Credit Cards - Argentina
HEADLINES
- Credit cards in circulation set to increase by 15%
whilst current transactions value expected to increase by 37% in 2010
- Issuers and retailers discounts, long-term financing
and high inflation rates push consumption
- Average spend per transaction increases by 19% to
ARS126
- Visa, MasterCard and Tarjeta Naranja concentrated over
66% of credit cards in circulation in 2009
- Credit cards in circulation are expected to increase at
an 8% CAGR through 2015
TRENDS
- Retailers’ discounts and long-term financing in
consumer appliances are the most important strategies being to push
consumption in 2010, a year with high inflation rates and the year when
the Soccer World Cup in South Africa took place. According to industry
players, a typical family can save around ARS6,000 per year if takes
advantage of banks discounts offered in various retail channels if
payments are made with credit cards. In the case of a high-income
customer, whose monthly consumptions are higher, benefits would increase
too if the bank does not limit the discount. For example, Banco Galicia
offers a 25% discount each Thursday in shopping malls with a limit of
ARS200 per transaction. Besides, high-income consumers usually have more than
one credit card and are able to save more money per month depending on the
cross-selling.
- As banks sell credit cards in a package with other
financial products such as a bank account, there are maintenance expenses
that customers have to pay when they get a credit card. For example,
administrative monthly costs per credit card could cost ARS12 and an
annual fee could reach ARS300 per card. Despite such new expenses,
customers are able to save money by taking advantage of discounts offered
by banks and retailers during 2010. In a context of high inflation rates,
Argentinean middle- and high-income consumers are more willing to spend,
in order to not lose purchasing power, instead of saving. Domestic
electrical appliances retailers, such as Garbarino, have offered 50
instalments with an approximately 3% financing cost (although when other
expenses are added the annual cost could reach 10%, according to trade
press), to buy LCD TV sets. The Soccer World Cup boosted the desire to
purchase a new TV set in time to watch the matches. Moreover, these
retailers offer 30 instalments to buy net books and Notebooks, products
that middle- and high-income consumers demand because of the need to
upgrade their technology.
- With the most severe consequences of the economic
downturn drawing to an end, operators started to increase their efforts to
position premium credit cards in the market. These cards are the best
front door for issuers to acquire high-income customers and to sell them
other financial products. Amongst high-income consumers, credit cards are
an important status symbol. In this sense, premium credit cards such as
MasterCard Black are the more exclusive cards in the market, far beyond
gold and platinum cards. In 2010, Citibank started to offer a Black credit
card to its top 1,000 clients and American Express announced the launch of
its Centurion credit card. These kinds of products offer exclusive
services such as access to 500 VIP rooms in airports around the world,
24-hour, and 365-day availability of concierge, special rental car
services and special insurance services, amongst others.
- Economic downturn in 2009 primarily impacted credit
card issuing. Banks slowed offering credit cards compared to 2007/2008
levels. During 2010, consumers started to activate cards that they had but
which they had not been using during crisis to avoid accruing more debt –
mainly during 2008 and the beginning of 2009. As observed inflation rates
are expected to continue to be high (private sector, provincial
governments and academics estimate inflation to run at 22% in 2010),
consumers have decided to take advantage of discounts and promotions of
each credit card they currently have.
- Despite the growth of debit cards in circulation and
transaction volumes being higher than that of credit cards, there has not
been any cannibalization of credit cards by debit cards, mainly because
high inflation rates prompt consumers to delay payments, especially if the
market offers instalments at almost 0% interest rates such as Banco
Santander Rio offer through Garbarino, a retailer that sells Notebooks in
30 instalments with a total financial cost of 3.13%.
