The Company
Credit Cards
Our main product is the capture, transmission, processing and settlement of transactions using Visa credit cards. Our income from credit card transactions corresponds to the net merchant discount rate.
In the Brazilian market, credit cards may be used in two ways:
- One-time payment: when the cardholder pays the full amount of the transaction in a single installment to the card issuer and pays the respective bill, on average 26 days, after the date of purchase. We settle these transactions for the merchants, on average, 30 days after the date of purchase; and
- Payment in installments: when the cardholder pays the card issuer the full amount of the transaction in installments. The installments may be made in two ways: (1) with interest-bearing financing, which is granted by the respective card issuer, and whereby the merchant is paid the sale amount in one lump sum, on average 30 days after the date of purchase (“rotating credit”), and (2) with interest-free financing, which is granted by the merchant so that payment for the sale is made in the same number of installments extended to the cardholder; the first of which is settled on average 30 days after the date of purchase (“store installment”).
A credit card transaction is initiated by the merchant by using the electronic capture equipment. After being authorized by the card issuer, and validated by and registered in the Visa International systems, the transaction is completed when the respective receipt is printed.
The settlement process for credit card transactions begins when Visa International sends instructions to the housebanks and to us. We confirm the amount to be settled with each card issuer, which in turn sends credit card bills to the cardholders to charge the amounts they owe. The card issuer transfers the transaction volume to us, net of the interchange fee to which it is entitled. We, in turn, deposit the remaining amount to the merchant, net of the merchant discount rate, in the merchant assigned housebank. The diagram below presents the credit card transaction process.
D: Date of transaction.
D+26: Average date of payment of the credit card bill by the cardholder. This period may be up to 40 days.
D+28: Date of payment of the transaction amount from the card issuer to us, net of the interchange fee.
D+30: Average date of payment of the transaction amount by us to our merchants, net of the merchant discount rate.
The receipt by the merchants of amounts spent by Visa cardholders is backed by a system of guarantees, where the card issuers guarantee us against potential cardholders’ default and we guarantee the merchant against card issuers’ default in case they undergo a Central Bank intervention.
Our system of guarantees takes into account the rating analysis of each card issuer, determined by our card issuer risk committee (Comitê de Risco Emissor). According to the analysis of our issuer risk committee on a case-by-case basis, we may require additional guarantees. Visa International manages the system of guarantees that are required of card issuers in this process and is also the final guarantor of the system and ultimately our guarantor. For further information regarding our card issuer risk committee, click here.
The transaction volume of Visa-branded credit cards in Brazil that we captured and processed reached R$71.2 billion in 2006, R$88.0 billion in 2007, R$110.9 billion in 2008 and R$30.5 billion in the three-month period ended March 31, 2009. There has been an average annual increase of 24.8% over the last three years and an increase of 21.0% compared to the three-month period ended March 31, 2008.
Credit card transactions we captured, processed and settled by one-time payment accounted for 53.2% of the credit card transactions in 2008 and 52.0% of the transactions for the three-month period ended March 31, 2009. Credit card transactions with interest-free installment repayments were 46.8% and 48.0% of this total, respectively.
The interchange fee was increased by Visa International on February 22, 2008 as a result of a new policy implemented by Visa after a negotiation with card issuers and us.
The new rates were based on an independent market study as well as on individual negotiations between Visa International and each of the card issuers and on negotiations between Visa International and us and was prepared in conjunction with an independent entity.
The interchange fee depends on the type of credit card used and the merchant’s industry. Since this change came into effect and until March 31, 2009, there have been no further increases.
It is not possible to predict if or when Visa will increase the interchange fee again or the amount of the increase. For further information, see “Risk Factors - Risks Related to Us and to the Merchant Acquiring and Payment Processing Industry - We depend on the Visa brand, on the number of Visa-branded cards and on the continuation of our license granted by Visa International to maintain our competitive position in the market. In addition, we are subject to policies and rules imposed by Visa International.”
The Brazilian credit card market had more than 124 million credit cards issued and R$215.1 billion in transaction volume in 2008, according to the ABECS. Visa-branded credit and debit cards accounted for R$110.9 billion, or 51.6% of the total transaction volume.
