Retailer Financial Services in North and Latin America

Table of Contents

0.0 EXECUTIVE SUMMARY

• The research is based on a survey of 1,015 major retail brands across 12 countries
• Well over one third of major retail brands in the Americas operate their own pay. card scheme…
• … with over a half of these classifiable as private label or store card programs…
• … and with captive banking subsidiaries accounting for more than one in four of these initiatives
• Loyalty cards with no pay. function are offered by a slightly lower percentage of major retailers
• Retailer provision of consumer credit rarely takes the form of classic point-of-sale finance…
• … with retailer-owned banks in Latin America tending to focus on general purpose loans
• There is a growing number of successful retailer bank. ventures in both North and Latin America…
• … with this activity also having been instrumental in the relatively strong growth of retailer ins
• The international ' credit crunch' may place a temporary brake upon retailer financial services…
• … although the longer term prospects for this strategy in the Americas remain encouraging
• Underlying credit card markets are growing rapidly in a number of countries in Latin America
• Store cards can be internationalised and loyalty cards can be converted into payment cards
• Retailers partnerships represent an important strategic option for banking and insurance entities

1.0 INTRODUCTION

• Finaccord
• Rationale
• Retailer financial services can be broken down between ' traditional' and ' non-traditional' services
• Retailers can take advantage of rapid growth in consumer finance and credit card markets
• Consolidation among conventional banks provides justification for the entry of retailer banks
• The evolution of the retailing market itself is also favourable to the integration of financial services
• Methodology
• Finaccord' s research covers 1,015 major retail brands across North and Latin America
• Product definitions

2.0 REGIONAL OVERVIEW

• Introduction
• Retailer payment cards
• Retailers in Brazil, Chile and Mexico are most likely to have introduced their own payment card
• A number of major retailers operate payment cards through captive entities
• Almost three quarters of department stores have introduced their own co-branded or store card
• Over 50% of retailer payment cards are not linked to an international payment network
• The strength of the main international card networks varies substantially by country
• Initiatives attributable to Citigroup, GE Capital and HSBC account for almost 30% of programs
• Retailer loyalty cards
• In relative terms, loyalty cards with no payment function are most widespread in Chile and Peru
• Retailers of books, music and videos display a high propensity to develop loyalty cards
• Almost two thirds of loyalty cards do not run in parallel to a fully-fledged retailer payment card
• Consumer finance / personal loans
• Classic point-of-sale finance is relatively uncommon across the Americas for several reasons…
• … although the captive banks of several retailers are targeting lower and middle income clients
• Penetration rates for consumer finance do not exceed 40% in any retailing categories
• Most retailers have chosen to partner with a single, external lender or to op. through a captive
• Captives and joint ventures
• Captive retailer finance arms can be of significant interest to mainstream banking institutions
• Insurance
• Retail brands are active in promoting insurance in ten of the 12 countries investigated…
• … with much of this activity being driven by retailer-owned banking subsidiaries in Latin America
• Schemes for motor insurance and life insurance account for almost half of the total identified
• Supermarkets and department stores benefit from high ' footfall' and burgeoning e-commerce

3.0 ARGENTINA

• Introduction
• Retailer payment cards
• The majority of retailer payment cards in Argentina can be classified as private label cards…
• … with several retailers, including Carrefour and Falabella, using their own captive finance arms
• Argentina' s payment card market has made strong progress since the 2002 economic crisis
• Retailer loyalty cards
• 30 major retail brands in Argentina have introduced loyalty cards with no payment function
• Consumer finance / personal loans
• Comparatively few significant retailers in Argentina offer point-of-sale finance to their customers
• Banking products
• Argentina' s retailers have yet to diversify into the provision of mainstream banking products…
• Insurance
• … although Falabella has ventured into the insurance affinity marketing arena

