Chile’s consumer finance and payment card market has
undergone a transformation in recent years, helped by the entrance
of multinational banks already present in other parts of Latin
America, and infrastructure modernisation. As cheque usage has
declined, debit and credit cards have benefited, as Victoria Conroy
reports.
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With a population of 17m as
of 2009, and an emerging middle class, Chile represents an
increasingly important growth spot for payment cards. During the
past decade, socio-economic and cultural factors have converged to
position payment cards and other forms of electronic payment as
increasingly important elements of the country’s economy.
The recession of 1999 was felt
keenly across Chile, but consistent economic growth since then
helped to boost household incomes and widen the middle class
consumer segment, which in turn drove demand for financial
services. The year 2003 saw demand for consumer credit and loans
grow significantly at a time when interest rates fell in tandem,
and also saw the emergence of retailers as competitors to banks in
the field of consumer financial services.
As of 2009, GDP per capita stood at
$14,539, ranking Chile 46th in the world and the highest in the
Latin America region, surpassing the much larger markets of Brazil
and Mexico. GDP in real growth terms has been relatively steady
over the past decade, but 2008’s 4.2% growth was followed by -1.7%
in 2009. However, it is estimated by the country’s central bank
that GDP will reach 5.1% this year, helping to spur consumer demand
for financial services.
However, non-electronic forms of
payment are very much entrenched within Chilean society, with
cheques being one of the most popular payment methods and seen as
something of a status symbol. They can also be used as a form of
credit through a scheme known as ‘Tres Cuotas’, where customers pay
with three cheques post-dated at 30, 60 and 90 days.
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By GlobalDataChile has greatly improved the
efficiency of electronic transactions through a new real-time gross
settlement system implemented in 2005 and through the
interconnection of the country’s ATM networks. Chile has two ATM
networks, Redbanc (established in 1987) and Globalnet (established
in 1992).
These networks are owned by their
participating banks. The two organisations announced an
interconnection agreement in 2004. Transbank (established in 1993)
operates a network for financial institutions that issue Visa,
Mastercard, American Express and Diners Club credit cards. It also
handles RedCompra, Electron and Maestro debit cards, as well as
domestic bank card brands. Transbank offers an instalment payment
facility for the global credit card brands, which provides
interest-free terms identical to the Tres Cuotas system of
postdated cheques.
The
The debit card
market
The number of debit cards in use has risen steadily in Chile,
along with the value of transactions. Debit cards are issued
automatically to current account holders as part of a package of
services.
The first multi-bank debit card,
RedCompra, was introduced in 1995, but the bulk of the cards in
force are Visa Electron and Maestro cards issued by the banks. New
initiatives such as the CuentaRUT and Caja Vecina debit card
programmes aimed at low-income consumers have been implemented to
expand the reach of payment cards in recent years and have helped
to drive growth in the sector.
From 2007, an emerging trend is that
payments made with cheques are losing ground to payment cards. In
2007, the number of cheques processed fell by 3% while card
transactions and e-commerce transactions grew by over 20% compared
to 2006. The number of cheques cashed fell from over 259,000 in
2007 to just under 248,000 at the end of 2008. The latter number
represents less than 25% of total retail transactions as of late
2008.
In October 2008, tax on cheque and
debit transactions was eliminated. This had a significant impact on
debit card usage, as previously people would withdraw large sums
from ATMs in order to make small value cash payments, rather than
make these payments with their debit cards.
Debit cards posted annual growth
rates of over 40% in the number of transactions and over 50% in
value from 2007 to 2008. Debit card transactions increased their
total share in retail payments from 7.5% in 2007 to almost 10% in
2008.
This significant increase in debit
card transactions contrasts with the drop in the use of ATMs – ATM
use fell almost 7% in amount and over 3% in the number of
transactions in the same period. These figures suggest people are
replacing ATM withdrawals with an increasing number of debit POS
transactions.
