Visa Acquirer-Best-Practices Brochure-ENG

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Transcript of Visa Acquirer-Best-Practices Brochure-ENG

1. Insights for the Acquiring Business in Latin America and the Caribbean 2013 2. 2 The recommendations provided by Visa are based on the best practices developed by Visa over time. However, the implementation of any recommendation falls under your responsibility. Accordingly, we suggest that the same be assessed by your business area and legal counsel prior to such implementation. Visa offers no guarantee in regard to its recommendations, nor does Visa or any of its affiliates assume or hold any liability for your actions, errors or omissions or for the decisions you make with respect to any information furnished by Visa or its service providers pursuant to the provisions of this document. Consequently, Visa and its affiliates will not be held liable for any damage or loss that your entity or a third party may sustain by implementing these recommendations. 3. 1 Table of Content Card Market Landscape 3 Card Acceptance in LAC 6 The Merchant Life Cycle 9 Profitability 13 Top 10 Projects of Visa Consulting LAC 21 How can Visa help? 22 Visa and Visa Consulting LAC 22 TABLE OF CONTENT 1 4. 2 5. 3 Card Market Landscape Cash payments continue to be the main means of payment in Latin America and the Caribbean (LAC), with approximately 60% penetration in PCE (Private Consumption Expenditures) (Euromonitor Estimate for 2012 Credit and Debit Cards). However, the amount of card payments has increased dramatically. Spending (in USD) increased by 24% on an annual basis during the years 2005 through 2010, making this region the worlds fastest growing. The scenario continues to be positive, with the prospect of at least 15% growth driven by an emerging middle class and the growing trend toward banking present in these markets (Figure 1). Card Market Landscape Source: Euromonitor Report (Assessing the Payment Landscape in Latin America; September 2011) Figure 1 Banking penetration trend of population over 15 years old 2002 20% 30% 40% 50% 60% 70% 80% 90% 2004 2006 2008 2010 Brazil Chile Argentina Venezuela Colombia Mexico %of15+population 6. 4 Significantly, the countries that have attained higher penetration rates (Brazil, Argentina and Chile) have also made more progress in the card market. This is indicated by penetration in private consumption expenditure, which, in each case, exceeds 20% (figure 2). Besides the banking trend, another key factor, is the number of merchants that accept this type of payment. The expansion of merchant coverage and the management of this activity are developed by acquirers, which in LAC can be card-issuing banks and/or independent acquirers such as Visanet in Guatemala, Peru, Uruguay and Dominican Republic, or Cielo and Rede in Brazil. Irrespective of the corporate structure or purpose of these institutions, three key factors affect the acquiring business by shaping the challenges and opportunities in the region: Card Market Landscape 9%mexico 9%colombia 12%PUERTO RICO 11% peru 22%ARGENTINA 16%VENEZUELA 26% CHILE 25% BRAZIL Source: Euromonitor Merchant Segment Study Estimate for 2012 Credit and Debit Cards Figure 2 Card Spending PCE penetration Banks involvement in acquiring business Profitability Informal economy Issuing banks, like independent acquirers, exert a strong influence in the business and there is a considerable effort to align strategies and priorities. In some markets there is a perception that the acquiring business isnt sufficiently profitable to justify a greater investment or the prioritization of resources. Many merchants lack the necessary business documents and bank relationships. 1 2 3 7. 5 These market dynamics have restricted, to varying degrees, the number of member merchants. Therefore, when compared to developed markets, access to card-accepting merchants is relatively limited in the Region (see Figure 3). This document illustrates some of the best practices, recommendations, profitability challenges and other insights generated over our years of cooperation with acquirers in the region. Given this framework, Visa Consulting has developed a suite of solutions in order to identify business opportunities and promote greater card acceptance in the region. This effort is a part of Visas global acceptance strategy, by means of which it supports acquirers in increasing POS penetration worldwide. (Figure 4). Acceptance penetration HIGHLOW Card Market Landscape Source: Euromonitor 2012 FigurE 3 Number of POS per 100,000 inhabitants Source: Visa Inc., World Fact Book, Global Insight FigurE 4 POS Penetration 1,963 BRAZIL 819 CHILE 391 COLOMBIA 1,005 VENEZUELA 488 MEXICO 2,175 2,514 CANADA US 2,475 france 2,115 UK 3,308 SPAINportugal 2,644 8. 