(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.
Transaction volumes rose on an annual basis, but unsurprisingly fell from the prior quarter, which is usually the strongest every year. Lower MDRs might have prevented Cielo’s revenue from faring better in some segments, yet equipment rentals helped offset declines.
Costs surged almost 50 percent in the quarter. In the first quarter, costs per transaction hit 0.52 reais, slightly above guidance between 0.48 reais and 0.51 reais for the year, CEO Dias said. He said unit costs will fall within that range in coming quarters.
$1 = 2.945 Brazilian reais Editing by Keith Weir, Alden Bentley, Grant McCool