Swing in competition in the Brazilian card market is a harbinger of consolidation

The recent shift in the “little war” may precipitate a consolidation in Brazil’s electronic payment industry, as the falling margins of the companies in the industry should limit the number of groups that can be sustainable in the long run.

For experts, the Network’s offensive of zeroing fees to advance D + 2 funds for retailers on cash credit card payments has shown that survival in the industry will gradually depend on firepower, ie capital.

Rede’s offer, conditioned on a closer relationship with its controller Good Finance, tends to be somehow followed by other large banks. And the plight of smaller rivals is likely to be made more difficult by signaling from the Caixa Econômica Federal that it plans to enter the sector hard by next year.

According to entrepreneurs involved in the chain


There is still room for new aggressive movements, especially from institutions linked to banks.

“The truth is that the margins charged in the card acquiring market are still huge and incompatible with value added to customers,” said Francisco Ferreira, a partner at fintech Baron Munchausen, which operates loans to companies, including sub-purchasers.

It is true that these margins have fallen sharply in recent years since regulatory changes implemented by the Central Bank broke a duopoly in the sector about a decade ago, led by Cielo (formerly Visanet) and Rede (formerly Redecard).

Currently, there are at least a hundred companies acting as card acquirers or sub-purchasers in the country, according to Central Bank data, and several of them with a business model based mainly on financial income from anticipated receivables.

In this environment, retailer spending on payment processing, which in recent years has exceeded 10 percent of revenues, including terminal leasing, price per transaction (MDR) and receivables prepayment interest, fell to 3.49 percent. Network offer, valid since last Thursday, encompassing the three services. With possibility of negotiation.

As a result, the operating margin of the sector

As a result, the operating margin of the sector

Which reached 70 percent a decade ago, has fallen to below 30 percent, as Cielo’s balance sheet for the first quarter showed.

“But it’s still a high margin; in mature markets this is around 7 percent, ”said Margot Greenman, chief executive of corporate credit manager Captalys, which also operates sub-buyer credit.

For some analysts, the response of large financial institutions to this scenario may be to bleed the profitability of the acquiring arms as a means of protecting the customer base and eventually offsetting this by inducing customers to buy a wider range of financial services.

In a possible sign of suspicion that this is has already done with the Network, Cielo waved last week with the creation of an index the effective cost practiced in the sector.

We believe that transparency will eventually end with pranks


In this respect, Cielo’s situation is more dramatic than that of its main rivals. Unlike Rede and GetNet, the market leader has not one, but two controlling banks (Bradesco and Banco do Brasil). Because it is a listed company, good governance prevents it from making use of offers that represent margin swaps between it and its partners.

The two partners have repeatedly denied plans to close Cielo’s capital as a way to resolve potential conflicts of interest issues. Meanwhile, the company’s long-term loss of market share and margins has been reflected in the nearly 70 percent drop in shares since early 2018.