Throughout the last five years, Chile has undergone a series of changes, such as the entrance of multinational banks, an uptick in branchless banking and governmental financial inclusion programmes. Is this having a suitable impact on the consumers of Chile or on the financial sector in general?
Chile’s cards and payments industry underwent a transformation between 2010 and 2014, helped by the entrance of multinational banks, government initiatives such as the financial inclusion programme, and infrastructure modernisation.
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As cheque use has declined, debit and credit cards have benefited. Government efforts to provide basic banking and financial services to the unbanked helped a large proportion of the population to become banked, which also benefitted the industry.
According to the World Bank’s Global Findex, its global financial inclusion database, the percentage of individuals aged over 15 with an account grew from 42.2% in 2011 to 63.3% in 2014.
Changing lifestyles, and rises in the economically active population, disposable income, the popularity of online shopping, and acceptance of cards at retail outlets supported the growth of payment cards during the review period, a trend that is anticipated to continue over the next five years.
With the adoption of contactless technology, the Chilean payment cards market is pro¬jected to grow at a healthy rate in both volume and value terms between 2015 and 2019.
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By GlobalDataCuentaRUT supported the growth of the debit card market
The government-owned bank BancoEstado offers CuentaRUT, a debit account primarily for the low-income population who do not qualify for conventional accounts.
There are no maintenance charges associated with the account. Documentation is minimal, and it is available to the entire population. Accounts can be easily opened in person, by telephone, online, or through banking agents, contributing to their popularity among Chilean consumers. Account holders are issued debit cards, which will increase the debit card market’s volume and value growth over the next five years.
There were 7.4 million CuentaRUT account holders at BancoEstado as of 2014, representing 41.6% of Chile’s total population. However, the CuentaRUT is anticipated to face competition from the Chile Account, a new checking account introduced by Banco de Chile in November 2014, aimed at the low-income and unbanked populations.
Growing preference for both bank-issued and private label credit cards
Growing employment and disposable incomes led to increased demand for con¬sumer credit, fueling demand for credit cards.
A decrease in interest rates on consumer credit also facilitated demand for credit cards between 2010 and 2014. According to central bank statistics, the average interest rate on credit card consumer loans fell from 34.3% in January 2013 to 24.0% in December 2014.
Another important driver of credit card transaction value and volumes recently is the option to convert purchase amounts into monthly installments. BBVA Chile offers six-to-12-month installment facilities for purchases at Enjoy hotels and restaurants. Banco Santander Chile and BancoEstado also offer installment facilities to credit cardholders.
However, credit card issuers in Chile face competition from private-label credit cards, for which qualification criteria tend to be much less stringent than for bank-issued cards.
As a result, retailers in Chile have long had much greater access to the sizable unbanked population. Several large Chilean retailers not only have wide store networks, but also operate travel and insurance agencies, and have wider customer bases as a result.
Branchless banking model to increase payment cards penetration
Branchless banking is expected to increase the volume of payment cards over the next five years. For instance, BancoEstado offers its services through Caja Vecinas banking terminals, ena¬bling it to serve consumers over extended hours, including Saturday and Sunday.
This channel differentiates the bank from others that normally operate five hours per day, five days a week. Caja Vecinas offers all normal banking products, and enables individuals in remote areas to conduct transactions through POS terminals in retail stores.
Caja Venicas is expected to play a major role in extending card-based payments to the country’s rural population.
Growing retail and e-commerce markets
Despite the economic slowdown, Chile’s retail sector registered healthy growth due to infrastructure improvements and the expanding network of retail outlets.
Key operators in the sector include Walmart, Cencosud and Ripley. During the last five years, the retail sales value registered a CAGR of 6.60%, increasing from $55.8bn (CLP28.5 Tr) in 2010 to $72bn in 2014.
Further growth is expected in line with economic recovery and a growing number of retail establishments across the country.
An increasing numbers of internet and smartphone users in Chile led to a rise in online retail sales, at a CAGR of 18.86%, going from $845.1m in 2010 to $1.7bn in 2014.
The country’s growing online market is attracting international online pay¬ment service providers. In April 2013, for instance, PayPal entered into an agree¬ment with Multicaja to extend its services in the country. The expanding e-commerce market is driving payments through online shopping.
Prepaid card market offers growth prospects
Prepaid cards are gaining acceptance among Chilean consumers, as they offer control over spending and do not require a bank account. The prepaid cards are available for various sectors such as commercial sector, public sector and for individuals with customised benefits.
For instance, MasterCard offers Teen MasterCard prepaid card for students, which facilitate them to manage their money with parental control.
MasterCard also provides corporate prepaid cards including payroll prepaid MasterCard, incentive prepaid MasterCard and welfare prepaid MasterCard. Gift cards are also gaining prominence in Chile.
A popular strategy employed by prepaid card issuers is to organise contests and lucky draws where the customer is given a prepaid card as a gift.
A similar strategy was followed by Ripley. Ripley introduced a Pinterest contest in August 2012, where customers were given an opportunity to enter a lucky draw where they could receive a gift card worth $102.8.
The strategy was effective in introduc¬ing the product to customers shopping at Ripleys. In 2015, the central bank introduced a new regulation on prepaid cards.
According to the regulation, the customer’s identity must be verified before offering a prepaid card, to curb activities such as money laundering and terrorist financing activities.