4.0 BRAZIL

• Introduction
• Retailer payment cards
• Over a half of the retailer payment cards identified can be defined as private label programs
• C&A' s Banco IBI has built up a portfolio of around 20 million customers across Brazil
• Cards carrying the Aura logo are accepted by over 30,000 merchants across Brazil
• Brands within the Wal-Mart grouping are affiliated to Unibanco' s Hipercard multi-partner scheme
• The store card sector continues to expand more quickly than the pay. card market as a whole
• Retailer loyalty cards
• Under a quarter of major Brazilian retailers persist with loyalty cards with no payment function
• Consumer finance / personal loans
• High penetration rates for retailer payment cards restrict the potential for point-of-sale finance…
• … and the majority of Brazilian consumers benefit from little or no annual disposable income
• Banking products
• Banco IBI is the only retailer-owned bank in Brazil to offer a savings account to customers
• Insurance
• Six major retail brands in Brazil have commenced marketing of mainstream insurance lines

5.0 CANADA

• Introduction
• Retailer payment cards
• A significant number of Canadian card issuers are involved in retailer payment card schemes…
• … although several retailers issue cards through their own captive financial services arms…
• … including the Loblaw grouping which has established President' s Choice Bank brand
• Pre-paid cards are also commonly offered by retailers in a mature market for payment cards
• Retailer loyalty cards
• Many major Canadian retailers adhere to the AIR MILES multi-partner reward program…
• … which claims to have built up a portfolio of more than nine million active accounts
• Consumer finance / personal loans
• Widespread usage of credit cards impedes traditional retailer point-of-sale finance in Canada
• Banking products
• President' s Choice Financial Services has built up a portfolio of around three million customers…
• … and has diversified into new areas of banking and insurance since its original launch in 1998
• Insurance
• Group major retailer groupings have started promoting insurance products to their customers
• For regulatory reasons, the acts. of the HBC Insurance Agency vary by region across Canada
• The initiatives of London Drug and PC Financial are also characterised by regional differences

6.0 CHILE

• Introduction
• Retailer payment cards
• Retailer-owned card issuers dominate Chile' s payment card market…
• … with around 8.8 million store cards having been issued by such banks…
• … mainly to the low and middle income earners traditionally ignored by mainstream banks
• Retailers and traditional banks are collaborating to circumvent problems linked to interoperability
• Retailer loyalty cards
• Almost a half of the retailers operating a loyalty card have not launched a parallel payment card
• Consumer finance / personal loans
• The provision of personal loans by Chilean retailers is driven exclusively by retailer-owned banks
• Banking products
• Cencosud, Falabella and Ripley have all entered the banking sector in the relatively recent past
• Rising provisions for bad debts pushed Banco Ripley into a pre-tax loss during 2007
• Insurance
• Insurance marketing initiatives are invariably driven by retailer-owned banking subsidiaries

7.0 COLOMBIA

• Introduction
• Retailer payment cards
• Only two retailers adhere to an op. model other than a link with a single, external card issuer
• GE Money returns to the Colombian consumer finance market by taking a stake in Colpatria
• Retailer cards divide more or less evenly between co-branded and private label propositions…
• … with high transaction fees having persuaded some retailers to develop their own store cards
• Retailer loyalty cards
• Loyalty cards with no payment function enjoy a relatively high rate of penetration in Colombia
• Consumer finance / personal loans
• Retailers constitute an important distribution channel for consumer credit in Colombia
• Banking products
• Cafam, Falabella and Hiper Centro have all commenced initiatives in mainstream retail banking
• Insurance
• AIG has established retailer distribution relationships with both Falabella and Olímpica

8.0 ECUADOR

• Introduction
• Retailer payment cards
• The Supermercados La Favorita grouping offers cards managed by as many as six issuers
• Retailer loyalty cards
• Several retailers, including Mini Market, are affiliated to the Av Card multi-partner scheme
• Consumer finance / personal loans
• A majority of consumers do not qualify for credit through the mainstream banking system
• Banking products
• Diversification into mainstream bank. products remains a possible future development objective
• Insurance
• Only retail brands belonging to Supermercados La Favorita have launched insurance products

