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Instrumentos de Pagamento de Varejo: Cartões de Crédito – Questionário Cooperation versus Competition Cooperation versus Competition The Brazilian Case The Brazilian Case World Bank World Bank Washington, D.C. May - 2007

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Page 1: Instrumentos de Pagamento de Varejo: Cartões de Crédito – Questionário Cooperation versus Competition The Brazilian Case World Bank Washington, D.C.May

Instrumentos de Pagamento de Varejo: Cartões de Crédito – Questionário

Cooperation versus Competition Cooperation versus Competition The Brazilian CaseThe Brazilian Case

World BankWorld Bank

Washington, D.C. May - 2007

Page 2: Instrumentos de Pagamento de Varejo: Cartões de Crédito – Questionário Cooperation versus Competition The Brazilian Case World Bank Washington, D.C.May

• The Brazilian Retail Payments System – main features

• The Banco Central do Brasil – BC´s Policy and Role

• The main actions of the BC

• The main reaction of the Market

• Next steps

Outline

Page 3: Instrumentos de Pagamento de Varejo: Cartões de Crédito – Questionário Cooperation versus Competition The Brazilian Case World Bank Washington, D.C.May

Funds Transfer Systems – Clearing and Settlement Infrastruture

STR – Central Bank RTGS STR – Central Bank RTGS

“bloqueto de cobrança”

“bloqueto de cobrança” DOCDOC TEDTED

Credit transferCredit transfer

CIP – SitrafHybrid

D+0

CIP – SitrafHybrid

D+0

CIP – SilocMultilateral

D+1

CIP – SilocMultilateral

D+1

CompeMultilateral

D+1

CompeMultilateral

D+1

TecbanMultilateral

D+0/D+1

TecbanMultilateral

D+0/D+1

ChequeCheque Payment card and Direct debit

Payment card and Direct debit

CreditCredit

Payment cardPayment card

DebitDebit

Page 4: Instrumentos de Pagamento de Varejo: Cartões de Crédito – Questionário Cooperation versus Competition The Brazilian Case World Bank Washington, D.C.May

• Payment Card Societies Visa (53%)

Mastercard (37%)

Others (10%)

• Issuers 5 issuing banks hold 88% of the market share

45 banks (40 conglomerates) issue Visa

55 banks (36 conglomerates) issue Mastercard

3 banks issue Amex

• Acquirers: Visanet – Visa (53%)

Redecard – Mastercard and Diners Club (38%)

Payment Cards Industry in Brazil – StructurePayment Cards Industry in Brazil – Structure

Page 5: Instrumentos de Pagamento de Varejo: Cartões de Crédito – Questionário Cooperation versus Competition The Brazilian Case World Bank Washington, D.C.May

Payment Cards Industry in Brazil – main featuresPayment Cards Industry in Brazil – main features

• Acquirers

Only one acquirer per card brand

Acquirers are bank-owned but are not banks

Vertically integrated industry: acquirers provide infrastructure services and authorize merchants

Lack of cooperation on infrastructure: networks are not shared (ex. POS terminal)

Large array of products and services: network is used for other products (cash-back, prepaid mobile phone recharge, “correspondente bancário”)

Page 6: Instrumentos de Pagamento de Varejo: Cartões de Crédito – Questionário Cooperation versus Competition The Brazilian Case World Bank Washington, D.C.May

ATM Market – Number of terminals ATM Market – Number of terminals

Data source: Banco Central do Brasil, Banks and ATM networks

0

20

40

60

80

100

120

140

160

1999 2000 2001 2002 2003 2004 2005

Thousand

Open access Restricted access Total

2003(%)

2005(%)

Transactions in shared ATM´s 1,0 7,4Transactions in private ATM´s 99,0 92,6

QuantityATM sharing

Page 7: Instrumentos de Pagamento de Varejo: Cartões de Crédito – Questionário Cooperation versus Competition The Brazilian Case World Bank Washington, D.C.May

Average number of transactions per ATM – 2005Average number of transactions per ATM – 2005

Data Source: Banco Central do Brasil, Banks and ATM networks

46

-

10

20

30

40

50

60

70

80

Netw orks

Thousand

Netw ork average System average

Page 8: Instrumentos de Pagamento de Varejo: Cartões de Crédito – Questionário Cooperation versus Competition The Brazilian Case World Bank Washington, D.C.May

ATM Market – main featuresATM Market – main features

• Low usage of installed capacity, raising fixed costs per transaction

• Low interoperability, geographical overlapping

• High costs of networks logistics, development and maintenance

• Insufficient standardization of communication protocols, systems, methods and processes

• Network infrastructure perceived as a competitive advantage in offering payment services

Page 9: Instrumentos de Pagamento de Varejo: Cartões de Crédito – Questionário Cooperation versus Competition The Brazilian Case World Bank Washington, D.C.May

Brazilian Retail Payment System – 2004 DiagnosisBrazilian Retail Payment System – 2004 Diagnosis

• Points of inefficiency

Infrastructure for clearing and settlement of retail payments is fragmented

Low infrastructure interoperability among payment instruments distribution channels

