Cards & Payments INSIGHT

INSIGHT The stakes are high NFC and the future of payments

Interpreting today's trends. Envisaging tomorrow's.

CARDS & PAYMENTS

ISSUE 01 2012

Hey big spender How to attract and retain affluent consumers

Land of the rising cards Asia Pacific

Moving to its own beat Brazil

2 CARDS & PAYMENTS INSIGHT ISSUE 01

Welcome

Welcome to the first edition of Cards & Payments INSIGHT – our new magazine for professionals in the dynamic and fast-evolving payments sector.

Each edition will highlight Datamonitor’s latest research into the essential issues affecting your industry. We’ll bring you a selection of topical feature articles written by members of our expert analyst team, based on our recently published research.

In this first issue, we take a closer look at the payments environment and how technology is driving real change (and some anxiety) within the sector. Datamonitor’s lead Cards & Payments Analyst Gilles Ubaghs reminds us to keep an eye on developments in Near-Field Communication (NFC) technology, while not neglecting the payment innovations that are ready for market today.

We also look at innovation from a global point of view, and find that emerging markets are starting to punch above their weight when it comes to creative payment card solutions.

In the first of our Regional Focus features, Senior Analyst Harry Senlintonga looks at developments in Asia Pacific, while Mark Storry and Matthew Heaslip kick off our Country Focus series by showcasing some exciting developments coming out of Brazil.

Lastly, Datamonitor’s Cards & Payments Practice Leader Kieran Hines highlights the untapped opportunity among affluent consumers and how to target premium customers with premium rewards and benefits.

I hope you enjoy and find value in these insights. We’d love to hear your feedback and any suggestions you have for future issues of Cards & Payments INSIGHT.

In the meantime, please continue to access your Financial Services Knowledge Center for our latest research and analysis. If you do not have a subscription, get in touch to learn more about our service, or visit Datamonitor’s online Research Store for instant access to the reports highlighted in this issue.

Thank you for reading, and enjoy.

We actively encourage feedback from our readers, so if you have any comments or questions, please contact us at [email protected].

EDITORIAL Editors Giovanni Antonio Musio Melanie Blythe

Graphic Designer Snehal Sanghani

CONTRIBUTING WRITERS Gilles Ubaghs Harry Senlintonga Matthew Heaslip Mark Storry Kieran Hines

ABOUTDatamonitor Financial ServicesAt Datamonitor Financial Services, we deliver intelligence-led insight and data on financial services markets, competitors and consumers. Our robust forecasting methodologies, proprietary databases, and the experience and knowledge of our in-house analysts help clients to make better strategic decisions in the areas of Retail Banking, Cards & Payments, Savings & Investments, Private Wealth Management, Life & Pensions and General Insurance. Our research on cards and payments covers competitor developments, consumer attitudes, market forecasts and technology developments, highlighting current and future trends. The Global Payment Card Anlayzer, our proprietary online tool, includes market size, consumer and competitor data for 60 countries.

CONTACT DETAILS To find out more about Datamonitor Financial Services contact us at: email [email protected] phone +44 207 551 9437 Or visit our website: www.datamonitor.com

DISCLAIMER While every care is taken to ensure the accuracy of the information contained in this material, the facts, estimates, and opinions stated are based on information and sources which, while we believe them to be reliable, are not guaranteed. In particular, it should not be relied upon as the sole source of reference in relation to the subject matter. No liability can be accepted by Datamonitor LTD, its directors, or employees for any loss occasioned to any person or entity acting or failing to act as a result of anything contained in or omitted from the content of this material, or our conclusions as stated. The findings are Datamonitor’s current opinions; they are subject to change without notice. Datamonitor has no obligation to update or amend the research or to let anyone know if our opinions change materially.William Keast-Butler

Managing Director, Datamonitor Financial Services


Contents

ThestakesarehighNFC and the future of payments4

LandoftherisingcardsRegional Focus: Asia Pacific8

12 Heybigspender How to attract and retain affluent consumers

16 Movingtoitsownbeat Country Focus:Brazil

4 UTILITIESINSIGHT ISSUE 01

“

The stakes are high The NFC market remains in a rudimentary stage of development, and confusion abounds over how the market will evolve.

Despite the hype and panic, Datamonitor’s lead Cards & Payments analyst, Gilles Ubaghs, warns that issuers should be future-focused while not forgetting to deliver the technologies that consumers want today.


By Gilles UbaghsLead Analyst, Cards & Payments

Despite the hurdles, it remains irrefutable that mobile payments have a role to play in the future of payments. While these

developments will not occur as quickly as many expect, the recent history of consumer technology tells us that forecasting the future is difficult, and markets are prone to move in unexpected directions. Just look back at the biggest story in the payments world in the 1990s and 2000s – the growth of online payments and the emergence of new players such as PayPal. For many in the payments industry this remains a stark example of a missed opportunity and an indicator of what can happen when companies are too slow to capitalize on new technologies.

