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Assessing payments systems
in Latin America
An Economist Intelligence Unit white paper
sponsored by Visa International
Assessing payments systems in Latin America
Preface
Assessing payments systems in Latin America is an
Economist Intelligence Unit white paper, sponsored by
Visa International.
● The Economist Intelligence Unit bears sole
responsibility for the content of this report. The
Economist Intelligence Unit’s editorial team
gathered the data, conducted the interviews and
wrote the report. The author of the report is Ken
Waldie. The findings and views expressed in this
report do not necessarily reflect the views of the
sponsor.
● Our research drew on a wide range of published
sources, both government and private sector. In
addition, we conducted in-depth interviews with
government officials and senior executives at a
number of financial services companies in Latin
America. Our thanks are due to all the interviewees
for their time and insights.
May 2005
© The Economist Intelligence Unit 2005
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Assessing payments systems in Latin America
Contents
Executive summary
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Electronic payments systems
Electronic payment products
Conventional payment cards
Smart cards
Stored value cards
Internet-based Payments
Payment systems infrastructure
Clearinghouse systems
Card networks
International comparisons
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Electronic payments systems in Latin America
Polarized distribution of income
Importance of family remittances
Financial sector restructuring
The evolution of payments systems
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Argentina
The financial sector
Governing institutions
Banks
Clearinghouse systems
Electronic payment products
Credit cards
Debit cards
Direct credits and debits
Case study: VAT rebates
Strengths and opportunities
Outlook
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Brazil
The financial sector
Governing institutions
Banks
Clearinghouse systems
Electronic payment products
Credit cards
Debit cards
Smart cards and pre-paid cards
Direct credits and debits
Strengths and opportunities
Case study: Visa Vale
Outlook
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Chile
The financial sector
Governing institutions
Banks
Clearinghouse systems
Electronic payment products
Credit cards
Debit cards
Smart cards and pre-paid ards
Direct credits and debits
Strengths and opportunities
Case study: E-commerce
Outlook
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Assessing payments systems in Latin America
Colombia
The Colombian financial sector
Governing institutions
Banks
Clearinghouse systems
Electronic payment products
Credit cards
Debit cards
Direct credits and debits
Strengths and opportunities
Case study: Family remittances
Outlook
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Venezuela
The Venezuelan financial sector
Governance institutions
Banks
Clearinghouse systems
Electronic payment products
Case study: Entry-level credit cards
Credit cards
Debit cards
Smart cards and pre-paid cards
Strengths and opportunities
Outlook
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Mexico
The financial sector
Governing institutions
Banks
Clearinghouse systems
Electronic payment products
Credit cards
Debit cards
Smart cards and pre-paid cards
Direct credits and debits
Strengths and opportunities
Case study: Vida Bancomer
Outlook
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Conclusion
Benefits to stakeholders
Macroeconomic benefits
Obstacles
Opportunities
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Appendix: Clearinghouse systems
Argentina
Brazil
Chile
Colombia
Mexico
Venezuela
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Assessing payments systems in Latin America
Executive summary
L
atin American electronic payments systems have
been substantially improved over the past several
years, as the underlying financial infrastructure
has been modernised. This has led to greater
penetration of electronic payment products in both
the consumer and business segments. In particular,
debit cards have helped to increase overall banking
penetration, partly because of the growing popularity
of payroll cards and card-based products tailored for
family remittances. Improved risk assessment
systems and innovative new credit card products have
also facilitated the extension of credit to lowerincome consumers and small businesses. The
modernised infrastructure has also led to increased
integration of electronic payment products, such as
links between card products and direct funds
transfers. These improvements have generated
important benefits for all types of stakeholders,
including consumers, merchants, financial
institutions and governments.
Assessing payments systems
In addition to recent financial system modernisations,
Latin American countries share other common
characteristics that have shaped their financial
sectors, including polarised distributions of income
and large volumes of family remittances. Nonetheless,
the availability and effectiveness of particular
electronic payment products varies substantially from
country to country, because of important differences
in the economic, demographic and cultural
environment. What works in one country is not
necessarily appropriate for others.
Electronic payment products currently used in Latin
America include credit and debit cards, as well as chip-
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© The Economist Intelligence Unit 2005
based smart cards that have recently been introduced
in some markets. They also include stored value cards,
such as “electronic purses", as well as Internet-based
payments systems such as direct debits and direct
credits. Electronic payments systems also include the
clearinghouses and other arrangements used to settle
payments among financial institutions.
Clearinghouse systems have undergone significant
modernisation throughout Latin America over the past
several years, leading to reduced systemic risk and
greater clearing and settlement efficiency. These
technological upgrades underlie important
improvements in retail payment products, particularly
card-based and Internet-based products.
Enhancements to these products over the past few
years have resulted in greater convenience and
reduced costs for buyers and sellers as well as
increased security, greater international mobility and
increased economic growth.
This white paper assesses the recent evolution and
current state of the electronic payments systems in six
important financial markets in Latin America. One
chapter for each country describes the payments
systems and products in the market and assesses their
strengths as well as opportunities for further
improvements.
Strengths and opportunities
The modernisation of electronic payments systems has
led to improved efficiency, reduced risks and the
introduction of new and improved products
throughout Latin America. This modernisation process
is still in progress. Opportunities for further
improvements vary from country to country, as the
following examples illustrate.
Assessing payments systems in Latin America
In Brazil, the new National Payments System (SPB)
has already been judged a major success, even though
it is not yet fully implemented. Brazil also has by far
the highest debit card penetration in the region. But
the average value of debit card transactions remains
low, and financial authorities have recognised
remaining opportunities for improving efficiency,
including discouraging the use of cheques and
increasing the inter-operability of the ATM (automatic
teller machine) network.
Mexico provides another example. The country’s
banking sector is now on a solid footing following a
major modernisation of the payments infrastructure
and the introduction of new products, including smart
cards. It has also made substantial progress in
promoting the introduction of payroll debit cards. In
addition, the government has recognised that payroll
cards are used mainly at ATMs, providing cash to fuel
the informal economy, and it is now addressing this
problem.
Outlook
Financial authorities throughout the region have
recognised the need for further expansion of
electronic payments systems, but they face a number
of obstacles in advancing this goal. The hurdles
include low banking penetration, entrenched
consumer habits of using cheques and opportunities
to avoid taxes through the use of cash. Fortunately,
governments and financial institutions have
developed a number of tools for overcoming these
obstacles and steady progress is expected over the
next several years.
Examples of these tools include leading by example
through their own use of electronic payment products,
encouraging or mandating the use of payroll cards,
creating disincentives for cheque use, offering valueadded tax (VAT) discounts and promoting emerging
technologies that support the payments
infrastructure. Combined with increasing consumer
familiarity and comfort with electronic payment
products, such initiatives will allow financial services
providers more fully to exploit the newly modernised
payments infrastructure in order to generate greater
benefits for a larger number of people.
Benefits of electronic payments systems
Throughout the region, benefits from modernised
payments systems have accrued to every type of
stakeholder, whereas economic benefits such as faster
economic growth have accrued to society as a whole.
The improved payments infrastructure is mostly
transparent to consumers, and the immediate benefits
are most apparent to financial institutions and
governments. From the perspective of buyers and
sellers, the benefits are seen mainly in the form of new
and innovative payment products and services,
especially card-based products and online banking.
For customers, the most important benefits are a
wider range of payment options, increased
convenience, greater personal safety and security, and
enhanced financial management capabilities. The
latter feature is particularly important for corporate
users. Many lower-income customers have also gained
access to banking and credit for the first time, as new
products have been introduced.
Merchants have benefited from increased sales by
offering payment options that feature convenience
(debit cards) and liquidity (credit cards). They also
gain secure transaction processing and quick access to
definitive payment, as well as reduced costs and
improved theft and fraud protection.
Banks have benefited through more efficient
payment processing operations, which have lowered
costs and reduced risks. They can also offer new and
innovative products to customers, including entrylevel credit products for previously unbanked lowerincome customers.
Governments — both as providers of services and as
guardians of the public interest — are perhaps the
biggest beneficiaries of the recent payments systems
modernisations. The large reductions in systemic risk
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Assessing payments systems in Latin America
that have been achieved greatly enhance the ability of
central banks to manage national financial systems,
and this tends to improve country risk ratings.
Governments have themselves become major users of
electronic payments systems, increasing their own
efficiency as well as transparency.
Governments have also benefited from the
macroeconomic impacts of electronic payments
systems. The availability of faster, cheaper and safer
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electronic payment products increases the velocity of
money and reduces friction in the economy, driving
faster economic growth. One recent study concluded
that an electronic payments system could potentially
generate a 1% increase in annual real GDP growth.
Electronic payment products have also helped to draw
people and companies into the formal economy and to
capture a larger share of family remittances within the
banking system.
Assessing payments systems in Latin America
Electronic payments systems
T
he need to exchange value is as old as civilisation
itself, and the concept of “money” has evolved
over the millennia. Gold, silver and other
precious objects gave way to paper money backed by
gold at the beginning in the 17th century. Continued
evolution during the 20th century ushered in the
present system where paper currency and bank
account deposits are money because they are backed
by governments. In the context of this history, “plastic
money” and “electronic money” are very recent
innovations.
Credit cards issued by banks and retailers have been
used around the world since the 1950s. Over the
following decade, global credit card organisations like
Visa and MasterCard broadened merchant acceptance
by consolidating brands. This set the stage for the first
electronic payments systems in the early 1970s, which
introduced magnetic-strip credit cards and automated
approval of credit card transactions. The first
automatic teller machines (ATMs) and debit cards
appeared in the 1980s, completing the integration of
paper and plastic money. Credit and debit cards
remain the most important non-cash means of
payment for retail transactions, but other
technologies such as Internet-based direct debits and
credits have appeared over the past few years.
Electronic payments enable novel new products that
move beyond simple payment to support ongoing
relationships with customers.
Electronic payments systems have affected nearly
every sector of the global economy, gradually
expanding from their origins at the retail point of sale
to enable payments by phone or Internet, and to such
diverse applications as pay phones, toll roads and
public transit. Non-commercial entities such as
universities, government agencies and healthcare
facilities are also expanding their use of card-based
payment products.
The growing use of these payments systems has
generated numerous benefits, including convenience
and reduced costs for buyers and sellers, as well as
accelerated economic growth, increased security and
greater international mobility. In spite of predictions
that electronic payments systems would ultimately
lead to a “cashless society”, people around the world
continue to use currency. In fact, plastic cards are
playing a growing role in the cash economy through
ATMs and cash-back terminals, which enable
consumers to carry smaller amounts.
This chapter sets the stage for an assessment of
Latin American electronic payments systems by
describing the types of product in use across the
region. The next chapter identifies a number of unique
characteristics of Latin American countries that shape
the way that payment products are used. Subsequent
chapters assess the payments systems in place in the
major Latin American markets. These chapters provide
a broad overview of the operation of the settlement
systems in each country, but they exclude a number of
technical issues such as central bank liquidity controls
and payment product pricing, which are too complex to
be treated here. The final chapter offers brief
conclusions about the benefits and future development
of electronic payment products in the region.
Electronic payment products
The many different electronic payment products in use
in Latin America can be distinguished both by their
physical format and by the source of the value that
they convey. Payment cards can acquire value from
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Assessing payments systems in Latin America
credit provided by the card issuer, from access to
customer funds on deposit, or from value transferred
from these sources and stored on the card itself. Noncard electronic payment products such as Internetbased transfers enhance the usefulness of card
products by linking them to each other and by
providing new interfaces to financial systems.
Conventional payment cards
Credit and charge cards
The most widely used credit cards are those issued by
banks and other financial institutions under global
brand names established by card organisations. The
leading brands are Visa, MasterCard, American
Express, Discover and Diners Club. Many retailers issue
their own credit cards for use in their stores.
Cards that require the balance to be paid in full
every month are referred to as charge cards, whereas
credit cards extend revolving credit. Either way, cards
with high spending limits convey prestige and are
given distinctive names and often colours. Credit card
products are also differentiated by annual fees, reward
points, promotions and cardholder benefits such as
insurance. Card organisations also compete on the
basis of the breadth of merchant acceptance.
There are a variety of special-purpose credit and
charge cards, including procurement cards used by
corporations and government entities, and incentive
cards. Affinity cards are bank-issued credit cards that
are co-branded by sports teams, universities and other
organisations that receive payments based on card
usage.
Debit cards
With the advent of ATMs, banks issued “client cards” to
allow customers to access their accounts. In many
countries they later formed networks to allow interoperability. Debit cards expand on the ATM function to
provide a direct means of payment to merchants who
are equipped with terminals. There are also prepaid
debit cards that access a separate account that can be
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loaded and reloaded from a bank account over the
Internet. For example, Visa’s Buxx Card is a parentcontrolled prepaid debit card for teenagers. Other
special-purpose debit cards include those used for
payroll and the payment of social security benefits.
Smart cards
The development of smart card technology in the mid1980s enabled the addition of new applications for
payment cards, using a microprocessor or memory
chip embedded in the card. In addition to the
traditional debit and credit functionality, applications
include the ability to make transactions over the
Internet using a smart card reader attached to a
personal computer. The most advanced of these
systems are multi-application Java implementations
that can also download custom applications.
Advantages of these cards compared with magneticstripe cards include robust encrypted security and the
ability to store dynamic data such as purchase details
for advanced customer loyalty systems.
Contactless smart cards
“Contactless” smart cards are widely used for personal
identification and building access, but their use in
payment cards is fairly recent. They operate by
exchanging radio-frequency signals with a nearby
transponder to transfer information. Contactless
stored value cards have been rolled out with
considerable success in a few markets but usually as a
single-purpose card, such as those recently introduced
in Santiago’s transit system. These cards have
particular value for transit systems because they
increase average vehicle speed and reduce fuel
consumption and pollution by shortening the time
that vehicles are stopped. They can also increase
ridership by enabling more flexible pricing schemes.
General-purpose contactless payment cards have
undergone market trials, and in March 2005 Visa and
MasterCard announced an agreement to set a common
standard to ensure inter-operability of their products.
Assessing payments systems in Latin America
Stored value cards
Stored value cards are smart cards that record an
account balance loaded from another payments
system and then deduct purchases from that balance,
without the need for remote validation. This makes
them particularly useful for micro payments where
communications costs are high relative to the value of
the transaction. Instant validation is another benefit.
These cards are often called e-purses, and they can be
either disposable or rechargeable. Disposable cards
are typically single-purpose types such as those used
in pay phones. General-purpose stored value cards can
be recharged from an ATM or similar terminal and
sometimes over the Internet. There are a variety of
special-purpose versions of the stored value card, such
as gift cards and travel cards.
Internet-based payments
The rapid increase in Internet penetration over the
past ten years has enabled a variety of new electronic
payments systems. Bank-issued payment cards that
leveraged existing authorisation/clearing/settlement
systems paved the way for new systems that permit
direct credits and debits between bank accounts in
many markets. When they were first introduced, direct
debits worked only within individual banks and this
limited their use to vendors such as utility companies
that were large enough to maintain accounts at all of
the banks used by their customers. For the same
reason, direct credits were used mainly for regular
receipts such as payroll deposits. New interbank
electronic networks in many markets now allow ad hoc
customer-initiated direct debits and credits that are
either virtually instantaneous or take two to three
days. Nonetheless, card-based payment products
continue to dominate this segment in terms of market
share.
Payments systems infrastructure
The payments clearance systems in use in the major
Latin American markets are described separately for
each country in the following chapters. To avoid
repetition and to clarify terminology, this section
provides an overview of elements that are common to
nearly all systems.
Clearinghouse systems
Every national financial system has a payment clearing
system known as an Automated Clearing House (ACH).
Most countries have at least two of these systems.
Large-Value Transfer Systems (LVTS) process
electronic funds transfers among financial
institutions. Participants must maintain clearing
accounts with their central bank and must take
overnight loans to settle all transactions by the end of
each day. The most modern of these systems is known
as a Real Time Gross Settlement (RTGS) system
because transactions are settled immediately and
individually. Some countries continue to use largevalue net settlement systems where net balances are
settled overnight. This reduces the investment in
technology, but creates a higher level of systemic risk.
Participating institutions communicate, in the main,
using protocols developed by the Society for
Worldwide Interbank Financial Telecommunication
(SWIFT), but some have their own proprietary
interbank systems.