6 Card Acceptance in LAC Despite varying perceptions regarding the degree of card acceptance in the region, there is a consensus that the number of card-accepting merchants in LAC can be expanded. This holds true even in Brazil, where the acquiring business has settled in a more favorable environment. An example of this is evidenced by the a simple merchant category anaylsis. Generally, acquirers use merchant category segmentation and are eager to analyze their opportunities from that perspective. It is indeed one of the most basic analyses that can be made, and yet many acquirers do not perform comprehensive studies from this perspective. The supermarket sector offers a good example. In the United States, 73% of supermarket consumer purchases are made with cards, while in LAC the best case is Brazil with 56%. Others, like Colombia, show figures as low as 11% (Figure 6). Card Acceptance in LAC Source: Euromonitor Merchant Segment Study Estimate for 2012. Figure 6 Card penetration in supermarket spending ARGENTINA 29% V E N E Z UE L A 24% mexico 11% COLOMBIA 11% 73% US 56% brazil 27% PUERTO RICO 33% PERu 32% Chile 9. 7 Two factors account for this effect. The first (which is nearly always taken into account) is that many supermarkets in the LAC region still dont accept cards. Therefore, efforts to include new member merchants are continuously discussed and prioritized. The second factor, which in many cases is disregarded because it is difficult to quantify, is the degree of penetration among merchants that already accept cards. Although some merchants are already members, many consumers prefer to pay in cash. Some studies suggest that, to a greater or lesser extent, this is due to the fact that restricted acceptance leads customers to use more cash and checks in their daily life. This becomes a habit, and consequently the consumer uses his or her card less, even with merchants that already accept this means of payment (Figure 7). Apart from the traditional perspective of considering the additional acquired volume generated by a new member merchant, some acquirers are adopting the concept of spill-over: If acceptance increases, the volume generated by current member merchants will also increase. Despite the fact that this new approach has become more widespread, accounting for larger investments aimed at increasing acceptance, various traditional initiatives can be employed to ensure efficiency, improve service and support acquiring business profitability in the region. Card Acceptance in LAC Source: Visa Quarterly Report 2012 Figure 7 transactions per credit card per year 0000 0000 0000 0000 0000 0000 0000 0000 0000 0000 0000 0000 0000 0000 0000 24 brasil 0000 0000 0000 23 venezuela 0000 0000 0000 28 argentina 0000 0000 0000 39 PUERTO RICO PERu 7 chile 17 mexico 10 colombia 9 10. 8 11. 9 0. Planning These are the processes responsible for defining merchant categories, types of merchants, value proposition, pricing, channels and other factors that will serve as a platform for business expansion. Certainly there is room for improvement in this field, mainly when it comes to the execution of such strategy. Generally, average-to-good planning levels have been found, but acquirers have faced many challenges in order to implement the predefined strategy. This is exemplified by the frequent lack of monitoring of acquired volumes at a merchant level. Even though prices are established according to discount tables based on expected volumes, few acquirers confirm whether their expectations have been met. The Merchant Life Cycle Visa has traditionally supported banks throughout the LAC region with best practices over the life cycle of the issuing business. This initiative has been very successful, bringing forth many benefits in regard to new- customer acquisition, activation, usage and cardholder retention. Based on this experience, Visa Consulting LAC has developed a model for the acquiring business. From the acquirers perspective, the life cycle of a merchant, has been established as follows: The Merchant Life Cycle 0. Planning 1. Affiliation 2. Activation 3. Use 4. Retention 12. 10 1. Affiliation This involves merchant prospecting, negotiation and qualification processes for card acceptance. Once again, there are some affiliation strategies that arent fully beneficial for the merchant from the standpoint of their overall impact on the system. In some cases, many acquirers dont have a list of target merchants defined according to the business potential to serve as a roadmap for sales force efforts. In other cases they merely use the information of their issuing business to identify the merchants their customers use more frequently and then target them with affiliation proposals. This latter approach generates little or no new acceptance, however, because the competition remains limited to the same member merchants. Thus, there is great pressure on business conditions but scarcely any business expansion. The number of new member merchants is equal to the number of lost merchants, and ultimately the overall investment does not lead to business growth. 2. Activation These are activities intended to monitor and maintain merchant activity levels. Surprisingly, none of the analyzed acquirers has been