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Brazilian banks Banco do Brasil (BB) and Bradesco (NYSE: BBD) and savings bank Caixa Econômica Federal (CEF) will have plenty of incentives to promote the new Elo card brand, which could turn into a "win-win" situation for all three, Barclays Capital said in a research note.
Last week, it was announced that the three banks were joining forces to launch the new brand, which will comprise credit, debit and prepaid cards. The brand will be controlled by Elo Serviços, in which all three banks have equally divided stakes.
"The creation of such [a] vertical network can prevent additional franchise and processing fees that financial institutions pay to international brands (MasterCard (NYSE: MC) and Visa (NYSE: V) for transmission of payment data like exchanging real-time information between cardholders and their banks on one side, and merchants and their banks on the other," analysts Roberto Attuch and Fabio Zagatti wrote.
For this reason, Barclays considers that "issuer-owners will have big incentives for larger issuances of Elo, in order to compensate the large buildup costs to promote the brand, eliminate fees to international brands, and economically benefit from the initial acceptance at [card acquirer] Cielo only."
BB, Bradesco and CEF estimate that Elo will command a 15% share in the payment card industry by 2015, with a transaction value of 180bn reais (US$112bn). Elo is expected to be launched officially on Monday.