The Financial Services Advisor reported on Brazilian Finance Minister Fernando Haddad’s recent announcement regarding the government’s actions to enhance consumer credit terms in Brazil, where credit card interest rates are excessively high. The publication featured a Q&A with some experts in the matter, including John Price, managing director of AMI, and Lindsay Lehr, managing director of PCMI.
Here is what AMI & PCMI experts said:
Banking greed is too simplistic an explanation for Brazil’s onerous credit card interest rates. Consumers are encouraged by retailers, employers and socially to rely on credit to buy anything beyond daily expenses, in the form of ‘parcelados’—installment payments that stretch the spending limit of credit cards. Retailers offer parcelados to sell products to a consumer base with little savings. Card-issuing banks typically don’t earn interest on parcelados, choosing to subsidize them by charging high interest on revolving credit card debt. High delinquency rates generate additional losses that must be recouped by revolving credit revenues. The ability of banks to earn money on credit cards is abating with time. The growth of fintechs, payment companies and buy-now-pay-later (BNPL) lenders is eating away at the consumer lending dominance of banks. Some of these new competitors offer credit to consumers with little or no consumer-credit data. Their low overhead cost structures and strong financial backing enable them to extend credit to higher risk customers, tapping into a chronically underserved market. If the government successfully caps revolving credit card interest rates, then banks will have to either end their support of the very popular parcelados or stop providing credit to the lower-middle class. Being cut off from credit will prove unpopular with millions of consumers, though a small number may be welcomed by emerging lenders found in the payments industry, including Mercado Crédito, backed by Mercado Libre, Latin America’s largest e-commerce operator.
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