The number of credit card transactions we captured and processed reached 1.7 billion in 2008 and 460.9 million in the three-month period ended March 31, 2009. There has been an average annual increase in transactions of 22.7% over the last three years and an increase of 15.7% compared to the three-month period ended March 31, 2008. None of our clients accounted for more than 0.6% of our revenue in 2008.
Debit Cards
We capture, transmit, process and settle transactions using Visa-branded debit cards, known as “Visa Electron”. Our revenues from debit card transactions correspond to the net merchant discount rate.
In the Brazilian market, debit cards have been replacing checks due to the greater security they provide to merchants, as they require a password and electronic confirmation of cardholders’ data. Debit cards are also convenient for cardholders who do not want to carry checks or cash.
A “Visa Electron” transaction begins at the merchant by the use of electronic capture equipment. The card issuer authorizes the transaction, which is completed when a receipt is printed. The transaction is settled one business day after it is captured. The diagram below presents the debit card transaction process.
D: Date of the transaction and of the debit of the respective amount on the cardholder’s checking account.
D+1: Date of payment of the transaction amount by the card issuer to us, net of the interchange fee.
D+1: Date of payment of the transaction amount by us to the merchant, net of merchant discount rate.
According to the ABECS, the Brazilian debit card market had more than 217 million debit cards issued and was responsible for R$107.4 billion in volume of transactions in 2008.
The transaction volume of Visa-branded debit cards we captured and processed reached R$39.6 billion in 2006, R$48.5 billion in 2007, R$64.7 billion in 2008 and R$17.2 billion in the three-month period ended March 31, 2009. There has been an average annual increase of 27.9% over the last three years and an increase 24.7% compared to the three-month period ended March 31, 2008.
The number of debit card transactions we captured and processed reached 1.2 billion in 2008, and 327.6 million in the three-month period ended March 31, 2009. There has been an average annual increase of 21.4% over the last three years and an increase of 20.0% compared to the three-month period ended March 31, 2008.
Rental of Electronic Capture Equipment
The POS electronic capture equipment and some of the PIN pads linked to the point-of-sale, or PDV, we own are rented to the merchants. We provide a variety of electronic capture equipment, including:
- POS desktop electronic capture equipment;
- POS wireless electronic capture equipment; and
- PIN pad, which is used to read credit and debit cards. PIN Pads are integrated with computer and PDV networks for use with electronic funds transfer, or EFT, normally used by large retail networks or merchants with a high number of transactions.
POS electronic capture equipment
The POS electronic capture equipment captures transactions made by all types of Visa cards.
As of March 31, 2009, we had 1,310 thousand units of POS electronic capture equipment in our electronic capture equipment base (an increase of 34.0% compared to March 31, 2008). We had a POS electronic capture equipment base of 1,362 thousand, 1,060 thousand and 886 thousand as of December 31, 2008, 2007 and 2006, respectively.
Pin Pad
The PDV, as opposed to the POS electronic capture equipment, may be owned by the merchant. The merchant chooses its model and optional extras depending on its needs and its number of transactions.
A PIN pad is necessary to read and encrypt the transaction and credit and debit card data from the PDVs. We have invested in PIN pads as part of our efforts to improve the security of the whole capturing network.
Other Products and Services
- Co-branded private label cards
- Prepayment of Receivables
- CDC Visa Electron
- BNDES
- Correspondent banks
- Mobile phones top-ups
- Cash back or “Troco Fácil”
- Use of the network for prepaid cards
- VCorp
- Promotional platform
- Healthcare Service Provider
Co-branded private label cards
The credit cards known as co-branded private label credit cards are those issued by large retailers aiming at increasing customer loyalty. They have the advantage of being associated with the Visa brand, which enables the cardholders to use their cards throughout our affiliated merchant network. We launched the co-branded private label cards in November 2005. The main Visa co-branded private label card issuers are Boticário, BR Postos, Casas Bahia, Carrefour, Centauro, Dicico, Leader, Livraria Saraiva, Lojas Colombo, Lojas Maia and Porto Seguro.
Currently, various banks issue Visa co-branded private label cards, such as Banco do Brasil, Bradesco, HSBC/Losango, Panamericano, Safra and Unibanco/Fininvest. This product has allowed us to increase our portfolio of card issuers, adding the retail network to our network of card issuers, and has helped us access customers from the lower-income segment, a segment that had previously been poorly explored by card issuers in Brazil.
