Credit Cards
- Chile
HEADLINES
- Value of credit card transactions expected to grow by
9% as consumers recover from the economic crisis
- Credit cards in circulation expected to grow by less
than 3% as credit card consumer credit lending brings added risk for
lenders due to the earthquake
- Even though debit cards are increasingly replacing
smaller transactions, the average spend per transaction on credit cards
displayed positive growth of 4% in 2010
- Retailers like Falabella SACI, Ripley Corp SA and
Cencosud SA compete aggressively to be the largest player in credit cards
- Although debit cards are becoming the focus of the
payments market, credit cards is still predicted to see a volume CAGR of
5% over the forecast period
TRENDS
- During the review period, the number of transactions
and value of transactions per card continued to grow despite the
uncertainty of having a new government in charge and the earthquake. The
number of transactions will grow by 5% in 2010, quite below the CAGR of
39% recorded over the review period as a whole. The value of credit card
transactions also increased to CLP5,666.8 billion, a 9% increase on 2009
figures.
- The driver of the trend is the expectation that the new
President will maintain favourable economic conditions and that soon,
income levels will improve.
- Most high-income consumers use their cards to receive
rewards but limit their spending with their monthly disposable income, so
that they are able to cover most of the debt with cash later in the month.
On the other hand mid- and low-income consumers, use credit cards as a way
of financing themselves, mostly choosing to pay the debt back in
instalments.
- Although both personal and commercial cards have been
impacted positively by the recovery of the economy, it is commercial cards
that have fared best, with the volume of transactions rising by 14% in
2010. In 2009 businesses have largely cut back on expenditure, including
such items that are typically put on the credit card: travel and entertainment.
Such expenditure has been gradually recovered in 2010, with commercial
credit card expenditure increasing as a result.
- Competitors continued strengthening their rewards and
loyalty programmes. In 2010 issuers continue to offer discounts at petrol
stations, restaurants and hotels. Airlines, in combination with issuers,
have promoted special fares for travel to different countries with
significant discounts. Banks have also encouraged customers to use credit
cards for additional purposes such as the payment of income, real estate
and county taxes. Another use being promoted by issuers is automatic bill
payment by credit card for telephone, electricity, water and gas bills.
COMPETITIVE LANDSCAPE
- Unlike any other country in the world, Chilean credit
cards is dominated by major retailers. Falabella SACI, Ripley Corp SA and
Cencosud SA lead in terms of cards in circulation followed by Visa Inc and
MasterCard International Inc. Falabella’s share has increased from 20% in
2007 to over 36% in 2009 while the two other retailers have seen their
share decrease substantially in the same period. Falabella credit card
operator alone, had almost eight million cards in circulation, a higher
number than the credit cards issued by all banks. Its leadership is due to
its low standards for client approval. Generally, the requirement has been
limited simply to requesting that the potential cardholder undertakes a
simulated cheque or bank card transaction, and if it proves to be valid
they are approved for a credit card; thus retailers take advantage of
creditworthiness checks already carried out by banks.
- In terms of issuers, again these three retailers
dominate the scene, followed by Banco Santander Chile ADS and Banco de
Chile. These non-banking issuers lead in terms of the number of cards in
circulation in Chile, with over 14 million cards in 2009. Banks and
retailers compete in the middle-income banked segment; retailers usually
offer bigger benefits to customers than banks offer through their
financial cards. On the other hand, retailers’ credit cards have a limited
area of usage; usually one store or a chain of stores, while the financial
cards issued by banks can be used all around the country, and also abroad.
- Retailers’ credit cards have enjoyed success by
reaching the unbanked population in smaller cities and rural areas.
Retailer-issued credit cards were store cards that could have higher
interest rates and be issued to riskier customers, thus allowing retailers
to expand aggressively among the low-income population and develop a large
client base to exploit the increasing spending power on durable goods
among Chileans.
- In addition, the fact that so much of Chilean
consumption takes place in a limited network of retailers available
countrywide has made discounts provided through store cards and credit
cards very attractive, to the extent that banks are also forced to offer
retail discounts on cards they issue as well, in order to compete. Despite
this huge difference in cards issued, transaction value is similar between
bank cards and non-bank cards. This is because bank credit cards have a
longer history of open networks and therefore greater acceptance than
major retailers’ credit cards.
- Cencosud saw the highest decrease in its value
transaction share, reaching 10% in 2009 from a previous 13%. Its
transaction value experienced a decline of approximately -23% in 2009.
This might be due to the fact that it decided to cut cash withdrawals as a
result of the increase in non-performing and overdue loans. The company is
also withdrawing its ‘Three instalments without interest’ products. This
situation has impacted its supermarket sales via credit cards. Meanwhile,
bank issuers have promoted the use of card payments by offering financing
at a zero interest rate for three, six or up to 12 months.
- In terms of new products and innovation, bank issuers
are focusing on high-income segments. For example, Banco Santander issued
MasterCard WorldMember while Banco de Chile issued MasterCard Black and
VisaSignature. For the low-income segments, the banks compete against
retailers through consumer divisions like CrediChile of Banco de Chile or
Banefe of Banco Santander. Credit providers have recognised the wide range
of credit needs of Chilean consumers and will thus develop products that better
fill the needs of these diverse consumer segments.
- The credit card landscape saw major consolidation in
2009 that has intensified the competition for consumers in 2010. The
merger of Banco de Chile and Citibank Chile, a subsidiary of Citibank NA,
was completed in 2009 along with the union of Banco CrediChile’s consumer
division and Financiera Atlas.
PROSPECTS
- Credit card transactions are expected to grow at a CAGR
of 9% in constant value terms and 7% in volume during the forecast period.
These growth rates will be moderate in comparison to those seen during the
review period, however. Industry sources feel that the impressive
double-digit growth rates of the review period will not be repeated as the
market is getting closer to maturity.
- Cards in circulation are predicted to post a 5% CAGR
over 2010-2015 to reach almost 29 million cards. Expenditure will continue
to be focused on food and drink, retailing and services, with more
businesses in these sectors beginning to accept credits cards over the forecast
period. Aggressive promotions from retailers will continue to drive
expenditure.
- Consumers will continue to increasingly buy goods and
services and pay bills online, particularly in smaller cities and rural
areas. This will fuel the growth of credit cards during the forecast
period, as credit cards are regarded as one of the safest instruments for
online payments.
- Chained retailers’ credit cards are expected to remain
dominant over the forecast period, as they continue to launch promotions
that boost customer loyalty. Falabella and Ripley are expected to expand
their networks to include smaller towns and rural areas during the
forecast period. Consequently, they are expected to increase their
customer bases and the number of cardholders will also increase. These
companies are the best positioned to gain in the increasingly competitive
credit card sector as they have both the cards and the EPOS systems, and
are thus best positioned to gain knowledge about their customers, and to
link the use of cards with exclusive product offers. This will allow them
to capture new cardholders more quickly than the banks.
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