Smaller-value interbank transactions including
both paper (cheques, drafts, money orders and
travellers cheques) and electronic payments (direct
debit and credit) are cleared among a larger number of
participants though an Automated Clearing
Settlement System (ACSS). Most of these systems clear
payment items overnight for next-day settlement.
Some clearinghouse systems allow participants to
“truncate” paper payment instruments, which means
that they make an electronic copy of the cheque
(image and/or optical character recognition) or other
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Assessing payments systems in Latin America
document and store it, using the electronic document
for the clearing process.
Card networks
Credit and debit card payments are authorised, cleared
and settled through proprietary networks maintained
by card organisations or their member financial
institutions. These networks vary widely with the size
of the market and the inter-operability of debit
products among banks. The largest global ATM/debit
card networks are those affiliated with Visa and
MasterCard, which operate in parallel to their credit
card systems.
These are “open schemes” where cards are issued
by multiple competing financial institutions in what is
known as a “four party” system:
● The cardholder is the person or corporation who
uses the payment card to make purchases.
● The issuer is the bank or non-bank financial
corporation that provides the card and collects
payment from the customer.
● The merchant is the business that accepts the card
in payment for purchases.
● The acquirer is the bank that provides the point of
sale (POS) terminal to the merchant and deposits
the funds into the merchant’s account.
The card organisation licenses its brand to the issuer
and the acquirer, and co-ordinates the
approval/clearance/settlement system. Most
settlements ultimately occur through national
clearinghouses, but the global reach of the card
organisation systems means that their products can be
used nearly anywhere in the world. The acquirer
contracts the services of specialised network providers
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to establish the connection between the POS terminal,
the acquirer and the card organisation’s network. For
Internet transactions and other situations where there
is no POS terminal, the merchant’s relationship with
the acquirer may be mediated by a fifth-party credit
card gateway.
Transactions are generally authorised by the issuer
in real time, and are usually settled within 24 hours,
when the acquirer electronically transfers funds to the
issuer, which updates the customer’s account.
Practices differ among national systems, some of
which have separate credit and debit card systems
whereas others use the same processes for both.
International comparisons
The availability and effectiveness of particular
electronic payment products varies substantially from
country to country. This sometimes reflects the
relative efficiency of payments systems, but
differences in the level of concentration of financial
sectors and the size and geographical density of the
market are just as important. Consumer preferences
and cultural traits also play a role. This is just as true
among developed markets as it is among developing
countries.
These kinds of differences confound direct countryto-country comparisons of electronic payments
systems. This means that there is no overall national
system that can be held up as an example for others to
follow. What works in one market is not necessarily
appropriate for others. For this reason, the
assessments of the electronic payments systems in the
countries covered by this white paper are based on
their efficiency and efficacy in meeting local needs and
objectives, and not on comparisons with other
countries.
Assessing payments systems in Latin America
Electronic payments systems in Latin America
T
he electronic payments systems in use in Latin
America have been shaped by the region’s
financial environment. There are substantial
variations from country to country and there are also a
number of common characteristics. The biggest
differences concern demographics, because the
penetration of the banking system depends partly on
the age structure and spending power of the
population. For example, Mexico, Colombia and
Venezuela have younger populations than Brazil, Chile
and Argentina. Per capita income (expressed in
purchasing power parity—PPP—equivalent
international dollars) varies even more sharply across
the Latin American region. In 2004 incomes in the six
countries covered by this white paper ranged from
US$5,790 in Venezuela to US$12,840 in Argentina.
The most common regional characteristics are
discussed in the following sections.
Polarised distribution of income
The region’s most important market characteristic is a
highly polarised distribution of income. A common
measurement of polarisation is the ratio of the shares
of national income received by the top and bottom
quintiles of population. In the US, the top quintile
receives 9.2 times the income of the bottom quintile,
and this is often used as an international benchmark
because the US has the most polarised distribution of
income of the developed countries. Four of the six
countries covered by this white paper, Argentina,
Mexico, Chile and Venezuela, have polarisation ratios
of between 18 and 19, roughly double that of the US.
The other two countries, Colombia and Brazil, have
even higher ratios of 22.9 and 26.4 respectively. By
contrast, only three of the ten developing countries in
GDP
(Per capita GDP international dollars, 2004)
Argentina
12,910
Chile
11,630
Mexico
9,680
Brazil
8,540
Colombia
7,000
Venezuela
5,790
Source: WDI Online
Note: International Dollars are US$ PPP equivalent, as defined by the World Bank
the South-east Asia-Pacific region have ratios higher
than 10, and the highest is Papua New Guinea, with
12.6, according to the World Bank.
These sharp divisions among socioeconomic strata
have major implications for the financial services
sector. In particular, only about one-half of Latin
Americans have any relationship with the banking
system. High illiteracy rates in some countries
compound this problem. Low banking penetration in
turn perpetuates the informal economy, undermining
government efforts to manage the economy and to
collect taxes. It has also hindered the development of
electronic payment products that could improve
efficiency and drive economic growth.
Importance of family remittances
Another distinguishing characteristic of the Latin
American financial environment is the huge inflow of
remittances from family members working in other
countries, mainly the United States. According to
estimates by the Inter-American Development Bank
(IADB), remittances into the region in 2004 exceeded
foreign direct investment (FDI) with inflows of more
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Assessing payments systems in Latin America
Financial sector restructuring
Income distribution
Ratio of highest to lowest quintiles (years vary)
Brazil (2001)
26.4
Colombia (1999)
22.9
Mexico (2000)
19.3
Chile (2000)
18.7
Argentina (2001)
18.1
Venezuela (1998)
17.9
Sources: World Bank, WDI Online
than US$40bn. Remittances have surged since US
regulators allowed financial institutions to accept
foreign identification to open bank accounts, drawing
undocumented workers in the US into the formal
financial system.
The proportion of remittances handled by banks has
been estimated at about 20% for the region as a
whole, about one-half of the share of money transfer
organisations (MTOs). The market is shifting, however,
as Latin American banks introduce new products at the
receiving end. At least in the high-volume markets,
banks are leveraging their broader business lines, ATM
networks, and broader debit and prepaid card base to
provide lower-cost transfers to more locations than
MTOs can offer. Debit and prepaid card products are
the most common bank-provided remittance solution.
This shift is beneficial both to the recipient and to the
economy since a larger share of the remittance
reaches the beneficiary and a larger share of total
remittances is channelled into the formal economy
and into savings. These products are also more
convenient to the beneficiary since they are
automatically reloaded with each remittance.
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Most countries in Latin America, like other emerging
economies, endured severe external and internal
shocks in the late 1990s in the wake of the Mexican
banking crisis of 1994, the Asian financial crisis and
the Russian economic collapse. Severe macroeconomic
imbalances precipitated the collapse of numerous
banks throughout the region, followed by a series of
expensive government bail-outs and takeovers. As the
region’s banking sectors were gradually reprivatised
and consolidated, foreign banking conglomerates
moved in, bringing with them modern technology and
business methods. At the same time, governments put
new legislative and bank supervisory frameworks in
place and orchestrated financial sector structural
reforms. In many cases, reforms were mandated by the
IMF under the terms of international adjustment
assistance initiatives. For these reasons, all of the
countries discussed in this white paper have banking
and payments systems that have been in place for only
five or six years and in many cases reforms are still
ongoing.
The evolution of payments systems
These common features help to explain the evolution
of electronic payments systems in the major Latin
American markets. This evolution is assessed
separately for Argentina, Brazil, Chile, Colombia,
Mexico and Venezuela in the following chapters. While
each country has its own unique needs, strengths and
constraints, the regional characteristics described in
this chapter also play a role in shaping these
countries’ payments solutions.
Assessing payments systems in Latin America
Argentina
A
rgentina has a population of about 39 million.
Nominal GDP reached US$146bn in 2004. Real
growth was 8.8% in 2004, unchanged on the
previous year, but still not enough to restore real GDP
in local currency to 1998 levels, after four years of
decline. Per capita income was US$12,910 in PPP
equivalent international dollars in 2004.
The financial sector
A prolonged recession in 1999, combined with an
overvalued currency, precipitated a severe currency
crisis in late 2001-02 that led to sharply reduced
liquidity, the withdrawal of credit and aggressive
government intervention. The resulting collapse of
incomes has decimated the middle class, which is the
financial sector’s most promising segment. Demand
for credit comes mainly from small and medium-sized
exporting enterprises that have gained from the
peso’s devaluation and have so far grown by taking
advantage of excess capacity and financial expansion
through retained earnings. Since the crisis, financial
markets have been focused on debt restructuring
rather than injecting new capital.
Governing institutions
The Central Bank of the Republic of Argentina (BCRA)
received a new charter in early 2002 to restore its role
of lender of last resort, and the bank filled this
function repeatedly throughout the year. It has also
made numerous changes to the bank supervisory
framework as Argentina adapts to the new financial
environment. The Superintendency of Financial and
Exchange Institutions (SEFyC) is partly independent of
the Central Bank. The government has also acted to
shape the financial sector through other laws, such as
a provision of the Competitiveness Law that restricts
the use of cash to pay commercial invoices.
Banks
The financial crisis of 2001-02 reversed the influx of
foreign banks, which had focused mainly on acquiring
smaller Argentinian banks during the 1990s. When the
BCRA committed itself to guaranteeing the solvency of
private and state domestic banks, they were the
beneficiaries of a reverse flight-to-quality movement
as depositors moved funds to protected banks. Several
foreign financial groups left the country, while others
scaled back their plans for future Argentinian
operations.
By contrast, the largest foreign banks have
signalled their continuing commitment to the market.
They include BSCH, BBVA, Bank Boston, Citibank and
HSBC. It is not possible to specify asset market shares
in the current environment because banks have been
given 60 months to phase in the write-downs they
were forced to take during the crisis. The three largest
banks by far are the state-owned Banco de la Nación
de Argentina, the province-owned Banco de la
Provincia de Buenos Aires and the private Banco de
Galicia. They controlled more than 40% of the assets of
domestic banks as reported by the BCRA in mid-2004.
The penetration of the banking system is estimated at
just under 50% of the population, but only 15.8% has
a current (or checking in American parlance) account.
Clearinghouse systems
Argentina’s system of financial clearinghouses was
substantially reformed in 1997, when the BCRA
established a new framework for private
clearinghouses to modernise the traditional paper-
© The Economist Intelligence Unit 2005
13
Assessing payments systems in Latin America
Argentina
Argentina
Cards in force
(Number of cards per capita)
Debit cards
Credit cards
2000
0.24
0.26
2001
0.27
0.34
2002
0.23
0.34
2003
0.37
0.20
2004
0.38
0.21
Sources: Central Bank of the Argentine Republic, Association of Argentine Banks
driven systems. The Bank also implemented a new
RTGS system, which private clearinghouses are
required to use to settle their current accounts at the
Central Bank. Two large-value and two low-value
clearinghouses were established, and there are also
new systems for clearing and settling ATM and
debit/credit card transactions. (Details of this
modernisation program are provided in the appendix.)
Electronic payment products
Some countries in the region have acted to discourage
the use of cheques, but Argentina’s central bank is
more concerned with driving cash transactions into
the formal economy. The government has promoted
electronic payment products, for example by offering a
value-added tax (VAT) discount for card transactions,
but it also regards an increase in processing speed for
cheques as another tool for reducing the use of cash.
Nonetheless, the popularity of debit cards and
instalment payments using credit cards has
contributed to reduced cheque usage. The number of
cheques per capita fell by one-third from about three
in 2000 to two in 2004, even though the number
rebounded somewhat in 2004, with the loosening of
restrictions on withdrawals.
Credit cards
Credit cards saw widespread use in Argentina prior to
14
© The Economist Intelligence Unit 2005
2001. The number of active cards in force fell by 14%
in 2003 as a result of the 2001-02 financial crisis,
which drove up interest rates, reduced foreign travel
and increased costs for dollar accounts. Credit card
penetration rose slightly in 2004 from 0.196 per capita
to 0.212, and banking officials say that further
improvements will depend on lower interest rates.
The banks issue credit cards from Visa, MasterCard,
Credencial, Cabal, American Express and Carta Franca.
American Express and Diners Club also issue their own
cards, and there are a variety of national and regional
card brands, some of which are issued by non-banks.
Corporate card products such as the Visa Purchasing
card are well developed in Argentina, and their use is
growing because of the sophisticated reporting and
financial controls that are integrated into some of
these products.
There are also a number of retailer cards in the
market. No official statistics are available for credit
card transactions or spending, but observers say that
few cardholders run significant balances because of
the high cost of credit.
Debit cards
Two forces have combined to drive significant growth
in debit card penetration. The first was the gradual
implementation of the 1997 BCRA rule that requires
most payrolls to be done by direct deposit rather than
cash. This rule is now strictly enforced. The second was
the imposition of controls on withdrawals from bank
accounts beginning in December 2001. They created
an incentive for people to maintain multiple bank
accounts and to move money between them with debit
cards. Debit card purchases were also exempt from the
controls, which had the purpose of preventing people
from withdrawing cash from banks and converting it
into dollars. These controls were gradually relaxed and
by April 2003 they were no longer in force. There are
no official data for payment cards in Argentina, but
estimates by the Association of Banks of Argentina
(ABA) and independent analysts indicate that the
Assessing payments systems in Latin America
Argentina
VAT rebates
Latin American countries often have problems with the collection of value-added
taxes (VAT), which are evaded through
unrecorded cash transactions. This is a significant problem in Latin America because
most countries have large informal
economies. Some countries also seek to
promote the use of electronic payment
products to capture their other benefits.
The governments of Colombia and
Argentina have tackled this problem by
working with the banking industry to integrate a VAT discount into card-based transactions to provide an incentive for their
use. In both countries, the discounts are
provided as refunds to cardholders, which
has the advantage of ensuring that VAT
reductions are not absorbed by retailers.
In Colombia, a new law promulgated at
the end of 2003 establishes that every
purchase with VAT rates of 10% and 16% will
receive a two-point discount if they are
processed with a credit or debit card.
Reimbursements are deposited into the
cardholder’s bank account by the end of
March in the year following the purchase.
Beneficiaries must request the refund,
normally by submitting a form provided by
the Credibanco network. But as of the
beginning of 2005, Visa cardholders can
request automatic calculations to be done
on their behalf. The government expects to
refund Ps100bn in 2005.
number of debit cards has continued to grow since the
end of the controls, partly because consumers are now
more familiar with their use. It is expected that debit
card penetration will continue to rise as individuals
and small businesses are drawn into the formal
economy.
Bank-branded debit cards are issued as part of the
standard package of products associated with current
accounts and many savings accounts. Co-branded debit
cards that can be used internationally are also offered.
Both debit cards and credit cards can be used for
recurring payments.
Direct credits and debits
Direct debits have grown in popularity since the
launch of the new “large-value” clearinghouses, which
enable same-day interbank funds transfers, which in
turn has enabled client-to-client transfers. About 90%
of the transactions cleared through the Interbanking
settlement system are inter-company electronic funds
transfers where the funds are technically credited to
the receiving account on the same day, even though
In Argentina, a discount for debit cards
was launched at the time of the corralito (an
official restriction on cash withdrawals from
bank accounts) in 2001, and credit cards
were added in 2003. Cardholders receive a
five-point reduction in the country’s 21%
basic VAT rate for debit card transactions,
and three points for credit card
transactions. There is a separate two-point
reduction for purchases of gasoline.
Reimbursement is monthly, with the amount
credited to the cardholder’s credit card
account or bank account. There are no
publicly available assessments of the
success of this program but industry
observers say that it has played a role in the
large growth in debit card transaction
volumes since 2001.
they may take more than 24 hours to settle. Users of
this system send transfer instructions to Interbanking,
which in turn sends instructions to the debtor bank
using the Electronic Payment Methods (MEP) system.
Consumer use of direct debits has also grown
rapidly even though they can take up to 72 hours. A
driving force is that the postal service is not
considered reliable enough to trust with money, and
the availability of card-based transfers has also
fostered the development of this mode of transfer.
Increasing demand led to the development of
specialised consumer direct debit products, such as
Visa’s Debit Service, which enables recurring payments
using Visa cards or Visa Electron cards. Users can set
up payments by phone and can stop a payment on 24
hours’ notice. Merchants can check available balances
prior to initiating the debit and receive automatic
notification when card numbers change as well as
comprehensive reporting. Another service run by
Banelco, called pagomiscuentas.com, enables anyone
with an ATM card to pay bills on line. RedLink’s Pagos
Link offers similar capabilities.