- In December 2009, the AFIP (the Argentinean Federal Tax
Administration) issued a resolution to change the way it controls credit
cardholder expenses. Before this resolution, AFIP quarterly asked
operators to provide details of consumers with monthly expenses over
ARS3,000, but now operators are forced to present these data to AFIP
monthly. This allows AFIP to monitor not only consumers with higher
expenses than incomes declared to AFIP but to control merchants that
declare lower sales than those made with credit cards, too. Although until
mid 2010 there were no statistics available about the impact of this
resolution on consumption, it is expected to discourage credit card usage
by almost 1 million credit cardholders in the country that spend more than
ARS3,000 monthly and that now could be controlled by AFIP, according to
trade press.
- Commercial credit cards in circulation are expected to
increase by 13% in 2010, mainly as a result of the economic recovery in
2010 and the need of controlling expenses. Products such as Visa Cuenta
Central, Visa Purchasing Agro or MasterCard Corporate Purchasing card help
companies not only to control but to administrate expenses accurately,
incurring fewer operating costs. With high inflation rates, cost control
is a must to maintain companies’ profitability levels.
- Personal credit cards in circulation are set to see 15%
growth in 2010. There are more than 30 million personal cards in
circulation in 2010, generating 629 million transactions and total retail
RSP of ARS79 billion. Personal transactions growth was influenced by
aggressive discount campaigns led by banks and retailers during 2010;
consumption focused on food and beverages, clothes and medical services
throughout the year with seasonal travel spending during summer, when
banks implemented particular promotions in the main holiday resorts – such
as Atlantic beaches, including discounts in restaurants, travel agencies
and special benefits at beaches, amongst others.
COMPETITIVE LANDSCAPE
- Visa Argentina SA (Visa Inc) is the indisputable market
leader with a nearly 47% share in personal credit cards in circulation
segment and 46% of transactions value share in 2009, followed by Tarjeta
Naranja and MasterCard. Visa also saw the biggest increase in cards in
circulation, by more than 2 percentage points, mainly because its strong
partnership with issuer banks, brand awareness and innovative products.
- Tarjeta Naranja SA led issuers with more than 10% of
cards in circulation market share followed by Grupo Financiero Galicia SA
(Banco Galicia) and Banco Santander Rio SA. Banco Galicia saw the biggest
increase in share, up by more than one percentage point due to its
aggressive discount campaigns.
- The almost unique issuer’s strategy in the market in
2010 was offering discounts and benefits to cardholders. As long as
issuers’ costs, such as labour costs, increased due to inflation over 20%
per year, it was difficult for small banks to compete in this scenario.
Banks with the greatest amount of customers such as Banco Galicia or Banco
Santander Rio were able to develop the most aggressive discount campaigns
because they could distribute fixed costs, and this allowed them to gain
market share whilst small banks such as Banco Privado had problems
competing in this context.
- The Average Annual percentage rate (APR) remained high
in the market, rounding up to 34% (according to ZonaBancos), but the APR
could reach 85% in some cases and credit cards issued by non-financial
institutions were the most expensive ones in terms of financing. Average
monthly statement cost was almost ARS12 whilst average annual card renewal
was ARS65, without including gold and premium cards, which – if included –
would bring the average cost up to ARS192.
- Considering the lack of options to get credit in the
country, a low APR would be an attractive attribute in a credit card.
According to research of ZonaBancos, in March 2010 Banco de La Pampa had
the lowest APR of 20%, followed by Banco Credicoop, offering a 25% APR to
finance outstanding balances.
- Banco Santander Rio and Banco Galicia developed the
most aggressive advertising campaigns during 2010. Both banks, implemented
huge advertising campaigns on TV and graphic betting on conjugal life
scenes and humour to show consumption as a positive and pleasant activity
whilst showing their discounts and other benefits. Banco Galicia’s
advertisement campaign was called ‘Al fin una buena’ (Finally some good
news’), developed by Young & Rubicam. Banco Santander Rio’s
advertising campaign was called ‘Stella & Amore’ and was developed by
Ogilvy & Mather Argentina.
