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Sample Financial Cards and Payments Market Research Report
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Overview
Discover the latest market trends and uncover sources of future market growth for the Financial Cards and Payments industry in Colombia with research from Euromonitor's team of in-country analysts.
Find hidden opportunities in the most current research data available, understand competitive threats with our detailed market analysis, and plan your corporate strategy with our expert qualitative analysis and growth projections.
If you're in the Financial Cards and Payments industry in Colombia, our research will save you time and money while empowering you to make informed, profitable decisions.
The Financial Cards and Payments in Colombia market research report includes:
- Analysis of key supply-side and demand trends
- Historic volumes and values, company and brand market shares
- Five year forecasts of market trends and market growth
- Robust and transparent market research methodology, conducted in-country
Our market research reports answer questions such as:
- What is the market size of Financial Cards and Payments in Colombia?
- What are the major operators and issuers in Colombia?
- How will regulation impact the market?
- What is the current state of emerging payment technologies such as mobile commerce?
Why buy this report?
- Gain competitive intelligence about market leaders
- Track key industry trends, opportunities and threats
- Inform your marketing, brand, strategy and market development, sales and supply functions
Euromonitor’s industry reports, including Financial Cards and Payments in Colombia, originate from our database within our Consumer Finance market share and market size database, Passport, a platform which analyses Consumer Finance in 46 countries and globally.
Sample Analysis
EXECUTIVE SUMMARY
Increase of interest rates to affect credit cards
Banco de la República is likely to present gradual increases to the reference interest rate during 2011 in order to cut the growing inflationary trend. During Q1 2011, the Central Bank increased the reference rate by 0.5 (the former was 3%) percentage points in order to ease the inflation pressure over food. The usury rate also saw an increase due to calculation methodology changes, immediately reflecting in credit card rates. According to market sources, the reference interest rates are likely to end the year over 4.5 percentage points, demonstrating Central Bank’s priority of inflation control. That will inevitably raise the cost of credit cards however, based on the current growing economic dynamic and bancarization momentum, the impact over retail value is likely to be minimum. However, it is likely to make credit card users migrate to debit.
Campaign against fraud led by Asociación Bancaria de Colombia (Asobancaria)
During Q4 2010, Asobancaria launched a campaign called “Juntos contra el Fraude” (Together against Fraud). The aim of the strategy is to raise public awareness of the dangers involved in banking activity and how to prevent being a victim of fraud. It is mainly based on spreading some simple key recommendations that need to be followed by consumers when making transactions throughout the financial system. Human-based fraud (deception, robbery) is still the main type of financial fraud (phishing, ID fraud, card cloning and other electronic methods are still small but growing significantly along with the growth of electronic means users). Since 2010, banks have offered consumers the option of alerting them to cases of suspected fraud through SMS and email alerts. These reactive as well as other proactive actions are part of the security measures promoted by financial institutions to protect consumers.
Electronic transactions boosted
In 2011, the internet remained the most used channel through which transactions are carried out in Colombia. In December 2010, for the first time in Colombia, the volume of internet transactions surpassed branch offices (373 million vs. 336 million in banking offices). According to Superintendencia Financera de Colombia, the total volume of transactions in 2010 was 1.2 billion, of which nearly 30% were performed through the internet. This demonstrated the increasing confidence of the Colombian consumer in the channel. Other channels such as Automated Clearing House (ACH) and mobile phones are also part of the strong growth trend of these electronic means. However, most of the transactions are still non-monetary (consultations and others not implying payments or transfers). In 2010, just 18% of transaction volume via the internet corresponded to monetary transactions. Companies (banks especially) started working hard in 2011 to increase consumer confidence in electronic payments and transfers.
Superfinanciera about to launch specific electronic payments regulation
Superfinanciera continues working on the ruling of the 1328 law of 2009 (Financial reform). It has already ruled about financial consumer protection but still needs to consolidate norms regarding pre-paid cards and mobile banking; categories that have shown strong growth during the review period. Specific regulation for those fast growing categories is expected to be available in 2011. The regulation is expected to cover also electronic and simplified accounts which are already available on the market. The challenge will be to regulate these issues without putting at risk the prevention of money laundry where the Colombian banking regulation is very strong but also to avoid blocking the dynamic growth momentum of the banked population. It is likely to be based on limits of the transaction value favouring the expansion of low value payments among the lower income population.
