Banks and fintechs see in the sector opening room to enhance cross-selling and financial services
The opening of the food and meal card segment, which will take place as of May 2023, is expected to bring more opportunities for banks and other financial institutions to strengthen their operations in the benefits sector. With an estimated volume of R$150 billion after this regulatory change, the segment itself is already interesting, but for banks, it also represents a way to increase their relationship with companies, including small ones, and to enhance cross-selling.
Bradesco and Banco do Brasil operate in this niche through Alelo, which is part of EloPar, and now Elo will also start operating in the open arrangement. Santander created Ben in 2019 and Itaú bought a stake in Ticket the same year.
As with credit cards, the world of benefit cards will be divided between open and closed arrangements. In the closed arrangement, which is the traditional model for this market, issuing, accreditation, and the card’s flag are all done by the same company. The values, in turn, can be used in the accredited network. Today, this market is dominated by Alelo, Sodexo, and Ticket, which hold a slice of almost 80%. The rest is spread over almost 180 local and regional companies.
The bulk of the market is in food and meal benefits, which can be offered to the workers with or without tax benefits for the employers through the Worker’s Food Program (PAT). There are, however, several other types of benefits that can be offered, such as culture vouchers, pharmacy, and fuel, among others.
In the open arrangement, issuing, accreditation, and flagging are done by different institutions. More recently, benefits startups have started to operate through this “flagged” model, which expands the acceptance network. As of May, the open arrangement will be able to offer companies the same tax benefit as the closed one under PAT.
Márcio Alencar, Alelo’s head of digital strategy, marketing and business says that today the company has a 30% share in PAT, or R$40 billion, and another R$6 billion in its ecosystem in other benefits, which already operates in an open arrangement model. He believes that, with the regulatory changes, this 85%/15% ratio between closed and open arrangements tends to seek a balance in the medium to long term.
“It’s not because the open arrangement in PAT starts in May that there will be mass migration. It will be gradual. We have long-term relationships with the Human Resources departments of companies, for our more than 1 million stores we already offer several other financial services, and the end customer is already very well served here. He is not going to simply change overnight.”
In any case, Alelo is already testing a flexible benefits model in partnership with Elo expected to be launched in early 2023. Pedro Cardoso, head of new business at Elo, says that since decree 10,854, issued in November 2021, which established an 18 month timeframe for the entry into force of the open arrangement in PAT, the company had been studying entering this segment. “We have one of the largest payment arrangements in Brazil, with more than 8 million accredited establishments, and 45 million cards issued. So, we started studying how to use this network to structure a benefits product.”
Since in the open arrangement Elo is the flag and Alelo is the issuer, they will be together and will not compete directly with each other, although an eventual expansion of this partnership could end up cannibalizing Alelo’s closed arrangement market. “There is no conflict, there is room for collaboration. It will be up to the company to contract what is best for its employee, the closed or the open arrangement,” said Mr. Alencar.
Ignacio Estivariz — Foto: Divulgação
Mercado Pago entered into the benefits market around three months ago. According to Ignacio Estivariz, the company’s senior officer of digital banking, the company realized it could modernize this segment just as it did with the digital account. In partnership with Visa, the same plastic is used for the debit and benefits function. In the app, there are sub-accounts, since the meal benefit, for example, can only be used in restaurants. “For the company, it makes it easier to manage all benefits in one card, and the client still has all the benefits of the free of charge Mercado Pago account,” explained the executive.
Mr. Estivariz points out that Mercado Pago currently has 35 million users in Brazil and that, in theory, this is the potential market for the benefits product. He states that the fintech will get the interchange fee from the card, but that this is not the main reason for offering the benefit. “We are always looking at where technology can bring a differentiator, where the current experience is not very good. Now we are in this process of talking to HRs, bringing in the companies. Not to mention the benefits of financial inclusion, since the benefits card is often the first step on that path,” he said.
Mr. Estivariz mentions a company in Manaus (Amazonas) in which employees still received their meal cards in paper vouchers which were accepted at a single restaurant. Now, with the agreement with Mercado Pago, everything was digitalized. Marco Garcia, the owner of the packaging company Rubberon, reveals that many of his employees had access to a debit or credit card for the first time through Mercado Pago. The positive reaction of the company’s employees has spread throughout the region to a point where other entrepreneurs have sought Mr. Garcia out for more details about the product and directions on how to implement it in their businesses.
Ticket, a brand of Edenred Brazil, has a broad portfolio of benefits. Besides food and meal cards, it offers solutions for transportation, culture, incentives and rewards, salary anticipation, health, well-being, education, and remote work. In late 2021, the brand launched Ticket Vantagens, which offers a series of benefits to users, such as a online marketplace with selected products, discount club with cashbacks, and access to a corporate education platform.
“The constant increments in the portfolio are part of the brand’s strategy of investing in relationship and digitalization. The solutions reinforce the brand’s digital transformation, respecting labor legislation and union agreements,” said the company to Valor.
In 2019, Itaú acquired an 11% minority stake in Ticket, which remains independent, with Edenred as its parent and manager. According to the company, the partnership enabled the bank to expand its portfolio of HR solutions offered to its corporate clients. “At the same time, the new distribution channel strengthens Ticket’s existing sales organization and arrives to support the brand’s constant growth in the Brazilian market.”
The entry of the open arrangement model in PAT will be important for newcomers in the market to be able to access the HRs of large companies as well. This is because the program’s tax benefit applies to companies that calculate their taxes based on the so-called real profit. “With the opening of the market, larger companies may start considering new providers,” said Karen Fletcher, leader of the legal department of Caju, a startup founded in 2020 that concentrates benefits on a credit card with the Visa flag. Today, 13,000 companies with about 400,000 users use the Caju card.
Other changes that may increase competition in the sector are the prohibition of the bonus given to HRs of the hiring companies by the issuers of food cards, which ends up increasing the rate that these issuers charge restaurants and supermarkets, and the post-payment (deadline for HRs to pay the value of the contracted benefit), said Ms. Fletcher. “For the new entrants, it was very difficult to compete with companies that could afford offereioffer both the payment term and aggressive discounts.”
The changes in the rules for food and meal cards were made by decree at the end of 2021, and by a provisional measure approved this year. The discussions were not simple. There was much debate, for example, about the freedom for the user to change the management of his or her benefit card. This portability may even need to be postponed since there is resistance and sources from the sector comment that the operationalization is not simple and there are still regulatory doubts about how it will be done.
For portability to work, government regulations will be needed to define, for example, which body will manage this registry, whether Central Bank, Ministry of Economy, or Ministry of Labor. The Brazilian Association of Worker’s Benefit Companies (ABBT) has been active in talks with the government, as has Zetta, an association founded by Mercado Pago and Nubank, which also represents other fintechs. The transition to Lula administration, however, has somewhat delayed the talks.
With the arrival of the open arrangement, it is still likely that there will be a consolidation in the market and local companies will end up being bought out or even shut down if they cannot adapt to the new features, which require investments in technology. An obstacle is that the market leaders already have a very large market share, and, among these smaller companies, many do not have the governance standards required by the large groups, which makes an eventual M&A operation more complex.
When contacted, BB and Bradesco preferred to speak only through Alelo. Itaú, Sodexo, and Santander declined to comment.
*By Álvaro Campos, Mariana Ribeiro — São Paulo
Source: Valor International