Rumblings in Chile's card payment chain

Stakeholders in Chile's card payment chain are preparing for the advent of a new market structure.

Currently, the payment acquisition segment is dominated by Transbank.

The company is owned by local banks, which authorize it to use their payment acquisition licenses and negotiate with merchants on their behalf.

However, recent rumblings indicate Transbank's dominance is about to come to an end and that market spaces will open up for new players.

Local heavyweight Santander Chile is the central player. The lender has caused a stir by announcing it was ending, next year, its card contract with Transbank, which has controlled the market since the 1990s.

Following the changes, payments with Santander cards will continue passing through part of Transbank's system. Transbank will route payments to Visa and Mastercard which will, in turn, send them to the issuer or its payment processing support company.  

Under this structure, known as the four-part model, the roles of acquirer, issuer, merchant and cardholder are separate.

Mastercard has already set up its own switch and Visa is in the process of doing so. In parallel, other payment chain players are also preparing for the changes, among them credit card processor Nexus and ATM network operator Redbanc, Javier Etcheberry, CEO of Multicaja, the main competitor of Transbank, told BNamericas. 

"The ecosystem is changing. Mastercard and, now, Visa are preparing the Chilean ecosystem so that the four-part model operates, where different networks compete, where Transbank would be one more," said Etcheberry, a former transport and telecommunications minister.

On Santander's move, Etcheberry said: "It is very important. It's the country's principal bank and one of the two principal owners of Transbank."

Last year Chile's competition court (TDLC) recommended prohibiting banks from jointly acting as a single acquirer through a separate company.

Etcheberry, who is also a former chairman of state lender BancoEstado, said: "What Santander is doing is complying with the recommendation of the [competition court] TDLC in January last year...

"It seems natural what they are doing," he said, while adding "I imagine other banks will follow suit and if they don't do it, TDLC should oblige them."

Some observers say Santander is shifting to a four-part model before being compelled to do so. The bank has said it is not commenting on the matter.

Robert Opazo, executive director of Chilean payments fintech Khipu, has told BNamericas: "The signal that this [the bank's decision to end the contract] sends out is encouraging. It's a good signal. It generates expectations that there will be more competition in the market but we're waiting to hear the details about what the bank's new proposal will be, so I'd rather not speculate on that."

The central bank has introduced regulatory changes that pave the way for the new model. Cards brands must also set the interchange fees they will charge, among other requisite changes.

Etcheberry estimates the new four-part model will be operational in the second half of next year, adding that a risk is that interchange fees are set too high.

Launched in 2007, Multicaja is licensed to handle Mastercard credit card transactions and in the coming months is due to begin accepting Mastercard debit cards. Around the middle of next year it is due to add Visa debit and credit cards to its portfolio.

In terms of who will gain from increased competition, Etcheberry said: "The people of Chile. There will be many more places where you can pay with cards. Secondly, there will be much more innovation. With different networks competing, there will be different terminals, for example, not necessarily POS but cell phones, like [mobile payments services provider] Square, QRs."

He added that innovation and new players should remove friction from the online payments process.

Multicaja is also in the process of launching a prepaid Mastercard, taking advantage of new rules introduced in the country. Cards will initially be virtual.

Multicaja handles around 11mn transactions a month and represents PayPal in Chile.