Good times expected for local financial industry
Financial institutions are expected to continue launching products and services to bring on board the unbanked population. Mobile phones and other electronic channels are likely the most suitable for this purpose. The goal will be involving the unbanked through systems that are not necessarily related with a deeper banking relationships (such as opening a bank account or having a credit card) and most important, simple and free. This will be the first step to discourage the currently extended use of cash and will be the opening gate for a deeper financial relationship. The savings account (with or without a related debit card) proved not to be the most efficient way to reduce the unbanked population rate as money laundry control regulations force banks to strictly screen the applicants making the process cumbersome and expensive for issuers. The challenge of banks and financial institutions will be how to encourage people using systems such as Daviplata from Banco Davivienda to acquire other products.
Lack of financial literacy is impacting the market
According to the Asociación Bancaria de Colombia (Asobancaria -Banking Association of Colombia), a trade association representing major financial companies in Colombia, the information spread to the public by major financial institutions about banking services, costs, benefits and fraud prevention in the system is not enough without comprehensive financial literacy obtained through constant and sustainable financial education. According to Asobancaria, consumers need to use the available information for their own good when choosing the most suitable financial solution. Banks are accompanying the information publishing, especially regarding services delivered and their costs, with campaigns to educate people about personal finances.
Misinformation and lack of literacy is a major part of the problem of the poor public image the banks and other financial players are trying to reverse according to Asobancaria. For many years consumers blamed the banks for the “4 por mil” tax charged on financial transactions made by consumers. The tax was created originally as “2 por mil” in 2000 to save the banks from bankruptcy during the financial crisis generated by the collapse of the mortgages tied to the UPAC index (Unidad de Poder Adquisitivo Constante-Constant Purchasing Power Index) For each COP 1,000 transaction, the bank holds COP4 to be transferred to the Dirección de Impuestos y Aduanas Nacionales (DIAN-National Taxes and Customs Direction). The financial institutions do not keep this tax; they are just intermediaries between the consumer and the government.
Current Impact
The lack of financial literacy is impacting the whole financial cards, payments and consumer lending industry, generating superficial relationships between consumers and financial institutions based on distrust which hampers the reduction of the unbanked population and financial deepening or expansion of financial products and services portfolio in either the recently banked or already banked population. The feeling of discontent among consumers with regard to the perceived abusive position of dominance held by financial institutions is noted in the matrix of the banked population by Asobancaria.
During Q4 2010, 35% of the adult banked population only had a savings account with access to a debit card or a banking book, which is still available in most of the banks and financial entities able to offer and manage this sort of product. Consumers with both debit and credit cards accounted for only 6% of the banked population at the same time and those with additional loans accounted for another 6% demonstrating that there is still growth potential regarding financial cards penetration among the already banked population. Only 1% of the banked population had just a credit card which meant that those cards are certainly highly related with a savings account and to a negligible degree, with a checking account.
Outlook
Banks are expected to continue strengthening their financial education programs targeting both adults and children. Currently, banks such as BanColombia, BBVA and Banco de Bogotá are offering financial education courses to students from private and state schools. The programs are part of their CSR (Corporate Social Responsibility) and compliance with Superfinanciera’s requirements. There are branded course materials already developed by banks to approach students with. Students are encouraged to save and they are taught the basics of money and how to manage it intelligently. It is an important strategy to get loyal clients, as there is not a minimum age for youngsters to have their first financial product. Banks currently offer very attractive products in terms of brand image (cartoon characters and appealing designs for the account stationary) and benefits, e.g. no management fees for debit cards. Examples of those programs are Banconautas from Bancolombia, Cuenta Ahorrito from Banco de Bogotá and Blue from BBVA. The trend is likely to continue growing and positive effects are expected in terms of a growing base of loyal customers with responsible and intelligent use of their financial products.
