EMV migration in Latin America promises a healthy growth

EMV migration in Latin America promises a healthy growth

The Latin American banking segment has been experiencing significant growth since 2003, with increasing client base, value and amount of total transactions through the expansion of product portfolios and coverage. In line with these developments, the EMV migration process continued its momentum in 2008, leading the growth in demand for microprocessor cards versus the SIM market in the region. And the market is expected to continue this trend in the short and medium terms until the government segments recover. Additionally, contactless EMV cards are expected to continue sustaining this development in the future, adding convenience not only to consumers, but retailers and other market participants across the value chain.

The Latin American banking segment has been experiencing liquidity excess during 2006 and 2007, driving banks to push their credit offerings including the spontaneous delivery of traditional credit cards to individuals (clients and nonclients) that have not requested a new or an additional credit card. Major retailers, such as Falabella and Wal-Mart, presented similar marketing strategies, offering loyalty and payment cards with almost no requirements to increase their client base.

As a result, the increased demand, the global financial crisis, and strong inflationary pressures came together, with slightly higher default rates in most of the countries in the region at the end of 2007. This impacted a slightly more conservative financial segment in 2008 and 2009, sustained by key financial, fiscal and monetary measures. However, as it is well known, credit cards and consumer spending hold the highest interest rates providing a worthy business case for all market participants.

2009 by Alejandra Etcharran

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EMV migration in Latin America promises a healthy growth

Smart card technology and the benefits of EMV migration are well known in Brazil and Mexico, and increasingly in Venezuela and other countries. These countries alone were responsible for the growing demand for EMV chip-enabled cards in the region during 2007 and 2008, as I pointed out last year during an industry conference where I was invited to support Transtex SA, a multinational company based in Buenos Aires and part of American Banknote Group. The primary audience in this event was focused on the banking and the payment segments. During this event, I announced that EMV chip-enabled cards had a 39.7 percent growth rate in 2007 over the previous year, with demand for 48.2 million new smart cards for the banking segment (Frost & Sullivan).

Banks know that they are bound to face a more challenging credit scenario in 2009. After enjoying strong profit and loans growing well above GDP in all Latin American countries over the last four years, Latin American banks are heading toward a new phase marked by slower loan and credit growth, rising risk, and more restricted commission charges. Higher inflation across the region, together with fierce competition from traditional, and new banks, and non-bank entities, are leading consumers to select and restrict their credit and loan applications, putting emphasis on higher convenience and value-added services.

Thus, smart card technology allows the easy adoption of value-added applications providing higher benefits at lower additional cost. However, the adoption of this highly secure and flexible technology is still news for many banks and consumers. This is, for example, the case for major banks in Central America and the South Cone of the region, which are more focused on maintaining and upgrading their client base, while expanding their capacities with controlled and secure investments. However, the migration of fraud from neighboring countries is a major threat about which most banks still need to be aware. At the same time, momentum for contactless technologies in the region is expected to pick up in the medium term as market participants and consumers overall gain confidence in these revolutionary technologies.

2009 by Alejandra Etcharran

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EMV migration in Latin America promises a healthy growth

In Latin America, it is key for market participants to directly assess the banking segment with the adoption of latest technologies such as smart cards. The chart below summarizes the main factors driving this market in Latin America.

NEW BUSINESS OPPORTUNITIES

REGULATORS Regulatory Framework Transparency Consumer Protection

ISSUERS Differentiation Client Segmentation Value-added Product & Services

CONSUMERS Convenience Security Lower Costs

SMART CARD MARKET PARTICIPANTS Product and Application Development Implementation Assessment

Gemalto (previously Gemplus and Axalto), Sagem Orga, and G&D have historically supported the leading banks in Brazil and Mexico. And, for the last couple of years, new entrants developed an important role in their local markets and beyond, such as the Venezuelan company Inteligensa, and ABnote who has regional headquarters in Brazil. Together, they lead EMV migration in the region.

2009 by Alejandra Etcharran

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EMV migration in Latin America promises a healthy growth

Consumer-centric strategies implemented across the value chain enable market participants to leverage their investments and embrace new business opportunities. The adoption of smart cards will further contribute to a more consumer-focused product and services offering in order to retain and upgrade current customers, while increasing and expanding their client base.

The Latin American banking segment is expected to see healthy growth rates above 40% for the adoption of EMV chip-enabled cards during 2008 and 2009, led by countries such as Brazil, Mexico, Venezuela and other countries such as Peru, Chile and Colombia. With the support of the Smart Card Alliance Latin America and the main smart card market participants in the region, I am working on a more detailed study and analysis of the market developments during 2008, the expected growth rate, and the strategic challenges in the short, medium and long term.

By Alejandra Etcharran Strategic Research Analyst and Market Consultant Latin America Phone: +54-11-5788-2216 Mobile: +54-911-5472-4002 Skype: Alejandrae Email: ae@aemarketconsulting.com

2009 by Alejandra Etcharran

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