Credit transactions in Brazil have seen a double digit year on year growth but credit cards are still only available for less than half of the population. In this article we will be looking at the current scenario as well as outlook for credit in Brazil.
Brazil became known as an example of an economy that was boosted by the growing consumption power of its population despite the 2008 global crash. The country has overcome its crisis in the 1990’s and became a fast-growing nation.
This growth was based on many factors. Strengthening of the local currency, Real; keeping inflation under control and managing insolvency were some of them. But the Brazilian economy has widely benefitted from the phenomenon known as the “rise of the middle class”.
With lower unemployment rates, growth in wages, inflation and interest under control, consumption naturally increased. But this increment was substantially larger for the poorer share of the population.
Many that initially could only afford basic goods began to purchase luxuries, like costly electronics and more sophisticated home appliances. The purchase of such items, in Brazil, was made possible mainly due to payments being made in a large number of installments and because of credit availability as well. Evidence shows that Brazilian consumers from classes C, D and E are responsible for 60% of the active credit cards in Brazil.
Current Brazilian Credit Scenario
From the mid 2000’s until 2011, the concession of credit for consumers happened without many restrictions. Pre-approved credit was one of the most used strategies to attract consumers by companies. This growth rhythm eventually halted, but credit cards remained as one of the most used payment methods.
Data from Banco Central do Brasil (BACEN, or Central Bank of Brazil) shows that around 5 billion transactions were made in Brazil during 2013 using credit as the payment option. This sum represents a growth of 12,2% in comparison to the previous year.
Not only has the number of purchases using credit grown but issuing credit cards as well. There was a 7,3% increment in the amount of active cards in 2013, compared to the year before; this represents 87,5 million active credit cards in Brazil.
Even with the slower economic rhythm, expenditures have not stopped growing. According to Associação Brasileira das Empresas de Cartão de Crédito e Serviços (Abecs, or Brazilian Association of Credit Card and Service Companies), nearly BRL 537,3 billion was transacted via credit cards in 2013. When compared to 2012, it is possible to detect a growth of 15,5%.
Alternatives and Cases
One of the main reasons why Brazilians use credit cards is the availability to pay for products through installments. This action might represent a real problem for some, since insolvencyand debt are not unusual results.
But it is undeniable that a large share of the population could only access certain goods through installments. Having this in mind, companies have been designing different strategies to attract customers, like the previously mentioned pre-approved credit.
Another example is when retailers and companies in general issue credit cards for customers. Some Brazilian brands offer benefits - like additional deadlines to pay bills, special discounts and giveaways to attract clients.
Trends and Forecast for the use of Credit in Brazil
The general expectation is that credit cards will remain one of the most used payment methods in Brazil, despite the deceleration in consumption observed in Brazil after mid-2011. The growth rate of credit use has dropped over the last four years, but has never been inferior to two-digits.
The projection for 2014, made by Abesc, is that BRL 619,42 billion will be transacted until the end of the year, which would represent an increment of 15,3%. This same entity - as well as companies in general - believe that the growth rate will keep decreasing, but will certainly stay above 10%.