Future Impact
The future impact of the trend is likely to be positive for financial institutions and consumers. According to the 2010 banked population report from Asobancaria, the rate of minors becoming part of the banked population is growing by more than 10% yearly which implies good growth drivers for products such as debit cards which are directly affected by the trend. Regarding transactions, they are expected to grow in terms of value and volume as those accounts are mainly used as saving mechanisms from early ages, but tend to become transactional when children reach an age when they can use them to make payments and to have some sort of independency related to their expenses and use the money earned or given by parents.
Financial services costs at the centre of controversy
The banked population increased since 2006 after the creation of the Banca de las Oportunidades (Bank of Opportunities) official program, especially due the launch of Corresponsales no Bancarios (CNBs-Non-bank Correspondents) and the Familias en Acción (Families in Action) subsidies program. Despite this, the public image of banks is still poor; exacerbated by the published revenues obtained by the financial institutions during the economic downturn in 2008 and 2009. Those revenues were considered astronomic by common people meanwhile other industries, especially manufacturing, were in crisis.
The fees of banking services charged by financial companies, began being published by the Superintendencia Financiera de Colombia (Superfinanciera-Financial Superintendence of Colombia) (Technical body under the Ministry of Finance and Public Credit, being the supervisory authority for banking business, insurance and pensions) on its website in 2010 and were also published in national newspapers. The aim of the measure is to make readily available the necessary data about services costs for the consumers to make informed decisions regarding their banking needs. The effects were mixed, as it has been considered useful but also revealed that the publicly available information was not being consulted by consumers. Consumers were able to confirm that some costs are high compared with the average spend per transaction (i.e. cash withdrawals and balance consultation in some banks) but that others have no cost to the user. However, the overall impression of banks remains negative.
The dispute between the financial industry and the Finance Minister, Juan Carlos Echeverry, grew after his declaration regarding what he considered “excessive costs” of financial services in Colombia. The declaration was polemic, evidencing the failure of financial institutions to defend their position before the public. The words of the minister increased the already heated tension and served as an incentive for the approval of the regulation being processed by Congress to set limits on the fees of financial services. The public applauded the result and the banks had to fall back and rethink their strategy to successfully approach the public with the aim of making people feel closer to them.
Current Impact
The fees charged by financial institutions decelerate the growth of the banked population; increase cash payments, and promote transactions conducted outside of the banking system. Beside the costs, the complex application screening processes created to fight the money laundry by Superfinanciera, coupled with the complexity of the account creation process, elevate the managing costs of the financial institutions.
Outlook
The Superintendencia Financiera de Colombia (Superfinanciera) will be empowered to set a ceiling on the costs of financial services and products currently offered in Colombia. The congressman who submitted the act stated that this will be another driver to impulse the banked population in Colombia. The products that may be in for more criticism based on the current climate in the financial industry are likely to be the management fees and costs of debit and credit cards, ATM withdrawals, balance consultations and transfers. The costs will have to be revised on a half-yearly basis and the impact on consumers is expected to be very positive, especially in the credit card category which has the highest fees in comparative terms. However, trade associations related to the industry stated that the act will simply discourage institutions from providing or improving some services.
Future Impact
With regard to the law to control the costs of financial services and products approved by Congress in 2011, the future impact of the act is likely to tend to the standardisation of financial costs, reducing those that are at the upper limit and elevating those that are currently below the limit. The current scenario shows great differences and wide ranges between management fees. Many of the high costs, according to trade associations, are due to the banks and other financial institutions transferring the costs incurred when meeting the requirements set out by Superfinanciera for prospect screening in order to prevent money laundry as well as the high reserves that banks have to maintain in order to preserve the system’s robustness, to the consumer. The strict controls implemented to protect the public savings of the local regulation were greatly responsible for the positive behaviour of the system during the financial downturn but also, according to trade sources, the reason for the high rates of unbanked people and low penetration levels of some financial products and services.
With regard to the banks and other financial institutions, the control over the management fees will lead to competition to standardise costs and to move the competition toward new fields such as electronic transactions. Mobile commerce and banking may be offered “free of charge” in order to initiate a banking relationship with formerly unbanked people. The relationship with those new clients is expected to go beyond having free electronic accounts to other products, such as credit cards, and lower costs will promote that. However, it is not likely that a great many consumers will stick with the free products. Banks will have to compete with services in order to get new clients and expand the products and services offered to existing ones.
