Latin Americans appear riveted by the prospect of shopping on the Internet. Their telecommunications industries are deregulating, Internet connectivity prices are declining, and gradually fattening wallets are getting more PCs into their hands. One indication of the potential boom: there were 10 million Internet users in Latin America this fall, with online transactions growing at one of the highest rates in the world and expected to top $1 billion (U.S.) this year, according to the Santiago Chamber of Commerce in Chile.
Still, Internet use has a long way to go, and while consumers increasingly want to shop online, many say they're scared stiff about providing credit card details on the Internet, fearing someone will obtain the information and use it to make fraudulent purchases-a concern hardly unique to Latin America.
Unlike U.S. banks, however, financial institutions in Latin America are moving aggressively to put credit cards specially designed for use on the Internet into their customers' hands and to convince those consumers the cards offer enhanced protection against fraud, in addition to compensation if some type of fraud does occur.
One of the pioneers in this drive was Brazil's third-largest bank, Uni o de Bancos Brasileiros SA (Unibanco), which has issued over 500,000 online credit cards that it calls "e-cards." The e-card is solely electronic, so it can't be stolen and used in the physical world. The e- card does include a name and number, but, if someone steals that data, any purchases they attempt to make are highly unlikely to be authorized; and if they are, the bank pays.
Marcelo Tonhazolo, technology director for Sao Paolo-based Unibanco, explains that e-card's extra protection was achieved by implementing a monitoring tool called Falcon, from HNC Software Inc. of San Diego, CA. The neural network-based software understands buying patterns and detects whether a consumer's card purchase is atypical.
Further, when a consumer purchases a product online, the vendor asks Unibanco to verify the purchase. The bank's e-card customer is sent an email informing him of the purchase, ensuring that any fraud will be detected. If a consumer says he did not make the purchase, Unibanco will remove the charge from the credit card bill.
"If anything happens, we pay for it," says Tonhazolo. "Our motto is: 'e-card, don't stay home without it.'"
Tonhazolo says the push for the e-card came from Brazilian consumers, many of whom asked for something safer than a regular credit card for online purchases, as well as for lower credit lines. E-card customers get a three-month test drive, after which they pay a $16 annual fee-below the $30 annual fee for the cheapest physical card in Brazil, says Tonhazolo.
He says he expects Brazilians' online use of both regular credit cards and cards designed especially for the Internet will continue to grow. As an indication, he says, rival Brazilian bank Banco Itau introduced a card similar to Unibanco's in September, approximately one year after Unibanco's e-card launch. Meanwhile, a Paraguayan bank, Interbanco, has also begun issuing something akin to Unibanco's e-card.
By year's end, Unibanco hopes to double the number of cards issued, to 1 million, and boost the number of active cards from 30,000 to 100,000. This past October, the institution began distributing the e-card in branches; previously it only sold the cards over the Internet.
Adjustable credit limits
Like Unibanco, Mexico City-based Banco Nacional de Mexico (Banamex) now offers a card for the Internet, in another example of the region's drive to quash all fears of buying on the Internet. In early September 2000, the bank introduced the Klic Card, an electronic card that can only be obtained on the Internet and is only offered to Banamex customers who already bank electronically and have a Banamex credit card.
Banamex issues a special credit card number and security code for the Klic Card, which also has an expiration period that differs from that of the bank's physical-world credit cards. Clients receive the Klic Card with a credit limit of zero; however, prior to a purchase online, consumers input a credit limit that covers the purchase. Then, following the purchase, the client can set the credit limit back to zero, assuring he is billed only for the product he just bought and scotching attempts at hanky- panky with his card.
The maximum credit limit that Banamex clients can set is equal to the limit they have with their physical-world card.
Ignacio Morales, manager of credit cards for Banamex, delights in customers' reception of the Klic Card. Six weeks after its launch, more than 6,000 were in use, vaulting past the bank's estimate of 5,000 users after one year. Morales credits the Klic Card's security for much of its success.
"In Mexico," he says, "there is a strong fear of using the (same) credit card that you use in the shopping mall to buy something on the Internet. Addressing that fear, we provide a way for you to use your card more safely."
Chief users of the Klic Card are young consumers who, particularly in Mexico, often struggle to qualify for a credit card due to the country's tight restrictions regarding variables such as credit history and provable income. The card is free for Banamex credit card clients, who pay approximately $30 (U.S.) per year for the bank's Classic card and about $50 for its Gold card. Morales believes the number of Klic Card users may surge, given that Mexico's Internet population is at 3 million and growing. The bank also has a large network through which it can troll, with more than 2 million credit card users and 200,000 clients who use BancaNet, its Internet banking site.
The Klic Card launch hasn't been problem free however.
"We lack a bit of communication," says Morales. "People at first don't understand. They get the Klic Card and go to shop at the Internet and they don't understand that they must assign a value. But, once they do it, they think it's a cool gadget." Morales remains confident and says initiatives such as Banamex's are a natural in Mexico, a country in which trust is difficult to earn.
Chile's tight security
Chile, too, has seen a spurt of banks offering credit cards for online purchases, with extra security as the linchpin. The trio of BankBoston Chile, Banco de A. Edwards and Banco de Chile were first out of the gate when they started pushing this type of credit card about a year ago.
Today, "All banks want to have an e-card in Chile," says Juan Pablo Pastorino, manager of products and services at Santiago-based BankBoston Chile.
