In focus

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					September 2010 Issue 447-448                         

In focus
Can Kenya become
east Africa’s
payments hub?

                          ● Asia goes domestic
               ● US credit players up to the same old tricks
              ● Prepaid is no get-rich-quick – Fiona Duncan
            ● Twenty years on, women-only cards going strong
PRePAID:	LAtIn	AmeRICA                                                                                                                Cards International

Collaboration needed in LatAm prepaid
New MasterCard research predicts prepaid card spending in Latin America will rise from $8.7 billion to $71
billion in 2017. it is a huge opportunity to provide prepaid cards to unbanked Latin American consumers,
but the market will only achieve its potential if all participants collaborate, writes Robin	Arnfield

         egulators in Latin America are facing          commissioned from Boston Consulting
         a choice which will shape develop-             Group.
         ment of the prepaid market across the             The Inter-American Development Bank says
         continent. They can choose to keep             70 percent of Latin American households,
prepaid the preserve of a select few regulated          ranging from salaried managers to labour-
banks, who they can easily keep track of, or            ers, are unbanked. Together, these unbanked
open the door to a multitude of non-bank pay-           households are responsible for 40 percent of
ment businesses to try and bring services to the        the region’s GDP. Perez believes regulators
unbanked masses.                                        would be foolish to exclude non-bank busi-
   There is concern from some of the region’s           nesses like her own from the task of increasing
biggest prepaid players that central banks are          financial inclusion in Latin America.
being too restrictive on the types of business             “Formalising all that cash and providing
which can offer prepaid products. They say              affordable payment services to that many peo-
this could hamper growth and see millions of            ple is a massive, low-margin business requir-
people miss out on access to basic financial            ing multiple players with specialised roles,”
services.                                               she says.
   One of those concerned parties is Anabel
Perez, CEO of Latin American prepaid card               “Prepaid	general-purpose	cards	                    Anabel Perez, NovoPaymnet
programme manager Novopayment.
   She says one of the drivers for prepaid cards
                                                        are	a	value	proposition	for	mobile	                actors which can provide payment services to
in the region is the effort being made by Latin         and	utilities	service	providers	                   the unbanked, or provide access to a wide range
American governments to formalise – remove              and	their	customers	because	they	                  of players including mobile operators, retailers,
cash from – their economies.                            create	loyalty,	improve	margins	                   and prepaid card programme managers.
   The continent offers a deep and receptive                                                                  “Including bank and non-bank actors will
market for prepaid products. Transactions               and	connect	Latin	America’s	                       provide the market with the greatest number of
using open-loop prepaid cards are predicted to          largest	consumer	group	–	which	                    options in terms of business models,” Perez says.
grow from $8.7 billion last year to $81 billion         makes	up	the	base	of	the	pyramid	                  “Limiting the number of qualified actors risks
in 2017, according to research MasterCard                                                                  prolonging the formalisation process and miss-
                                                        –	to	a	modern	payments	and	                        ing the opportunity for financial inclusion.”
 n LAtIn	AmeRICA                                        services	infrastructure”                              One of the most promising vehicles for
 Prepaid	general-purpose	spending	–	prepaid	            Anabel Perez, CEo of NovoPayment                   financial inclusion in countries with low lev-
 card	forecast	for	2015                                                                                    els of banking access is the mobile phone.
                                                                                                           Around 90 percent of Latin America’s 400
 Country               Potential       Purchasing                                                          million cell phones are on prepaid plans. Since
                       cards           potential in $      “I spend a lot of time educating Latin          most unbanked consumers have prepaid cell
                                       billion          American banks, retailers, mobile operators        phones, mobile operators will play a vital role
 Brazil                 109,896,959              69.5   and regulators about the potential for prepaid     in the prepaid card market.
 Mexico                   64,014,451            54.3    cards.                                                “A user’s prepaid cellphone account can be
                                                           “No single player can make this market          linked to an open-loop prepaid card,” Perez
 Argentina               29,422,215              22.2
                                                        happen on its own.”                                says.
 Colombia                33,233,125              15.8      Latin American financial regulators particu-       “Via SMS, users can make mobile payments
 Venezuela                22,707,748             15.4   larly need to understand the role prepaid cards    to utilities and perform person-to-person
 Central America          23,877,945             12.9   will play in achieving banking inclusion, she      transfers from their prepaid phone account.
 and Dominican                                          believes.                                          They can also make a point-of-sale payment
 republic                                                  Some of the continent’s largest economies,      with their (associated) physical card, which
 Chile                   12,470,594              10.2   notably Brazil, have government mandates for       they can reload with cash at a retailer belong-
                                                        employers to pay workers with food vouchers,       ing to the prepaid load network.
 Peru                    19,854,333               9.7
                                                        offering opportunities to convert voucher and         “Thirdly, instead of standing in line to pay
 Ecuador                   8,573,106              4.5   cash-based spending onto prepaid cards.            utility bills, consumers can set up direct debits
 Total                  324,050,475             214.6      Perez says regulators have a choice. They can   for these bills from their prepaid cards.”
 Source: NovoPayment                                    impose restrictions on the types of non-bank          NovoPayment estimates that by 2015, the

