If you had asked me a year ago what the credit and debit card industry was like in Brazil, I would have said that it has always faced major challenges - many of them just down to the credit availability and culture of the country. Due to low banking penetration, cash is still king with much of the population. Credit is scarce and credit card availability is patchy with cards limited in their differentiation. According to the Brazilian Central Bank, approximately 40 million citizens in Brazil have no access to any banking services. The bank penetration rate is rising consistently over the years but it is still low when compared with other more developed countries. When considering consumer credit, Brazil still ranks behind other comparable, emerging markets and also behind other more developed countries. This is all set to change this year, however, with the wheels set in motion which will incentivize merchants to not only encourage their customers to use cards, but also use them as a channel to increase customer loyalty.

New regulation coming into effect on July 1st is breaking down the barriers for the card market. This regulation is set to make credit usage more appealing not only for merchants, but also consumers. What will this mean? Networks and point-of-sale terminals (POS) will have to be interoperable and this will allow the merchant to have a single POS device for all cards.  This is a welcome change since previously merchants had to deal with the complexity of providing separate POS devices for each different card type customers would potentially use, including Visa, Master Card, AMEX and Diners club. The new regulation also lays the groundwork for a national domestic debit card which is set to be launched this year. This will make using a card for low value transactions much more appealing. Additionally, the affiliation process will now be opened up, meaning that banks and merchants will be able to choose who they use as acquirers.

All of this change is making for an increasingly competitive marketplace. This, combined with an expected 6% GDP growth in Brazil expected this year (according to IBGE), means that there is tremendous potential for merchants to utilize cards in a marketplace that is only in its early stages of development. Increased competition also means that merchants need to think longer term about how they can differentiate themselves and take advantage of the opportunity for growth. I see the introduction of a loyalty program as a crucial way to encourage an ever growing customer base in Brazil to increase the number of card transactions. More importantly, a loyalty platform which enables merchants to offer a personalized shopping experience and rewards card holders will be crucial to encourage Brazilian shoppers to make payments through this new channel. The July 1st  regulation and untapped potential means that banks or merchants that don’t get on board will be missing a chance to find an innovative way to communicate with their customers and more importantly increase average card spend – which is an opportunity too good to miss!