The only certainty, for now, is that the mobile payments market will continue to evolve and develop in likely surprising ways. However, several

trends and likelihoods are beginning to emerge, and switched-on payments providers should take note.

NFC WILL NOT REACH MATURITY IN 2012 OR 2013

2012 and 2013 do not currently look like the years in which NFC reaches market maturity – not without a clear business model, consumer proposition and means of leapfrogging the many hurdles in its path. However, once NFC is established, it will be a payment force to be reckoned with.

Globally, the immediate opportunity in terms of highly likely NFC adoption remains fairly small at only 1.8% of all consumers

While the market is more likely to see an evolution than a revolution, the landscape will surely be very different in several years' time. 2011, 2012 and 2013 will undoubtedly prove to be critical years in the history of NFC, due to the first signs of an emergence of an NFC payments ecosystem, but the path to full market maturity and gaining consumer and merchant acceptance will be long and difficult.

In light of this, Datamonitor has developed its proprietary NFC Adoption Model. This model shows the likelihood of consumer uptake of NFC if it were launched today, based on analysis of existing patterns of behavior and attitudes to mobile banking. By its very nature, the model cannot incorporate the specifics of a product launch, its usability and design, business model, or marketing spend. Instead, it provides a base line of the likely levels of enthusiasm NFC providers can expect when launching NFC services.

LESS THAN 2% OF CONSUMERS ARE HIGHLY LIKELY TO ADOPT NFC PAYMENTS IMMEDIATELY

Globally, the immediate opportunity in terms of highly likely NFC adoption remains fairly small at only 1.8% of all consumers.

However, while only 1.8% of consumers are highly likely to adopt NFC, a further 12.2% of consumers show at least a medium likelihood of adoption, followed by 31.7% of consumers showing a low likelihood of adoption. In contrast to this, over half of all consumers, at 54.3%, fall into the unlikely category.

So, while there is a large long term opportunity in NFC when the High, Medium, and Low categories are combined, persuading consumers will not be an easy task. With relatively little current behavior to sway them to using this new technology, 98.2% of consumers will need at least some convincing on the merits of NFC. Although an overall majority of consumers currently show no indications of being likely to adopt NFC, this number is likely to decrease with time. With smart phone penetration increasing, alongside growth in mobile banking, contactless payments, and card use at the POS, this share of unlikely consumers will decrease as they become more comfortable with contactless payments, mobile financial services, and eventually, NFC payments.

PAYMENT PROVIDERS NEED A STRATEGY; THE COMPETITION IS ALREADY LOOKING AT NFC

While the initial elements of NFC do not appear to hold the same revolutionary force of online payments, NFC as a technology demands further analysis by issuers and payment schemes.

Consumer internet use is shifting to the mobile space, and mobile smart phone-based services are now seen by many as the next big thing. Even for issuers who remain more skeptical, it is certain that their competitors will be looking at NFC-based mobile payments and figuring out which hand to play.

Existing payments issuers also face a real threat from the emergence of completely new payments schemes or providers. While the mobile network operators are keen to insist that they will become the next PayPals, the most likely threat is going to stem from computing giants such as Apple, Google, Facebook and Microsoft, not to mention new players yet to emerge.

For card issuers, it is more cost effective and strategically sound to look carefully at the NFC landscape and form a strategy now, rather than having to catch up to a competitor once they’ve gained a decisive lead. The need to plan accordingly is key, but issuers will also have to be agile enough to react to whatever else may develop.

DELIVER A HIGH QUALITY SERVICE LATER INSTEAD OF A RUSHED, POOR QUALITY ONE NOW

As with all new technology, there is a risk that issuers and others keen to enter the NFC market may be

overzealous and launch products and services before they are fully thought through or well designed. Key to making a successful foray into NFC will be developing an economically sound business model that provides an adequate use case for consumers, merchants and issuers alike.

Overeager programs that do not have a clear revenue model or provide a sound user experience will fall quickly by the way side, proving costly and acting as a setback to issuers’ future market developments.

SOURCE: DATAMONITOR NFC ADOPTION MODEL

Global likelihood of NFC adoption

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

Glo

bal l

ikel

ihoo

d of

NFC

ado

ptio

n (%

of c

onsu

mer

s)

High likelihood Medium likelihood Low likelihood Unlikely

1.8%

12.2%

31.7%

54.3%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

Glo

bal l

ikel

ihoo

d of

NFC

ado

ptio

n (%

of c

onsu

mer

s)

High likelihood Medium likelihood Low likelihood Unlikely likelihood

1.8%

12.2%

31.7%

54.3%


Existing payments issuers also face a threat from the emergence of completely new payment schemes

Read the report: NFC Payments: Tapping the Future

A non-payments illustration of this is the development of the e-book reader. Initially launched at the turn of the Century, e-book readers were heralded as the future of publishing. However, these early devices were cumbersome, expensive and did not capture the popular imagination. It took a full 10 years for the launch of the iPad and Amazon Kindle to reignite what was seen by many as a moribund market.