© The Economist Intelligence Unit 2005
15
Assessing payments systems in Latin America
Argentina
Strengths and opportunities
Leadership from the BCRA, coupled with the
willingness of the banks to invest in infrastructure,
led to a rapid implementation of Argentina’s
modernised payments system, even in the midst of
the currency and financial crisis. As a result, the
country has an electronic payments infrastructure
that is as modern as any in Latin America, even
though the use of cash remains at high levels, and
thousands of companies continue to retain the
services of cash-management firms.
The government has promoted the use of debit and
credit cards by offering tax incentives and by strongly
promoting the use of payroll cards, but it has not acted
to discourage the use of cheques. Instead, it has
focused on promoting both electronic payment
products and cheques as alternatives to cash, in order
to increase participation in the formal economy.
It is difficult, in any event, to assess opportunities
for further improvements in electronic systems when
the banking system is in such disarray. Individual
banks are mostly insolvent and are phasing in over five
years the write-downs of losses resulting from the
asymmetric conversion of dollar-denominated debts
to pesos. Most observers believe that it will be a few
years before the banking system can restore its
traditional intermediation function. Meanwhile, the
banks have started to leverage the modernised
16
© The Economist Intelligence Unit 2005
payments systems to increase their transactional
functions and to begin to rebuild consumer credit
products. Industry experts believe that commercial
credit cards are the segment with the strongest shortterm potential, especially as credit is extended to
small business. Remittance products are also regarded
as a significant opportunity.
Outlook
Financial sector authorities do not anticipate
important changes to the payments systems over the
next few years, except for the implementation of a
cheque imaging system. A new system, which will
eliminate the requirement for “over” cheques to be
physically transported, is in the testing phases now
and will be implemented in 2006. This new facility will
extend the 48-hour clearing time now seen in the
capital, Buenos Aires, to the rest of the country. This
may reduce the use of cash, but it may also impede the
penetration of electronic payment products.
More specifically, the BCRA does not see much room
for improvement in the electronic funds transfer
infrastructure, and it expects usage to increase
gradually over the medium term. As the economic
recovery proceeds, more individuals and companies
that are operating “off the records” will start using the
banking system – some for the first time. Currently, an
estimated 30% of billings by Argentinian service
providers are paid by direct debit.
Assessing payments systems in Latin America
Brazil
B
razil has a population of about 180 million.
Nominal GDP reached US$610bn in 2004, and
real growth was a healthy 5.2%, up from 0.5%
the previous year. Per capita income was US$8,540 in
PPP international dollars in 2004.
In 1993 Brazil launched an aggressive strategy to
bring hyperinflation under control. Part of this strategy
included Plan Real, which established the Real as the
national currency. As a result, consumer price inflation
fell steadily from more than 2,000% in 1994 to 3.2% in
1998. Prices increased by 6.6% in 2004.
The financial sector
Although Brazil is the largest market in South
America, the proportion of bankable households is low
because the country has one of the most polarised
economies in the world. A key challenge for financial
sector firms is to reach the lower socioeconomic
strata. With the government committed to fiscal
surpluses, the drop in public-sector borrowing
requirements will free capital for private investment.
The Brazilian capital market is underdeveloped and a
lack of liquidity tends to make it cyclical. A culture of
credit has not flourished in large part because of very
high lending interest rates that averaged 55% in
2004, among the highest in the world. Consumer price
inflation fell to 6.6% in 2004 and interest rates are
projected to decline gradually over the next several
years.
Governing institutions
The Central Bank of Brazil (BCB) oversees financial
institutions, regulates money markets and plays a
major role in managing the country’s foreignexchange transactions. It is not responsible for
monetary policy, however. This falls under the purview
of the National Monetary Council (CMN), which is the
main policy organ of the Ministry of Finance.
Banks
Brazil’s commercial banks are the most solid in Latin
America and have comfortably withstood the effects of
external shocks. Most of these banks are part of
conglomerates that have emerged from intense
consolidation activity since 2000. Privatisation and
structural change have led to an increase in foreign
participation, and 25% of banking assets are now
owned by foreign entities.
Key reforms since 1998 were the creation of
“multipurpose” banks and the privatisation of stateowned banks. The country’s two largest banks remain
in government hands and no further auctions are
currently scheduled. The number of banks has fallen
from 242 in 1995 to 160 in 2004. The entry of foreign
banks has also helped to modernise the industry and
to put it on a more solid footing. Five of the top ten
private banks were foreign-owned at the end of 2004.
Nonetheless, some smaller foreign financial
institutions reduced their Brazilian exposure in 200203, bringing the year-end 2004 foreign share of assets
down to 24% from 28% at the end of 2002.
The five largest banks hold just over one-half of
Brazil’s banking assets. The two largest banks, Banco
do Brasil and Caixa Econômica Federal, are owned by
the federal government and together hold nearly 27%
of total banking assets. The other three members of
the top five are domestically owned Banco Bradesco,
Banco Itaú and Unibanco. The largest foreign bank is
Banco Santander Central Hispano with 4.5% of total
banking assets at the end of 2004. Brazil has the
© The Economist Intelligence Unit 2005
17
Assessing payments systems in Latin America
Brazil
highest banking penetration in Latin America at
72.2% of the population 2002 and nearly two-thirds
had current accounts.
Clearinghouse systems
Reforms to Brazil’s financial system implemented
following the 1995 banking crisis were primarily aimed
at increasing processing speeds. The focus shifted to
risk management in 2002 with the introduction of the
National Payments System (SPB), which includes a
large-value RTGS settlement system operated by the
Central Bank. The SPB achieves systemic risk reduction
by monitoring Central Bank reserve accounts
throughout the day and by providing a real-time
Reserves Transfer System (STR). Overdrafts to reserve
accounts are no longer allowed, and transaction
clearances are delayed if a bank does not have
sufficient funds.
Since 2002, debit card transactions and withdrawals
from the Banco24Horas ATM network shared by 52
banks have been cleared and settled through a system
operated by Tecnologia Bancária (TecBan). This is a
multilateral net settlement system with final
settlements through the STR. Data from ATMs and
terminals are transmitted through a private
communication network. A smaller network called Rede
Verde-Amerela serves 11 state-owned banks, and is
operated by the state and regional bank association.
Visa and MasterCard transactions were transferred from
COMPE to VisaNet and RedeCard respectively in 2002.
Electronic payment products
Cheques enjoy special status in Brazil and although
they continue to serve as a credit instrument, their use
has gradually fallen. Cheques are broadly accepted in
Brazil because of the strong legal protection they
enjoy, and this makes post-dated cheques an effective
credit tool. Nonetheless, the number of credit and
debit card transactions per capita (13.5) exceeded the
number of cheques issued (11.8) for the first time in
2004, while the value of cheques fell to 61% of GDP,
18
© The Economist Intelligence Unit 2005
half the level of 2002. Even so, the number of cheques
issued in Brazil was 2.1 billion in 2004, down by only
20% from 2000, and they remain the most expensive
payment mechanism. In April 2005 the BCB indicated
that it is considering slowing the settlement times for
cheques under 300 reais to discourage their use.
Credit cards
Credit cards gained widespread popularity in Brazil
following the success of Plan Real in reducing inflation
to sustainable levels. The number of cards in force has
grown rapidly, rising by 88% between 2000 and 2004
to reach 52.5 million. Brazil now has the highest credit
card penetration in the region at 0.293 per capita in
2004. This compares with Chile at 0.166 and is notable
because the latter has a much higher per capita
income.
The major credit card brands are Visa, MasterCard,
American Express and HiperCard. Nearly all banks
issue both Visa and MasterCard products. The banks
offer a wide range of card products, including a variety
of reward point plans and other cardholder benefits,
university affinity cards and combination credit-debit
cards.
Corporate and business cards have gained
momentum over the past two years, although there is
still considerable room for growth as business and
government customers become more familiar with
their benefits.
Debit cards
Debit cards are enormously popular in Brazil, with
penetration of 0.92 per capita in 2003, the most
recent year for which official data are available at the
time of writing. The number of cards in force, the
number of transactions and the volume at the point of
sale each grew by roughly 45% in 2003 alone.
Visa Electron, Redeshop (from Mastercard) and
Cheque Electrônico (from TecBan) are the most
common debit cards in Brazil; MasterCard’s Maestro is
also available. The banks have actively promoted debit
Assessing payments systems in Latin America
Brazil
cards as a means of replacing cheques and as a tool for
reaching out to the unbanked population. Banks
normally provide one of their own debit cards with
each current account, but many affluent customers
prefer globally branded debit cards because they offer
better budget control and lower the risk of fraud. A
variety of special-purpose cards are also available,
including several prepaid incentive and employee
benefit cards.
Brazil
Cards in force
(Number of cards per capita)
Debit cards
Credit cards
2000
0.503
0.164
2001
0.586
0.205
2002
0.654
0.238
2003
0.920
0.269
2004
1.245*
Smart cards and prepaid cards
A number of prepaid cards have been introduced in
Brazil, including Visa Vale (see sidebar), and their use
has grown gradually. Market trials of some smart
credit cards with upgraded security have been carried
out but these cards have encountered challenges.
Observers say that there were problems with retail
staff not knowing how to use the cards, and consumers
did not generally perceive the need for using a PIN
(personal identification number) with a credit card.
Proprietary prepaid cards are used in some telephone
and transit systems.
0.293
Sources: Central Bank of Brazil, Brazilian Federation of Banks, Brazilian Association of Credit Card Companies
* estimate
Brazil
Card transactions
(per capita)
Debit cards
Credit cards
2000
1.21
5.88
2001
1.89
5.96
2002
2.58
6.41
2003
3.74
Direct credits and debits
Brazil modernised its system for direct funds transfer
in 2002 with the introduction of the Electronic Express
Transfer (TED), which enables same-day ad hoc
customer-initiated direct credits. Banks also offer
automatic debit services, but there is currently no
interbank direct debit system, so this is limited mainly
to utility bills and other recurring payments. The banks
have experimented with money transfer systems for
Brazilian expatriates in Japan, but they have not yet
achieved major inroads into this market.
7.27
2004
4.98*
8.47
Sources: Central Bank of Brazil, Brazilian Federation of Banks, Brazilian Association of Credit Card Companies
* estimate
Brazil
Value of card transactions
(% GDP)
Debit cards
Credit cards
2000
0.009
0.046
2001
0.013
0.052
2002
Strengths and opportunities
The National Payments System (SPB) is regarded as a
major success by financial services executives,
especially considering that it is fairly recent and is not
yet fully implemented. The adoption of a modern
payments and settlement framework has reduced
0.016
0.054
2003
0.022
0.056
2004
0.027*
0.058
Sources: Central Bank of Brazil, Brazilian Federation of Banks, Brazilian Association of Credit Card Companies
* estimate
© The Economist Intelligence Unit 2005
19
Assessing payments systems in Latin America
Brazil
Visa Vale
Several of Brazil’s largest banks partnered
with Visa to provide a replacement for paper
vouchers for basic goods and services that
employers provide as a fringe benefit. In
2002 they established a company called be
Brazilian Solutions and Services Company
(CBSS) to issue a prepaid card called Visa
Vale. So far, more than 1.1 million cards
have been issued and CBSS currently
processes 7 million transactions a month.
Under a government program known as
Workers’ Food Program (PAT), employers
receive income tax deductions if they
provide vouchers that employees and their
families can redeem for food. The vouchers
are considered a fringe benefit and are not
taxed as long as they are used for food.
Other countries in the region have similar
programs.
There are a number of problems with
traditional paper-based programs. Vouchers
must be issued every month and, since they
are equivalent to cash, distribution is
expensive and subject to losses. The
merchant must collect vouchers for periodic
reimbursement, and if one is used for less
than face value, a “counter-voucher” must
be issued for the balance. Paper-based
vouchers have become a form of “parallel
money", and a black market has developed
to divert this spending power to nonauthorised purposes, resulting in flagrant
tax evasion.
Refeição Visa Vale and Alimentação Visa
private risks from the interbank system, and has
increased economic efficiency. The banks have already
achieved greater payments agility and cost reductions.
Customers have benefited from better access to their
accounts, as well as new card and Internet-based
payment products, and they are likely to see a
reduction in fees over the next few years, as cost
reductions are passed on.
Governments have also been major beneficiaries of
the modernisation, not just through the broad
benefits to the economy but also through their own
use of electronic payment products. Commercial banks
play a central role in collecting and disbursing
payments on behalf of all three levels of government,
and the new tools implemented since 2002 have given
them the ability to monitor their BCB accounts in real
time, to shorten tax collection lags, and to make faster
payments to beneficiaries at less cost. Card operators
are currently negotiating with the federal government
for an arrangement to accept credit and debit cards for
the payment of income taxes, which can be paid by
direct funds transfer but not with cards.
The banks have innovated to reach out to lower-
20
© The Economist Intelligence Unit 2005
Vale cards can be used in restaurants and
food stores respectively. From the
government’s perspective, they greatly
reduce fraud because they are PIN-based,
they bear the employee’s name, and they
can be cancelled if lost. For the merchant,
there are no more counter-vouchers and
check-out is automated using a normal
terminal, which means prompt payment and
the elimination of the expense of handling
paper vouchers.
Employers benefit too. Banco Bradesco,
a partner in CBSS, also provides the card to
its own employees. Bradesco executives say
there have been substantial reductions in
administrative and operational costs,
because each employee’s Visa Vale account
is re-loaded automatically, and the cards are
issued only once.
income groups. They have recently bought smaller
financial companies and established partnership
arrangements with merchants to create new private
label portfolios. They are also exploring new products
that offer low interest rates because they are
guaranteed by a link to a salary or pension plan. Some
smaller banks have recently launched Visa products
aimed at the retired population. Bradesco has
introduced an instalment-based credit card for
individuals who earn as little as the minimum wage. In
another development aimed at reaching out to the
unbanked, Banco Popular and Banco Postal (owned by
Banco do Brasil and Bradesco/Correios respectively)
are building banking infrastructure and payment
products for more than 4,000 rural municipalities
throughout the interior of Brazil.
The government has taken a series of steps to help
small businesses gain better access to credit, and
medium-sized businesses are likely to emerge as the
field of opportunity for banks. For example, the
government development bank, BNDES, has joined
forces with Bradesco and Banco do Brasil to offer lines
of credit and payment card solutions for small
Assessing payments systems in Latin America
Brazil
businesses that need to buy machinery.
In spite of the improvements, however, some
inefficiencies remain. The migration from cheques to
TED reduced the value of transactions processed by
COMPE by roughly two-thirds. But there was only a 5%
decrease in the number of documents processed,
which include Credit Documents (DOCs) and cheques.
This reflects the fact that the overwhelming majority of
transactions are below 5,000 reais, and are not
handled by the SPB. The priority given to larger
payments was appropriate from a risk-reduction
perspective but COMPE’s costs are now a much higher
proportion of the value that it processes.
The underlying problem is the continuing popularity
of cheques among the public, even for larger
transactions that could be completed using TED. Central
Bank officials say they would like to discourage the use
of cheques, and the bank is now planning another round
of reforms, this time directed at low-value payments. It
has indicated that new measures may include incentives
for interbank co-operation, the standardisation of
communications protocols, truncation of cheques and
the promotion of electronic instruments. Some industry
experts have also suggested increasing the clearance
time for cheques, as was done in Mexico to increase the
use of TEDs and DOCs.
Security has become a bigger issue with debit cards,
as fraudulent use has migrated from credit cards to
debit cards over the past few years. Theft of cardholder
information at the ATM has been identified as the root
problem and the banks are now implementing
stronger fraud controls.
There are also opportunities for improvements in
the efficiency of the ATM network and the terminal
base. In the case of terminals, many merchants are
forced to maintain two systems in order to get around
technological incompatibilities, and there are also
multiple ATM networks. The large banks have
traditionally seen private ATM networks as a
competitive tool, whereas smaller banks have been
more likely to share their networks. In 2003 there were
29 ATM networks operating in the country with more
than 137,000 ATMs, only 38% of which were linked to
an “open” network. A shared network would
substantially reduce costs. For example, at Guarulhos
Airport in São Paulo, there are ten ATMs from six
banks, about double the requirement if a shared
network were available.