Our revenues from transactions carried out using co-branded private label cards in merchant stores that are also card issuers, called “on-us transactions,” correspond to a fee paid by the card issuer. The number of co-branded private label card transactions in merchant card issuers’ stores was 13 million in 2008, which represents an increase of 43.0% compared to 2007. In the three-month period ended March 31, 2009, the number of transactions at merchant card issuers’ stores was 2.8 million, which represents an increase of 9.0% compared to the three-month period ended March 31, 2008.
Transactions executed outside the merchant card issuer stores, called “off-us transactions,” are treated like credit card transactions and are recorded as a portion of the total described under “—Credit Cards.” The transaction volume processed using co-branded private label cards using our affiliated merchant network was R$4.1 billion in 2008, which represents an increase of 110.3% compared to 2007. In the three-month period ended March 31, 2009, the transaction volume processed using co-branded private label cards using our affiliated merchant network was R$20.9 million, which represents an increase of 44.1% compared to the three-month period ended March 31, 2008.
Since September 2008, we have offered prepayment of receivables to our network of affiliated merchants that are not subject to lock-in bank domicile services.
A merchant, in order to receive the amounts from the sales carried out with cards and the prepayment of receivables, needs a card issuer to function as its housebanking domicile. Therefore, the merchant will generally agree not to change its housebanking domicile for a certain period.
As an acquirer, we offer the service to the card issuer, upon approval of the merchant, of blocking any transfer of receivables from that merchant to another bank.
Only merchants that are not subject to lock-in bank domicile may receive in advance payments from transactions carried out with Visa credit cards paid in one time or in various installments and payments from debit card transactions. Although we currently believe it would not be necessary to increase the volume of prepayment of receivables, we may study ways to, in the future, stimulate card issuers to unlock merchants (including through the payment to card issuers of part of the commercial discount rate charged from merchants for the prepayment of receivables service).
If the card issuers decide to lock-in our affiliated merchants, we will not be able to offer the prepayment of receivables as we expected and may be adversely and materially affected. For more information, see “Risk Factors—Risks Relating to us and to the Merchant Acquiring and Payment Processing Industry—Our results of operations and strategy may be adversely and materially affected by competition in the Brazilian merchant acquiring and payment processing industry.”
The transaction volume from the prepayment of receivables was R$831.0 million in 2008. In the three-month period ended March 31, 2009, the transaction volume from the prepayment of receivables was R$1.7 billion.
CDC Visa Electron functions like a debit card and consists of a pre-approved credit line by several banks for their checking account holders, aimed at entering into a higher average ticket price segment. Through the use of this line of credit, the cardholder makes its purchases using Visa Electron and pays the amount they owe in installments directly to the card issuer. For the merchant, the CDC Visa Electron works like a debit card transaction since the net amount is deposited in its assigned account one business day after the sale. The transaction volume using CDC Visa Electron was R$359.4 million in 2008 and R$52.0 million in the three-month period ended March 31, 2009.
The CDC Visa Electron Agrocard, a product we developed together with Banco do Brasil, gives rural producers access to a pre-approved line of credit to acquire agricultural products for their businesses. In 2008, 38,100 transactions were captured, representing R$1.5 billion in transaction volume. In the three-month period ended March 31, 2009, we captured 8,500 transactions representing a transaction volume of R$294.5 million.
The Visa BNDES card functions like a debit card and aims at facilitating access to BNDES funds for micro-, small- and medium-sized companies that earn revenues of up to R$60.0 million a year. This card allows the automatic use of pre-approved rotating finance at a reduced cost for investment in services and production inputs and assets.
In 2008, the transaction volume for this product was R$894.4 million. In the three-month period ended March 31, 2009, the transaction volume captured from this product was R$298.9 million.
Through banking correspondents, merchants using the POS electronic capture equipment act like bank branches in receiving accounts and bills for payment, which also may be paid using the Visa Electron card. We believe this product helps activate credit and debit cards and increases the use of cards as a means of payment. In addition, we believe it increases the circulation of cardholders at affiliated merchants’ stores that make this service available, and provide merchants with additional revenue. Transactions made with banking correspondents function like a debit card.
In 2008, we captured 10.0 million transactions from banking correspondents and 3.5 million transactions in the three-month period ended March 31, 2009.
