Fee overhaul needed to spur competition in Brazil card sector

By Guillermo Parra-Bernal and Aluísio Alves SAO PAULO (Reuters) - Efforts by Brazil's central bank to foster competition among card payment processors may fall short unless the industry's fee structure and practice of allowing card holders to pay in installments and without interest are overhauled, processor First Data Corp's country head said. The central bank, which became the industry's watchdog last year, may soon announce new rules governing the sector. Some may include an end to exclusivity agreements between networks and processors and shorter payment terms for retailers. Debbie Guerra, First Data Corp's [KOHLBF.UL] president in Brazil, said the new framework should stimulate competition in a market where three bank-controlled processors carry out 95 percent of transactions. Yet much needs to be done to preserve newcomers, improve service and promote sustainable growth in the long run, she said. A flagging economy, greater market saturation and rising household debt are slowing the expansion of Brazil's $400 billion card industry. Transaction volumes rose an average 20 percent annually since 2006. "Conditions could be equal for everyone if most changes were implemented," Guerra said late on Tuesday. "But the complexity of certain industry features makes it difficult to enact far-reaching modifications." On the end of exclusivity agreements, the central bank has yet to decide whether processors may end up settling payments from all networks, and how. Two models for the capturing of transactions are being considered: a fixed-fee known as VAN or a merchant discount rate-based system known as full acquiring. If the central bank chose VAN, it must make sure that processors try not to offset any potential revenue losses, she said. The central bank has repeatedly suggested that full acquiring seems a more stable business model for the industry, and Guerra sees competition gaining steam next year if this model is chosen. An end to interest-free installments, a Brazil-only feature in which retailers finance buyers but which leads to high borrowing costs and defaults, is unlikely in the short term because the system is deeply rooted among consumers and its dismantling could weigh down a profitable practice of receivables discounting among processors, retailers and banks, she said. A system similar to that of developed markets would be suitable, as the absence of interest-free installments could be offset by significantly lower rates charged on card holders, she added. (Editing by Matthew Lewis)