The future of plastics in Latin America

Jeff Wilson

Latin America and Canada group head of technology management/MasterCard

Published  Friday, August 29, 2008

While US credit card spending growth has been weakening so far this year, MasterCard continues to see double-digit growth in markets abroad, which contributed a little over half of its revenues in this year's second quarter.

But as the banking penetration process keeps growing in Latin America, new segments have been given credit or debit cards, leading MasterCard to grow in the region for the eighth consecutive year in 2008.

What is the future of plastics in Latin America? And what is MasterCard doing to turn this to its advantage?

BNamericas spoke with the credit card company's Latin America and Canada group head of technology management, Jeff Wilson, at MasterCard's global technology and operations headquarters in St Louis, Missouri to find out more about these and other issues.

BNamericas: What role does Latin America play in MasterCard's global strategy?

Wilson: Our business model allows us to have a well-balanced revenue base in terms of what the US and the rest of the world represent. We understand that our customers in the US are going through tough times with the economic data that is widely known, but our focus is on helping them make their operations more efficient. We talk with them a lot about risk control and marketing programs.

Outside the US, there are a large number of individuals that do not have access to banking services or in the formal economy and we see a big opportunity for means of payment through the replacement of cash and checks. Latin America is one of the most important regions precisely based on these trends: a young, underbanked population that is quickly adapting to electronic payment.

BNamericas: As Latin America is still in a fast-growing phase, maybe you are not so much focused on providing additional services in the region?

Wilson: We are very much focused on giving value-added services to our customers in the region. Our business model defines us as franchisers, processers and consultants. The latter allows us to help our customers become more efficient and we are strongly focused on penetrating to this level with our customers.

We have a number of services that we will keep offering to our customers in terms of optimizing their portfolios and helping them penetrate new segments, not only on a consumer level but also among merchants to expand their acceptance network.

BNamericas: How can technology help reach new segments?

Wilson: In a number of ways. One of them is scoring, or understanding customers' spending habits and trends in certain segments. We use this information to work with our customers to understand where the opportunities lie to penetrate new segments.

Pre-paid products and the technology behind them are very important in terms of giving a card to non-banked customers. These customers make payments in the informal economy, so pre-paid products are a good way of reaching them. We have a number of pre-paid programs in the region and we believe this trend will continue.

BNamericas: How much could pre-paid products represent of MasterCard's business in the region going forward?

Wilson: I cannot give you specific figures, but I think it is important to say Latin America still offers huge growth potential for credit cards as payments made with checks and cash represent as much as 70% of the total in some countries.

BNamericas: Are you seeing any slowdown in the credit card industry in Latin America or higher risk of defaults?

Wilson: The effects of the crisis worry our customers very much, although it varies from market to market. There are definitely situations in which our customers are reducing their risk and trying to control it more efficiently.

On the other hand, our customers are penetrating new segments, which have allowed us to grow in the region for the eighth consecutive year in 2008.

BNamericas: And you do not foresee any slowdown in that growth?

Wilson: No.

BNamericas: How are you handling increased competition from retailers in the region?

Wilson: We work very closely with the retailer segment. We see them as a key partner in this issue and will keep helping them enter the region's means of payment business. Some of them are also expanding in the region and that is where we can help with our global experience to help them penetrate local markets that are new to them.

We also have 24 pilots in Latin America that use our contactless technology and we are also innovating in other technologies such as mobile, where we also have pilots in the region, but I cannot go into further detail. We believe that these new businesses - along with pre-paid cards - will work as a sole offer for customers.

Customers will increasingly be in charge of deciding which type of payment they will use and technology will adapt itself to offer them new products.

BNamericas: Where do you see stronger growth potential coming from?

Wilson: We have seen increased usage and growth in the debit area. That is what consumers choose and as segmentation keeps expanding, there are more customers going into the means of payment economy. Credit will surely continue to be important but that again will be in the hands of customers and depend on countries' economic variables and the nature of consumer spending.

ABOUT THE COMPANY:MasterCard's 2Q08 gross dollar volume in Latin America rose 26.5% to US$47bn, or 17.4% in local currency terms compared to the same quarter 2007.

The number of MasterCard-branded cards in circulation in Latin America increased 16.3% to 106mn at end-June compared to the same time 2007.