First Data vows lower fees in entry to Brazil payment market
By Guillermo Parra-Bernal and Aluísio Alves
SAO PAULO (Reuters) - First Data Corp plans to enter Brazil's card payment processing market through lower fees and additional services, a sign that robust demand for plastic money in Latin America's largest economy may not be enough for newcomers to gain market share.
The payment processor, which is controlled by buyout giant KKR & Co, will resort to lower so-called merchant discount rates "without putting market rationality at risk," said Debbie Guerra, head of First Data's Brazil unit. Cielo SA and Itaú Unibanco Holding SA's Rede, Brazil's top-two processors, control more than 90 percent of the market.
"We can be more price-competitive, because we feel that prices practiced here are high in certain segments," Guerra said. First Data teamed up with cooperative lender Banco Cooperativo do Brasil SA for the venture's acquiring platform.
First Data's decision to tap Brazil's buoyant acquiring sector comes as competition heats up and a secular migration from paper to electronic payment gains steam. According to industry group Abecs, the nation's card payment industry has grown an average 19 percent in the past five years, and could expand between 15 percent and 18 percent in coming years.
The venture will enter the $430 billion (£257.6 billion)-a-year market competing in the largest as well as in small- and mid-sized cities in Brazil's most populous states - São Paulo, Rio de Janeiro and Minas Gerais, Guerra said.
Yet, Guerra said winning market share from Cielo, Rede and other incumbents requires more than low prices. Instead, a value-added approach will follow First Data's mandate to transform itself from a pure-play payment processor into a financial technology firm providing cyber-security and data analytics solutions.
Among potential headwinds for incumbents, regulators could end the remaining exclusivity agreements in the sector, dampening future revenue sources. Concern is growing among analysts that tougher competition will push up expenses per transaction.
First Data, which currently has 200 employees in Brazil, could add another 70 staff by year-end, she said.
The goal for First Data is to capture as much as 7 percent of Brazil's market for card payments in five years, Guerra said, adding that "the estimate is a conservative one."
The executive suggested that the focus outside the largest metropolitan centres could accelerate growth. Brazil's card business covers about 30 percent of consumer spending - low compared to global peers, but higher than the rest of Latin America.
In recent years, Citigroup Inc and Banco Santander Brasil SA have also ramped up their acquiring units in Brazil to take advantage of a surge in card payments.
(Editing by Chizu Nomiyama)
