The Potential For Credit Card Growth Outside The U.S. – Part 2

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Payment solutions providers, Visa (NYSE:V) and MasterCard (NYSE:MA), have benefited greatly from global expansion into emerging markets, particularly in Asia and Latin America. MasterCard’s revenues have grown at a compound annual growth rate (CAGR) of 11% over the last six years while Visa has delivered a growth rate of 17%. The companies now earn around half of their revenues from outside the U.S. and given the economic uncertainty in the country will be looking for growth in developing markets like India, China, Mexico, Brazil, Russia, Indonesia, South Africa and UAE. The total Personal consumption expenditures (PCE) from these markets is around $10 trillion with paper based transactions accounting for 62% of the PCE. In contrast, electronic payment solutions account for more than 60% of the PCE in the U.S. [1]

In our last article, The Potential For Credit Card Growth Outside The U.S. – Part 1, we discussed the payment industry in China and India. In this article, we turn our attention to Latin America, focusing on Brazil, the largest economy in the region. For a discussion on the U.S. market, please read our article: Visa’s U.S. Business Is Booming On These Trends

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Brazil

Brazil is the fourth largest payment card market in the world. Credit, debit and private-label store cards in the country have grown from 400 million in 2010 [2] to 687 million in 2011 and around 750 million in 2012. [3] Of these, around 35% are private label cards, 40% are debit cards and the rest are credit cards. Payment transactions on these cards have grown from 7 billion in 2010 to 8.3 billion in 2011, and an estimated 9.5 billion in 2012. The gross dollar volume of transactions is around $358 billion. [4]

Visa and MasterCard are dominant players in the market with a majority of the cards in the country carrying their logos. [5] Visa has around 218 million cards in Brazil. Personal consumption expenditures (PCE) were around $723 billion in 2012, only 44% of which were through electronic payment media. [1] PCE as a percentage of GDP is currently around 30%.

GDP growth rate in the country has slowed down significantly, from 7.5% in 2010 to 2.7% in 2011 and 0.9% in 2012. [6] With recent protests over public discontent regarding corruption and inflation and speculation that the central bank increase in borrowing costs, several economists have cut their forecasts for near term GDP growth in the country. [7] We expect a long-term growth rate of around 3.6%, [8] as the economic scenario improves.

The unemployment rate in the country is near a record low at less than 6%, indicating that the economy is poised for a long term recovery. [9] We expect PCE as a percentage of GDP to improve to about 35% as consumer spending increases with improvements in the economy. In this scenario, PCE would breach the $1 trillion mark by the end of the decade.

Electronic payment methods are rapidly gaining acceptance in the country. Brazil is the 12th largest market for online payments with payment volume in excess of $17.4 billion. Half of these online transactions are processed via credit cards. [10] Only 21% of the credit cards in Brazil are dormant. Mobile payment solutions are also set to take off Brazil, which has a mobile penetration of more than 130%, indicating that nearly everyone in the country has a mobile phone. [11] We expect electronic penetration to increase from 44% of PCE to around 60% of PCE by 2020. This would provide a potential $650 billion market for Visa and MasterCard to capitalize on.

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Notes:
  1. Visa Investor meeting for 2013 [] []
  2. Payment Cards In Brazil, Datamonitor, April 2012 []
  3. Rich Opportunities for Prepaid Cards in Brazil []
  4. Ref: 3 []
  5. Report On The Brazilian Payment Card Industry []
  6. GDP growth (annual %), The World Bank []
  7. Brazil Swap Rates Drop as Economists Cut GDP Outlook; Real Slips, Bloomberg, 8 July, 2013 []
  8. Medium and long term scenarios for global growth and imbalances []
  9. UPDATE 1-Brazil’s jobless rate up to 5.8 percent in April, Reuters []
  10. Ref: 2 []
  11. List of countries by number of mobile phones in use []