Outlook
Income levels that were slashed during the recession
of 1999 will recover gradually. Personal disposable
income is expected to grow by more than an annual
average of 5% over the next few years, pushing up
private consumption and demand for financial
services.
Now that the 2002 reforms have succeeded in
reducing systemic risk, the next steps in the evolution
of payment and settlement systems will be to increase
the efficiency of mid-value transactions, mainly by
encouraging the substitution of electronic payment
products for cheques. Financial system authorities,
bank executives and other observers say that the
expected developments described below are mostly
independent of each other, and will not occur in any
particular sequence.
In spite of the introduction of the same-day TED for
direct credits, many customers continue to use the
slower DOC, because they are more familiar with it. It
is anticipated that the authorities will gradually lower
the DOC maximum of 5,000 reais to speed up the
transition. Another modernisation on the horizon is
interbank direct debits. Currently, vendors must keep
accounts at multiple banks, which limits the system to
large organisations such as public service providers.
This is not seen as a major priority and interbank direct
debits will probably not be implemented until 2007.
Although the number of small-value cheques fell
significantly in 2003 following the reforms of the
previous year, there were still more than 1.7 billion
“under” cheques issued, or more than three-quarters
of all cheques. Observers believe that improvements in
© The Economist Intelligence Unit 2005
21
Assessing payments systems in Latin America
Brazil
the ATM network would encourage more small
transactions to be done with cash. Lack of interoperability is the most important problem. Links
among the country’s 29 ATM networks will be
facilitated by improvements to clearing and
settlement systems that are planned for mid-2006.
Currently, each interbank transaction is routed from
the ATM to the bank that owns it, then to the
Interbank Payments Clearing House (CIP), and then to
the other bank. Confirmation comes back over the
same route. When the planned improvements are
implemented, the information will be sent directly
from the ATM to the CIP.
Brazilian financial authorities believe that the
continued widespread use of paper Boletos de
Cobrança for bill collection represents considerable
risk for the SPB. The number of transactions using this
vehicle continued to increase even after the 2002
reforms, and with the introduction of the TED their
share of the value of transactions handled by COMPE
rose sharply from 18.8% in 2002 to 38.6% in 2003.
While boletos enable electronic payment of bills at
ATMs or over the Internet, they are still sent to
22
© The Economist Intelligence Unit 2005
customers by postal mail. The CIP is in the process of
designing an electronic boleto to eliminate the paper
document for many transactions. This is seen as a
means of increasing the liquidity of the financial
system as well as a way of reducing the risk of fraud.
The new boletos will be sent by e-mail or downloaded
from corporate websites. Payment will be made
electronically, via direct debit or electronic funds
transfer. Proof of payment, currently a paper
document, will also become an electronic file.
Financial industry observers in Brazil say that the
three most important opportunities for further growth
are in commercial payment products for small and
medium-sized businesses, government procurement
cards and innovative products for the low-income
segment. The opportunities include increasing the
rate of activation and usage of existing cards in force
as well as expanding the client base. In particular,
they believe that, although it will take time for
corporate and government customers to understand
fully the benefits of procurement cards in terms of
expense management and transparency, there is
substantial room for growth.
Assessing payments systems in Latin America
Chile
C
hile has a population of about 16 million.
Nominal GDP reached US$91bn in 2004. Real
growth was a robust 6.0%, a substantial gain
from 3.3% growth the previous year, mainly owing to
buoyant commodity prices. Per capita income was
US$11,630 in PPP international dollars in 2004.
The financial sector
Sustained economic growth following the recession of
1999 has pushed up personal incomes and expanded
the middle class, driving demand for financial
services. Consumer credit and home loans grew in
2003, as interest rates fell. Consumer price inflation
was just over 1% in 2004. Liquidity is comparatively
high, and although still a limiting factor, especially for
small business, access to credit in local currency is
unusually good for a Latin American market. The
banking system is well-capitalised, competitive and
prudently managed. Consumer lending is a profitable
but fierce battleground where retailers play an
unusually large role.
Governing institutions
The Central Bank of Chile (BCC) is independent and has
absolute control over monetary policy. Its
responsibilities include establishing the rules for
bank-issued credit cards but not for private-label cards
issued by retailers. These rules are enforced by the
Banking Supervisory Agency of Chile (SBIF), which is
an autonomous institution.
Banks
In 2004 there were 12 locally owned private
commercial banks operating in Chile, along with 13
foreign full-service banks and one state-owned bank.
The top five banks accounted for 73.2% of deposits in
October 2004. Foreign banks own about 43% of total
bank assets.
The two largest banks, Banco Santander Santiago
and Banco de Chile, together account for 41% of
banking assets. The top five banks, which also include
Banco de Crédito e Inversiones, Banco Bilbao Vizcaya
Argentina and Corpbanca, claim a 66.5% share. No
other bank has a share as high as 4%. The penetration
of the banking system was estimated at 43.5% of the
population in 2002. Current-account usage remains
very low, but penetration of the low-income segment
was improved with the implementation of “sight”
accounts (cuenta a la vista) in 1996. These accounts
are associated with ATM or debit cards and do not have
current account privileges.
Clearinghouse systems
Chile’s payments infrastructure has been substantially
modernised following a 1997 amendment to the
General Banking Law. Implementation was gradual,
because of the lingering problem of subordinated
debt, which continued to affect financial institutions.
A major push towards modernisation was initiated by
the BCC in September 2000, including the
development of a new RTGS system, which will be fully
implemented by September 2005.
Chile has two ATM networks, Redbanc (established
in 1987) and Globalnet (established in 1992). These
networks are owned by their participating banks. The
two organisations announced an interconnection
agreement in 2004. Transbank (established in 1993)
operates a network for financial institutions that issue
Visa, MasterCard, American Express, Diners Club and
Magna credit cards. It also handles Redcompra,
© The Economist Intelligence Unit 2005
23
Assessing payments systems in Latin America
Chile
Electron and Maestro debit cards, as well as domestic
bank card brands. Transbank also provides a clearing
system called Webpay for Internet credit card sales.
Electronic payment products
The penetration of electronic payment products has
been influenced by the fact that cheques are a firmly
established feature of Chilean society. Cheques are a
very safe instrument because there are jail terms for
anyone writing cheques with insufficient funds.
Cheques are also a status symbol because of the
rigorous pre-issue requirements, and they can be used
as a form of credit, through a scheme known as Tres
Cuotas, where customers pay with three cheques postdated at 30, 60 and 90 days. An estimated 25% of the
Chilean retail market is funded by instalment
payments of some sort. The number of cheques issued
per capita was 19.1 in 2004, by far the highest level of
any of the countries assessed in this white paper.
Credit cards
Notwithstanding the popularity of cheques among
affluent consumers, credit card penetration is high
relative to other Latin American markets. The
penetration of bank-issued credit cards was relatively
low at 0.166 per capita in 2004, with 2.6 million cards
in force. These data exclude retailer cards, for which
there are no official statistics.
The leading banks issue both Visa and MasterCard
credit cards. Some also issue American Express and
Diners cards, and there are a few local brands. Most
credit cards are associated with bank accounts and are
not promoted separately, although some banks offer
merchandise as incentives to compete with the
common practice of retailers of offering “gifts” or
discounts to cardholders.
Transbank offers an instalment payment facility for
the global credit card brands, which provides interestfree terms identical to the Tres Cuotas system of postdated cheques. In 2002 Transbank launched a new
service called Automatic Card Payment (PAT), which
24
© The Economist Intelligence Unit 2005
allows holders remote use of major credit cards to
make either recurring or ad hoc payments. Transbank
and the issuing banks have heavily promoted this
service, and 10% of card transactions are now made
through PAT.
Although the number of bank-issued credit cards in
force has remained flat over the past five years, there
was a spike in the value of transactions in 2003. Pentup demand for consumer durables was unleashed by a
sharp drop in lending interest rates to 6.2% during the
year. A 3.7% rise in personal disposable income also
contributed to increased demand.
Private-label credit cards issued by retailers include
“open” cards that are honoured at multiple stores, as
well as “closed” single-retailer cards. Estimates of the
number of cards in force vary widely, partly because of
differing treatment of inactive cards. One estimate
puts the number of active cards at between 7.6 million
and 8.0 million. Retail cards are originally issued to
low-income individuals without access to bank credit,
and in spite of the much larger number of retail cards
in force, bank-issued credit cards capture about onehalf of total credit card payments.
Debit cards
The number of debit cards in force has risen steadily in
Chile, along with the value of transactions. Debit
cards, usually bank-branded “client cards” or “banking
cards”, were traditionally associated with current
accounts and were issued automatically as part of a
package of services. The first multi-bank debit card,
called Checkline (now Red Compra), was introduced in
1995 and has been extremely successful, now
accounting for about 30% of all card transactions. But
the bulk of the cards in force are Visa Electron and
Maestro cards issued by the banks.
Smart cards and prepaid cards
Smart cards have seen only limited use in Chile until
recently, although initiatives to implement them
widely are now in progress. In addition to making
Assessing payments systems in Latin America
Chile
credit card transactions more secure, chip-enabled
cards facilitate a variety of loyalty programs. Smart
cards are also in use at several universities, where
users can add a debit card function to the multifunction ID card issued to students, faculty and staff.
The Santiago Metro introduced contactless smart
cards in early 2005 at all of its 52 subway stations,
using the Multivía card system. Public buses will begin
accepting the cards in mid-2005. The Metropolitan
Union Association for Passenger Transport is also
introducing smart cards on 3,800 privately operated
buses.
Direct credits and debits
Direct funds transfers were introduced in Chile around
1990, but initially the lack of a comprehensive
interbank network limited them to recurring payments
with large vendors. In the mid-1990s several banks
introduced an interbank direct debit system known as
Automatic Account Payment (PAC). It enables ad hoc
payments, and charities and universities are among
the 500 participating organisations.
Chile
Cards in force
(Number of cards per capita)
Debit cards
Credit cards
2000
0.12
0.16
2001
0.14
0.17
2002
0.19
0.17
2003
0.24
0.17
2004
0.29
0.17
Sources: Central Bank of Chile, National Statistical Institute of Chile, Centre for Latin American Monetary Studies,
Superintendency of Banks and Financial Institutions
Chile
Card transactions
(per capita)
Debit cards
Credit cards
2000
0.13
2.62
2001
0.75
2.73
2002
1.31
2.72
2003
2.11
2.78
2004
3.07
Strengths and opportunities
The modernisation of Chile’s electronic payments
system has generated important benefits for all of its
stakeholders. Payments are processed more quickly
and more securely, and consumers have more options
as well as greater access to credit. Merchants face a
reduced risk of non-payment and lower operating
costs. The Central Bank’s RTGS system has lowered
systemic risk, cut operating costs and provided
enhanced information. From the public perspective,
the banking system is more accessible to low-income
individuals, and the government’s own use of
automated payments systems has increased the
efficiency of the public service. The reforms will also
improve Chile’s country risk ratings.
There are a number of opportunities for further
improvements in the system. Debit cards could play an
increased role in reducing the number of cheques,
3.46
Sources: Central Bank of Chile, National Statistical Institute of Chile, Centre for Latin American Monetary Studies,
Superintendency of Banks and Financial Institutions
Chile
Value of card transactions
(% GDP)
Debit cards
Credit cards
2000
0.00
0.02
2001
0.00
0.02
2002
0.01
0.02
2003
0.01
0.04
2004
0.02
0.03
Sources: Central Bank of Chile, National Statistical Institute of Chile, Centre for Latin American Monetary Studies,
Superintendency of Banks and Financial Institutions
© The Economist Intelligence Unit 2005
25
Assessing payments systems in Latin America
Chile
E-commerce
Latin America’s e-commerce market is one
of the fastest growing in the world. Large
corporations, especially multinational
enterprises using specialised software,
account for the bulk of this market, but the
B2C (business-to-consumer) segment has
been expanding rapidly. Growth has been
in the range of 50% per year for several
years in spite of such constraints as underdeveloped infrastructure, low Internet
penetration and limited online offerings.
About 90% of online purchases are paid for
with credit and debit cards, and the reluctance of cardholders to provide their
account numbers over the Internet has
also held back growth. In 2004 total esti-
mated Latin American e-commerce sales
reached US$3bn.
Increasing consumer confidence in using
cards online has been a key force behind
this growth, as initiatives by the global
brands have addressed the security issue.
For example, Verified by Visa leverages the
brand’s global network to enable secure
online transactions. It authenticates Visa
cardholders during the virtual checkout
process at participating merchants using a
password provided by the issuing bank. The
merchant can add this function to its
existing processing system. The system also
provides the cardholder with a personal
message certifying that the password
request is legitimate, thus authenticating
both the cardholder and the merchant.
Improvements in online retail services
which would reduce cost and speed clearing and
settlement. But the number of cheques per capita
remains high, in spite of the fact that only about 20%
of the population has a current account. The cultural
preference for cheques is to some extent reinforced by
the banks, which are torn between opposing forces. On
the one hand, decreasing cheque use would reduce
costs. On the other, the Tres Cuotas cheque system
provides the banks with a tool for competing against
retail credit cards. The banks have not responded
consistently. After a few years of declining cheque
usage, in 2004 some banks once again began
promoting them, and the number of cheques rose by
5.3% to 304 million. Recently, some banks have moved
in the other direction by introducing fees for cheques.
Outlook
Chile’s aggressive pursuit of trade agreements will
open doors for medium-sized businesses, stimulating
demand for bank credit. Small firms, however, will still
find it difficult to obtain credit and will continue to
rely on renewable short-term loans. They may also
increase their use of corporate payment cards, as the
26
© The Economist Intelligence Unit 2005
have also played an important role in the
growth of the B2C segment. International
online vendors have increasingly targeted
the region and claim almost one-third of the
market. About 40% of Latin American ecommerce transactions are international,
compared with about 15% globally. Latin
American online retailers are also reaching
international markets with the sale of goods
and services for expatriates, who buy online
for delivery directly to family and friends at
home or for shipment abroad. A growing
number of customers are using card-based
Internet systems for recurring payments like
utility bills. Travel is another area of rapid
growth, as the larger airlines and hotels
have introduced online booking and
payment systems, and as web-based travel
agencies have gained market share.
economy grows. Chilean banks’ good management of
market and credit risk will ensure that an expansion of
their credit portfolios does not come at the expense of
a deterioration in loan quality.
The country’s payments infrastructure will continue
to improve. The low-value clearing house is preparing
to introduce a cheque imaging system modelled on the
US Check 21 system (so named after the Check
Clearing for the 21st Century Act of 2003). Chile has
passed the legislation to enable this and a three-stage
implementation is planned. In the first stage,
expected in the third quarter of 2005, retailers will
scan cheques and transmit them electronically to their
banks. In the second phase, banks will start
exchanging images rather than cheques. In the third
phase, possibly in 2006, customers will be able to
access their cheque images online.
E-commerce is expected to continue expanding
rapidly, especially in the B2B (business-to-business)
sector. International Data Corporation has estimated
that B2B transactions in Chile grew by 150% between
2003 and 2004, to US$10bn, or about 10% of the
country’s GDP. A key driver of this growth was the tax
Assessing payments systems in Latin America
Chile
authority’s implementation in April 2003 of a new
system of electronic invoices and an associated
registration scheme for digital signatures. By the end
of 2006, about 50% of invoices are expected to be
electronic, rising to 80% in 2008. Integrating
payments by direct transfer is a fairly simple next step.
B2B commerce is also expected to expand, especially
after Visa’s planned introduction of Verified by Visa in
Chile is completed.
Smart cards are set to take off in Chile as part of a
concerted effort to improve security and to offer
enhanced services to cardholders. Several large
Chilean banks partnered with Telefónica CTC Chile in
2000 to form a company called Empresa de Tarjetas
Inteligentes (Etisa), which is implementing the
required infrastructure upgrades. Transbank is also
implementing smart cards and had upgraded about
5,000 of 35,000 terminals by November 2004. Etisa
predicts that the conversion to smart cards will be
complete by 2007. This improved infrastructure is also
expected to increase the use of debit cards at the point
of sale. Etisa is also providing the technology for the
new prepaid contactless smart cards now being
implemented in Santiago’s transit system, and for a
proposal to use smart cards to pay tolls on a new
highway to the city’s airport.