Few innovations in products and services

Page 10: Instrumentos de Pagamento de Varejo: Cartões de Crédito – Questionário Cooperation versus Competition The Brazilian Case World Bank Washington, D.C.May

Retail Payments – Scenarios and trends BC Opinion

Usage of electronic instruments and Integration of retail systems and networks

DemandDemand

More options

More quality

STP to business

Lower costs

SupplySupplyTechnological advance

Transactions increase

Opportunities for economies of scale and scope

Processing of increasing volumes, handling distinct products and offering new services in an efficient, safe and reliable way

Page 11: Instrumentos de Pagamento de Varejo: Cartões de Crédito – Questionário Cooperation versus Competition The Brazilian Case World Bank Washington, D.C.May

Market failureMarket failure

• Demand side

the price mechanism does not work out on the resource allocation, as all bank-customer relationship is priced together (information asymmetry) – bundling

• Supply side

does not encompass network effect (positive externality) governance – moral hazard infrastructure as an entrance barrier

Page 12: Instrumentos de Pagamento de Varejo: Cartões de Crédito – Questionário Cooperation versus Competition The Brazilian Case World Bank Washington, D.C.May

• Focus of the Banco Central do Brasil (BC)

Promote economic efficiency in currency’s usage

• Objectives

Increase relative share of electronic instruments vis-à-vis paper-based instruments

Economic efficiency and a higher social welfare

Retail Payment System – BC PolicyRetail Payment System – BC Policy

Page 13: Instrumentos de Pagamento de Varejo: Cartões de Crédito – Questionário Cooperation versus Competition The Brazilian Case World Bank Washington, D.C.May

• To indicate policies, directives and objectives

• To foster private and cooperative solutions

• To coordinate investment decisions and expectations

• To act as a catalyst for the relationship between relevant

parties and public authorities interested in the subject

• Regulation, when needed

Banco Central do Brasil’s roleBanco Central do Brasil’s role

Page 14: Instrumentos de Pagamento de Varejo: Cartões de Crédito – Questionário Cooperation versus Competition The Brazilian Case World Bank Washington, D.C.May

• 2002 – BC began talking about interoperability and the use of electronic payment instruments

• May 2005

Report on the Brazilian Retail Payment System

• May 2006

Included an Annex on Statistics in the Diagnosis

Directive 1/2006 (May 4th, 2006)

• July 2006

Agreement BC – Competition Authorities

• September 2006

Cards industry data collection

Main actions of the BCMain actions of the BC

Page 15: Instrumentos de Pagamento de Varejo: Cartões de Crédito – Questionário Cooperation versus Competition The Brazilian Case World Bank Washington, D.C.May

Non-cash instruments - Total volume in millionsNon-cash instruments - Total volume in millions

0

500

1,000

1,500

2,000

2,500

3,000

1999 2000 2001 2002 2003 2004 2005

Cheque Debit card Credit card Direct debit Credit transferintrabank

Main reactions of the Market Main reactions of the Market

Page 16: Instrumentos de Pagamento de Varejo: Cartões de Crédito – Questionário Cooperation versus Competition The Brazilian Case World Bank Washington, D.C.May

• ATM Network

Sharing agreements are expected to increase – four of the largest banks have already begun

Two bilateral agreements between three major banks

Between one large bank and an open-access ATM network

• New services and products

Board of Directors of the largest ACH and of the Brazilian Federation of Banks announced:

Centralize services currently performed individually by the banks

Standardization of business models

Less overlapping

Safer and better quality services

Payments portal – e-commerce

Main reactions of the Market – 2006/2007Main reactions of the Market – 2006/2007

Page 17: Instrumentos de Pagamento de Varejo: Cartões de Crédito – Questionário Cooperation versus Competition The Brazilian Case World Bank Washington, D.C.May

• Card Industry

Issuing banks (88%); Payment Card Societies (100%); Acquirers (100%):

Showed huge interest in the results of the Report

Merchant (main commercial associations):

Showed interest in reducing their final costs

Complained about infrastructure, fees etc

Main reactions of the Market – 2006/2007Main reactions of the Market – 2006/2007

Page 18: Instrumentos de Pagamento de Varejo: Cartões de Crédito – Questionário Cooperation versus Competition The Brazilian Case World Bank Washington, D.C.May

• Publish report on payment card industry:

Interchange, merchant discount, and customer fees; Concentration; Profitability; and Governance

• Induce another round of talks among main retail market players

Regarding the fragmented infrastructure, the payments card industry and new services and products, in order to keep the BC in the center of the discussions

• Publish new directives focusing on the retail payment system efficiency

Transparency in BC policy

• Continue to monitor

Keep following market evolution, acting as catalyst for conflict resolution

Regulate if necessary

Next Steps – 2007/2008Next Steps – 2007/2008

Page 19: Instrumentos de Pagamento de Varejo: Cartões de Crédito – Questionário Cooperation versus Competition The Brazilian Case World Bank Washington, D.C.May

ContactContact

Mardilson Fernandes QueirozMardilson Fernandes [email protected]@bcb.gov.br

+55 (61) 3414-1629+55 (61) 3414-1629