24 y September 2010                                                                                               
Cards International                                                                                                         PRePAID:	LAtIn	AmeRICA

general-purpose reloadable utility and cell-                 whose salary is deposited to bank accounts,        an in-country purchase on their debit card or
phone prepaid card market in Latin America                   commonly use their debit card just once a          prepaid card, why should the issuer pay a fee
will be worth nearly $160 billion a year.                    month,” Tangioni says. “Once they’re paid,         to MasterCard or Visa for a transaction that
   Food vouchers provided by employers to                    they withdraw the money from an ATM.               doesn’t need to leave that country?” he asks.
their staff represent another important seg-                 Providing DDAs to these consumers is costly,       “If the card was badged as Elo, then it would
ment of the Latin American prepaid card mar-                 whereas prepaid cards are more efficient.”         be an in-country transaction.”
ket. In countries such as Venezuela and Brazil,                Among the bank providers of prepaid cards,
employers are legally required to provide food               Mexico’s Banamex is one of the largest. In         non-bank	prepaid	providers
vouchers.                                                    July 2010, it launched Perfiles Ya (translation:   Wal-Mart is one of the leading non-bank pro-
   “When we started offering prepaid meal                    profiles, for sure), a MasterCard-branded          viders in the Latin American prepaid market.
cards in Venezuela and Peru, we found that                   reloadable prepaid card. The card bears the           “Wal-Mart will aggressively launch prepaid
other programme managers who had previ-                      same Perfiles branding as Banamex’s Cuenta         cards in countries such as Brazil and Argen-
ously offered paper vouchers on behalf of                    Perfiles DDA (profiles account) product and        tina, which are both countries where it has
employers switched to cards,” Perez says.                    associated debit card.                             bought local retailers,” says Riley.
   In Brazil, Latin America’s biggest food                                                                         “If it only offers closed-loop prepaid cards,
and employee benefits market, there are                      “Half	of	the	purchasing	power	in	                  it wouldn’t need a banking licence.”
three main prepaid card brands: Visa Vale,                                                                         n Mexico, where Wal-Mart has had a bank
Accor Services’ Ticket card, and Sodexho                     Latin	America	is	located	within	                   licence since 2006, the retailer offers open-
VR. According to Accor, the prepaid services                 the	informal,	unbanked	economy.	                   loop prepaid debit cards as well as WalMart-
business which recently rebranded to become                  Given	the	interest	that	Latin	                     branded reloadable gift cards.
Edenred, Ticket had 38 percent of the Brazil-                                                                      “Mexico is the largest gift card market in
ian food and employee benefits card market
                                                             American	governments	have	in	                      Latin America,” First Annapolis principal
in 2008, followed by Sodexho VR with 34                      formalising	their	economies,	                      Nelson Irizarry says.
percent, Visa Vale with 20 percent, and 60                   there	is	a	very	significant	                          A First Annapolis survey in the first quar-
other regional players with 8 percent between                potential	for	prepaid	cards	to	                    ter of 2009 found that 56 percent of Mexican
them.                                                                                                           retailers offered plastic gift cards, compared to
   Edenred estimates that in 2008 the Brazilian
                                                             replace	cash	payments”                             47 percent in Chile, 44 percent in Colombia
food and employee benefit card market was                    Les riedl, Speer & Associates                      and 20 percent in Brazil.”
worth €6.2 billion ($7.88 billion), and that it                                                                    For currently unbanked consumers, Banco
is growing at 10 percent a year.                                                                                Wal-Mart offers the Super Debito savings
                                                                                                                account, which can be opened with a deposit