Rather than rushing out a lackluster product, a well designed device and service with strong economics has proven more successful in the past, and will do so again in the future.

A COST BENEFIT OF ANY ROLL OUT IS KEY TO LONG TERM VIABILITY

As was the case with NTT DoCoMo in Japan, the cost of rolling out NFC is potentially very expensive. Issuers must be wary of placing too much emphasis on the results without a clear assessment of the benefit they are likely to receive.

From an issuer point of view, NFC primarily makes sense economically if it acts as a replacement to cash. If it serves merely to replace existing card payments from the same issuer, the potential benefits are more limited.

Further, while some trials suggest that consumer expenditure is increased by NFC, this remains a potentially malleable finding that could change when applied to a wider base of consumers. Statistically, the more consumers that use NFC, the higher the likelihood that spend levels will match the average population. Increased spending levels could also prove problematic during a time of widespread economic difficulty across many markets.

The key to maximizing the roll-out of NFC and increasing spending levels is to carefully target consumers who are not only more likely to be interested in NFC, as demonstrated by Datamonitor’s NFC


Adoption Model, but also those who are more likely to be financially lucrative.

NFC MAY BE THE FINAL STEP IN MOBILE PAYMENTS, NOT THE FIRST

Mobile payments remain a wide-ranging concept, ill-defined by many with numerous forms and applications. NFC remains only one of these myriad mobile payment forms.

In the near term, issuers may find that focusing on mobile commerce services could prove not only more cost effective and scalable, but also more likely to gain immediate consumer interest. This strategy is apparently being followed by Visa and indeed PayPal in the mobile commerce space. It is likely to become more prevalent amongst major payment providers in the near term as they launch their own mobile-based digital wallets, ahead of the wider availability of NFC handsets and technology.

In the near term issuers may find that focusing on mobile commerce services could prove more cost effective and scalable

As consumers shift to mobile-based online spending, focusing on immediate mobile commerce and even P2P services rather than longer term NFC deployments has the added benefit of associating the issuer brand with mobile payments. If an app or issuer service is already being used for some forms of mobile payments, it is easier to envisage a smooth transition to NFC payments once the ecosystem becomes more widespread.

To sum up, NFC may be the sexy side of mobile payments – seen by many as the future of payments – but it remains only a future prospect, despite strides being made today. Mobile commerce and P2P transactions, by contrast, are already occurring and in demand. Issuers who ignore what consumers want today are likely to not only miss a current opportunity, but also mislay the foundations for future NFC growth.

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Land of the rising cards Asia is not just a region that is large and growing – it is also the testing ground for the products and services of the future, writes Datamonitor’s Senior Analyst Harry Senlintonga.

REG

ION

AL

FOCU

S: A

sia

Pac

ific


Vietnam

Vietnam4%

Indonesia

Austalia

South Korea

Singapore Japan Hong Kong

Thailand Taiwan New Zealand

India China Malaysia

India

Indonesia

Australia

South KoreaPay Now

Pay Later



China Malaysia8% 11% 23%

96%

23%77%

29%71%

30%70%

31%69%

37%63%

61%39%

43%57%

44%56%

41%59%

92% 89% 77%

Vietnam

Vietnam4%

Indonesia

Austalia

South Korea




India

Indonesia

Australia

South KoreaPay Now

Pay Later




96%

23%77%

29%71%

30%70%

31%69%

37%63%

61%39%

43%57%

44%56%

41%59%

92% 89% 77%

Vietnam

Vietnam4%

Indonesia

Austalia

South Korea




India

Indonesia

Australia

South KoreaPay Now

Pay Later




96%

23%77%

29%71%

30%70%

31%69%

37%63%

61%39%

43%57%

44%56%

41%59%

92% 89% 77%

Vietnam

Vietnam4%

Indonesia

Austalia

South Korea




India

Indonesia

Australia

South KoreaPay Now

Pay Later




96%

23%77%

29%71%

30%70%

31%69%

37%63%

61%39%

43%57%

44%56%

41%59%

92% 89% 77%

Vietnam

Vietnam4%

Indonesia

Austalia

South Korea




India

Indonesia

Australia

South KoreaPay Now

Pay Later




96%

23%77%

29%71%

30%70%

31%69%

37%63%

61%39%

43%57%

44%56%

41%59%

92% 89% 77%

Vietnam

Vietnam4%

Indonesia

Austalia

South Korea




India

Indonesia

Australia

South KoreaPay Now

Pay Later




96%

23%77%

29%71%

30%70%

31%69%

37%63%

61%39%

43%57%

44%56%

41%59%

92% 89% 77%

Vietnam

Vietnam4%

Indonesia

Austalia

South Korea




India

Indonesia

Australia

South KoreaPay Now

Pay Later




96%

23%77%

29%71%

30%70%

31%69%

37%63%

61%39%

43%57%

44%56%

41%59%

92% 89% 77%

Vietnam

Vietnam4%

Indonesia

Austalia

South Korea




India

Indonesia

Australia

South KoreaPay Now

Pay Later




96%

23%77%

29%71%

30%70%

31%69%

37%63%

61%39%

43%57%

44%56%

41%59%

92% 89% 77%

2011

2011

SOURCE: GLOBAL PAYMENT CARD ANALYZER


By Harry SenlintongaSenior Analyst, Cards & Payments

Home to the planet’s two most populous countries, Asia Pacific is already the world’s largest payment card market. Over

half of the world’s payment cards are in the hands of Asian consumers and this trend shows no signs of being reversed. Along with strong growth in the holding and use of payment cards, providers in this region are among the most innovative in the world.