Responding to customer demand for a secure online credit card, BankBoston launched the Web Card in October 1999, spurring competitors to do the same. "There are many e-cards here," says Pastorino. "Web Card was the first and then the others were born as copies."
BankBoston's Web Card, which includes a magnetic band and can be used for non-Internet purchases, provides consumers with more security online than BankBoston's MasterCard Gold does. While the Gold card lacks a credit limit, Web Card provides a maximum credit line of $1,000. Further, BankBoston reviews Web Card purchases daily, calling their customers if something suspicious appears. If a consumer says she did not make a purchase with her Web Card, the bank removes the debit as soon as possible to make the customer "feel secure and calm," says Pastorino. Then the bank contacts the vendor to investigate the problem. With the Gold card, it can take more than a month to resolve disputed charges.
Of BankBoston Chile's 36,000 total clients, about 10,000 have been won over by the Web Card, compared with its 25,000 Gold card users. However, while the Gold card is free, the Web Card costs about $16 a year. BankBoston's managers believe Web Card has much room for growth.
BankBoston Chile began offering Web banking services in August 1999, and now receives 120,000 monthly "visits with transactions" to its private Internet site.
BankBoston's local rival in Santiago, Banco de A. Edwards, began offering its online credit card, the "e-card," in late 1999 and now has 8,000 users. Oscar Ballarin, product manager at the bank, says 30% of Banco de A. Edwards' clients visit its Web site, which sees a total of 50,000 visits monthly. Ballarin credits some of the interest in online shopping to Chile's telecommunications service. "Chile, with its high level of telecommunications, is a leader" in offering online credit cards, he says. "Connectivity costs to the Internet are relatively low in Chile, compared with other countries in the region; it is less onerous for clients to enter the Internet in Chile."
Ballarin says the majority of Banco de A. Edwards' clients have a physical credit card and can obtain the e-card for free. Customers who don't have one of the bank's credit cards can obtain an e-card for about the same price as the bank's regular card. Clients set a credit limit at which they feel comfortable, and the bank covers any losses due to fraud, although Ballarin says this has not yet been necessary.
Demand for Banco de A. Edwards' e-card is hamstrung, however, because few merchants in Chile are online. The bank has found that most Chilean consumers want to read literature and then buy books and other information online, but with a dearth of online Chilean vendors, most have to turn to buying products outside the country. This has led the bank to work with Santiago-based eShopEx to enable Chilean shoppers to buy products from U.S. firms that do not make international deliveries. The eShopEx service provides individuals a private mailing address in Miami at which they can receive purchases made from U.S. vendors such as The Gap, Macy's, Disney Store, Orvis and The Sport Authority. Of course, eShopEx then delivers the products to clients.
Will merchants come?
The demand for eShopEx highlights the dilemma Latin America as a whole faces in making online card use a way of life. Pastorino explains why Internet purchases in Chile have stagnated. "There are very few commercial offers on the Internet in Chile. Commerce will increase if the economy improves to permit small and midsize businesses to invest in Internet business."
Indeed, while Chile's economy is expected to grow over 5% for all of 2000, that growth follows a year of some decline in the nation's gross domestic product, and unemployment is high. Per capita income in Chile, one of Latin America's leading economies, is a slim $5,000 (U.S.) per year. "Not everyone has access to the Internet because not all of us have a PC in our home and not all companies give access to the Internet to all of their employees," explains Ballarin.
Additionally, Chile has a delivery problem, although this is waning due to the influx of delivery companies. "Mail in the U.S. works very well, while here in Chile the post is not very good," says Pastorino. "If you send a check by mail in Chile, it will never be seen again. Someone will say, 'Ah, that's for me.'"
Nonetheless, Chilean banks are optimistic. "Much important software has been created here, and there is a strong tendency in Chile for people to use PCs, software and to develop software," says Pastorino. And for online credit cards in Latin America, the signs are good: Internet spending in the region is expected to total approximately $1.4 billion (U.S.) for all of 2000 and hit nearly $11 billion by 2003, according to International Data Corp., the Framingham, MA-based research firm.
Nor have other regions shown similar verve in terms of special online credit cards. Take the United States for example. Online use of credit cards is growing at a 60% clip in this country and Internet spending will amount to $25 billion in 2000, says James Shanahan, a partner in Newark, DE-based Business Dynamics Consulting. Yet, with regard to cards designed especially for online use, he says, "I haven't seen much of that in the U.S."
Shanahan says the United States lags behind other parts of the world because no specific security technologies or solutions have been widely accepted and implemented.
The Latin American initiatives, meanwhile, may offer more secure ways of purchasing with credit cards, but they also represent an additional expense, says Shanahan, and the region's banks should be vigilant in monitoring these costs. Another card analyst, Bruce Brittain, president of Atlanta-based market research firm Brittain Associates, agrees there's been little activity in the United States, except by Citigroup Inc., in the area of cards designed especially for Internet use.
Yet, despite the Latin banks' credit card thrust, they aren't taking success for granted. Bank executives in the region know it won't be easy to overcome consumers' misgivings.
"In Chile," says Pastorino, "people are afraid of the Internet. They believe if they use the Internet, they will be defrauded. We have to show the Chileans that the Internet isn't so dangerous."
Daniel Joelson is a freelance writer based in Santiago, Chile.