9.0 MEXICO

• Introduction
• Retailer payment cards
• In terms of outright number of partners, Banamex dominates the retailer payment card sector…
• … with its position having been strengthened by the launch of the Affinity Card in March 2007
• Coppel and Elektra both issue payment cards through captive banking operations…
• … while Chedraui has preferred to established a joint venture company for this purpose
• For a variety of reasons, the Mexican authorities are keen to encourage usage of pay. cards
• Retailer loyalty cards
• Over a third of leading Mexican retail brands operate a loyalty card with no payment facility
• Consumer finance / personal loans
• Wal-Mart is one of several retail groups expanding into Mexico' s consumer finance market…
• … with Soriana' s joint venture with Banamex also seeking to grow in this arena
• Banamex possesses the most distribution relationships for point-of-sale with retailers
• Banking products
• Several retail brands have developed straightforward savings products for their customers…
• … and Mexico' s mortgage market may also offer them an eventual avenue for expansion
• Insurance
• The Elektra grouping is unique in having bought its own insurer in the shape of Seguros Azteca
• Most retailer dist. initiatives are organised through a deal with a single, external underwriter

10.0 PARAGUAY

• Introduction
• Retailer payment cards
• Three of Paraguay' s larger retail brands have launched co-branded or private label cards
• Retailer loyalty cards
• Avon, Caro Cuore, Hering, Nike, Quijote Música y Libros and Sporthouse all offer loyalty cards
• Consumer finance / personal loans
• With one exception, no Paraguayan retailers appear prepared to offer credit to their customers
• Banking products / insurance
• Paraguay' s retailers have yet to diversify into either mainstream banking or insurance products

11.0 PERU

• Introduction
• Retailer payment cards
• Peru is characterised by a mix of captive and externally managed retailer pay. card schemes
• Banco Azteca harbours ambitious plans to roll out 120 branches serving lower inc. households
• The development of Banco Ripley' s Financor will benefit from Ripley' s own investment plans
• Cards are steadily replacing cheques denominated in US dollars as a preferred pay. method
• Retailer loyalty cards
• A majority of major retail brands in Peru have introduced a loyalty card with no payment function
• Consumer finance / personal loans
• Few major Peruvian retailers have organised non-card credit facilities on behalf of their custs
• Banking products
• Three retailer-owned banks target lower income consumers with mainstream banking products
• Insurance
• A number of major retailers have begun acting as distributors of insurance to their customers

12.0 URUGUAY

• Introduction
• Retailer payment cards
• Co-branded cards have been introduced by four supermarket chains in Uruguay
• Retailer loyalty cards
• A dozen retailers possess loyalty cards that could be converted into payment cards in the future
• Consumer finance / personal loans
• Only around 30% of Uruguay' s cons. currently borrow from the country' s mainstream banks
• Banking products / insurance
• Uruguay' s retailers have yet to diversify into either mainstream banking or insurance products

13.0 USA

• Introduction
• Retailer payment cards
• Well over one third of major retail brands in the USA offer a co-branded or private label card
• World Financial Network National Bank is one of several major competitors in this sphere…
• … although there are over 20 issuers of retailer cards in total, including retailer-owned captives
• A significant proportion of retailers have developed pre-paid cards for a well-defined audience
• Retailer loyalty cards
• Over one quarter of major retail brands in the USA provide a loyalty card with no pay. function
• Consumer finance / personal loans
• Point-of-sale finance is provided by a relatively small proportion of major retailers in the USA
• Bill Me Later has been adopted as a payment facility by a significant number of retail brands…
• … as on-line retailers, in particular, are increasingly inclined to offer alternative payment options
• Few other finance providers possess more than a handful of exclusive relationships in this field
• Banking products
• Kroger and Wal-Mart branch out into mainstream bank. services through contrasting strategies
• Other major retailers in the USA simply prefer to lease store space to banking institutions
• Insurance
• Costco and Kroger overcome state-by-state regulation to launch retailer insurance propositions

