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CREDIT CARDS AND FINANCING IN BRAZIL:
WIDESPREAD USE OF INSTALLMENT BUYING
By David Lafuerza
Analysis and development of international
markets
www.emarketservices.com
May 2013
e-Business
Issue
Summary
A key feature of the Brazilian market is the population´s ever-expanding consumption of
goods, which has also led to the increased use of credit and debit cards as a payment
option. There is a new and growing way of using them too: “parcelamento” or installment
buying, at a fixed rate (with or without interest for users).
Subsequent to the general study on payment options in Brazil we did a while back, David
Lafuerza, an international market analyst, now explains in more detail the growing trend in
Brazil in online shopping with installment payments. It is fundamental to understand and
know how to apply them if you want to enter the Brazilian market.
The population of Brazil has become a purely consumer driven society, which is key to its
economic growth. Because of this, the Brazilian retail market´s use of credit and debit cards
as a form of payment is experiencing accelerated growth in this decade. Even with
widespread use (72% of total users), this payment option continues to grow (up 24% in
2011) due to the increased use of debit cards because banks already take on much of the
risk related to high volume credit card transactions. In 2011 debit card and credit card
transactions were equal in number, however the use of credit cards for high priced
purchases nearly doubled the amount moved by credit ($ 201 billion) compared to debit ($
104 billion).
The cards accepted in Brazil are more or less the same as those in the most industrilized
countries: Visa, MasterCard, American Express and Hipercard.
The use of credit and debit cards is widespread in Brazil, but a new way of using them to
buy any product - at a fixed rate (with or without interest for users) - is on the rise.
Installment buying is more and more common in online shopping in Brazil. The movement
came about recently in response to Brazil´s growing economy, the population´s increased
use of banks, and an increase in credit flow that reinforces the consumption of goods and
services. However, despite the fact that installment buying helps revive growth, it also
threatens to overwhelm banks with higher losses when over-extended consumers take on
more debt.
What is “parcelamento”?
Card financing works in a way similar to what we here know as a “línea de descuento”
(invoice discounting). The bank negotiates payment in terms of the total purchase from the
online store, charging a fee or percentage of the same in advance. For the business, the
rate negotiated with the bank to finance the installment payments is between 2 and 6% of
the purchase price. Each bank will negotiate the margin rate for financing purchases
depending on bank/client relationship, its use as far as volume is concerned, installment
payments, etc. The country´s strongest financial institutions are Banco do Brasil, Itaú,
Bradesco, Caixa and BMG, and Spanish bank Santander.
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Even other payment options generally accepted worldwide like Paypal Brazil are adapting
their payment platforms to consumer preferences.
Paypal gives companies that accept its payment method the choice of offering their
customers invoice discounting or installments at no additional cost for them. They can
choose:
•
•
Between 2 and 12 installments
Possibility to discount deferred payments
Costs on this platform are higher than those of banks, and vary between 2 months at 5.5%
and 12 months at 13.5%.
Data from October, 2012 shows that for the first time in the history of the country, more
purchases ($ 113 billion worth) were made using periodic payment plans with fees than by
cash payments with cards ($ 108 billion).
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Turnover (in billons of U.S.dollars)
120
100
80
Turnover (in billions of
US Dollars)
Periodic payments
Cash Payment
113
108
Source: ABECS
How to manage e-commerce installment plans
The use of credit cards in eCommerce is fully instituted. They can be used for cash
payments or in installment buying (with or without interest for users). The number of
installments, (usually up to 12 in big stores and 6 or more in smaller stores; almost always
without extra fees), is arranged with the buyer at the time of purchase. Store sales policy
varies since in some cases the number of installments is already set depending on the
product (the higher the price, the more installments), while in others it is up to the customer.
Likewise, in some cases it is possible to use two different cards to split the cost.
Despite the risk of default or delinquency for the store with this method of payment, it is
thought to be a major source of business because of the high cost of credit in Brazil. Big ecommerce companies have their own finance departments that issue corporate cards, a
well-established payment option.
Anyone who probably has a mortgage on his home, a car loan and a renewable line of
credit with a bank still uses his credit card to the limit, thereby increasing the risk of possible
default or delinquency for the companies. In fact, in August of 2012, the percentage of
unpaid debt reached nearly 28%, while the consumer loan default rate is almost four times
less, and continues to drop from 7.9% in 2009 when it was at its highest following the world
financial crisis.
Conclusions
At any rate, installment buying, which is a big business, is a problem for the Brazilian
government that wants to curtail or eliminate it. The process could take a long time because
banks and credit card companies are currently not behind it, since it generates a lot of
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business for them due to the high cost of credit, which has a direct affect on companies and
the end consumer.
In fact, according to a study by the Consumer Protection Association ProTeste, the average
annual rate of interest on cards in Brazil has reached 323%, nearly six times that of Peru
and Chile that are in second and third place respectively with 55% and 54%. Argentina, with
50% is in fourth place, followed by Mexico with 33.8%, Venezuela with 33% and Colombia
with 29.2%.
The government as well as the country´s largest Banks (Banco Bradesco, Itau Unibanco
Holding SA, Caixa Economica Federal and Banco do Brasil) announced plans to lower rates
on credit cards by half. Although, judging by the figures, we are still looking at rates that are
far higher than other countries, and a source of risk for banks that will try to see that
installment payments for everything do not continue over time.
About the author
In this article by David Lafuerza Bielsa, who did the market research and development for
the e-commerce company Soloporteros (a leading soccer retailer), pinpoints Brazil for its
Latin American headquarters. During his time in Brazil, he had the opportunity to learn
firsthand about widespread and inherent bureaucratic and logistic barriers in the online
industry.
This article describes the small barriers and social factors that should be taken into account
when setting up an e-commerce company, given the huge amount of debt incurred by
Brazilian consumers because of their ability to buy.
Sources
‐
Government of Brazil
‐
Emol.com
-
Brazil´s Association of Credit Card Companies and Services (ABECS)
‐
PayPal Brazil
‐
Consumer Protection Organization (PROTESTE)
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