Analyst Viewpoint: Consumer Finance in Brazil

The analyst viewpoint series features interviews with analysts from several of the 46 markets covered in Euromonitor’s Consumer Finance research programme, discussing key payment trends or developments in their respective research markets.

What entity holds the power in your market? Operators, issuers, merchants? Is it changing?

In Brazil, acquirers were commonly the ones to hold power in the market of cards and payments until a few years ago, as those companies had exclusivity over operator brands. Thus, an operator could work with only one POS machine company.

As of mid-2010, this exclusivity was eliminated, which created opportunities for operators to increase their merchant acceptance. From 2010 to 2016, both Visa and MasterCard – the two largest players in this segment in Brazil – have grown more than four percentage points in merchant acceptance.

Smaller operators in particular, such as Elo and Hipercard, may benefit from this measure as well, but are not expected to threaten the major players.

What major consumer trends do you feel may influence cards and payments?

Brazil is currently facing a challenging macroeconomic scenario, with soaring inflation, increasing unemployment and reduced disposable income. Thus, consumers are seeking better ways to get the most value for their money. That means cutting expenses whenever possible and betting on innovative ways to manage their budget.

A new issuer – called Nubank – is fiercely gaining ground in Brazil. Nubank has its entire business model built on the premises of not charging annual credit card fees and easiness for monitoring credit card purchases through the usage of mobile apps. Also, it does not require cardholders to have a bank account. Therefore, although still very incipiently, players such as Nubank might impact the way certain Brazilian consumers use the credit function.

In what ways will the financial card market of 2021 differ from the current landscape?

The financial card market in Brazil might see pre-paid merchant-issued gift cards continuously losing ground, mostly because Brazilians typically prefer making a specific gift purchase themselves. This particular kind of closed loop pre-paid card has never had much relevance in Brazil.

Still on the pre-paid cards, this might be a category to register some recovery in both number of transactions and number of cards. Brazil is undergoing a period of harsh economic crisis; however, as the economy starts to recover within the following years, unemployment is expected to fall. Therefore, transportation cards – the most relevant closed loop pre-paid cards – used for granting employee transportation benefits might help closed loop pre-paid cards as a whole post a 5% CAGR in number of cards in circulation over the forecast period from 2016 to 2021.

Where is the innovation in consumer payments? What company best exemplifies this advancement?

Innovation regarding NFC (Near Field Communication) technology leads the way. Visa and Bradesco launched a payment solution that applied this type of technology in a wearable piece of apparel, such as a bracelet during Rio’s 2016 Summer Olympic Games where more than 3,000 users tested the technology. The bracelet was pre-loaded and didn’t require a password for purchases up to BRL50. There have been more than two million POS machines that are NFC compatible across Brazil.