November 9, 2016 / 4:51 PM / 2 years ago

UPDATE 2-Cielo sees competition in Brazil card processing rising

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By Guillermo Parra-Bernal

SAO PAULO, Nov 9 (Reuters) - Competition in Brazil’s credit and debit card processing markets will continue to be fierce in coming months, although pricing is unlikely to suffer, executives at Cielo SA, the country’s largest provider of payment services, said on Wednesday.

Following four consecutive quarters of market share gains against smaller rival Rede, Cielo lost room in card processing in the third quarter. So-called merchant yields excluding processing for agribusiness were flat, a sign of resilience despite cheaper debit card processing fees.

Cielo shares fell 1.4 percent.

On a conference call, outgoing Chief Executive Officer Rômulo Dias said that while processing fees could remain pressured because of mounting competition from peers Rede and GetNet, pricing trends are tending to stabilize. Both Rede and GetNet are growing market share through their expansion into card brands they did not process in the past.

Cielo’s market share fell to 54 percent in September from 54.5 percent a year ago, with Rede’s falling to 35.7 percent and GetNet’s rising to 10.4 percent. The seasonality of the agribusiness platform and the broadening of competitors’ scope were partially offset by efforts to maintain pricing stable, Dias said.

“The scenario is rather challenging, but we expect conditions to remain the same way they were a quarter or so ago,” Dias said on the call to discuss third-quarter results.

Cielo beat third-quarter profit estimates on Tuesday after cutting costs and expenses to offset the impact of a harsh recession that weighed on revenue and transaction volumes.

Barueri, Brazil-based Cielo recorded net income of 1.051 billion reais ($332 million) in the quarter, above the average estimate of 996.49 million reais, as compiled by Thomson Reuters. Profit rose 2.1 percent and 14.5 percent on a quarterly and annual bases.

Consolidated costs and sales, general and administrative expenses came in 2.2 percent lower from the prior quarter, more than consensus estimates and the first such decline in at least three quarters. As a result, earnings before interest, tax, depreciation and amortization climbed for the first quarter in three, although less than what analysts expected.

Dias maintained annual targets for cost and expense growth, and said the company is working hard to streamlining expenditures and improving efficiency.

The transition process with Eduardo Gouveia, who was tapped as new CEO last month, is going smoothly, Dias said. Gouveia is expected to push further with a cost-cutting program implemented by his predecessor, while deactivating idle sales points, purging Cielo’s customer base and cutting back on low-yielding users of card processing machines. (Editing by Chizu Nomiyama and Marguerita Choy)

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