April 27, 2010
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News: Brazil's Two Largest Banks Join Hands
Visa and MasterCard will soon have more competition in Brazil as two of the nation's largest banks partner to form a new credit card company. Each of the two banks Banco do Brasil SA (BBAS3.BR) and Banco Bradesco (BBD, BBDC4.BR), will contribute a portion of their current credit card business to form the new company called Elo Participacoes. Elo is expected to capture an additional 15 percent of the market over the next five years. Marcelo Noronha, Department Manager for Bradesco's card division said the company forecasts that Brazil's credit card market will grow by nearly 60 percent during that time period. Startup assets from the two banks will total over $8.5 billion. Bradesco, Brazil's No. 3 bank, will own 50.01 percent of Elo and Banco do Brasil, Brazil's No. 2 bank will own 49.99 percent of the company.
The joint venture was announced at a time when credit card companies have received a great deal of criticism from its customers because of their abusive practices. According to Brazil's President, Luiz Inacio Lula Da Silva some card companies have imposed fees that are unfair and lack transparency. Brazil's central bank and antitrust authorities have supported the development of a new locally owned credit card company that will target the lower income bracket and individuals who do not already have an account at one of the two banks. Elo is expected to be fully operational within six months and generate over $560 million in earnings within the first five years.
The announcement also comes just after the two banks seized control of Brazil's largest credit card processor, Cielo SA (CIEL3.BR) which should give Elo an easy market access. Elo will manage Cielo along with CBSS SA the company that handles the Visa Vale cards. Visa Vale is Brazil's largest payment network for meal and grocery-related purchases. Cielo and Redecard, Brazil's second largest card processing company together will own 90 percent of card transaction transmission.