ASIA: GLOBAL PAYMENT CARD POWERHOUSE

Driven by the size and growth of countries such as China, Japan and India, Asia has become the biggest market in the world for payment cards, with over four billion in issue. Asia is not just large in comparison to other regions though – it is huge. At the end of 2010, more than one in two payment cards in the world were held by a consumer living in Asia.

The region is also growing rapidly. In 2010, just under 58% of the world’s payment cards were held in Asia, up from 49% in 2006. What’s more, there is still scope for this growth to become even more rapid.

The total number of payment cards in the region partly reflects the fact that so much of the globe's population is in Asia. However, the number of cards that each of these customers has is far lower than the rest of the world, pointing to strong future growth potential.

At the customer level there are 1.3 cards per person held on average across the 13 Asia Pacific countries Datamonitor tracks in the region*. This is far lower than the Americas, where the average person holds 2.5 cards, but fairly similar to the European average. Predictably, there is a big discrepancy in the level of card ownership between developed and emerging countries in Asia Pacific, reflecting a different level of maturity in their payment infrastructure and economic development.

Japan shows the most impressive card ownership, where the average consumer holds 5.8 plastic cards – the highest level in the world. The country’s advanced payment infrastructure, added to its high level of banking coverage, forms the basis of high card penetration among Japanese consumers.

Vietnam

Vietnam4%

Indonesia

Austalia

South Korea




India

Indonesia

Australia

South KoreaPay Now

Pay Later




96%

23%77%

29%71%

30%70%

31%69%

37%63%

61%39%

43%57%

44%56%

41%59%

92% 89% 77%

Vietnam

Vietnam4%

Indonesia

Austalia

South Korea




India

Indonesia

Australia

South KoreaPay Now

Pay Later




96%

23%77%

29%71%

30%70%

31%69%

37%63%

61%39%

43%57%

44%56%

41%59%

92% 89% 77%

Vietnam

Vietnam4%

Indonesia

Austalia

South Korea




India

Indonesia

Australia

South KoreaPay Now

Pay Later




96%

23%77%

29%71%

30%70%

31%69%

37%63%

61%39%

43%57%

44%56%

41%59%

92% 89% 77%

Vietnam

Vietnam4%

Indonesia

Austalia

South Korea




India

Indonesia

Australia

South KoreaPay Now

Pay Later




96%

23%77%

29%71%

30%70%

31%69%

37%63%

61%39%

43%57%

44%56%

41%59%

92% 89% 77%

Vietnam

Vietnam4%

Indonesia

Austalia

South Korea




India

Indonesia

Australia

South KoreaPay Now

Pay Later




96%

23%77%

29%71%

30%70%

31%69%

37%63%

61%39%

43%57%

44%56%

41%59%

92% 89% 77%

Vietnam

Vietnam4%

Indonesia

Austalia

South Korea




India

Indonesia

Australia

South KoreaPay Now

Pay Later




96%

23%77%

29%71%

30%70%

31%69%

37%63%

61%39%

43%57%

44%56%

41%59%

92% 89% 77%

Vietnam

Vietnam4%

Indonesia

Austalia

South Korea




India

Indonesia

Australia

South KoreaPay Now

Pay Later




96%

23%77%

29%71%

30%70%

31%69%

37%63%

61%39%

43%57%

44%56%

41%59%

92% 89% 77%

Percentage of Pay Now and Pay Later cards in Asia Pacific * Australia, China, Hong Kong, India, Indonesia, Japan, Malaysia, New Zealand, Singapore, South Korea, Taiwan, Thailand, and Vietnam.

While this does leave little room for growth in that market, it also points to the latent opportunity in the rest of the region if cardholding becomes even half as commonplace as in Japan.

Emerging markets such as China and India have experienced over 20% annual growth over the past five years and this trend shows no sign of slowing. This opportunity – allied to similarly strong growth in markets such as South Korea, Thailand, Malaysia and Vietnam – has become a key motivation for the industry to develop its business in Asia Pacific’s emerging cards markets.

A DEBIT-DRIVEN MARKET TODAY, BUT WILL IT BE CREDIT TOMORROW?

Unlike some of the larger markets in the Americas and Europe, pay now (debit) cards dominate the landscape in Asia, accounting for nearly 80% of all cards. Indeed, in Vietnam, debit cards account for 96% of the market. This is much higher in comparison to other regions (51% in the Americas, 65% in Europe). Given the higher revenue opportunities available on pay later cards, this reliance on debit is both an opportunity and a challenge for issuers.