In the first half of 2009, the
downward trend in cheque payments steepened, falling more than 10%
at the end of the first half of 2009. But despite the rapid
contraction of cheque payments, cheques still hold an important
position in the retail payment systems, with a share of over 90% of
the total amount transferred in the retail payment system. The
number of transactions, however, represents a share of only
20%.
Smart cards are set to take off in
Chile as part of a concerted effort to improve security and to
offer enhanced services to cardholders. Several large Chilean banks
partnered with Telefónica CTC Chile in 2000 to form a company
called Empresa de Tarjetas Inteligentes (Etisa), which is
implementing the required infrastructure upgrades. Prepaid cards
are expected to grow significantly over the next two years.
In 2009 Visa decided to associate
with local banks to launch prepaid cards that can be used at more
than 60,000 POS locations. The cards are aimed at people who do not
qualify for a bank account and will be made available at retail
locations with high footfall, such as grocery stores and
kiosks.
The Chilean credit card
market
Despite the prevalence of paper-based payment methods, payment
card usage has grown strongly over the last five years, and credit
card penetration levels are among the highest in Latin America.
Chile’s credit card market is
characterised by retailers having more of their own private-label
cards in issue than banks, given that the qualification criteria
for retail-issued cards is much less stringent than for bank-issued
cards. The only qualifying criteria a retail store customer needs
is the ability to perform a bank transaction before they are issued
a card, whereas banks require multiple ID checks and certain income
levels before approving an applicant for a credit card.
As a result, Chile’s retailers have
long enjoyed much greater access to the sizable unbanked population
in the country. However, banks are now targeting the unbanked
segment although they have some way to go before they are able to
match the depth and breadth of retailer touch points with
customers.
For
For example, several large Chilean
retailers not only have a wide network of stores, but they also
operate travel and insurance agencies, and enjoy richer client data
streams as a result.
Indeed, growth in Chile’s credit
card sector is increasingly coming from low-income consumers and
banks are tailoring their customer acquisition strategies
accordingly.
Chile’s banking regulator, SBIF,
said that in the fourth quarter of 2009, credit card transactions,
including cash advances, purchases and service fees, rose 19% to
CLP1.07bn ($2.1m) compared to the same period in 2008. During the
fourth quarter of 2009, Visa was the most widely-used credit card
in Chile, followed closely by MasterCard, with American Express and
Diners Club, according to SBIF.
Transactions with MasterCard
totalled CLP529.64bn, followed by Visa at CLP481.60bn, American
Express at CLP38.60bn and Diners Club with CLP18.40bn. Credit cards
from Chile’s biggest bank in terms of lending were Banco
Santander-Chile, used for CLP375.90bn in transactions, followed by
Banco de Chile with CLP342.12bn in transactions.
Private-label credit cards issued by
retailers include open-loop cards that are accepted at multiple
stores, as well as closed-loop single-retailer cards. Retail cards
are originally issued to low-income individuals without access to
bank credit, and in spite of the much larger number of retail cards
in force, bank-issued credit cards capture about one-half of total
credit card payments.
Data published by the SBIF indicate
there are 22m active non-bank cards, or more than four times the
number of active bank cards.
Issuer profiles
Banco Santander
Chile
Banco Santander Chile is the largest bank in the country with
assets totalling $40.9bn as of December 2009. It has the largest
network in the country with 497 branches and 1,917 ATMs.
In 2009, its net income totalled
CLP431.25bn, despite higher provision expenses (up 14.4% from 2008)
and deflation which hurt margins. In the fourth quarter of 2009,
fees from credit, debit and ATM cards rose 19.9% compared to 2008,
reflecting increased card usage and the successful launch of three
credit card products in 2009.
As of December 2009, the bank, which
has a market share of 33.1% in credit cards in Chile, generated
38.2% of purchases in the country. Purchases were up 22.9% from
2008 compared to 8.1% for the rest of the market, excluding
Santander. Santander Chile ranks number one in Chile in terms of
purchases with credit cards with approximately 19% of the market,
including non-bank lenders.