The niche banks that are currently opening in Colombia (WWB, Finamérica, Bancoomeva, CMR) after the transformation of financing companies and microcredit NGOs will be gradually more significant, but the market conditions will continue to be set by leaders such as Bancolombia, Banco Davivienda and Grupo Aval or the so called “universal banks”. Bigger competitors are likely to come from Brazil (Itau and Banco do Brasil) through acquisitions. The size of those players will definitely impact the trend and conditions of the market over the forecast period.
Banks going mobile to reach more people
In order to spread banking services and payments to a larger group of people, either banked or unbanked, banks are greatly investing in mobile services, financial kiosks and alliances. The mobile banking platform is not new in Colombia being principally informative and transactional for banked people. However, 2011 saw the birth of mobile payments and commerce, whereby the banked population can interact with merchants and unbanked people. Regarding the kiosks, banks are expanding their financial services and payments through cheaper “offices”, such as kiosks and banking trucks, as well as strengthening alliances with other already established services such as electronic lottery terminals, and postal and money transfer offices.
Current Impact
The first step towards expanding the mobile services portfolio was taken in 2011 by Banco Davivienda with Daviplata. The service allows bank clients to transfer money to anyone regardless of whether they hold an account or not, through a mobile phone. Initially, the cash has to be transferred from a Davivienda’s account holder and then it can go to the Daviplata (which works as a virtual wallet) of a consumer with or without an account. Recipients may be able to withdraw cash from ATMs using a PIN code sent to the mobile phone without the need to hold a debit or credit card associated with a bank account. They can also make payments to affiliated companies or to other Daviplatas and nationwide bank transfers to other Daviplatas all through their mobile phones. The service is attractive in a country with high levels of cash usage as its main goal appeared to be money transfers to people to withdraw cash. For that reason the current impact in the financial cards and payments industry in the short term is likely to be driving cash withdrawals and payments, not deepening the financial relationship with already banked people with more products such as loans or financial cards. Few unbanked people are likely to be attracted to acquiring the banks’ charged products and services as there are no clear incentives for them to enter the formal banking system. Transfers between Daviplatas are free. There is a fee for transfers between Davivienda and Daviplata that is charged to the Davivienda account holder. The fee is comparable to the typical debit/credit card management fee.
Banco AV Villas from Grupo Aval was other player that expanded the mobile transaction platform to involve merchants. The bank launched the first m-commerce solution, enabling card holders to pay using a mobile phone. It is quite different than Daviplata as in this case the platform formally includes merchants with POS to use the service as a payment solution. The merchant’s POS sends a text message to the client asking the allowance of the transaction so the account holder just has to approve the payment without having to use a financial card. Meanwhile, AV Villas is likely to positively impact formal merchants and current card holders; Daviplata is likely to be used also for payments to informal merchants without POS, being the first contact of many informal merchants with ATMs.
The kiosks launched by Citibank in high traffic places such as shopping malls are intended to expand the banking services for the current clients and to attract new ones. The screening of new clients still needs to be managed by branded offices making the entrance of potential customers or bancarization through these channels an unfeasible option. This is due to the need to assess clients according to the current official regulations, mainly to avoid money laundering and illegal use of the banks. The banking trucks are another trend used by banks such as AV Villas and Davivienda to take the bank to where the people are. This is commonly used in the case of massive events and commercial fairs where assistants are likely to need some sort of banking service.
Outlook
According to Asobancaria, in 2010 banks already penetrated 97% of the cities and towns in Colombia. It also stated that the banked population growth rate was higher in the last five years than in the whole decade reaching 64% in 2010. According to Ministry of Technology and Communications, there is almost 100% penetration of mobile phones in Colombia in 2010 as there is a cell phone for each inhabitant. Those figures showed that the unbanked, which still represent a high percentage of the population in Colombia, can be reached through the expansion of mobile lines and penetration of banks through branded offices or other means. The unbanked are expected to strongly decline under the influence of fast growing sectors such as mobile communications, brand offices or kiosks and electronic third-party terminals offering banking services nationwide.
Future Impact
According to Superfinanciera official data, mobile transactions value did not surpass 1% of the overall market value and the future impact of the aforementioned mobile banking products and the upcoming services are likely to rapidly make the mobile value of transactions exceed the current percentage over the forecast period. Other banks are likely to launch m-commerce and other mobile transaction services, giving mobile banking a boost over the forecast period.
