Brazil’s Central Bank Limits Prepaid Card Fees; fintech stocks fall

People walk in front of the central bank headquarters in Brasilia, Brazil March 22, 2022. REUTERS/Adriano Machado

BRASILIA, Sept 26 (Reuters) – Brazil’s central bank said on Monday it would set a 0.7% cap on interchange fees for prepaid cards offered by fintechs on free digital accounts, in a setback to the booming sector in Latin America largest economy.

The central bank had put the issue out for public consultation last year, but the proposal proposed a maximum interest rate of 0.5% for both debit and prepaid cards, which would be even more damaging to fintechs.

The banks’ transaction fees for debit cards, which today must follow a common weighted average calculation of 0.5% and a maximum value per transaction of 0.8%, will now only be limited to 0.5% per transaction.

An interchange fee is a fee a merchant pays to the card-issuing bank every time a consumer swipes their card.

The changes will come into force from April 2023, and will also standardize the settlement period for debit and prepaid card transactions.

According to the central bank, the changes will “increase the efficiency of the payment ecosystem, encourage the use of cheaper payment instruments, enabling the reduction of costs for shops to accept these cards”.

Banks had pushed the regulator to cap interchange fees for prepaid cards on the grounds that there should be greater equal treatment, especially after the dizzying rise of fintechs and their digital accounts.

There is currently no cap on the price of prepaid cards, which are usually higher than those charged in debit card transactions and represent an important source of income for fintechs.

A study released this year by the Zetta association, which represents companies such as Nubank and Mercado Pago, estimated that if a 0.6% cap were in effect in 2021, fintech customers would have paid an additional 24 billion reais (4.51 billion dollars) in service fees.

Nubank said in a statement that interchange fees on prepaid cards made up 7% of revenue in the year to June 30. If the changes had been in effect, revenues would have been affected by 2.9%, it said.

In a note to clients, Citi estimated the new regulation would be negative for Brazilian payments company PagSeguro Digital ( PAGS.N ), whose shares were down 9.5% in midday trade. Nubank’s shares fell 2.3%, while Inter & Co ( INTR.O ) fell 9.8%.

($1 = 5.3165 reais)

Reporting by Isabel Versiani and Marcela Ayres, with additional reporting by Andre Romani; Editing by Steven Grattan, Jason Neely and Paul Simao

Our standards: Thomson Reuters Trust Principles.