Through this service, cardholders may purchase prepaid mobile phone top-ups using their credit or debit cards at authorized POS electronic capture equipment at affiliated merchants. Our revenues from the purchase of mobile phones top-ups is accounted as a transaction using credit and debit cards, as the top-ups are purchased using credit or debit cards, depending on the case. The main mobile phone operators are already authorized to use the product. We believe this product helps activate credit and debit cards and increase the use of cards as a means of payment. In addition, we believe it increases the circulation of cardholders at affiliated merchants’ stores that make this service available, and provide merchants with an additional revenue.
In 2008, we captured 3.0 million transactions from prepaid cell phone top-ups using electronic capture equipment and 1.3 million transactions in the three-month period ended March 31, 2009. The transaction volume from the prepaid cell phone top-ups was R$71.0 million in 2008 and R$31.4 million in the three-month period ended March 31, 2009.
This product allows Visa Electron cardholders to withdraw cash at the time of purchase at affiliated merchants that are licensed by us to accept this product, such as supermarkets, drugstores and pharmacies. This product, known as “cash back,” is also safer for merchants since it reduces the amount of paper cash in tills. Although this service does not generate direct revenue to us, it helps activate Visa Electron cards. 29,300 of our merchants offered this service in 2008, generating 76,400 cash withdrawals. In the three-month period ended March 31, 2009, 33,700 of our merchants offered this service, generating 68,800 withdrawals.
Use of the network for prepaid cards
We capture, process and transmit data for prepaid cards such as Visa Vale Alimentação and Visa Vale Refeição. In some cases, we are not only responsible for the capture but also for settling transactions using prepaid Visa cards such as Buxx, Visa Gift, Visa Travel Money, Flex Car.
In cases where we only capture, process and transmit data, our revenue corresponds to a fee that varies in accordance with the number of transactions we capture, process and transmit and any support services that we provide. In 2008, our income from transactions using prepaid cards was R$31.5 million, and in the three-month period ended March 31, 2009, our income was R$8.9 million.
In cases where we are responsible for the settlement of transactions, such transactions are treated in the same way as debit card transactions. For more information regarding the treatment of such transactions, see “—Products—Debit cards.”
VCorp is a platform that enables corporate clients to check detailed transaction data related to the purchase of airline tickets via central travel account, or CTA Visa. VCorp speeds up the operational processes of travel agencies that provide services to these corporate clients, and is aimed at optimizing the reconciliation process and the management of these expenses by the card issuers’ corporate clients. It also helps capture part of the billing amount spent by corporate clients at corporate travel agencies. In the end of 2008, a new function that allows data detailing for corporate accommodations paid for using CTA Visa was introduced, complementing the necessary information for the management of business travel expenses.
In 2008, we processed 400,100 transactions for 250 corporate clients. In the three-month period ended March 31, 2009, we processed 51,400 transactions.
The promotional platform is a marketing tool we use at affiliated merchants stores to activate more credit and debit cards, and stimulate their retention and use by cardholders. Through the promotional platform, merchants develop partnerships with card issuers, Visa and us to increase their sales volume. This platform also helps increase the use of Visa-branded chip cards, reinforcing the visibility of the Visa brand and the financial institutions.
The promotional campaigns are based on customers’ purchasing behavior and can also offer rewards based on specific events, such as birthdays, first time use of the card or a special event.
The customer is rewarded with (1) a discount deducted from the purchase price, (2) an electronic coupon stored in a chip on the card to be redeemed later for a prize or discount, or (3) a coupon printed by the sales terminal itself. Customer communication occurs directly at the time of sale through messages printed on the receipt. The promotional platform is available for Visa cards with a chip and some card issuers of Visa cards.
We indirectly hold 41.0% of the capital stock of CBGS. CBGS offers electronic authorization and billing products and services, connecting more than 70 healthcare operators and more than 65,000 service providers, according to the National Healthcare Agency (Agência Nacional de Saúde), or NHA.
The principal activity of CBGS is to provide interconnection services through an electronic network with a unique technological platform in order to facilitate the exchange of information between healthcare operators and medical service providers and hospitals and any other participants of the supplementary healthcare system and pharmacies.
In 2008, CBGS had a net income of R$11.1 million, a 41.4% increase in relation to 2007. In the three-month period ended March 31, 2009, CBGS had a net income of R$3.8 million, a 58.3% increase compared to the three-month period ended March 31, 2008.