Competition between bank and retailer credit cards
will escalate, especially if proposed legislative
amendments to regulate retail credit cards are
approved. Some analysts believe that future growth
will come mainly from increases in the size of the
average transaction and the number of transactions
per card, rather than from a larger number of cards,
because affluent customers tend to use just one card.
This could change if the banks are successful in
achieving greater penetration of the middle class,
where customers tend to use multiple cards. In
addition, the banks are expected to continue
expanding coverage to the unbanked population. The
number of retail card issuers is expected to decline to
three or four over the next few years, as more retailers
join “open” retail card networks.
© The Economist Intelligence Unit 2005
27
Assessing payments systems in Latin America
Colombia
C
olombia has a population of about 45 million.
Current GDP reached US$95bn in 2004. Real
economic growth was a healthy 3.6% in 2004, on
the heels of 3.8% growth the previous year, as the
economy continues to recover from the 1999
recession. Per capita income was about US$7,000 in
PPP international dollars in 2004.
The financial sector
The combination of healthy economic growth and
lower interest rates is driving an increase in demand
for financial services, following a financial crisis in
1998-99. Domestic credit is expected to reach 40% of
GDP by 2008, up from 32% of GDP in 2002. Economic
growth remains tied to the political situation and
management of civil strife. Limits on foreign
ownership in the Colombian financial sector were
eliminated during the 1990s, and a handful of foreignowned conglomerates now control one-third of
financial sector assets. The “universal banks”
(multibanca) control 70% of banking assets.
Consumer price inflation was historically low at 5.9%
in 2004, and further declines are anticipated.
Governing institutions
The Bank of the Republic (BanRep), the central bank of
Colombia, is an independent institution under the
country’s constitution. It is responsible for the usual
central bank functions including the issuing of
currency, monetary policy, foreign exchange and the
provision of clearinghouse services to the banks, as
well as management of reserve requirements. The
bank either operates, or provides the infrastructure
for, the country’s main payments clearinghouses
through its national online real-time interbank
28
© The Economist Intelligence Unit 2005
network, Sistema Electrónico del Banco de la
República (SEBRA). The Banking Superintendency of
Colombia is responsible for the supervision of banks
and other financial institutions.
Banks
Since the 1998-99 financial crisis, government
policies have promoted the development of universal
banking (multibanca), leading to banking industry
consolidation. The sector consisted of 66 institutions
(including banks, finance companies, leasing
companies and other institutions) in 2004, down from
140 before the crisis. At the end of 2004 there were 24
private commercial and mortgage banks, of which 15
were private and domestically owned, and nine were
foreign-owned. By law, banks must maintain assets in
Colombia and there are no branches of foreign banks.
Foreign banks held less than 20% of the country’s
banking assets at the end of 2004.
The five leading banks—Bancolombia, Banco de
Bogota, BBVA Colombia, Banco Davivienda and Banco
de Occidente—controlled close to one-half of all
banking assets (including the finance companies) at
the end of 2004. Of these banks, only BBVA is foreignowned and no other foreign bank has a larger share
than Citibank’s 3.6%. The proportion of the
population using the banking system was estimated at
40.3% in 2002. Current account penetration was
exceptionally low at 9.2%.
Clearinghouse systems
The Central Values Deposit (DCV) was established by
BanRep in 1992. This is an electronic high-value net
system, with settlements occurring at the end of each
day. At that time there was also a real-time system for
Assessing payments systems in Latin America
Colombia
institutions that did not maintain an account with
BanRep, and in 1998 this was expanded into a full
RTGS system, in the midst of the financial crisis.
BanRep also administers an automated low-value
multilateral net clearinghouse called the Electronic
Cheque Compensation System (CEDEC). The
government has promoted the use of electronic
payment products, and BanRep also administers the
National Interbank Electronic Compensation System
(ACH-CENIT).
There are six ATM/POS networks including
Credibanco, A Toda Hora (ATH), Servibanca and
Redeban Multicolor, in addition to several proprietary
networks operated by banks. Banks issuing Visa,
MasterCard and American Express, the principal credit
card organisations operating in Colombia, use clearing
services provided by Credibanco and Redeban
Multicolor respectively. Diners cards are processed by
a commercial bank where merchants who accept the
card maintain accounts.
Colombia
Cards in force
(Number of cards per capita)
Debit cards
Credit cards
2000
0.19
0.05
2001
0.19
0.05
2002
0.19
0.05
2003
0.21
0.06
2004
0.23
0.06
Sources: Bank of the Republic, National Automated Interbank Electronic Clearing House, ACH Colombia,
Banking Superintendency of Colombia
Colombia
Card transactions
(per capita)
Debit cards
Credit cards
2000
1.36
0.71
2001
1.53
0.69
2002
1.87
0.77
Electronic payment products
2003
Electronic payment products have increasingly
displaced cheques as a means of payment. The number
of cheques processed has fallen every year since they
peaked at 212 million in 1996. Between 2000 and 2004,
the number of cheques per capita fell from 2.4 to 1.4.
The number of credit card and debit card transactions
grew by 72% and 74% respectively over the same
period. Some of the decrease in cheque usage reflects a
shift to cash following the imposition of a tax on
financial transactions in 1998. Cheques are used mainly
for low-value transactions; large-value transactions by
business are generally handled electronically. The
number of transactions processed electronically
through RanRep’s single deposit accounts (CUD)
increased by 265% between 2000 and 2004.
While the proportion of the population using
current accounts is quite low, savings account
penetration is relatively high, estimated at between
35% and 55% in 2004 by various authorities. This
2004
2.22
1.14
2.21
1.14
Sources: Bank of the Republic, National Automated Interbank Electronic Clearing House, ACH Colombia,
Banking Superintendency of Colombia
Colombia
Value of card transactions
(% GDP)
Debit cards
Credit cards
2000
0.12
0.03
2001
0.14
0.03
2002
0.14
0.03
2003
0.15
0.04
2004
0.14
0.04
Sources: Bank of the Republic, National Automated Interbank Electronic Clearing House, ACH Colombia,
Banking Superintendency of Colombia
© The Economist Intelligence Unit 2005
29
Assessing payments systems in Latin America
Colombia
reflects the growing use of electronic payroll systems,
since unlike some other countries Colombia allows
payment products to be associated with savings
accounts.
Credit cards
Credit card penetration is relatively low in Colombia, at
0.062 per capita in 2004, but this was a substantial
increase from 0.046 in 2000 as the number of cards in
force increased from 1.9 million to 2.8 million. There
were more than 50 million credit card transactions in
2004, only about 1.1 per capita. All of the larger banks
offer both Visa and Mastercard, and American Express
and Diners cards are also available. Bank-issued cobranded card products dominate the market, although
a few retailer and fidelity credit cards are also
available.
Debit cards
ATM/debit cards are available to all holders of current
or savings accounts, but both Visa and MasterCard
branded debit cards issued by commercial banks are
widely used, with more than 10 million in circulation.
All ATMs and terminals in the country are interoperable. Debit cards have gained popularity over the
past few years, with cards in force rising by nearly 20%
between 2000 and 2004, and the value of transactions
exceeding 15% of GDP in 2003. However, there is still
room for growth as banking penetration increases.
Direct credits and debits
Most banks offer Internet portals and Colombia has a
well-developed system for interbank direct debits and
credits through both ACH Colombia and ACH-CENIT.
These services have seen increasing use in recent
years, as companies and individuals have become
comfortable with them. Direct credits are widely used
for payroll deposits, and the number of transactions
grew nearly seven-fold to reach 14 million between
2000 and 2004. Direct debits were slower to gain
consumer acceptance but have nevertheless also
30
© The Economist Intelligence Unit 2005
grown sharply, rising from less than 100,000 in 2000
to 673,000 in 2004.
Strengths and opportunities
Colombia’s electronic payments system is modern and
efficient, and has gradually implemented emerging
technologies. The high-value system provides
financial stability, whereas the low-value system
fosters competition, leading to increased efficiency.
Observers believe that the continuing modernisation
of the low-value system will lower costs for financial
institutions. These will be passed on to consumers as
lower fees, which in turn could increase the
penetration of the main electronic payment products.
Enhanced financial control systems are also expected
to lead to a crack-down on money-laundering and an
improvement in the country’s international
reputation. The government and financial institutions
will also gain from increased transparency and more
accurate monitoring of the financial system.
The use of payment cards has expanded as
merchant acceptance has spread to smaller stores,
pharmacies and fast-food outlets, which has increased
total volume while reducing the average transaction
size. The credit card market has also been further
segmented as existing cardholders have migrated to
upscale products. These developments have given
increased convenience to cardholders, while also
contributing to the government’s objective of
increasing VAT collections.
There are a number of opportunities for further
improvements. Banking industry players say that the
intra-day liquidity of the large-value clearinghouse
needs to be improved. Closing times for transactions
are scheduled in such a way that there is a surge of
settlements in the late afternoon, and up to onequarter of operations take place after 6 pm. Some
improvement was achieved by implementing a new fee
system, and there are now plans for further
improvements through the creation of a hybrid system
that will simulate the net settlement obligations of
Assessing payments systems in Latin America
Colombia
Family remittances
Latin American migration to the developed
countries has increased substantially over
the past decades. When these immigrants
earn money, they often send some of it
home to help their families. These remittances increased by 20% in each of the past
two years to reach US$45bn in 2004. They
are now a greater source of liquidity than
foreign direct investment (FDI) and official
foreign aid combined. Unlike foreign aid,
they reach families directly through existing channels and, unlike FDI, they are
counter-cyclical, usually peaking during
economic downturns.
The surge in remittances translates into a
significant rise in disposable income. It lifts
households above subsistence level and
allows them to start saving and investing to
play an active role in the economy. The
savings-to-remittances ratio is estimated to
be as high as 10% in Mexico and a 2001
World Bank study found it to be 4% in
Guatemala.
The challenge for governments is to
ensure that a larger proportion of
remittances travels through legal channels.
That way, it is injected into the formal
economy where it can create legitimate
employment and business opportunities.
Better reporting is clearly a key part of this
effort.
One way to achieve better reporting is to
route transfers through banks, which are
subject to central bank oversight and
reporting requirements. On the sending
side, the banking industry has responded to
this opportunity by offering innovative new
each participant before gross payments are processed.
Observers say that obtaining the co-operation of large
financial institutions, especially non-bank entities
such as stock traders, presents BanRep with its
principal challenge in implementing these
improvements.
Financial industry observers point to important
opportunities for continued expansion of Colombia’s
upscale credit card segment, as well as greater use of
card-based recurring payments systems and further
expansion of the commercial card market. There are
also opportunities for banks to increase their share of
incoming remittances, leading to greater participation
in the formal economy. Observers also note that
increased co-operation between card organisations,
banks and the government could drive a further
expansion of payment cards. Further penetration of
the low-income market is seen as a continuing
challenge.
products ranging from debit cards to
international joint accounts and electronic
transfers. Over the last two years, the banks
have begun to offer card-based products to
the beneficiaries, creating value added
services and drawing these customers to the
financial system. For example, Visa Giro is
an innovative payment card specifically
designed to facilitate the transfer of money
to Latin America. These forms of transfers
are cheap, efficient and flexible. These
factors, plus the convenience they offer to
recipients, have already enabled the banks
to gain a 15% market share from traditional
money transfer organisations like Western
Union and MoneyGram. Increased
competition has already forced down
transaction fees, from about 20% to 7%,
and this translates both into larger transfers
and to a greater share reaching recipients.
Outlook
Impressive advances in public security helped to keep
GDP growth strong at 3.6% in 2004. Forecasts see
growth stabilising at around an average annual rate of
3.5% in the years ahead, but there are risks to these
forecasts. Victories in the internal civil conflict are
bringing diminishing returns and concerns over public
solvency leave Colombia vulnerable to swings in
investor sentiment.
Real lending rates will remain low by historical
standards, stimulating demand for credit and financial
services already bolstered by improved stability and
steady increases in disposable income and private
consumption. A surge in remittances and the return of
expatriate Colombians and their money are reviving
small to medium-sized ventures, especially in
domestic sectors such as construction, and this will
have a cascade effect on credit in the rest of the
economy.
© The Economist Intelligence Unit 2005
31
Assessing payments systems in Latin America
Colombia
As a result of lower inflation and lending rates, the
proportion of households with formal access to credit,
which now stands at less than one in ten, is expected
to increase by 25% over the next four years. Banking
assets will grow by an annual rate of 6%. Colombia’s
low level of banking penetration is an obstacle to
increasing debit and credit card usage. Nonetheless,
there has been a significant increase in debit card
usage, which partly explains the diminishing use of
cheques. Although the value of debit card transactions
is still very low, the volume of transactions is
significant and will continue to grow, partly because of
an expanding acceptance base.
One payment product currently receiving attention
is “virtual banking”. Internet banking portals already
in operation will be expanded to permit funds
transfers, bill payments and other types of payment,
further reducing transaction costs. The expansion of
Internet-based payments systems is limited by
32
© The Economist Intelligence Unit 2005
Colombia’s low personal computer (PC) penetration,
which was only 7.9% of the population in mid-2004.
By contrast, virtual banking has risen rapidly from
about 840,000 users in 2002 to nearly 1.3 million in
2004. Over the same period, the number of monthly
transactions per user also rose from 5.5 to 10.6,
according to data published by Asobancaria, the
bankers’ association.
While the penetration of virtual banking is still low
compared to other forms of payment, this segment
appears set for further expansion, especially as rapidly
falling computer prices drive increases in Internet
penetration. To some extent, low levels of PC
penetration can be offset through the provision of
public terminals. There are a number of pilot programs
under development in Colombia that involve the use of
kiosks and interactive displays in public places where
bank customers can access their bank accounts in a
manner similar to Internet access.
Assessing payments systems in Latin America
Mexico
M
exico has a population of about 105 million.
Nominal GDP reached US$677bn in 2004, and
real growth was 4.4%, up from 1.4% the
previous year. Per capita income was US$9,680 in PPP
international dollars in 2004.
The financial sector
Shifting spending patterns, driven by continuing
increases in average wages, will shape growth in demand
for financial services. Credit is expected to increase by
5% annually over the next few years, outpacing GDP and
domestic demand. Interest rates will rise, but will remain
relatively low by historical standards, and will not
significantly cut demand for loans. Consumer price
inflation was 4.7% in 2004. Mexican economic growth
remains highly dependent on the performance of the US
economy. The banking sector has been strengthened by
full liberalisation, consolidation and the entry of foreign
capital. Portfolios have been overhauled and the
proportion of past-due loans is low. About 75% of
banking assets are foreign-owned.
Governing institutions
The Bank of Mexico is the central bank. It is an
autonomous institution responsible, among other
things, for ensuring the functioning of the payments
systems. The National Banking and Securities
Commission (CNBV) is a semi-autonomous unit of the
Secretariat of Finance (SHCP) and is responsible for
the direct supervision of financial institutions.
Banks
When Mexico’s banks were reprivatised in 1991-92
there was no solid supervisory structure in place, after
a decade of government ownership. As a result, the
industry was in fragile shape when the peso suddenly
collapsed in the last days of 1994, leading to a fullblown financial and economic crisis in 1995. The
government was forced to mobilise the Savings
Protection Banking Trust (Fobaproa), to prevent the
failure of key financial institutions. The cost of this
massive bail-out has been estimated at 20% of GDP.
The banking system was thoroughly overhauled in the
years following the crisis.
The crisis weakened the banking industry to the point
where it was not able to fully service the growing market
during the economic boom of the late 1990s. Foreign
banking conglomerates moved in to fill the void.
Between 2000 and 2002, banks from Spain, the US, the
UK and Canada carried out a series of acquisitions. By
mid-2004, 22 of the 32 commercial banks operating
before the crisis had been restructured or shut down.
Only one major bank, Banco Mercantil del Norte
(Banorte), remains in Mexican hands.
In December 2004 there were 30 “multiple banks”
operating in Mexico. The largest five banks, BBVA
Bancomer, Banamex, HSBC, Santander Serfin and
Banco Mercantil del Norte, control 75% of total bank
assets. Bancomer and Banamex together control
nearly one-half of the country’s banking assets and
only eight banks hold more than a 1.5% share. The
penetration of the banking system was estimated at
43.8% of the population in 2002, with only 15.2%
holding current accounts. Banking penetration is
gradually rising as employers implement payroll
systems based on debit cards.
