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Shares in Brazilian card processors fall sharply after rival cuts interest rate for merchants
[SAO PAULO] Shares of Brazilian card payment processors Cielo SA, PagSeguro Digital Ltd and StoneCo Ltd fell sharply on Thursday after rival Itaú Unibanco Holding SA's card-processing unit cut interest rates for small and medium-sized merchants.
StoneCo and PagSeguro, which are both listed in New York, were down 22.5 per cent and 11.5 per cent, respectively, while Cielo fell 8 per cent on the São Paulo stock exchange.
Rede, Itaú's card processor, said on Wednesday evening it would advance payments to merchants in as little as two days, compared with the usual 30-day period, charging no interest, which will increase competition in the payments sector.
The bank's two requirements for the service are that clients have a checking account with Itaú and annual revenues no higher than 30 million reais (S$10.36 million), Itaú said in a statement.
Card processors in Brazil charge discount rates to advance cash in a business that has become increasingly important to their business models.
Analysts at Credit Suisse said in a note to clients that this payment model was likely to become "the new standard", hurting all card processors' results.
"All in all, as a reference, we estimate an annualised net profit impact of 32 per cent for Stone and 19 per cent for Cielo, all else held equal," Credit Suisse analysts wrote.
The impact on PagSeguro, however, may be less painful, as it already offers payments for micro-merchants in two days.
Brazil's antitrust watchdog, Cade, sent Itau a request for more information on the decision to cut interest rates, asking for an answer by May 3, according to a document released on Thursday.