Banco de Chile
In 2009 Banco de Chile recorded net income of CLP258bn compared
to CLP347.43bn in 2008. Fees increased year-on-year by CLP15bn or
6.5%, driven by its subsidiaries and traditional banking
services.
Throughout 2008, the bank’s fee
income was driven mainly from credit cards, current accounts and
insurance sales. Generation of higher fee income from credit cards
was reinforced by growth in the current account holder base and
successful marketing strategies such as new co-branding
agreements.
Its Travel Club credit card, which
is available on the Visa and MasterCard platforms, incorporates a
loyalty programme that rewards cardholders for all purchases, with
points redeemable at the bank’s online catalogue of rewards. The
card also offers international travel assistance, insurance
benefits and instalment options.
Banco de Credito E
Inversiones (BCI)
In the third quarter of 2009, BCI’s net income was CLP109.21bn,
a drop of 15.6% compared to the CLP129.44bn recorded in 2008. Total
loans amounted to CLP8.8 trillion, giving BCI a market share of
12.80%.
In terms of risk, loan loss
provisions stood at 2.16% in the third quarter of 2009,
representing an increase compared to previous quarters but
comparing favourably with the 2.37% shown by the Chilean financial
system for the same period. As of the third quarter of 2009, BCI
had 1.57m debit cards in circulation and 318,264 credit cards.
Credit cards have grown strongly over the past couple of years,
given that they totalled 278,595 in the third quarter of 2008.
In 2008, BCI devised a strategy
called ‘Emerging Banking’ which is targeted at consumer segments
that are not traditionally fulfilled by banks.
During 2009, BCI created the
‘Multybox’, a self-service station with touch-screen technology,
where customers can pay bills, refund mobile phones, make money
transfers and access other financial products.
Banco del Estado de
Chile
Banco Estado is the third-largest bank in Chile with assets of
$29.6bn as of September 2009, and a market share of 16.6% based on
outstanding loans. It has over 7m customers and 11m savings
accounts. Banco Estado also boasts a high number of internet
banking customers. Between December 2008 and June 2009 the number
of internet banking customers increased by over 60% to nearly
588,000 users.
During 2008, Estado recorded 60%
growth in the number of credit card customers to over 280,000. In
the same year, the number of people with ‘electronic chequebooks’
grew by 15.5%, while the number of low-income-targeted CuentaRUT
accounts doubled to over 1.2m active accounts – this had risen to
over 2m by the end of 2009. Seven out of 10 customers who had a
CuentaRUT account had never accessed financial services before. A
transaction study conducted in August 2009 found that 47% of
purchases with debit cards correspond to CuentaRUT accounts. The
bank is aiming to have over 3m accounts by the end of 2010. As a
result of this increase, the state-owned bank holds the largest
debit card market share with over 36%.
CorpBanca
CorpBanca’s main current account product is the ‘Integral’
account through which customers are provided with a range of
services including ATM cards, a credit line, Visa, MasterCard and
American Express-branded credit cards and internet banking
services.
As of December 2008, the bank had
over 68,000 retail current accounts, an increase of 15.6% compared
to 2007.
As of December 2008, the bank had
approximately 246,000 credit cards issued under the brand name
CorpBanca, an increase of 9.4% compared to 2007.
The bank’s promotions such as
discounts on gasoline purchases have enabled the bank to drive up
transaction volumes and usage rates. During the fourth quarter of
2008, the usage rate for the bank’s cards was 46.4%, while the
industry’s average was 36.5%.
As of December 2008, the bank had
approximately 35,000 credit cards issued under the brand name Banco
Condell.
Banco Falabella
The banking division of retail giant Falabella, Banco Falabella
launched its first credit card in Chile in 1980, and as of
September 2009 had over 2.4m active credit card accounts.
Banco Falabella’s gross loans in
Chile comprised over 40% of the $2.96bn of gross loans recorded by
the group as of September 2009.