Clearinghouse systems
Mexico began a substantial modernisation of its
payments settlement systems in 1994. At that time,
© The Economist Intelligence Unit 2005
33
Assessing payments systems in Latin America
Mexico
Mexico
Cards in force
(Number of cards per capita)
Debit cards
Credit cards
2000
n/a
n/a
2001
0.29
0.06
2002
0.32
0.08
2003
0.31
0.09
2004
0.33
0.11
Sources: Bank of Mexico, Mexican Bankers’ Association, Centre for Latin American Monetary Studies
Mexico
Card transactions
(per capita)
Debit cards
Credit cards
2000
n/a
n/a
accomplished in stages beginning with the launch of
the high-value Extended Electronic Payments System
(SPEUA), and culminating with the launch of the
Interbank Electronic Payments System (SPEI) in March
2005. Cecoban, Mexico’s cheque clearinghouse, was
privatised in 1997, and an extensive modernisation
program has since been carried out.
Mexico originally had three interconnected ATM
and POS terminal networks, with Banamex and
Bancomer running their own systems and Prosa
covering all of the other banks. Banamex and
Bancomer have now combined their operations. Final
settlements are made by a commercial bank using
electronic funds transfers through SPEUA.
2001
Electronic payment products
8.79
1.76
2002
10.36
2.08
2003
11.01
2.21
2004
11.82
2.37
Sources: Bank of Mexico, Mexican Bankers’ Association, Centre for Latin American Monetary Studies
Mexico
Value of card transactions
(% GDP)
Debit cards
Credit cards
2000
n/a
n/a
2001
0.09
0.01
2002
0.14
As electronic payment products have gained market
traction, the number of cheques processed has fallen
slowly from 6.0 per capita in 2001 to 5.7 in 2004. The
value of cheque transactions fell from 170% of GDP to
120% over the same period. In 2004 6.2 million fewer
cheques were processed than in the previous year. The
use of large-value cheques has declined sharply since
the Bank of Mexico implemented a one-day delay in the
clearance of interbank cheques, to promote the use of
SPEUA. Cheques continue to be used for big-ticket
consumer purchases, such as cars and houses, and
financial authorities say that they would like to continue
to encourage people to use electronic products.
0.02
2003
0.13
0.02
2004
0.14
0.02
Sources: Bank of Mexico, Mexican Bankers’ Association, Centre for Latin American Monetary Studies
the Bank of Mexico operated both an electronic
interbank settlement system and a manual cheque
clearinghouse. A principal objective of the reforms was
to replace large-value cheques with electronic
transfers through the Bank’s existing RTGS system, the
Account Holders Service System (SIAC). This was
34
© The Economist Intelligence Unit 2005
Credit cards
Although credit cards have been issued in Mexico for
many years, they have been available only to a
relatively small proportion of the population. There
were 14 million active credit cards in force in 1994, but
this fell by roughly one-half after the crisis as interest
rates rose and new restrictions were imposed. There
was significant growth as the economy recovered, and
as the banks were consolidated, and by 2004 there
were 11.6 million active cards in force.
The banks issue Visa and MasterCard products while
Assessing payments systems in Latin America
Mexico
American Express issues its own cards. The five top
banks dominate the card business, both for issuing
and acquiring. Many retail chains issue privately
branded cards.
There is a very wide variety of products in the
market, including air miles cards as well college,
charity and sports team affinity cards. In addition,
there are commercial cards designed for both
corporations and smaller businesses.
Customers can arrange for recurring payments such
as utility bills to be automatically charged to their credit
cards. This is popular with some consumers who are
uncomfortable about direct debits from their accounts.
Debit cards
Originally, banks issued cash cards associated with
current or savings accounts for use in ATMs, but in the
mid-1990s they started issuing debit cards that could
be used in POS terminals. The majority of these cards
are Electron or Maestro branded. These cards have
become increasingly popular, with growth driven by
the expansion of the ATM network and terminal base
beginning around 2001, as well as a trend towards
payroll payment through direct deposits linked to
debit cards. Another positive factor has been the
expansion of cash-back functionality by merchants.
There were 20,400 ATMs in the country in 2004. The
number of debit cards in force grew by 18.7% between
2001 and 2004 to reach 34 million. These cards were
also used more intensively, with the number of
transactions rising by 39.2% over the same period. The
leading banks offer a wide variety of different debit
cards, including affinity cards, youth/teenager cards
and cards designed to facilitate the receipt of
remittances from abroad.
Smart cards and prepaid cards
Credit cards based on smart card technology have
recently been offered on a larger scale in the Mexico
market. So far, there have been two principal
applications: fraud reduction through enhanced
password-based security and increased functionality
through advanced loyalty programs (see sidebar p36).
Prepaid cards for telephones are used extensively.
Direct credits and debits
The larger Mexican banks began to offer direct credits
in 1995, and about 25 banks now participate in the
Electronic Funds Transfer (TEF) system. These
transactions do not occur in real time and are
processed through the Bank of Mexico’s Clearinghouse
System (SICAM). (TEF and SICAM are described in
greater detail in the Appendix.)
Direct debits have been used by large utilities for
several years, but interbank debits were not available
until after an amendment to the Banking Law in 2001.
The new system, known as DOMI, has been in
operation for about two years through about 20 banks.
As a result, direct funds transfers have become
increasingly popular.
The consumer direct transfer market will continue
to grow but only slowly because Internet penetration
remains low. The Mexican Bankers’ Association (ABM)
anticipates that only about 5 million Mexican bank
account holders will have access to online banking
services this year. Corporations and governments,
however, are rapidly implementing electronic
payments.
Strengths and opportunities
The Bank of Mexico enjoys a strong reputation after
having recovered from the damage stemming from the
1994-95 peso crisis. The bank became autonomous
under a 1994 constitutional amendment, and
improved disclosure practices have made it one of the
most transparent central banks in the world. The
banking system is also on a much more solid footing,
as the sector has consolidated, increased efficiency
and introduced new products. New electronic
payments settlement systems have been put in place
that have substantially reduced transaction costs,
while simultaneously reducing systemic risk by
© The Economist Intelligence Unit 2005
35
Assessing payments systems in Latin America
Mexico
Vida Bancomer
In March 2005, BBVA Bancomer became the
first bank in Mexico to launch an enhanced
loyalty program based on Visa’s Smart Generation concepts that leverage smart card
technology to provide added value to customers. The loyalty program itself, called
Vida Bancomer, and its supporting software
were developed and implemented by Bancomer. Smart card experts from Visa worked
with Bancomer throughout the evaluation,
planning and implementation phases of the
project.
Because the program identifier and the
rewards are stored on the smart card itself,
this technology allows for instant
processing of rewards at the point of sale.
Rewards can be allocated to certain
establishments, products, customers or
days, or a combination of factors. The
system provides customers with instantly
awarded reward points, coupons and
discounts, without having to produce a
separate loyalty card or paper coupons.
Moreover, the system incorporates a
customer-recognition system that can be
used to build customer relationships,
triggering surprise gifts or reserved
promotions for valued customers or those
using the card at a store for the first time.
More than 2,000 merchants have already
enrolled in the Vida Bancomer program and
enabling real-time settlements. The number of
interbank electronic transactions has more than
doubled since 2000, drawing more activity into the
formal economy. The central bank no longer faces the
risks of granting uncollateralised loans. Financial
sector officials agree that these benefits accrue to the
entire economy.
Industry observers point to Mexico’s credit bureau
as an important asset to the country’s financial
system. It combines personal credit histories from
Trans Union de Mexico with corporate information
from Dun and Bradstreet, and is considered one of the
most developed credit information systems in the
region. The banks are making increasing use of credit
bureau information to manage the risks of issuing
credit cards to lower-income groups. As the use of this
system expands, the accuracy of lending decisions will
be improved, generating benefits for both lenders and
borrowers, and contributing to economic growth
through the expansion of credit. Lenders will be in a
better position to measure and price the underlying
risk of a given account, and to increase segment
specialisation. Consumers will benefit from pricing
that more accurately reflects their individual
36
© The Economist Intelligence Unit 2005
bank officials are confident of reaching their
objective of 10,000 by year-end.
Participating merchants can also work with
Bancomer to design their own customised
programs, sharing the costs of the rewards,
while Bancomer provides and manages the
instant rewards platform.
Bancomer’s special projects team worked
with the platform vendor over a period of 18
months to develop the program. Cards
issued following the March launch carry the
Vida Bancomer logo, and the bank has been
sending them to preferred customers.
Eventually all of the bank’s Visa credit cards
and some of its debit cards will be replaced
with smart cards that include the loyalty
program.
circumstances, giving many of them improved access
to credit, based on a better understanding of their
financial position. It also provides better rewards for
good credit behaviour over time.
The banks have recognised that expanding credit
for the lower-income groups represents an important
opportunity, because credit card penetration is still
relatively low in Mexico. The number of credit cards per
capita was only about 0.11 in 2004, whereas the
penetration of the economically active population is
estimated at less than 28%. There is also room for
expansion of debit card usage, through wider
merchant point of sale acceptance. Currently, the bulk
of debit card usage is through ATMs and merchant
acceptance is limited. Industry observers also point to
commercial card products as another area of
opportunity, since penetration is still low.
Both the government and the banking industry
recognise the need for further improvements to
Mexico’s electronic payments systems. The next
challenge is the low level of banking penetration in
the country. The penetration rate stood at only 43.8%
of the population in 2002, although the ABM has
estimated that three-quarters of the economically
Assessing payments systems in Latin America
Mexico
active population has a debit card. Payroll programs
have led to an increase in the number of cards, but this
approach is not effective in industries with a large
proportion of itinerant workers, such as agriculture
and construction. Another problem is that people with
payroll debit cards use them mainly at ATMs rather
than at merchant terminals, which may undermine the
objective of reducing the scale of the informal
economy. With these challenges in mind, the ABM, the
SHCP and local banks launched the Electronic
Payments System Support Program in 2003 to both
extend the electronic payments infrastructure and to
convince consumers to use it. The government’s
objective includes the promotion of chip cards because
in the future they could enable systems that would
contribute to more efficient tax collection.
A key element of the effort to increase participation
in the formal economy is the Boletazo campaign,
which has a goal of tripling the use of debit cards over
three years. This is a joint effort by the SHCP and ABM,
with the support of Visa and MasterCard. Purchases are
automatically registered in the Boletazo system. There
are daily raffles for substantial prizes, including bigticket items such as cars, as well as smaller items such
as washing machines, blenders and concert tickets.
There is an associated TV game show where
participants are selected from Boletazo vouchers that
they send in. The ABM has supported this campaign
with a series of TV advertisements.
Outlook
The Mexican economy is highly dependent on the
performance of the US market. GDP growth was 4.4%
in 2004 and is forecast to remain stable at an annual
rate of around 3% for the foreseeable future. Personal
disposable income, up by 4% in 2005 and rising by 3%
annually in the next few years, will support reasonably
strong private consumption growth. Changing
spending patterns by an emerging middle class will
also contribute to an increasing demand for credit and
financial services.
Inflation reached 4.7% in 2004, but the central bank
will remain in control and guide price increases towards
a standard target rate of 3%. Lending interest rates will
increase, possibly to double-digit levels, but will
remain at historically low levels. In a stable and friendly
environment, credit will thrive and expand by some 5%
per year, outpacing both GDP and domestic demand.
The new payments settlement systems now in place
will enable new products, especially new types of
online transfers that will take advantage of the
removal of the minimum transaction value in the SPEI.
The central bank is expecting that money transfers will
occur in less than 20 minutes in the near future. Users
will also have access to more information, such as
verification of receipt of a transfer. First, however, the
banks will have to upgrade their own systems to
exploit modernised clearinghouse capabilities more
fully. The new system will also provide the Bank of
Mexico with more reliable information to support
oversight of the payments systems.
Instalment purchases on credit cards are another
relatively new innovation launched by the largest
banks, and this is expected to make an important
contribution to further expansion of credit for lowerincome groups. The banks are also increasing their
efforts to provide expanded credit to small business.
Over the next three years, the banks will make
major efforts to extend the terminal base to reach
small businesses. The ABM’s Terminalisation Fund has
a target of 3.2 billion pesos (about US$280m) to pay
for the installation of 250,000 POS chip-enabled
terminals free of charge in small businesses. At the
end of 2004, there were 65,000 chip-enabled
terminals in place. The program will also put another
50,000 terminals in gas stations, movie theatres and
fast-food establishments. Tenders for the terminals
are expected to go out in mid-2005.
© The Economist Intelligence Unit 2005
37
Assessing payments systems in Latin America
Venezuela
V
enezuela has a population of about 26 million.
Current GDP reached US$109bn in 2004. Rising
oil prices led to real economic growth of 17.3%
during the year, but this was not sufficient to offset
real declines over the previous two years. Per capita
income was US$5,790 in PPP international dollars in
2004, 3.2% lower than in 2001.
The financial sector
The financial sector in Venezuela would offer
considerable scope for development in a stable
economy. But a young population and low consumer
spending power restrain market size. Captive liquidity
has emerged as a result of exchange controls, but the
increase in deposits is only barely positive after
accounting for inflation, and has been directed mainly
to instant-access accounts. The country’s wealthy also
continue a tradition of investing their assets abroad.
Consumer price inflation fell to 22% in 2004 from 31%
the previous year.
Governance institutions
The Central Bank of Venezuela (BCV) is an independent
institution responsible for managing the country’s
monetary policy and for promoting price stability. It is
also the country’s principal source of foreign
exchange, under an arrangement where the state
petroleum company, Petróleos de Venezuela S.A.
(PDVSA), is required to sell its foreign-currency
receipts to the BCV. The Bank operates Venezuela’s
National Payments System (SNP), including the
cheque clearinghouse and a variety of other payments
services.
The Superintendency of Banks and Other Financial
Institutions (SUDEBAN) supervises all of the financial
38
© The Economist Intelligence Unit 2005
institutions. Its main function is to monitor the
behaviour of institutions within its preview and to
notify the BCV of any instances of risks that could lead
to insolvency.
Banks
Venezuela’s legislative framework distinguishes
between several types of bank, including universal
banks, commercial banks, investment banks,
mortgage banks and representative offices of foreign
banks, as well as several categories of non-banks such
as leasing companies and savings and loans entities.
The most recent SUDEBAN report for the third quarter
of 2004 indicates that there are 43 institutions under
its supervision, including 17 private universal banks
and 15 commercial banks (one commercial bank is
government-owned).
Four large universal banks hold about 61% of all
public deposits. Banco Mercantil, Banco de Venezuela,
Banco Provincial and Banesco each claim a market
share of between 14.5% and 15.9%. Four mediumsized banks collectively claim another 15% of the
market.
The number of foreign banks operating in
Venezuela has declined in recent years, reversing the
previous trend. Banco do Brasil, Bank of America, ING
Bank and JP Morgan Chase all closed their Venezuelan
operations in 2001 and 2002, citing cost-cutting as
the reason. Four small foreign banks were sold to local
investors in 2003, in response to growing political and
economic risk. There are now eight banks with
majority foreign ownership, holding approximately
35% of Venezuela’s bank assets. The penetration of
the banking system was estimated at a relatively high
55.4% of the population in 2002 and the proportion of
Assessing payments systems in Latin America
Venezuela
the population with current accounts was 33.9%,
above the Latin American average.
Venezuela
Cards in force
(Number of cards per capita)
Debit cards
Credit cards
2000
Clearinghouse systems
Venezuela’s payments systems are currently in the
process of an extensive modernisation following
consultations with the banking sector in 1998. The
Central Bank operates two payments clearinghouses,
one for cheques and one for large-value transactions.
At the core of both systems are current accounts that
each bank or financial institution holds at the BCV,
known as a single account, which is used both for
interbank settlements and for compliance with reserve
requirements. Financial institutions also use their BCV
accounts to carry out bilateral large-value settlements
such as those for credit card transactions. Following
the 1998 consultations, the BCV implemented a
proprietary SWIFT closed users group, which
institutions could use to initiate same-day interbank
transactions. This system does not operate in real
time, and the BCV manually processes each transfer.
