
“MasterCard is collaborating with
Peruvian issuers on EMV card pilots in order to prepare for the
migration to chip,” a MasterCard Latin America and Caribbean
spokesperson says.
“We have also been aggressively
working with our acquirer PMC to enable POS terminals to accept
chip.”
NovoPayment
There is a major opportunity for
prepaid cards in Peru, says Miami-based prepaid card programme
manager NovoPayment. It says there could be potentially 19.85m
open-loop, general purpose reloadable (GPR) prepaid cards with a
purchasing potential of $9.7bn in Peru by 2015.
NovoPayment launched its Peruvian
operation in 2008 through a joint venture with Interbank Group.
José Antonio Majluf, NovoPayment Peru’s general manager, says the
firm has two Peruvian businesses, Tebca (Transferencia Electrónica
de Beneficios/electronic benefit transfer) and ServiTebca.
Tebca offers prepaid meal and food
cards under the Servis Alimentación (food) MasterCard and Provis
Visa Vale brands in Peru. ServiTebca provides prepaid corporate
cash management cards such as expenses cards and fuel cards. In
Peru, NovoPayment only offers open-loop cards.
“We were the first company to issue
prepaid food/meal cards in Peru, with the launch of the
Alimentación card in 2009,” says Majluf.
“Since then, Edenred [formerly
called Accor] and Sodexho have entered the prepaid food/meal card
market in Peru. But a big chunk of the Peruvian market in still
offers paper food/meal vouchers.”
A lot of firms were unwilling to
issue paper food/meal vouchers because of their high administration
costs and because vouchers have the same fraud risks as cash, says
Majluf.
“We captured a lot of the existing
paper food/meal voucher market, and also we were able to win many
of the companies that previously hadn’t issued paper food/meal
vouchers for cost or fraud-risk reasons,” he adds.
In Peru, firms get a tax break of
up to 49% of their payroll costs for offering prepaid food/meal
vouchers and cards.
“The motivation to migrate to
prepaid cards in Peru from paper vouchers is a combination of
tax-savings, greater efficiency, lower processing costs and also
employee-motivation,” says Majluf.
“The people given prepaid food
cards are working for companies so they likely have bank accounts
into which their salaries are paid.”
Majluf says that NovoPayment
recently launched a payroll card in Peru.
“We are exploring offering the
payroll card to firms with a high turnover of staff, for example
agricultural businesses or construction companies,” he says.
Together, Tebca and ServiTebca have
180,000 cards in issue in Peru.
“The average transaction value on
these cards is $30, across both Tebca and ServiTebca, while the
average reload value for Tebca and ServiTebca cards is $100,” says
Majluf.
“We currently have 800 corporate
clients in Peru.”
ServiTebca is developing a
general-purpose reloadable prepaid card for unbanked Peruvian
consumers, which will be launched at the end of 2011. Majluf says
the Peruvian GPR card is only the second GPR card that NovoPayment
has launched. The other one is available in Venezuela.
“The unbanked represent 65% of the
Peruvian population,” says Majluf.
“There is a huge opportunity for
GPR prepaid cards as the Peruvian unbanked market is underserved.
As yet, apart from NovoPayment, there are no other suppliers of
open-loop GPR prepaid cards in Peru.”
NovoPayment CEO Anabel Perez says
her company is currently building a reload network in Peru for its
forthcoming GPR prepaid card.
“The reload network will be used
for distributing and initially loading GPR cards and subsequently
reloading them,” she says.
“We think that, once we have
created this reload network, it could also be made available to our
program partners in Peru.”
Corporate prepaid cards issued by
ServiTebca are reloaded and also ordered by the firm’s corporate
clients on a secure website operated by NovoPayment.
The underlying funds for the reload
are sent to the programme manager by the client via a bank
transfer.
Perez says that currently Peruvian
banks don’t provide prepaid cards that Peruvian firms can issue to
their employees.
“They just offer corporate credit cards,” she says. “We want to
work with the banks in Peru to help them move into the corporate
cash management prepaid card market.”
See also: Visa debit
promotion
See also: Sample interest
rates