The big question is, what drives the consumer demand for pay now cards in Asia Pacific? Two factors help explain the trend.

The first is a cultural aversion to debt, which has always been close to financial decisions among Asian consumers. One in four consumers who do not have a credit card in the region stick to other means of payment to avoid debt. This consumer mindset to pay with their own money has become the predominant driver supporting the dominance of debit cards, particularly among older generations. This is reflected through the high gross national savings to GDP ratio among many Asian countries. As an example,

China’s gross national savings account is equal to the size of more than half of the country’s GDP.

Limited eligibility for loans is the other major barrier to credit cards for some consumers. This is a particularly strong reason for consumers in emerging countries, where underbanked and unbanked consumers still account for the largest share of the market and many consumers do not have access to basic banking services. This in turn reflects a cautious approach to credit card lending among many banks.

In contrast, the popularity of pay later cards is high among consumers in more developed countries, such as Hong Kong, Japan, Singapore and South Korea. This indicates that the opportunity to grow pay later cards is there, provided the barriers highlighted above can be overcome.

CUSTOMERS IN ASIA DEMAND BOTH PREMIUM SERVICE AND THE NEWEST TECHNOLOGY

The use of technology in the region is advanced – among consumers and in banks – and this is driving both infrastructure and product development.

In developed markets such as Singapore, Hong Kong and Australia, many card issuers use new technologies such as contactless cards and smart phones to enhance their payment functionalities and at the same time improve the user experience. Technology is used as a tool to differentiate products and services,

and there are examples in most Asia Pacific countries that card issuers and schemes in other regions should take note of.

Last year, Commonwealth Bank of Australia (CBA) introduced Australia’s first NFC payments service through Kaching, a mobile app which allows peer to peer and NFC payments within a single application. The app requires a special case called iCarte, which contains an NFC chip and subsequent secure element to allow wireless data payment transmission between the phone and the NFC reader.

In Singapore, UOB uses mobile phones as a payment platform, launching UOB Mobile, a banking application that enables cardless ATM cash withdrawals and an ‘augmented reality experience’ to show users the latest card promotions and privileges.

THE DESIRE TO ENGAGE WITH TECHNOLOGY HAS DRIVEN PRODUCT SALES ONLINE

The importance of technology to consumers in Asia has had a major impact on the role of the internet in credit card product sales. In 2011, online applications overtook the use of the bank branch, with 35% of new credit cards acquired through the online channel – double the level seen in 2007. In contrast, the popularity of branch applications has decreased over the years, where less than one in three consumers now applies for their credit cards in branch.

Japan and Australia lead the region in terms of the proportion


Japan and Australia lead the region in terms of the proportion of consumers who buy credit cards online

Access the Global Payment Card Analyzer

of consumers who apply for credit cards online, highlighting the greater use of technology in the card space in these countries. In both markets, the internet has moved from being an emerging and high growth channel to being more nuanced, and this is reflected in some of the offerings seen in these countries.

Interestingly, the rate of online applications for Singapore and Hong Kong is less than half of Japan’s, despite their similarity in card and internet penetration. Consumers in both markets are still more likely to visit their branch when applying for payment cards, reflecting a greater desire for face-to-face service.

This desire for high quality service also feeds into the product offerings

themselves. Consumers in Asia don’t just demand a high degree of technological innovation, they also expect high quality product benefits and the level of demand for premium cards is consequently high. In 2011, Datamonitor saw an increasing number of new product launches targeted at affluent consumers in Asia, with credit card issuers in Singapore, India, Hong Kong, and China all offering a number of ultra-premium credit cards.

The top five credit card issuers in Singapore offer multiple products utilizing the Visa Signature and MasterCard World brands, highlighting the aggressiveness of the market when it comes to tapping into opportunities within this consumer segment.

2012: THE ONE TO WATCH

Without a doubt, Asia remains the region to watch in the year ahead.

As a hotbed of technological innovation, we will continue to see new and creative product propositions aimed at Asian consumers, and these ideas and concepts will provide the global cards industry with much food for thought.

In addition, the combination of rapid growth in cardholding and rising wealth will continue to see competitors eyeing up opportunities for issuing partnerships, direct market entry, and strategic acquisitions that will enable them to take a share of this promising region.


COUNTRIES INCLUDED IN THIS ANALYSIS ARE AUSTRALIA, CHINA, INDIA, JAPAN, HONG KONG, SINGAPORE AND SOUTH KOREASOURCE: DATAMONITOR FINANCIAL SERVICES CONSUMER INSIGHT SURVEY 2011

Credit card acquisition channels in Asia Pacific by year

Before 20070%

20%

40%

60%

80%

100%

2007 2008 2009 2010 2011

Other

In a shop or store

By telephone

In a bank branch

By post

Online

Before 20070%

20%

40%

60%

80%

100%

2007 2008 2009 2010 2011

Other

In a shop or store

By telephone

In a bank branch

By post

Online

Start using this interactive online tool through your Get in touch with us for a free live demo – contact [email protected]

http://www.datamonitor.com/kc/fs/sso.asp?system=gpca&url=search1.aspx

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Hey big spender Issuers should not forget the affluent consumer While the global payments industry remains focused on the disruptive threat of mobile payment technology, Datamonitor Practice Leader Kieran Hines reminds card issuers not to neglect innovation for one of the most important consumer segments of all: the affluent.