To compensate for this weakness, seven large banks
have set up a private network to communicate
payment information.
n/a
0.10
2001
n/a
0.10
2002
0.27
0.10
2003
0.25
0.10
2004
0.29
0.11
Sources: Central Bank of Venezuela, Superintendency of Banks, Venezuelan Banking Association,
National Banking Council, Centre for Latin American Monetary Studies, Interbank Payment System
Venezuela
Card transactions
(per capita)
Debit cards—data not available
Credit cards
2000
1.60
2001
1.57
2002
1.43
2003
1.24
2004
1.57
Sources: Central Bank of Venezuela, Superintendency of Banks, Venezuelan Banking Association,
National Banking Council, Centre for Latin American Monetary Studies, Interbank Payment System
Electronic payment products
Cheques remain the most important method of
payment in Venezuela, although the use of cash has
increased since 2000, when the banks imposed a
minimum amount per cheque to discourage low-value
transactions. The shift to cash was also encouraged by
a tax on bank transactions implemented in 2001.
Cheques are broadly accepted in the country partly
because of a relatively advanced system of telephone
funds verification, which operates around the clock.
This system recently stopped providing confirmation
services for cheques of less than 20,000 bolivares,
which caused increased popularity of ATM cards. As a
result of these developments, the number of cheques
fell from 4.4 per capita in 2000 to 2.9 in 2004. There
are no consistent official statistics available for
Venezuela
Value of card transactions
(% GDP)
Debit cards—data not available
Credit cards
2000
0.01
2001
0.02
2002
0.03
2003
0.03
2004
0.03
Sources: Central Bank of Venezuela, Superintendency of Banks, Venezuelan Banking Association,
National Banking Council, Centre for Latin American Monetary Studies, Interbank Payment System
© The Economist Intelligence Unit 2005
39
Assessing payments systems in Latin America
Venezuela
Entry-level credit cards
In most Latin American countries, access to
credit has traditionally been a privilege
enjoyed mainly by the relatively affluent
section of the population. Without access to
credit, many people chose not to have a
banking relationship at all, so entry-level
credit can play a role in drawing them into
the banking system.
Where the low-income segment has
gained access to credit, it has usually been
from retailers, which often collect
instalments at the customer’s door. The
success of instalment credit in the retail
sector provided one model for banks
throughout the region to reach out to sub-
prime customers. Their usual approach has
been to integrate instalment payments for
individual purchases into conventional
credit card products. There are three
principal types of scheme:
● Issuer bears risk: The customer negotiates with the issuer to negotiate instalment terms for a particular purchase, and
the merchant receives full payment.
● Acquirer bears risk: The merchant offers
fixed instalments and receives monthly
instalments, with the full amount guaranteed by the acquiring bank.
● Merchant bears risk: The merchant
offers instalment options. The merchant
gets monthly instalments when the customer pays.
Research has shown that in the sub-prime
segment, monthly cash flow is the most
important consideration, and that cus-
payments systems in Venezuela for the 2000-04 period
covered by this white paper. The statistics cited here
come from a variety of sources, including a SUDEBAN
report for 2003.
Credit cards
Credit cards have seen increased use in Venezuela
since the government imposed foreign-exchange
controls in 2001, making credit cards the only means
of access to foreign currency for most people. Credit
cards can also be used for cash withdrawals, using a
debit function known as Domiciliación de Pagos. This
function can be used to initiate pre-arranged or ad hoc
direct debits or credits to accounts at the same bank or
within the private network maintained by seven large
banks. This service is available only to corporate and
individual accounts with relatively high volume.
Venezuela’s 17 universal banks issued nearly 95%
of the total of 2.6 million credit cards in force at the
end of 2003. The four large universal banks alone
control more than 60% of the market, which is
proportionate to their share of public deposits.
40
© The Economist Intelligence Unit 2005
tomers consider banks to be overly bureaucratic. Latin American banks have been acting in both areas. In Brazil, for example, a
leading bank has simplified the application
process for credit cards, in some cases
requiring only proof of identity and
address, and an income as low as one minimum wage. In Peru, banks have reached out
to new customers with special outlets in
shopping malls in low-income areas.
Banks have also been making better use
of credit bureau information by focusing on
the absence of negative reports, since few
new applicants have a credit history. New
products have also been developed that
stabilise cash flow. For example, a leading
bank in Mexico offers a credit card with
instalment payments based on a fixed
percentage of the credit limit rather than
the outstanding balance.
Corpbanca and Banco Exterior, both universal banks,
are the other large issuers, with almost 250,000 cards
each. No non-universal bank had as many as 50,000
cards in force, according to BCV statistics.
All of the large universal banks issue both Visa and
MasterCard products. Some banks also issue American
Express or Diners Club cards. There are also numerous
affinity cards.
Rewards points cards are not as common as in some
other countries, but some banks issue such cards
under private brands. Two savings and loans
institutions, Casa Propia and Mi Casa, also issue a
small number of credit cards.
Debit cards
The banks issue ATM cards that can be used on two
principal networks: Suiche 7B and Conexus. These
systems have been inter-operable since 2000, and at
the end of 2002 there were 4,302 ATMs in the
combined network. Banks promote the use of ATM and
debit cards because the cost of processing is lower
than for cheques. In 2004 there were more than 7.5
Assessing payments systems in Latin America
Venezuela
million cards in force. These cards have limited use
within the country since Venezuela does not yet have a
fully operational system for the electronic clearance of
retail payment instruments.
Smart cards and prepaid cards
No smart cards are currently issued in Venezuela.
Prepaid cards are a fairly recent offering and are not yet
broadly popular. Some banks offer prepaid e-cards that
can be used to make purchases on the Internet, and
some have also begun to offer electronic “vales”
(vouchers). These replace the paper coupons and
stamps used by some companies to provide fringe
benefits to employees. These are used as money, but
they are accepted only for the purchase of certain
goods, such as basic goods or gasoline. These cards are
not linked to a bank account, so can be used by anyone.
It is expected that this type of product will introduce
new users to the concept of plastic money, which will in
turn increase trust in electronic payments systems and
increase banking penetration. Single-purpose prepaid
cards are also in wide use for mobile phones.
Direct credits and debits
Direct credits and debits are widely used in Venezuela,
especially for large-value payments. The system is
limited by the fact that there is no national interbank
settlement system. Seven large banks have created a
private network, which allows direct transfers among
their account holders, but transfers outside of this
system take 48 hours.
Strengths and opportunities
Banking sector officials give credit to the BCV, and its
effective consultations with the industry, for the rapid
implementation of a new electronic clearinghouse
(CCE). The large banks were quick to make the
necessary investments in new technology, and
substantial infrastructure upgrades were implemented
in just over one year. The use of parallel operations
during the transition to the CCE has minimised risks of
disruption by providing time for training staff at all
levels in the new procedures. Industry observers also
credit some larger banks, most notably Banesco and
BBVA Provincial, with helping smaller institutions
through the transition by providing consultation
services.
When it is fully implemented, the new CCE
electronic system will generate considerable benefits
for the economy and for the system’s users. Cheques
will be cleared in 24 hours rather than the present 48
hours, which translates into reduced costs for financial
institutions and the BCV. This, however, is likely to
reduce incentives for using electronic payment
products. Electronic processing will also reduce risk,
since it reduces the size of the float, and it lessens the
risk of human error. Another benefit is more effective
control systems both for the BCV, which will have
access to disaggregated data, and for financial
institutions.
Lower processing costs should lead to lower fees
charged to customers, which could translate into
higher banking penetration, although the banks have
not shown much interest in targeting the lowerincome population, according to industry observers.
Banks will also benefit from a unified payments
system that allows them to perform inter-bank
operations in a quick and cost-effective manner, in
turn enabling them to offer customers a wider array of
products. For its part, the government will benefit
from reduced costs for public transactions, such as the
collection of taxes and payment of social security
benefits.
Improvements in interbank communications are
still in the implementation process and it is too soon
to assess the outcome. Nonetheless, observers
throughout Venezuela’s financial sector say that the
unprecedented process of consultation and planning
that began in 1998 has created the momentum needed
to continue the modernisation of the country’s
payments systems.
The main obstacle to the expansion of credit card
© The Economist Intelligence Unit 2005
41
Assessing payments systems in Latin America
Venezuela
usage is a tax deduction of 4% of the transaction that
goes to the government to cover merchant taxes. If
the merchant is entitled to a refund at the end of the
year, this is paid as a credit against the following
year’s taxes rather than as a cash refund. This
deduction applies only to credit cards.
The biggest obstacle to the efficient operation of
the financial sector is the lack of an RTGS system. The
current SWIFT private network is a product of the BCV’s
tradition of ad hoc solutions, and it imposes both
delays and risks on its participants. The creation of a
real-time system, combined with a clear distinction
between large and small-value payments, will greatly
benefit all financial institutions in the country.
Outlook
The Venezuelan banking industry plans to take
advantage of the new CCE electronic clearinghouse to
introduce new and expanded services in the near
future. The most important will be an expansion of the
existing system of direct debits, which is currently
available only to large-volume customers and only
through certain banks. This has inhibited debit card
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© The Economist Intelligence Unit 2005
penetration and banking industry officials say that
this will be addressed through reforms to the
Domiciliación system, which will be integrated into the
CCE, along with other forms of electronic payment. The
first step will be electronic payroll transfers, which are
expected to be available by the end of 2005. This
reform could lead to substantial increases in banking
penetration and the velocity of payments.
Debit and credit cards are expected gradually to
gain wider acceptance as banks pass on cost savings to
customers and are able to offer more services. In
addition, it is expected that banks will focus on
launching campaigns that emphasise the safety of
using plastic products. The banks are also exploring
the possibility of launching meal voucher cards.
The banks also plan eventually to implement
cheque imaging based on the US Check 21 system. This
will require changes to banking rules to give the
cheque image the same legal status as the original, as
has already been done in some other Latin American
countries. In addition to speeding up processing, this
innovation would provide greater security through
faster detection of fraudulent actions.
Assessing payments systems in Latin America
Conclusion
T
he electronic payments systems in place in the
larger Latin American markets have seen major
reforms since the late 1990s, and in most cases
their performance is close to those found in
developing countries. RTGS systems have been
implemented in all of the payments systems assessed
in this white paper (with the exception of
Venezuela’s), thereby substantially lowering systemic
risk. Paper-based cheque clearinghouses have given
way to electronic systems, and new image-based
electronic systems are now being developed to enable
cheque truncation, in some cases at the merchant
level. New high-value clearinghouses, combined with
modern communications protocols, have enabled
rapid low-risk transactions between larger businesses,
speeding the pace of commerce and driving economic
growth. In addition, revamped low-value
clearinghouses have adapted to accommodate
emerging payment products such as direct credits and
debits, and increased financial system efficiency has
helped banks to introduce new debit and credit card
products.
Benefits to stakeholders
Benefits from modernised payments systems have
accrued to every stakeholder, and they also accrue to
society as a whole by creating economic benefits such
as faster growth. The improved payments
infrastructure is mostly transparent to customers,
since their immediate benefits are most apparent to
financial institutions and governments. From the
perspective of consumers and merchants, the benefits
of financial system improvements are seen mainly in
the form of new and innovative products and services,
especially card-based payment products and online
banking.
Benefits to customers
● A wide range of payment options combined with
immediate access to deposits and lines of credit, as
well as a period of interest-free credit.
● Enhanced financial management tools, including
online account access, automatic proof of payment
and the ability to transfer funds between accounts
electronically.
● Enhanced personal safety and security through
reduced cash holdings.
● Convenience for travellers who use payment cards
with global acceptance, and who manage their
accounts online while away from home.
● Sophisticated cost-control systems for corporate
card users.
● In many cases, benefits from rewards and discounts
from loyalty programs as well as VAT discounts.
● Access to the banking system, and an opportunity
to build a credit history for low-income individuals
who use payroll cards, entry-level credit cards and
other electronic payment products for the first
time.
● Convenient, safe and inexpensive access to
remittances abroad.
● Lower prices in the medium term, as the reduced
costs of retail operations are passed on by
merchants who can capture the economies of scale
of new technologies.
Merchants
● Increased sales from offering a range of payment
options featuring both convenience (debit cards)
and liquidity (credit cards).
© The Economist Intelligence Unit 2005
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Assessing payments systems in Latin America
Conclusion
● Fast and secure transaction processing, with quick
access to definitive payment.
● Reduced costs from automated transaction
processing and record keeping, including postpurchase transactions such as refunds and
exchanges.
● Improved theft and fraud prevention from smaller
cash holdings and sophisticated reporting systems.
● Reduced risk from elimination of store-provided
credit.
● Larger merchants benefit from the ability to
develop customised loyalty programs and build
ongoing relationships with customers. They also
benefit from promotional campaigns sponsored by
issuing banks.
● Merchants who accept payment cards from the
global brands are guaranteed payment by the card
organisation, even in the event of default of the
issuer.
● Merchants in the travel and tourism industry
increase sales by accepting globally branded
payment cards from international visitors. In
particular, hotels, airlines and other service
providers can hold deposits, accept bookings and
payments online.
Banks
● Long-term costs savings through more efficient
operations of both central clearinghouses and
internal bank systems.
● Reduced risks from new RTGS systems, and
enhanced internal financial control systems.
● Reduced payment-processing costs and fraud risks
from displacement of cheques by debit cards.
● Lower-risk extension of credit to lower-income
groups through entry-level credit card products
that can be automatically upgraded as a credit
history is created.
● Emerging payment technologies such as smart cards
that allow banks to offer a wider range of services to
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© The Economist Intelligence Unit 2005
their clients along with more robust security.
● Lower costs that ultimately allow lower fees to
customers, driving increased penetration of the
banking system.
Governments
Governments — both as providers of services and as
guardians of the public interest — are perhaps the
biggest beneficiaries of the recent reforms. The large
reductions in systemic risk that have been achieved
greatly enhance the ability of central banks to manage
national financial systems, and this tends to improve
country risk ratings. Governments have themselves
become major users of electronic payments systems,
and they also have benefited from increased economic
growth.
A detailed discussion of the use of electronic
payments systems by governments is beyond the
scope of this white paper, but advanced e-government
systems are increasingly incorporating both the
collection of taxes and fees and the distribution of
benefits. For example, the government of Colombia is
now routing some payments directly to recipients
through electronic systems. The Brazilian government
launched a new Visa branded payment card in 2001
called the CPGF (Cartão de Pagamento do Governo
Federal), which will replace roughly 27,000 individual
vendor accounts. And several Mexican states are now
accepting payment of taxes using debit and credit
cards.
The use of electronic payment products by
governments has multiple benefits. It increases
transparency and reduces fraud by implementing
automated reporting systems and cutting back the use
of cash and paper receipts. It speeds the flow of both
tax revenue and payments to beneficiaries. It also
demonstrates the benefits of electronic payment
products to users, and draws more people into the
formal economy. Lastly, it greatly reduces the cost of
government financial transactions.
Assessing payments systems in Latin America
Conclusion
Macroeconomic benefits
Some of the most important benefits flowing from the
widespread use of electronic payment products accrue
to society as a whole in the form of a more efficient
economy and faster economic growth.
The availability of faster, cheaper and safer
electronic payment products increases the velocity of
money and reduces friction in the economy. While
these benefits can intuitively be expected to increase
economic growth, analysts have only recently begun
to quantify them. An important study by the AEIBrookings Joint Centre for Regulatory Studies,
published in September 2004, has shed light on this
issue. It concluded that an electronic payments system
costs nations one-half to one-third as much as a
paper-based cash system, and that a shift away from a
fully-paper payments system to a fully-electronic one,
could potentially generate a 1% increase in annual
real GDP growth. While no country could make such a
big change over the short or medium term, even half
that benefit would be considered very substantial.
Moreover, the mere existence of a net social benefit in
addition to private benefits accruing to the parties
involved creates a compelling case for government
promotion of electronic payment products.
Interestingly, the Brookings study points out that
the costs of processing cash transactions are often
under-reported by retailers, since they fail to account
for the full cost of making deposits that should include
the probability of theft, as well as the time required to
count money, to prepare deposits and to visit a bank
branch. The large fixed costs of infrastructure and
training related to electronic forms of payment cannot
be fully recaptured without reasonable economies of
scale. This provides an additional rationale for
initiatives by governments to ensure that sizeable
investments that have already been made benefit the
largest possible number of people.
In Latin America, there are additional
macroeconomic benefits stemming from the ability of
electronic payment products to address some of the
unique problems of the region’s economies.
