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Nov. 22 (Bloomberg) -- Credit-card payment processor Cielo SA, Brazil’s most profitable company, expects its mobile-payment services venture with Oi SA to generate even higher returns.

Paggo Solucoes de Meios de Pagamento SA, owned by Cielo and Brazil’s fourth-largest mobile telephone operator, forecasts it will win 1.5 million customers and process 3.4 billion reais ($1.6 billion) in mobile payments by next year, Paggo President Massayuki Fujimoto said. Paggo’s operations, which started in 2010, are based on mobile phone applications that allow vendors from taxi drivers to door-to-door salespeople to process credit card payments.

“We will make the credit card industry more efficient,” Fujimoto said by telephone from Sao Paulo. “In five years, Paggo will have many more merchants than Cielo.”

Brazil, the world’s largest developing economy after China, is following the steps of nations from India to Kenya in using mobile payments to extend banking services to low-income consumers. An estimated 30 million to 40 million economically active Brazilians do not have a bank account, and 86 percent of Brazil’s poorest 95 million citizens use cash to make payments, according to the Brazilian Association of Credit Card Operators, or Abecs.


Paggo will face competition from banks and phone carriers, including Mexican billionaire Carlos Slim’s America Movil SAB, which is developing business models with various financial institutions, it said in a statement. America Movil’s Brazil unit Claro and Banco Bradesco SA announced today that they would issue co-branded pre-paid cards for mobile phones.

Cielo’s return on common equity, a measure of its ability to generate earnings from shareholder money, was 135 percent in the third quarter. The gain is the most on the benchmark Bovespa index and the highest among companies worldwide that process credit-card transactions, data compiled by Bloomberg show.

Earnings before interest, taxes, depreciation and amortization, or Ebitda, as a share of revenue reached 58 percent, the fourth-highest among Bovespa index companies, data compiled by Bloomberg show.

Paggo’s ebitda margin will be even higher than Cielo’s in five years when it will have at least double its parent company’s 1.6 million vendors, said Fujimoto.

India, China

Global mobile payment transactions will rise almost fourfold by 2017 to more than $1.3 trillion, according to an August report by Hampshire, U.K.-based Juniper Research. A study by software developers ACI Worldwide showed that two-thirds of respondents in China and India use smartphones to make payments, and a survey by MasterCard Inc. showed that 68 percent of Kenyans frequently use mobile payment services.

While Brazil trails those countries in launching mobile payment services, the volume of cash transactions and the millions of people without bank accounts provide an attractive market, said Abecs Vice-President Raul Moreira.

Paggo’s target market includes 3 million registered door-to-door vendors, such as Avon Products Inc. sales staff, and 20 million individual entrepreneurs, such as personal trainers and taxi drivers. “There are many more individual entrepreneurs than traditional ones with a store,” said Fujimoto.

More secure mobile payment technology would also boost e-commerce by eliminating fraud that accounts for 0.5 percent of Internet-based payments, Fujimoto said.

Uncertain Rules

Concerns about payment rules may keep some players on the sidelines and delay deployment of new products, said Carlos Alberto da Silva Junior, equity fund manager at Modal Asset Management, which oversees 6 billion reais in Rio de Janeiro.

“It may take a while for this market to develop,” he said in a telephone interview.

Brazil’s government sees mobile payment as an opportunity to extend low-cost banking services to millions of consumers. Communications Minister Paulo Bernardo said he’s working with the central bank to draft legislation for the fledgling industry that would be ready by mid-2013.

“It’s a win for banks and a win for operators,” Bernardo said last month.

Paggo this month will offer a pre-paid credit-card option to be used with mobile phones, a bid to capture lower-income clients. Growth prospects for that line of business are less certain, said Fujimoto.

Eventually, operators plan to use mobile payment as a distribution channel for other financial products from loans to insurance policies. “That’s where you start making real money,” said Windsor Holden, research director at Juniper Research. “Provided the business is not over-regulated and has scale, it can be very lucrative.”

Foreign Interest

Foreign and domestic players are studying the market. TransUnion Corp., the world’s third-biggest consumer credit agency by revenue, may bring to Brazil the kind of credit lines it offers to South Africans via mobile phone, Maria Olga Rehbein, the company’s president for Latin America, said in a phone interview from Chicago, where the company is based. It acquired a majority stake in Sao Paulo-based software firm Crivo Sistemas em Informatica SA in January. “Brazil is one example where we hope to bring the mobile technology,” Rehbein said.

“There will be strong movement by each group, each partnership between banks and phone operators, in coming years, and then there will be a consolidation among those groups,” Fujimoto said.

To contact the reporter on this story: Raymond Colitt in Brasilia Newsroom at

To contact the editors responsible for this story: Adriana Arai at; Joshua Goodman at

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