By Kieran HinesPractice Leader, Financial Services

Targeting the wealthy has always been the easiest way to segment a customer base, and remains one of the most effective.

Almost every issuer in the world has products aimed at rich consumers, and the attraction is clear: big spenders generate big revenues for the issuers that get their products right.

At a time when serving the mass market has proven challenging in many countries, re-evaluating the opportunity among the wealthy has never been more important. As well as generating higher revenues than the mass market, the mix of income streams is weighted towards fees; again offering stability to issuers finding it hard to grow in the current market.

THE AFFLUENT: A HUGE POOL OF BIG SPENDING CONSUMERS

The good news for issuers is that, despite the challenges posed by the global financial crisis, there remains a huge number of affluent consumers to target. Datamonitor considers any consumer with between $50,000 and $1,000,000 in liquid onshore assets to be

Despite the challenges posed by the global financial crisis, there remains a huge number of affluent consumers

Affluent customers across different countries, 2011

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Number of affluent customers Proportion of affluent customers

SOURCE: DATAMONITOR WEALTH MARKETS DATABASE

Premium cards Upgraders and New entrants

SOURCE: DATAMONITOR FINANCIAL SERVICES CONSUMER INSIGHT SURVEY 2011

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UK

Num

ber o

f affl

uent

cus

tom

ers

(mill

ions

)

Prop

ortio

n of

affl

uent

cus

tom

ers

Number of affluent customers Proportion of affluent customers

Russia

Mexico

Brazil

South Africa

Italy

India

Spain

Singapore

Australia

China

Germany

South Korea

UK

Canada

Netherlands

Japan

Sweden

Hong Kong

US

France

Proportion of affluent customers (%)

0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00%

Upgraders

New entrants


in this category and, across the 20 countries featured in our Premium Cards report, there are 240 million affluent consumers (equal to just over 6% of the total population).

While many of these consumers are found in the US, Japan, and China, there are opportunities in every market. Further good news for card issuers is that this pool of wealthy consumers shows no signs of being afraid to hold and use credit cards. Datamonitor’s research into this market reveals that over 89% of affluent customers have a credit or charge card, compared to 70% in the mass market.

Interestingly, this trend is most advanced in Asia Pacific, which

sees some of the highest rates of credit card penetration among the wealthy. To a great degree, this is due to the payment card markets in those countries being highly developed, as well as the extent to which banks in that region already target this segment.

BIG SPENDERS CREATE BIG REVENUES FOR ISSUERS

Unsurprisingly, the big attraction of affluent consumers is that they generate higher revenues than the mass market. At a global level, affluent consumers generate 37% of all revenues to card issuers, despite accounting for only 30% of the cardholder base. To put this in monetary terms, the average

affluent credit card customer generates $204 a year per card in revenue, compared to just over $150 per card in the rest of the market.

There are several factors driving this difference, relating both to the way affluent consumers use their cards and to the products themselves. Naturally, wealthy consumers spend more, generating greater interchange income for issuers as a result. These consumers also typically make more transactions overseas, providing issuers with higher revenues from foreign exchange margins and ATM fees.

Read the report: Premium Cards: Targeting Affluent Consumers


The make-up of credit cards aimed at the affluent also helps drive up revenues. These cards typically have higher interchange rates than mass market products (so provide greater revenue on every transaction made), as well as higher annual fees.

However, there is an additional benefit for issuers targeting this space. While revenues in the mass market are more reliant on revolved balances (which can prove risky in uncertain economic times), affluent consumers spend more and revolve balances less, creating a stable mix of income across a portfolio.

THE UNTAPPED OPPORTUNITY: 11 MILLION AFFLUENT CONSUMERS

So what can issuers do to exploit this opportunity? As with any market, growth can come from two areas: winning existing premium cardholders away from other issuers, and issuing to consumers who are completely new to premium cards.

The first category is potentially the most difficult to penetrate; cardholding in the affluent segment is far higher than the mass market, making it difficult and/or expensive

to win the consumer and then achieve top of wallet position.

Issuers wishing to invest in this customer base will no doubt generate returns if they have the right products, but there are better – and lower cost – opportunities to be had in this space. Right now, there are 11 million affluent consumers who are new either to credit cards or premium credit cards, and it is these Upgraders and New entrants that issuers should be targeting in 2012.

The former is made up of wealthy consumers who have at least

one credit card, but do not have a premium card. This creates a clear opportunity for issuers to up-sell to existing customers, as well as targeting the customers of other issuing banks in the same situation. Based on our 2011 Consumer Insight survey, there are 6.9 million affluent consumers globally in this position.

