Brazil’s Network Elo Making Progress
Brazil’s new card network Elo Participações finished 2012 with ten million cards in circulation, an impressive accomplishment for a two year old network. Elo was born out of the 2010 Brazilian Central Bank review of the card payment market and sponsored by Banco Bradesco, Banco do Brasil and Caixa Economica Federal. The network has a stated target of 15% market share for total cards in circulation by 2016. This is an aggressive target, but with a current 42.8% market share for the three partner banks it might just be possible.
Elo Partners Total Cards in Circulation and Market Share in Brazil 2002/2005/2008/2011
The Brazilian Central Bank review of the card payment industry determined there were too few competitors and too much vertical integration supporting artificially high prices for payment processing.
The Central Bank’s five directives to correct this were
- Ending exclusivity among acquirers
- Interoperability of POS terminals
- Transparency on interchange fees and merchant discount rates
- Neutrality in the offering of compensation and clearing services
- Strengthening of national cards’ models and networks
Three years after the guidelines were established the Central Bank has admitted the market largely remains the same and the objectives not achieved. Since 2010 fees have actually increased for consumers and merchants despite the creation of the Elo.
Setting Aggressive Targets
To achieve Elo’s targets, the network will need to have over 200 million cards in circulation by 2016 based on Euromonitor International’s forecast of the Brazilian card market. The stated target consumers for Elo are income segments C and D, or consumers with a monthly income between US$1,000 and US$2,000. These two income segments represent 64 million consumers, most of which are considered financially underserved or unbanked. Government regulation requiring employee food cards and distribution of social benefits on financial cards have contributed to a reduction of the unbanked in the country by 41 percentage points over the last ten years. Many of these consumers will be able to embrace additional financial products over the forecast period.
The primary beneficiary of the Elo card network is likely to be Banco Bradesco and Banco do Brasil. The banks have a controlling stake in the networks acquirer, Cielo, as well as the pre-paid card issuer Alelo. Through Alelo the banks will be able to access the 89% of open-loop cards in circulation that are government and employee benefit cards. Total open-loop pre-paid cards are projected to double by 2017 to reach 100 million. The Cielo partnership gives the network access to 1.8 million merchants throughout Brazil.
Ambitions Beyond Brazil
Elo’s CEO Jair Scalco is well aware of the networks current limitations and knows international acceptance needs to be a priority going forward. Building an international network takes time and investment, and Elo may be better served partnering with an established operator. But the domestic network has made progress to have a like product and service to compete against the international operators. Already Elo has established partnerships with FIS for card processing, the e-commerce platform Buscape, and the card manufacturer Gemalto. With these partnerships in place it could be only a matter of time before Elo looks to expand regionally and position itself as the Latin American operator rather than the Brazilian.