- At the end of 2009, Tarjeta Naranja launched Naranja Mo
service, which allows customers to use the cellular phone instead of
credit card or cash to make payments. The customer has to activate the
service through an SMS and he/she has to send an SMS at the moment of the
purchase to get a pin with which the merchant prints a ticket for the
customer to sign. This service costs the customer nothing. During 2010,
Visa launched the service Card to Card, which allows cardholders to
transfer money between Visa credit cards. Although this is a new service
and customers have to learn about it, it is an innovation that not only
allows the customer to pay for professional services such as that of a
plumber or dentist but also to make micro payments between individuals –
such as paying a friend that has lent them money or that has organized a
party. In 2010, Posnet, the company that sells purchasing card
authorization solutions at the point of sale, launched a product called
‘La Pos cellular’, which allows people that are not in a store to accept
credit cards using the mobile phones as a Posnet. It will allow taxi
drivers or people making deliveries to accept credit cards.
- The domestic issuer, Tarjeta Naranja, maintained a
slight edge in the leadership position of the market with 10.28% of cards
in circulation in 2009 followed by Grupo Financiero Galicia with 10.27%.
These two issuers have been engaged in a see-saw battle for market
leadership in recent years with Grupo Financiero Galicia recently eroded
Tarjeta Naranja’s gap. Visa led the segment on the operator side with a
46% share of cards in circulation.
- In 2010, Banco Macro bought Banco Privado, which had an
attractive credit card portfolio, mainly in the ABC1 segment. Banco Macro
added 200,000 accounts to its 650,000 accounts and allowed it to
reinforced its presence in Buenos Aires city where, as it has been buying
some regional banks in the interior such as Banco de Misiones, Banco de
Salta and Banco de Jujuy, it does not have the same infrastructure that it
has in the rest of the country. In 2006, when Banco Macro bought Nuevo
Banco Bisel, it became the bank with the greater ATM network, more than
400 in the country. Another important acquisition was Banco Hipotecario’s
buy of the Tarshop credit card, owned by Alto Palermo SA. Alto Palermo SA
had been looking for a way of leaving the financing consumption business
since 2008, as the economic crisis and the near disappearance of financial
trusts related to consumption had hit them hard and they had problems
finding funds with which to operate. This gave Banco Hipotecario entry
into the consumer finance market, where the most important banks are
competing in 2010.
PROSPECTS
- As consumption follows GDP growth, consumption is
expected to increase in Argentina due to an estimated average GDP growth
of 3% CAGR in the forecast period. This would lead to an increase not only
in cards in circulation but in transactions volume and value too. Credit
cards in circulation are forecasted to grow at an 8% CAGR, transactions
volume at an 8% CAGR and transactions value at a nearly 11% CAGR in
constant terms in the period 2011-2015. According to experts in the
market, the new government benefit program ‘Asignacion por Hijo’ implemented
in 2010 will inject more than ARS10 billion, which will impact
consumption, and part of that will be channelled through credit cards.
- As Argentina has high cellular phones penetration, and
there is more than one cellular per person in the country by 2010,
development of mobile solutions for using cellular phones as credit cards
is expected to accelerate in the forecast period.
- Considering the increasing competition in the premium
credit cards segment, there is a probability that Visa will start competing
in that segment with its global premium cards Infinit and Signature; in
2010 Visa only has its Platinum card in the segment.
- The biggest retail banks such as Banco Galicia, Banco Santander Rio and Banco Frances are the best positioned issuers to win market share in the forecast period. Despite expected high inflation rates during the period 2011-2015 and the consequent cost increases (labour costs, mainly), they would be able to continue investing in promotions and in developing mobile solutions due to their sizes and economies of scale that allow them to absorb fixed costs without having to transfer them to customers through a marked increase in commissions.
- In the forecast period, companies will see increased
competition in mobile banking, increasing their investments and
communication efforts to capture not only the banked population that in
2010 may still be reluctant to operate through a cell phone or through
internet, but the unbanked population that have mobile phones and until
2010 have not had access to financial products