New entrants are those consumers who, although affluent, do not have a credit card but have indicated they are interested in looking for one in 2012. This is a smaller market but, again, an attractive one. There

are just over 4.1 million affluent consumers in this position this year.

WHAT THESE CUSTOMERS WANT

The type of metal used to brand premium cards might have changed from gold to platinum and to more exotic elements such as palladium over time, but the basic premise of cards for the affluent remains the same: rewards and benefits.

As in the wider consumer goods space, the key to attracting consumers is in offering benefits that can be tailored to fit the needs of the individual, or in having an offering with at least one market-leading benefit.

There are many examples of this kind of approach. One is OCBC in Singapore, which offers cardholders a 50% rebate (up to a value of $2,300) on a business class ticket on any airline, but only if the customer meets certain levels of activity on the card.

Bank of Communications in China has thought more laterally about the transport needs of its customers. Cardholders who have consumed too much alcohol to be able to drive can call upon a driver service to take them and their car safely home.

Providing the benefits and product features that are commonly offered on a card aimed at this segment can be costly for issuers, particularly in a congested marketplace. Nevertheless, rewards and benefits remain the core of an affluent card product and issuers need to keep innovating to maintain and grow their share of this lucrative consumer segment.

Rewards and benefits remain the core of an affluent credit card product and issuers need to keep innovating

KNOWLEDGECENTERAccess the report through your Order online from the Datamonitor Research Store today and receive

an exclusive 20% discount using the promo code: PC-IPS2012

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Moving to its own beatAll eyes are on Brazil as the country’s cards and payments sector continues to foster vibrant growth and innovation, write Mark Storry and Matthew Heaslip of Datamonitor’s Cards & Payments team.

COU

NTR

Y FO

CUS:

Bra

zil

In a difficult global economy, Brazil is rapidly emerging as a rare bright spot of growth and development. The country’s rise economically is also being matched by its rise politically and in the social imagination, as highlighted by its hosting of South America’s first Olympic Games in Rio de Janeiro in

2016 and the FIFA World Cup in 2014.

By Mark Storry Senior Analyst, Cards & Payments

Matthew Heaslip Associate Analyst, Cards & Payments

This rise on so many fronts is being matched by the rapid development and innovation in Brazil’s payments landscape. Poised with a unique environment and, some would say, unique opportunity, Brazil is forging ahead to become a leading powerhouse in 21st Century payments.

BRAZILIAN CARDS ARE BOOMING

The cards market in Brazil rose to an impressive 402 million payment cards in issue by the end of 2010, growing at a compound annual growth rate of 12% between 2006 and 2010. Credit cards beat this already impressive level of growth, increasing at a compound rate of

17% over this same timeframe to reach 176 million cards.

Credit is now gaining pace on debit cards, which grew at a rate of 7% per year between 2006 and 2010 – a rate many developed payments markets can only dream of.

As with any market, however, growth cannot continue indefinitely and is expected to slow in the coming years, even as the wider economy in Brazil continues to develop. The total number of cards is expected to grow at an average of 2.6% per year between 2011 and 2015. Credit cards, meanwhile, will still surge head at 3.9% per year, on average.

The reason for this slowdown is that payment card penetration in Brazil is already the highest in all of Latin America. While only a little over one in two Columbians holds a payment card of any type, and Argentineans hold an average of just over one card per person, Brazil doubles this with an average of over two cards per person.

Growth isn’t just limited to the usual payment card types, however, and Brazil has also witnessed an explosion in prepaid cards. Nearly a quarter of Brazilians already report they have a prepaid card, and this will only rise as the government continues to push prepaid as a means to bring the benefits of

SOURCE: DATAMONITOR GLOBAL PAYMENT CARD ANALYZER

Pay now cards market share in Brazil

Other

HSBC

Caixa Econômica Federal

Itaú Unibanco

Banco do Brasil

Banco Bradesco

Citibank

Santander


financial services to Brazil’s sizeable unbanked and rural populations.

BRAZILIANS ARE DOING IT FOR THEMSELVES

While Brazil is riding a wave of growth in cards, it’s Brazil’s domestic banks that are surfing through these changes. In what is a bit of a shock to many following Brazil’s economic difficulties in the 1990s, the Brazilian banking sector has managed to avoid the fate of other Latin American countries and remains dominated by domestic players.

If we look at the pay now market, for example, Banco do Brasil leads for number of cards in issue, and alongside Banco Bradesco accounts for more than 50% of all cards. Together with Itau and Caixa Economica Federal, the Brazilian issuers account for more than 85% of the market.

If we look at the credit card market, again these are predominantly issued by domestic Brazilian banks. Itaú Unibanco is the largest issuer followed by Banco Bradesco, with the state owned Banco do Brasil in

third place. The largest four issuers are responsible for around 60% of all credit cards, while the big international banks are responsible for less than 15%.