14.0 VENEZUELA

• Introduction
• Retailer payment cards
• The few retailer cards to have been launched in Venezuela are all private label products
• Banesco offers credit facilities to inds. belonging to the Club Inteligente multi-partner scheme
• Retailer loyalty cards
• Almost a half of the major retail brands surveyed offer a loyalty card with no payment function
• Consumer finance / personal loans
• A handful of Venezuela' s larger retailers act as dists. of consumer finance to their customers
• Banking products / insurance
• Retailer distribution of insurance has yet to develop to any great extent in Venezuela

GRAPHICS / TABLES

• Major retailers covered by the research segmented by category and by country
• % of major retailers in North and Latin America offering co-branded / store cards split by country, 2008
• % split of co-branded / store cards offered by major retailers in N&LA by operating model and country, 2008
• % of major retailers in North and Latin America offering co-brand. / store cards split by category of retailer, 2008
• % split of co-branded / store cards offered by major retailers in N&LA by network / marque, 2008
• % split of co-branded / store cards offered by major retailers by network / marque and country, 2008
• Influence of Citigroup, GE Capital and HSBC on co-brand. / store cards in North and Latin America, 2008
• % of major retailers in North and Latin America offering loyalty cards split by country, 2008
• % of major retailers in North and Latin America offering loyalty cards split by category of retailer, 2008
• % split of loy. cards off. by major rets. in N&LA acc. to whether they run parallel to a co-brand. / store cd., 2008
• % of major retailers in North and Latin America offering cons. finance / personal loans split by country, 2008
• % of major retailers in N&LA offering consumer finance / personal loans split by category of retailer, 2008
• % split of cons. finance / personal loans offered by major rets. in N&LA by operating model and country, 2008
• Major retailers in North and Latin America with captive finance arms, 2008
• Major retailers in North and Latin America with captive finance arms, 2008 (continued)
• % of major retailers in North and Latin America offering any form of mainstream ins. split by country, 2008
• Overview of retailer provision of mainstream insurance in North and Latin America split by type of policy, 2008
• Overview of retailer prov. of mainstream insurance in North and Latin America split by category of retailer, 2008
• Major retailers in North and Latin America distributing motor ins.: operating models and partners, 2008
• Major retailers in North and Latin America distributing household ins.: op. models and partners, 2008
• Major retailers in North and Latin America distributing accident ins.: operating models and partners, 2008
• Major retailers in North and Latin America distributing health ins.: operating models and partners, 2008
• Major retailers in North and Latin America distributing travel ins.: operating models and partners, 2008
• Major retailers in North and Latin America distributing pet ins.: operating models and partners, 2008
• Major retailers in North and Latin America distributing life ins.: operating models and partners, 2008
• Retailer payment cards in Argentina: penetration, operating models and network / issuer market shares, 2008
• Retailer loyalty cards in Argentina: penetration and provision alongside payment cards, 2008
• Ret. provision of cons. finance / pers. loans in Argentina: pen., op. models and lender market shares, 2008
• Retailer provision of insurance in Argentina: penetration by type of insurance, 2008
• Retailer provision of insurance in Argentina: penetration, operating models and partner market shares, 2008
• Retailer payment cards in Brazil: penetration, operating models and network / issuer market shares, 2008
• Retailer loyalty cards in Brazil: penetration and provision alongside payment cards, 2008
• Ret. provision of cons. finance / pers. loans in Brazil: penetration, op. models and lender market shares, 2008
• Retailer provision of insurance in Brazil: penetration by type of insurance, 2008
• Retailer provision of insurance in Brazil: penetration, operating models and partner market shares, 2008
• Retailer payment cards in Canada: penetration, operating models and network / issuer market shares, 2008
• Retailer loyalty cards in Canada: penetration and provision alongside payment cards, 2008
