SAO PAULO, Brazil - While the Justice Department battles MasterCard and Visa over whether U.S. banks should be allowed to issue American Express and other brands, credit card issuers here are touting the benefits of an open market.
American Express opened its network to banks outside the United States in 1996 through its Global Network Services program, and it has signed more partnerships with banks in Brazil than any other country. It is possible that if the Justice Department gets what it wants out of the antitrust trial the U.S. card market could get to look more like Brazil's.
American Express now has issuing agreements with BankBoston, the Brazilian subsidiary of FleetBoston Financial Corp; Banco de Credito Nacional, the first bank in the world to issue Amex cards, now owned by Banco Bradesco; HSBC Bank Brazil; and Sony Brazil, a finance arm of the Japanese electronics giant.
The card industry in Brazil is still in its early stages - only about 11 million of the nation's 170 million people have credit cards, though most have two or more in their wallet - but banks here say they want to offer their customers all three main brands with the hope that these people will then keep their total card business at one bank.
"Our customer has an average of three cards in their wallet because they want to be secure that they will be served by a credit card at every merchant," said Marcos Almeida, executive director and general manager of credit cards at BankBoston Brazil. "We decided to sign a partnership with the three brands so we could serve our customers in their total needs within the market."
American Express' ability to issue cards with banks outside the United States has been a major point of contention throughout the antitrust trial.
The Justice Department has used examples of successful partnerships overseas to prove that Amex should be able to follow the same practices in the United States. Lawyers for MasterCard and Visa have continually questioned the relevance of comparing very different international markets to the United States and have tried as much as possible to keep the discussion out of the trial.
The Brazilian market is very different from the U.S market. There is virtually no direct mail advertising, and most people apply for cards at bank branches. Because of the nation's steep disparities of income, only 46 million people have bank accounts, leaving a fairly small target market for card issuers.
In addition interest rates range from 10% to 12% a month, so few cardholders revolve a balance, and banks face more pressure to reap income from annual fees and interchange.
Because Brazilians rely so heavily on their banks, American Express is more dependent on them than it would be in the United States, bankers say.
"In Brazil, the banks are the ones who have the relationship with the customer, and they develop their own strategy based on the customers' needs," Mr. Almeida said. Because banking in Brazil is so relationship-oriented, American Express "really needs the banks here."
Unlike the U.S. credit card market, where people get solicitations from hundreds of issuers and have little loyalty to any, Brazilians build strong relationships with their banks and are skeptical of issuers without a strong name brand.
Despite extensive advertising campaigns and ubiquitous signage, the Visa, MasterCard, and American Express brands mean less to consumers in Brazil than the names of major banks.
"Here, banks are the payment gateways, not the acceptance marks," said Candido Leonelli, director of special projects at Banco Bradesco. "In Brazil, Visa and MasterCard would not be able to force banks to do anything."
Of the 3.5 million cards in Banco Bradesco's portfolio, only 100,000 are American Express; about 600,000 are MasterCard; the rest, Visa.
Though American Express provides a very small piece of Bradesco's card business, Mr. Leonelli said it is important to maintain the relationship because Amex is a leader in certain areas, like corporate cards. "In some niches, you need Amex," he said.
BankBoston, the latest financial institution to sign an issuing agreement with American Express, is using the ability to offer all major card brands to increase customer loyalty.
In April it started issuing BankBoston-branded cards on all three payment networks. (Previously, the only general purpose card it offered was Visa.)
All points earned on any BankBoston card are compiled into a single loyalty program, which encourages people to carry only BankBoston cards. Points can be used toward a variety of travel- and entertainment-related rewards, such as trips on 16 airlines with no blackout dates.
BankBoston said that since the program was begun most of its customers have signed up for at least two cards. Each card has an annual fee of about $78, but customers get a 50% discount on their second card.
"Since we've started offering all three flags, more of our customers are leaving their other issuers to consolidate at one bank," Mr. Almeida said. "We're making customers more loyal to our brand."
BankBoston also issues General Motors and United Airlines cards. The General Motors card is offered as both a MasterCard and a Visa, and Mr. Almeida said the bank is developing a plan to offer it on American Express' network. The United card is only issued as Visa, but BankBoston plans to extend it to the other brands.
The ability to offer all the payment brands is a major part of BankBoston's strategy to increase its market share, Mr. Almeida said.
The bank issues only 2% of the cards in Brazil, but it generates 5% of the sales volume because it caters to upscale clients who typically charge more. In the next two years it plans to double its transaction volume and the number of cards it issues.
It recently launched an advertising campaign that touts its ability to offer all three payment brands. Prime-time television spots show upscale consumers traveling to New York with a BankBoston American Express card, to Paris with MasterCard, and to Cairo with Visa, all the while earning miles in the same program.
People in Brazil, as elsewhere, typically carry several cards to ensure they have a payment vehicle at every site. Though it has a relatively low level of acceptance in Brazil - Amex would not specify the total, but it is estimated at about 30,000 merchants - bankers say that Brazilians want the card when they travel overseas.
Amex charges most merchants 5% of purchases to accept its cards in Brazil, whereas Visa and MasterCard charge 3.7%.
Visa is accepted at 600,000 merchants, and MasterCard at 400,000, according to Visa Brazil. The disparity stems from the country's history of nonduality.
Until 1996 MasterCard had an exclusive agreement with an issuer called Credicard, which is owned by Citigroup, Bank Itau, and Unibanco.
All the other banks issued Visa, which gave the brand broader market share and recognition. Then Unibanco acquired Banco National, a major Visa issuer, and MasterCard was forced to open up its network.
Around the same time American Express started Global Network Services, which resulted in a completely open market.
Gastao Mattos, marketing director at Visa Brazil, said it does not matter whether American Express can work with banks because "Amex's penetration is so small. The main necessity of banks in Brazil is already fulfilled by Visa and MasterCard."
Visa said its main goal in Brazil is to increase acceptance and to encourage more people to use credit cards, instead of the local method of obtaining credit through predated checks. Visa is used in only 3% of purchases, but it expects to increase that volume by 50% this year.
"Our main competitor in Brazil is checks and cash, not MasterCard and American Express," Mr. Mattos said.