● Credit and debit cards directly draw people and
companies into the formal economy by giving them
an attractive alternative to cash, especially in
countries that offer VAT discounts.
● Payroll cards increase the penetration of the
banking system, further bolstering the formal
economy.
● Payment cards increase the efficiency of tax
collection by engaging both merchants and
consumers in automated reporting processes.
● Debit cards and other bank products for family
remittances lower transactions costs and increase
the share that reaches the recipient, while ensuring
that the remittance enters the formal economy.
Obstacles
Latin American countries face a number of obstacles
that stand in the way of capturing the full benefits of
electronic payments systems. The most important of
these is low banking penetration. A study in 2002
found that the average banking penetration of 16
Latin American countries was 55.6% of the
population, and the six countries covered by this white
paper ranged from 40.3% in Colombia to 72.2% in
Brazil. The proportion of the economically active
population that is banked is higher, but there are no
recent consistent measures of this factor across
nations. Low banking penetration tends to perpetuate
consumer habits of paying with cash, which in turn
fuels the informal economy, and this is a major
obstacle to more effective use of electronic payments.
Another important obstacle is the entrenched use of
cheques, especially by affluent customers. This
phenomenon is most pronounced in Chile, Colombia and
Brazil, where there is a firmly entrenched practice of
using post-dated cheques as a form of payment. Aside
from the fact that credit is often easier to obtain with
cheques than with credit cards, cheque usage in some
countries is seen as a status symbol because it
© The Economist Intelligence Unit 2005
45
Assessing payments systems in Latin America
Conclusion
demonstrates the ability to qualify for a current account.
Low Internet penetration also hinders a transition
to online payments. This is, in turn, a function of low
PC penetration. Of the six countries studied, Chile has
the highest penetration with 238 Internet users per
1,000 people, followed by Argentina with 112.
Penetration is lowest in Venezuela with 51 users per
1,000 people.
Opportunities
Notwithstanding these obstacles, there are many
opportunities for governments and financial
institutions to take action to drive the transition to
electronic payment products. Methods that work in
one country are not necessarily appropriate in others,
and the examples that follow are not prescriptions.
They are intended to illustrate general approaches
that can be customised for the unique needs of each
market.
Governments can lead by example. Increased
government use of electronic payment products for
procurement, the payment of benefits and the
collection of taxes and fees provides a practical
demonstration of the benefits of these products.
Moreover, exposure to these payment products, to
receive social security benefits for instance, helps
people to become comfortable using them.
Employers and governments can advance the entry
of employees into the banking system by requiring
payrolls to be deposited into bank accounts, or by
otherwise promoting such systems. In many cases,
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© The Economist Intelligence Unit 2005
these arrangements represent employees’ first contact
with the banking system, and they help to increase
their level of comfort with electronic payment
products.
Governments can create disincentives for cheque
use by introducing programmed delays into cheque
clearance systems. The VAT discounts for card
transactions that have been implemented in some
countries also create positive incentives for using
electronic payment products, although their purpose
is mainly to enforce tax collection by merchants.
Financial institutions and governments can also
continue to promote the introduction of emerging
technologies that enable sophisticated payments
systems. Smart cards, for example, reduce fraud and
allow for other benefits of multiple applications.
Financial institutions can also work to promote
expanded terminal networks to ensure widespread use
and acceptance of payment products.
Finally, governments can promote increases in
Internet penetration indirectly by subsidising
infrastructure costs, or directly by providing public
Internet terminals or by subsidising individual
purchases of computers.
All of the countries discussed in this white paper
have made rapid progress over the past decade in
implementing modern payments systems, especially in
developing modern infrastructure. But there is still
more that can be done to exploit this new
infrastructure to generate greater benefits for a wider
number of people.
Assessing payments systems in Latin America
Appendix
Clearinghouse systems
The six countries included in this white paper have all
implemented major reforms to their payments systems
over the past several years. They have all modernised
their cheque clearinghouses, and all except Venezuela
have implemented real-time systems for large-value
transactions.
Argentina
Argentina’s system of financial settlements was
substantially reformed in 1997, when the Central Bank
of the Republic of Argentina (BCRA) established a new
framework for private clearinghouses to modernise the
traditional paper-driven systems. The BCRA also
implemented a new Real Time Gross Settlement (RTGS)
system, which private clearinghouses are required to
use to settle their BCRA current accounts. Two largevalue and two low-value clearinghouses were
established.
The Central Bank’s RTGS system is called Electronic
Payment Methods (MEP). It handles all interbank
transfers, including those made on behalf of clients,
through current accounts maintained by participants
at the Central Bank; overdrafts are not allowed. The
system is based on a single account for both executing
settlements and for complying with the BCRA’s
minimum liquidity requirements. These accounts can
be accessed online in real time to make direct transfers
including those for settlement of intra-day net
balances from the clearinghouses. The BCRA’s system
is unusual in that it designates clearinghouses as
high-value if they settle transactions within 24 hours,
and low-value if settlements take longer, regardless of
their value.
Two low-value clearinghouses have been
authorised by the BCRA:Compensadora Electrónica
(COELSA), which mainly serves banks in the Buenos
Aires area, and ACH S.A., which serves the provincial
banks. Both of these systems operate in a similar
manner, clearing cheques, interbank direct debits,
transfers and other payment instruments. Transfers
include those made using the Internet and ATMs as
well as credit and debit cards. All cheques are cleared
within 48 hours. The ACH and COELSA systems are
interconnected, use similar technological systems and
appear to banking customers as a single national
clearinghouse.
All cheque information is electronically captured,
and clearance is also handled electronically for cheques
below the low-value threshold, below which cheques do
not travel. This amount is currently set at 700 pesos,
which covers about three-quarters of all cheques issued
in the country. Cheques below this amount are always
cleared within 48 hours. Higher-value cheques are
physically exchanged among the banks. Even though
electronic records are used for control purposes, they
do not clear until the actual cheque has been presented
and the signature has been checked. Cheques are
cleared within 48 hours within about 60 km of Buenos
Aires, but elsewhere it can take three to five days. The
Buenos Aires region accounts for about one-half of
Argentina’s cheque volume.
Two high-value clearinghouses were created
following the 1997 reforms. Interbanking (CCI),
created in 1998, provides services to all of Argentina’s
private banks. Provincanje, created in 1999, serves the
provincial banks. Both provide same-day multilateral
net settlement services. They are interconnected and
they operate in parallel fashion under BCRA coordination. Participants must maintain sufficient
collateral with the Central Bank to make transactions.
© The Economist Intelligence Unit 2005
47
Appendix
Clearinghouse systems
Brazil
Reforms to Brazil’s financial system implemented
following the 1995 banking crisis were primarily aimed
at increasing processing speeds. The focus shifted to
risk management in 2002 with the introduction of the
National Payments System (SPB), which includes a
large-value RTGS settlement system operated by the
Central Bank of Brazil (BCB). The SPB achieves
systemic risk reduction by monitoring Central Bank
reserve accounts throughout the day and by providing
a real-time Reserves Transfer System (STR). Overdrafts
to reserve accounts are no longer allowed, and
transaction clearances are delayed if a bank does not
have sufficient funds.
In addition to the STR, four other new payment
clearing systems were implemented as part of the
2002 reforms. They include an interbank net
settlement system, an ATM network, and two debit and
credit card networks. The traditional cheque
clearinghouse called COMPE continues to operate.
In addition to cheques, there are three types of
interbank payment instruments in Brazil. The Credit
Document (DOC) is an overnight interbank transfer up
to a limit of 5,000 reais that supports ATM and
Internet transactions. The Electronic Express Transfer
(TED) was introduced in 2002 as part of the
modernisation process and it enables same-day
settlements. Boletos de Cobrança are bar-coded paper
invoices that allow consumers to pay bills at an ATM,
through Internet banking or at a bank. The physical
document may be truncated by the collecting bank, in
which case the transaction is cleared and settled
electronically.
The Interbank Payments Clearing House (CIP) is
designed for settlements of DOCs, TEDs and electronic
boletos. This is a hybrid system, with net settlements at
the end of the day based on credit orders that occur
throughout the day. Balances are settled through
separate COMPE “linked” accounts at the BCB, and
participants use the STR to maintain a positive balance.
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© The Economist Intelligence Unit 2005
COMPE is a national multilateral net clearinghouse
system for cheques, DOCs and bloquetos. Cheques may
be truncated under bilateral agreements, while other
documents are always truncated. There are two
sessions each operating day for cheques over and
under a threshold value, currently 300 reais. “Over”
cheques are cleared on the same day and “under”
cheques are cleared overnight. Net balances are
settled at the end of each session via the STR and all
payments are irrevocable at that point.
Chile
Chile’s payment infrastructure has been substantially
modernised following a 1997 amendment to the
General Banking Law. Implementation was gradual
because of the lingering problem of subordinated
debt, which continued to affect financial institutions.
A major push towards modernisation was initiated by
the Central Bank of Chile (BCC) in September 2000.
The Central Bank is in the process of implementing
a new RTGS system. When it is fully operational in
September 2005, the system will work in conjunction
with a privately owned large-value clearinghouse
(CCPAV), managed by Compensadora Bancaria
(Combanc). It uses interbank cheques for overnight
net settlements. To smooth implementation, the
Association of Banks and Financial Institutions (ABIF)
has set up a temporary parallel large-value net
clearinghouse called Cámara de Cobranza, which gives
the banks a way of connecting to the RTGS.
Since 1985, ABIF has operated a small-value
multilateral net clearinghouse called the National
Financial Communication System (SINACOFI). This
system has been gradually modernised, but it is still
only partially automated. Paper cheques are sent to an
outsourced processor, which issues a report showing
the total transactions of each bank. This goes to
SINACOFI, which analyses it overnight for settlement
the following morning in most of the country’s
regions. The Central Bank is expected shortly to issue
new rules to enable total automation, and SINACOFI
Appendix
Clearinghouse systems
has already installed an Internet-based system to
facilitate communications throughout the country.
Colombia
The Central Values Deposit (DCV) was established by
the Bank of the Republic (BanRep), Colombia’s central
bank, in 1992. This is an electronic high-value net
system, with settlements occurring at the end of each
day. At that time there was also a real-time system for
institutions that did not maintain an account with
BanRep, and in 1998 this was expanded into a full
RTGS system, in the midst of the financial crisis. While
the implementation took a mere 15 days, the
transition period was difficult because the system was
not ready for the shocks imposed by the crisis. The
relationships between the banks and BanRep are
maintained through single deposit accounts (CUDs)
used for both clearance and reserve purposes.
BanRep also administers an automated low-value
multilateral net clearinghouse called the Electronic
Cheque Compensation System (CEDEC). The banks
send their cheques to outsourced processing
companies that convert 90% of these cheques to
electronic form for transmittal to CEDEC, which settles
the resulting net payments through BanRep accounts.
Payments are settled by noon on the day following
presentation of the payment instruments to CEDEC.
The government has promoted the use of electronic
payment products, and BanRep also administers the
National Interbank Electronic Compensation System
(ACH-CENIT). This system was created in the wake of
the 1998-99 crisis to encourage the development of
electronic payment products, especially direct debits
and credits. It is primarily focused on public-sector
payments. It is in the process of modernisation and all
settlements will be intra-day by the end of 2005.
ACH Colombia, operated by a group of private
financial institutions, provides a second clearinghouse
for electronic payments. It is focused mainly on retail
operations and high-value interbank transactions.
Volume totalled 17 million transactions in 2004. ACH-
CENIT handles far fewer transactions, but accounts for
nearly one-half of the value of payments since it
handles relatively high-value government payments.
ACH Colombia recently launched a new interbank
network for Internet-based transactions called
Electronic Services Payment (PSE). The PSE serves as a
mediator between online merchants and acquiring
banks, and customers can pay for purchases either
from their bank accounts or with a credit card.
Mexico
Mexico began a substantial modernisation of its
payments settlement systems in 1994. At that time,
the Bank of Mexico, the central bank, operated both
an electronic interbank settlement system and a
manual cheque clearinghouse. A principal objective of
the reforms was to replace large-value cheques with
electronic transfers through the Bank of Mexico’s
existing RTGS system, the Account Holders Service
System (SIAC). The SIAC had been launched three
years earlier, but it lacks the ability to include
payment instructions for third-party transactions.
The Bank of Mexico filled this gap in 1995 with the
launch of the high-value Extended Electronic Payment
System (SPEUA). This system is now being replaced
with an upgraded system, including a new
technological platform that went online on March 1st
2005. The Interbank Electronic Payment System
(SPEI), also launched in March, enables digital
signatures, integrates a sophisticated messaging
protocol, and increases capacity from 5,000 to 20,000
payments per day. Participants can settle transactions
in real time through SIAC, or they can extend lines of
credit to each other and settle at the end of the day.
The Ps50,000 minimum transaction value has also
been removed.
Cecoban, Mexico’s cheque clearinghouse, was
privatised in 1997, and a multi-phase modernisation
program was launched. The upgrades included an
electronic settlement system known as Pago
Interbancario, which provides electronic processing
© The Economist Intelligence Unit 2005
49
Appendix
Clearinghouse systems
for nearly all transactions. Net balances are cleared
though the Bank of Mexico’s Clearinghouse System
(SICAM), which is operated by Cecoban. This is a net
settlement system for electronic transactions, with
balances cleared through the SIAC on the day
following the transaction. In 2002, Pago
Interbancario was transformed into TEF. At the same
time, direct debits (DOMI) were introduced.
Also in 2002, the first phase of a new cheque
truncation and imaging system was launched, starting
with the design of the cheque image and the
introduction of a standardised 18-digit banking code.
The second phase of the truncation system began in
2003, with preparations for image exchange
operations. At least one Mexican bank has already
begun truncating cheques at the merchant level.
Venezuela
Venezuela’s payments systems are currently in the
process of an extensive modernisation following
consultations with the banking sector in 1998. The
Central Bank of Venezuela (BCV) operates two
payments clearinghouses, one for cheques and one for
large-value transactions. At the core of both systems
are current accounts that each bank or financial
institution holds at the BCV, known as a single
account, which is used both for interbank settlements
and for compliance with reserve requirements.
The low-value cheque clearinghouse uses a semiautomated multilateral net settlement arrangement.
Cheques are presented to the BCV physically and on a
computer diskette with aggregate information for
each day’s operations compiled at 6 pm. The BCV
processes this information electronically and returns
cheques that could not be processed by the next
morning at 6 am. Where possible, the banks resolve
the irregularities and re-submit cheques to the BCV by
2 pm. The BCV then processes debits and credits to
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© The Economist Intelligence Unit 2005
each bank’s BCV account to settle the net balances
between 3 pm and 3.30 pm on the second day.
Financial institutions also use their BCV accounts to
carry out bilateral large-value settlements such as
those for credit card transactions. Following the 1998
consultations, the BCV implemented a proprietary
SWIFT closed users group, which institutions could use
to initiate same-day interbank transactions. This
system does not operate in real time, and the Central
Bank manually processes each transfer. To
compensate for this weakness, seven large banks have
set up a private network to communicate payment
information.
Large-value payments account for an estimated
90% of all payments in Venezuela, but there is no clear
distinction between high- and low-value payments in
the BCV’s clearinghouse system. The Central Bank has
announced plans to establish a definition for highvalue payments and to process them through a
separate channel. This will be a preliminary step
towards the establishment of an RTGS system for
large-value payments, which will eventually replace
the present SWIFT technology and private bankoperated networks. This would eliminate the high-risk
float that currently exists in both the cheque and
SWIFT systems.
Implementation of a new BCV-operated electronic
clearinghouse for cheques began early in 2004 when
the banks started replacing cheque numbers with 20digit client numbers using magnetic ink. Known as the
Electronic Clearing House for Cheques and Other
Means of Payment (CCE), the new system also
modernises the means by which financial institutions
and the BCV exchange information, facilitating all
types of interbank arrangements. The BCV began a
trial of the new system in early 2005, running both
systems in parallel to work out the bugs before full
implementation, which is anticipated in mid-2005.
Whilst every effort has been taken to verify the accuracy of
this information, neither The Economist Intelligence Unit
Ltd. nor the sponsor of this report can accept any responsibility or liability for reliance by any person on this white
paper or any of the information, opinions or conclusions set
out in the white paper.
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