• Ret. provision of cons. finance / pers. loans in Canada: penetration, op. models and lender market shares, 2008
• Retailer provision of insurance in Canada: penetration by type of insurance, 2008
• Retailer provision of insurance in Canada: penetration, operating models and partner market shares, 2008
• Retailer payment cards in Chile: penetration, operating models and network / issuer market shares, 2008
• Retailer loyalty cards in Chile: penetration and provision alongside payment cards, 2008
• Ret. provision of cons. finance / pers. loans in Chile: penetration, op. models and lender market shares, 2008
• Retailer provision of insurance in Chile: penetration by type of insurance, 2008
• Retailer provision of insurance in Chile: penetration, operating models and partner market shares, 2008
• Retailer payment cards in Colombia: penetration, operating models and network / issuer market shares, 2008
• Retailer loyalty cards in Colombia: penetration and provision alongside payment cards, 2008
• Ret. provision of cons. finance / pers. loans in Colombia: pen., op. models and lender market shares, 2008
• Retailer provision of insurance in Colombia: penetration by type of insurance, 2008
• Retailer provision of insurance in Colombia: penetration, operating models and partner market shares, 2008
• Retailer payment cards in Ecuador: penetration, operating models and network / issuer market shares, 2008
• Retailer loyalty cards in Ecuador: penetration and provision alongside payment cards, 2008
• Ret. provision of cons. finance / pers. loans in Ecuador: pen., op. models and lender market shares, 2008
• Retailer provision of insurance in Ecuador: penetration by type of insurance, 2008
• Retailer provision of insurance in Ecuador: penetration, operating models and partner market shares, 2008
• Retailer payment cards in Mexico: penetration, operating models and network / issuer market shares, 2008
• Retailer loyalty cards in Mexico: penetration and provision alongside payment cards, 2008
• Ret. provision of cons. finance / pers. loans in Mexico: penetration, op. models and lender market shares, 2008
• Retailer provision of insurance in Mexico: penetration by type of insurance, 2008
• Retailer provision of insurance in Mexico: penetration, operating models and partner market shares, 2008
• Retailer payment cards in Paraguay: penetration, operating models and network / issuer market shares, 2008
• Retailer loyalty cards in Paraguay: penetration and provision alongside payment cards, 2008
• Ret. provision of cons. finance / pers. loans in Paraguay: pen., op. models and lender market shares, 2008
• Retailer payment cards in Peru: penetration, operating models and network / issuer market shares, 2008
• Retailer loyalty cards in Peru: penetration and provision alongside payment cards, 2008
• Ret. provision of cons. finance / pers. loans in Peru: penetration, op. models and lender market shares, 2008
• Retailer provision of insurance in Peru: penetration by type of insurance, 2008
• Retailer provision of insurance in Peru: penetration, operating models and partner market shares, 2008
• Retailer payment cards in Uruguay: penetration, operating models and network / issuer market shares, 2008
• Retailer loyalty cards in Uruguay: penetration and provision alongside payment cards, 2008
• Ret. provision of cons. finance / pers. loans in Uruguay: pen., op. models and lender market shares, 2008
• Retailer payment cards in the USA: penetration, operating models and network / issuer market shares, 2008
• Retailer loyalty cards in the USA: penetration and provision alongside payment cards, 2008
• Ret. provision of cons. finance / pers. loans in the USA: pen., op. models and lender market shares, 2008
• Retailer provision of insurance in the USA: penetration by type of insurance, 2008
• Retailer provision of insurance in the USA: penetration, operating models and partner market shares, 2008
• Retailer payment cards in Venezuela: penetration, operating models and network / issuer market shares, 2008
• Retailer loyalty cards in Venezuela: penetration and provision alongside payment cards, 2008
• Ret. provision of cons. finance / pers. loans in Venezuela: pen., op. models and lender market shares, 2008
• Retailer provision of insurance in Venezuela: penetration by type of insurance, 2008
• Retailer provision of insurance in Venezuela: penetration, operating models and partner market shares, 2008