Banks’	cross-selling	option                                     Banamex aims to have 500,000 Perfiles Ya        of MXN50. The account offers a MasterCard-
Prepaid cards provide a means for Latin Amer-                prepaid cardholders by the end of 2010, with       branded debit card paying a 1 percent bonus
ican banks to reach low-income, unbanked                     a total load of MXN250 million ($19.57 mil-        on purchases at Wal-Mart’s Mexican outlets.
consumers. Banks have the option to cross-sell               lion). Customers can apply for the cards with-     Cardholders can add funds to the card, or
prepaid cardholders other products once their                out the need for documentation at Banamex’s        make withdrawals, at Wal-Mart stores and
banking behaviour has been established. But                  branches and its 4,000 Banamex Aquí agent          (Banco Wal-Mart) branches.
Tangioni argues that prepaid cards also offer                locations. To upgrade to a DDA, Perfiles Ya           Perez’s NovoPayment is another of the
a lower-cost alternative to the DDA (demand                  cardholders need to provide Banamex with           many non-bank providers. It has prepaid card
deposit account) services which banks cur-                   proof of address and an identity document.         programmes in Venezuela, Peru, Mexico and
rently offer some low-income consumers.                         Perez at NovoPayment says that Latin            Colombia. As well as general-purpose cards,
   “Lower-paid Latin American workers                        American unbanked consumers are very               it offers utility and cellphone; meal/food;
n mARKet	sIZInG                                              aware of the Visa and MasterCard brands.           payroll, corporate incentives, petty cash and
                                                             “There’s an aspirational aspect to prepaid         prepaid fuel; and electronic benefits cards.
Prepaid	GDV	–	Latin	America	as	proportion	of	
global	gross	dollar	volume	(GDV)                             cards, in that giving an unbanked consumer         Its portfolio comprises 960,000 cards on the
                                                             a Visa-branded prepaid card means that they        MasterCard, Maestro, Visa and Visa Electron
                                Latin America       Global   have social status,” she says.                     platforms, representing 30 million transac-
1,000                                                           Elo is another bank-run project looking to      tions and $620 million annually.
                                                             benefit from and promote the growth of pre-           In October 2009, NovoPayment received
   800                                                       paid. Owned by Banco do Brasil and Banco           a principal member licence from MasterCard
                                                             Bradesco, Elo was launched in April 2010           for the issuance of MasterCard-branded pre-
                                                             to offer credit, debit and prepaid cards to        paid cards in Latin America. The designa-
   600                                                       unbanked Brazilian consumers in competi-           tion means NovoPayment no longer needs a
                                                             tion with Visa and MasterCard. Elo’s prepaid       sponsoring bank when it offers MasterCard
                                                             business unit is called Elo Vale.                  prepaid cards.
                                                                Banco do Brasil and Bradesco also oper-            However, Perez stresses that NovoPayment
                                                             ate Brazilian processor Cielo, and Compan-         continues to work closely with bank partners
   200                                                       hia Brasileira de Soluções e Serviços (CBSS),      such as Peruvian processor Interbank.
                          170           71                   which issues Visa Vale’s social benefit card          We can now give banks the option of let-
             8.7                                             products.                                          ting us manage their whole prepaid card pro-
                   2009                      2017
                                                                Riley says Elo is likely to export its plat-    gramme on a turnkey basis. Alternatively,
                                                             form to other Latin American countries.            banks can remain in charge but operate on
Source: MasterCard Worldwide, Boston Consulting Group        “Where low-income consumers are making             our platform.” <                                                                                                             September 2010 y 25

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