CIELO IS EMERGING AS A REGIONAL POWERHOUSE IN PAYMENTS

Brazil’s card growth is being driven by local banks, and the country's growing stature in global payments is highlighted by the fact that the market is home to the fifth largest merchant acquirer in the world, Cielo.

Cielo is Brazil’s largest electronic payments network, traditionally procesing debit and credit card transactions. Cielo began life as VisaNet Brazil and largely processed Visa branded cards, but has since grown into a significantly more entrenched payments player – and it is still growing.

In May 2011, Cielo acquired Braspag, Brazil’s largest online payments processor for BRL 40m, making it a significant player in the online space. Cielo also has ambitious plans in the mobile world, including

Pay later cards market share in Brazil

launching a payment application that turns android enabled phones into Cielo POS terminals, potentially expanding its card acceptance into new territories and markets.

SOURCE: DATAMONITOR GLOBAL PAYMENT CARD ANALYZER

Other Cetelem

Panamericano Banco Bradesco

Banco do Brasil Caixa Econômica

Federal

Santander

HSBC

Itaú Unibanco

Citibank


Elo has significantly lower rates and fees than its major rivals, and is designed to attract and suit Brazil's emerging middle classes

Read the report: Payment Cards in Brazil

FLUSH WITH ITS OWN GROWTH BRAZIL NOW WANTS TO COMPETE WITH GLOBAL SCHEMES

With the growth of its own domestic acquiring giant, the Brazilian market is now seeing the rise of its own payment scheme network. Banco do Brasil, Caixa Econômica Federal, and Banco Bradesco have recently launched the Elo scheme in partnership with Cielo.

The Elo scheme is an attempt to champion a domestic alternative to Visa and MasterCard. However, unlike some regional networks, most notably China UnionPay, Elo will not have a monopoly on the market and will be forced to compete with Visa and MasterCard head to head.

Elo has significantly lower rates and fees than its major rivals, and unlike other international schemes active in Brazil, it’s designed to attract and suit Brazil’s emerging middle classes. Elo is hoping these consumers will see the card as an opportunity to ascend through the social classes, and bring financial services to Brazil’s considerable unbanked population.

The scheme also aims to channel Brazil’s famous patriotic spirit and sense of nationalism among consumers, believing they will choose their domestic scheme over international brands.

However, launching a new scheme is a major undertaking in a globally integrated market, and it remains to be seen if Brazil is overreaching in its bolds intentions with Elo. While the scheme may be trying to trade in on its nationalist ethos, simple economics will be the ultimate decider of its longer term fate.

PREPAID CARDS ARE BEING USED TO TARGET BRAZIL’S UNDERBANKED CONSUMERS

Brazil remains a market with a high level of economic disparity; however, even at the lower end

of the market, the consumer payments landscape is changing. The government is incentivizing the growth of prepaid cards among the unbanked and underbanked. This in turn will facilitate the uptake of other types of cards in a segment that wouldn’t otherwise be familiar with cashless payments.

Bolsa Família is Brazil’s flagship economic development program and is designed to reduce poverty by directly granting money to low income Brazilian families, sending prepaid cards typically to the female head of the household. Depending on the level of household income, these payments may be conditional on some factors such as child school attendance.

Since its launch, the program has been a notable success and an estimated 0.5% of Brazilian GDP is thought to pass through the program each year, while over 20 countries worldwide have launched their own version of the program.

A major concern to the Brazilian government was the distribution of these benefits and ensuring they went to the right people. The government resolved this by deciding to issue the payment via “Citizen’s Cards”. The Citizen’s Card has the additional benefit

of introducing families to banking services and other forms of credit.

These Citizen’s Cards are issued by Caixa Econômica Federal, a state owned bank, in the form of prepaid cards. They can either be used at

stores or holders can go to one of 14,000 Caixa Econômica Federal branches as well as certain other locations such as post offices to withdraw funds.

The Citizen’s Cards have become a major component of Brazil’s payments landscape and have used the potential benefits of prepaid cards to reach what was once a previously unreachable range of consumers. With the program achieving very high profile success, payments players can continue to expect similar programs in other markets.

BRAZIL’S PARTY IS JUST STARTING

Brazil’s growth in the cards market is without doubt a sign of the emergence of a new economic powerhouse. But Brazil’s growth goes deeper than that with implications that will be felt for some time. Brazil’s cards market may be slowing from the astronomic growth of recent years, but it remains far from being mature.

With a strong domestic competitive base at an issuer, processor, and potentially scheme level, not to mention trend-setting in prepaid cards, it looks as if Brazil’s carnival still has plenty of life within it.

The Citizen's Card has the benefit of introducing families to banking services and other forms of credit


This report will be available soon on your Financial Services Knowledge Center and the Datamonitor Research Store. Get in touch with us to find out more at: [email protected]

mailto:[email protected]?subject=Payments%20Cards%20in%20Brazil

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All the articles in this magazine are based on Datamonitor’s latest research into cards and payments. For more information about any of these features, or Datamonitor's Financial Services proposition in general, please get in touch.

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