UPDATE 2-Cielo expects tougher competition driving Brazil card fees down

miércoles 29 de abril de 2015 10:24 GYT

(Rewrites throughout to add details on competition, cost performance, analyst comments)

By Guillermo Parra-Bernal and Aluísio Alves

SAO PAULO, April 29 (Reuters) - The cost of processing card transactions in Brazil will decline in coming quarters as firms in the industry wrestle for market share in a shrinking economy, the top executive at Cielo SA said on Wednesday.

A decline in so-called MDRs, or the net fee that Cielo and other payment processors charge retailers to settle card transactions, is "the natural by-product of the current scenario," Chief Executive Officer Rômulo Dias said in a conference call to discuss first-quarter results.

While Dias declined to elaborate on the extent of the decline, he said Cielo will limit the impact of lower MDRs with other segments. His remarks underscore a two-year drive to make Cielo, Brazil's largest card payment processor, less dependent on card processing and more on technology and services.

Profit at Cielo jumped in the first quarter as transaction volumes and prepayment of receivables stood resilient despite weakening business activity. Cielo earned 926.2 million reais ($314 million) last quarter, up 15 percent both on a quarterly and annual basis, respectively.

Shares of Cielo gained 3 percent, reflecting optimism that a recession may have a meager impact on earnings, unlike other financial companies such as banks.

Net revenue, which included the implementation of a joint venture to develop Banco do Brasil SA's OuroCard Arranjo card processing business, surged 10.5 percent on a quarterly basis. Gross income from receivables prepayment also rose in the wake of rising borrowing costs, while sales, general and administrative expenses tumbled 20 percent in the period.

"We like the resilience, structural growth of plastic, the diversification of revenues ... and have a positive view" on the joint venture, said Frederic de Mariz, an analyst with UBS Securities.   Continuación...