The mobile phones market was already saturated in 2010, so there is great potential for the development of mobile banking services taking advantage of the current infrastructure and client base. The challenge for market players will be how to attract unbanked mobile phone users to use m-commerce and mobile banking services. The convenience of m-commerce should be accompanied with products such as bank accounts or pre-paid cards, security and adequate infrastructure. The risk of promoting superficial and non-profitable bank clients should be countered via product portfolios with similar features for mobile users. The bank portfolios will consequently have to evolve to serve and attract this massive market.
Regarding the alternative banking channels and other financial services providers, they are likely to grow in the form of branded kiosks, lean offices and electronic terminals through alliances with retailers’ cash registers, money transfer services or the lottery. They will be mainly targeted to serve current and future clients expecting a strong decrease in the unbanked population.
Regulation turns to consumer protection
The financial reform (Law 1328 of 2009) created the framework that rules the relationship between the financial institutions and customers. Major implications of this reform tend to give customers alternatives to protect themselves against unfair practices of financial institutions. The regulation gives privileges to the collective against private interests, giving consumers the tools to initiate group processes in case of a breach of consumer rights and the general good.
Current Impact
The trend will initially impact financial card products, implying a formal contractual relationship with issuers such as debit, credit and store cards. Contracts with the financial consumers are precisely being targeted and are under scrutiny of the regulator. The contacts should be simple, do not include abusive clauses (the so-called “small print”) or parts clearly favouring the interest of the entity to the detriment of the fundamental rights of the consumer. Taking things a step further, consumers are able initiate legal action against financial institutions demanding compensation if there is a breach of fundamental rights no matter that there is a signed contract amid. This implies the consideration of individuals as part of a consumer community with collective rights more than just single clients.
The reform proposed the financial consumer defence office be an independent body in order to effectively protect consumer rights. This starts creating a sense of relief in the financial consumer who is feeling that the protection offices are not another branch of the bank that will work mainly for the interests of the institution. The impact on the financial cards and payments market is initially the revelation of an unmet need to inform consumers about their rights related to the relationship with financial institutions. More information available for the public is likely to improve the current practices related to screening, contracting, and post-sales services, which due to their inflexibility and entity-oriented features, discourage stronger growth of the banked population.
The issue is so important for the industry that Asobancaria recently organised the first financial consumer protection congress where it outlined the recommendations to adopt corporate governance policies to effectively address the current regulation. One of the recommendations of the Superfinanciera was to consider the decisions of the Consumer Protection Head as compulsory within banks, which is a great step towards really bringing the regulation to reality for the good of consumers.
Outlook
The growth of the banked population and the potential of this process are likely to attract more people needing an effective system for them to feel protected; especially if coming from informal systems such as illegal financial pyramid formats, “gota a gota” lending systems and other informal financial products and services. The Superfinanciera stated that this new banked population should be considered by the financial institutions as “little children” that need comprehensive education, accompanying and counselling. Financial institutions cannot just assume that customers will understand and accept the clauses in a contract. If the regulation is effectively applied, it is likely to balance the growth of products such as pre-paid cards (which have fewer requirements) with debit, credit and store cards. Currently, the financial institutions are walking this liberalisation path, to encourage more people to have credit, debit and store cards.
Future Impact
There is still a long path to cover in terms of consumer protection, and first, consumers need to know their rights and that that they cannot be breached regardless of a contract. That is why this trend is clearly related with financial education, which is not only included in the law 1329 of 2009, but in the current national development plan, “Prosperity for All”. The critics in the financial industry argue that the current regulation is very demanding and strict, so some policies such as the anti-money laundering regulations of the government are counter to the growth of banked population processes and liberalisation needed to really apply the consumer-oriented recent regulation.
There are others concerns related with the stability of the overall financial industry. According to trade sources, the current Colombian regulation can be considered stricter than others being in a great manner responsible for the good performance of the economy during the 2008-2009 financial world crisis. The likely liberalisation needed to bring on board more banked people also brings the possibility of affecting the quality of the indicators regarding non-performing loans, especially via card lending which is the most important part of consumer lending. The challenge will then be to reconcile more consumer-oriented policies with the mechanisms to maintain non-performing, if manageable, levels.
