The Latin American Payments Blog
In our line of work, cross-border payments processing, we talk a lot about the benefits of accepting local credit cards in LATAM – particularly in countries like Brazil, where only 6.5% of the population has access to international cards.
But this begs the question: What is exactly the difference between a local and international card?
This article seeks to explain what divergences consumers may see between local and international cards, and why local cards are so prevalent in LATAM – and how you can best position your business in the region based on this knowledge.
What’s the difference?
Have you ever really taken a look at your credit card and where you’re able to use it? If you have one with a major company, like American Express, Visa, Discover or MasterCard, you might have assumed that it’s a card you can use anywhere you want, but that’s not necessarily the case. That’s because there’s something called ‘local credit cards’ which are actually only able to be used in the country from which they originate. These are common in many countries around the world, however those coming from the US may not be as familiar with this topic, as credit cards generally issued in the US are enabled for international purchases as well.
However, globally, international credit cards are not that prevalent – and in fact in Brazil they only make up 6.5% of total credit card owners. As such, we know that approximately 90% of online purchases that are made in the country use a national payment method rather than an international one, and only 0.1% of those are from debit cards.
We’re going to take a look at the landscape of credit cards in Brazil, the differences between the two types, and what you should consider when determining what payment options your business accepts in Brazil.
Some points of differentiation between local & international cards
Two key features of international cards, that set them quite apart from their local counterparts, are the safety features built in and where you can use them.
- Advanced Safety Features – There are a number of different safety features that are standard in international cards, primary among them, 3DS — a security feature that triggers multiple checks amongst stores, acquirers, banks and issuers, and utilizes security tokens at the point of sale to protect against fraudulent activity. While many issuers have implemented this in Brazil, most e-commerce stores have not, so this won’t be accessible for local cards.
- Global Acceptance – For individuals with international cards, they can of course use them around the world, as they are going to be more widely accepted. While international cards are more widely accepted around the world, they are also far more difficult to get for an individual, and therefore not as widely used as local cards. This is an important distinction for merchants doing business around the world to take into consideration.
So, why are local cards so popular in Brazil?
- Lower Fees – In general, local cards are going to have lower fees for ownership than an international card. For the benefit of being able to use that card anywhere, the credit card company pays a premium, so the end-user sees some of the cost, as well. With a local card, one can expect lower annual fees (or none at all,) making them even more attractive to a wider population. Beyond that, if users pay for a transaction with an international card, they must pay the IOF (Imposto sobre Operações Financeiras,) which increases the transaction by 6,38% to the user.
- Easy Access – Getting a local credit card is generally much easier as well, as there are fewer barriers to entry created by card providers because the stakes are significantly lower, and therefore risk is reduced.
For all of the reasons listed above – local cards are significantly more popular than international cards in Brazil. They are easier to get, largely the only card really needed in the country, and often have lower fees, so are overall more attractive for consumers that are primarily buying nationally anyway.
Some things to know about Credit Cards in Brazil
Types of Cards – Brazil has of course, the standard schemes found around the world, in addition to a few schemes that are particular to the country. Visa and MasterCard are the most common, and they’re names that are known internationally. But national Brazilian brands like Elo and Hipercard are extremely popular as well. Most recent data shows that 35M people have Visas, 55M have MasterCard, 3.3M Hipercard, 3.9M Elo, 143k Diners, 408k Amex.
As further noted below, just because a card is labeled Visa or Mastercard, doesn’t automatically make it an international card. International cards certainly are available in Brazil, however they are used by such a small part of the population, that they are not a payment option to be counted on for significant revenues if you are looking to grow your business in Brazil.
Installments – The majority of Brazilians prefer to pay in parcelado, or installment payments, as a way to purchase via e-commerce, and this option requires local acquiring. Approximately 45.8% of purchases in 2018 were made via installments. Installments means that the customer purchases the item and pays a set amount every month until it’s paid off. This option should be offered by all companies doing business in Brazil, however installments can only be paid for with local credit cards–yet another reason to accept local options.
Not All Visas Are International (And Other Companies Too)
A common misconception among consumers and merchants is that just because a credit card is branded with a specific company that is international, it’s an international card. The same challenge arises for merchants: you may think you are accepting all kinds of Visas (local and international) because you accept International via your site, however without a specific implementation of local payment products, your site is likely only accepting the international cards from these schemes.
There’s an important distinction to make between an issuer and the scheme – the schemes we all know and recognize (like Visa, Mastercard etc.) are the parties that actually operate the “behind the scenes” payment processing of transactions. The issuers, like Chase or Bank of America, are the financial institutions that provide (issue) the cards themselves. So, an issuer of a local bank can therefore work with an international scheme like Visa to develop a card that is both local but may appear to an untrained eye to work internationally. Buyers & merchants beware!
Since Brazilian credit cards are local cards, if a customer gets a local credit card in Brazil, even if it’s on a Visa or MasterCard scheme, they can’t use it anywhere but Brazil and not in any currency other than the Brazilian Reais (BRL). This becomes particularly problematic for foreign operators wanting to sell things in Brazil — if you don’t offer prices in BRL and as a “local” product, all of those local card holders won’t be able to buy the services offered.
If you’re going to be setting up shop in Brazil you need to use local processing, either by setting up a local entity in Brazil or leveraging a cross-border PSP like epag to run your processing for you. This is the way you’ll have the ability to accept domestic and international credit cards.
In general, there are a number of differences between local and international credit cards, as we have outlined here, and why they see such popularity in Brazil. The main takeaway is that there are quite a few options within both local and international cards, but ultimately, local cards are the key to success in Brazil — to accept local credit cards, maximize your audience and revenues in the country, and avoid setting up a local entity yourself, get in touch with us here for a consultation on how we can help you grow your business.