Pre-paid cards will be somewhat outside of the trend as there is not a relationship with institutions involving credit. Simplicity will continue being, as it is now, part of the success of the pre-paid cards market in a scenario that is trying to bank people either with more “complicated” products such as debit and credit cards in opposition or complimentary to more simple products, like pre-paid cards. The relaxation of the screening requirements regarding “electronic accounts” are likely to equate and bring closer debit and credit to pre-paid cards which many market sources consider the most effective products to make the banked population grow faster.
Card issuers seeking the limits of the income scale
Credit card issuers are exploring, with more emphasis, both ends of the income scale, looking for either low income people earning the minimum legal monthly wage and a growing class of high-income population to expand their credit card products.
Current Impact
In the low-income end of the scale, banks such as Bancolombia are offering credit cards for people earning the legal minimum monthly wage. Other institutions (banks, microcredit institutions, cooperatives) already offering products (savings accounts and loans) for the low-income population are expected to follow in their footsteps, after the implementation of specific screening policies and procedures. As mentioned, credit cards are the most risky product for banks and financial institutions in terms of non-performing debts. They are following in the footsteps of store cards such as Exito and Codensa which claim more than 90% of their client base is in the low-income group. According to their experience, lower income people can be considered very responsible in terms of instalment payments because they considered the credit as a very valuable asset as it is difficult to obtain and preferable than the “gota a gota” informal lending systems.
At the other end of the spectrum, the growth of cards such as Visa Signature is accompanying the growth of the wealthy population due to the good local economic performance and investment conditions that are bringing more foreign capital which encourages the establishment of new companies in Colombia. Banks such as Davivienda, Helm, HSBC, and Banco de Bogotá already offer these products which due to the exclusive services are targeted at small groups of people that consider the cards a symbol of social status. Of course those particular consumers have the income to have access to the established credit quotas, however, the product is not free of risk, and on the contrary it also needs specific screening processes implemented by the banks to prevent non-performing loans.
Outlook
According to local and foreign social studies, the social inequality in Colombia is one of the highest in Latin America. The gap between the rich and the poor had not narrowed, despite the welfare policies of recent governments. The middle class disposable income has grown but it is still stagnant due to high unemployment and informal employment rates. According to DANE, national stats office, one of every two workers is informal, meaning they are not part of the formal social welfare system and do not receive the benefits of a legal employment contract such as a retirement fund and severance payments, or the support of the employer paying health insurance.
The situation is structural and it is not likely to change dramatically over the forecast period, despite the prosperity-aimed policies of the current government and the goal of reducing the unemployment rates to a single digit figure. In this scenario, products such as financial cards can be a tool for low-income consumers to elevate their way of living through purchasing for the first time or replacing durable goods. Store cards such as Exito and Codensa understood that and most of their clients are from the low income population. Their interest rates and fees are among the highest in the market, but they are giving such population the option to have access to products and services (durables and semi-durables) that will be very difficult to acquire in another way.
Future Impact
Credit cards are now tending to be more accessible to a broader range of consumers; not only middle- and high-income. Despite the rise of the reference interest rates and the usury rates of the central bank reflected on slight rises of personal credit card rates, the interest rates are still considered historically low, attracting consumption through credit cards. However, the consumption growth is likely to be controlled by other interest rate rises by de Central Bank over the forecast period in order to cool down the credit cards outstanding balance and avoid uncontrolled growth of non-performing debt.
Despite of the macroeconomic conditions, the low income population and high income population are expected to continue boosting the value of the credit cards category over the forecast period. In the case of low income; via more transactions with relatively low spend per transaction and for high income, fewer transactions (due the small group) and high spend per transaction. The additional benefits are currently part of the services portfolio of credit cards and have been useful in attracting consumers with specific needs and tastes (travellers, wine lovers, eating out and gourmet food fans) through discounts on several products and services. Added benefits are expected also to fit the needs of the low income population, which are clearly different to other consumer groups. They need, for example, additional services such as microcredit for micro enterprises and discounts and aid for education.
