BRIC Nations (Brazil, Russia, India, and China) Moving Toward Domestic Payments Model Not Just Integrating Universal Branded Credit Cards
When an economist coined the acronym “BRIC” in 2001, the objective was to recognize advanced developing nations that would become dominant players in the global economy toward the middle of this century. The original estimate, in a report titled “Building Better Global Economic BRICs” published by the Goldman Sachs economic research group, projected that the combined economic worth of Brazil, Russia, India, and China would exceed $11.6 trillion by 2010. Today, the four markets exceed $16.7 trillion in gross domestic product, almost 50% higher. The expectation was that, collectively, the economies of the BRIC countries, which represent 40% of the world’s population, would outrank the six largest Western economies.
Almost half of the world lives in Brazil, Russia, India, and China. These countries are in varying stages of economic evolution, shifting consumers from cash or bartering to sophisticated electronic payments. In contrast to mature economies like Canada, the eurozone, or the United States, the BRIC countries have uneven infrastructure and are undergoing modernization at varying speed and intensity.
Progress in the BRIC nations has been inconsistent. In August 2017, the Brazilian Central Bank projected a modest growth rate of 2%, nearly twice the previous year’s pace. At the same time, Brazil’s inflation fell to 2.78% in the month of July 2017, the lowest in 18 years. In contrast, inflation in Russia is beyond 4%, and with potential U.S. sanctions the currency is projected to continue weakening. Russian monetary issues have a direct effect on the country’s GDP, which is anticipated to fall short of the 2% increase announced by the Ministry of Economics for 2017. The Central Bank of India, in recent efforts to lower the inflation rate, which was 10% higher than anticipated, pointed to indicators that bring back memories of the nation’s severe 2008 crisis, with debt burdens and employment issues. China, the largest economy of the four BRIC nations, remains propped up by state-driven controls, but analysts expect a slowdown in late 2017 to early 2018 as macroeconomic issues such as currency devaluation continue.
Macroeconomics affect the world of retail payments in both developed and emerging economies. Leading and lagging indicators such as currency strength, unemployment rate, income growth, and the pace of retail sales each affect spending behavior, the market’s ability to electronify payments, and the inclination to shift from legacy cash and bartering systems to high-speed electronic payments.
While there are commonalities among the BRIC markets, there are also substantial differences:
- In Brazil, Elo, a low-cost bank-owned cards network, is particularly strong for debit and has some traction domestically with credit, and a new alignment with Discover gives bilateral card acceptance in most countries.
- Russian consumers can take advantage of the National Payment Card System (NPCS), which accelerated implementation by a mandate of the Ministry of Finance that any business with annual sales more than RUB60 million (about USD 1 million) must accept the fledgling Mir card.
- India’s RuPay brought transformation to the world’s second largest population with a low-cost indigenous alternative to U.S. payment brands, and in the past year, 1.2 million new automated teller machines were added to the network, which now carries 2.7 million ATMs.
- In China, UnionPay (formerly China UnionPay) is now a global payments powerhouse that contributes more than 40% of global consumer card transaction throughput, with 6.3 billion cards in circulation, almost five for each citizen. With Visa’s August 2017 filing to become a bank card clearing network in China as the first nondomestic player, innovation and alliances will certainly continue. All indications are that Mastercard will follow suit, either on its own or with a partner.
This Mercator Advisory Group research report, Brazil, Russia, India, and China: Payment Developments in the BRIC Countries, discusses how the BRIC nations, while similar in their long-term potential, face unique challenges based on economic, political, and social issues. The report also identifies how each country, in its own ways, is moving toward a more country-driven payments model rather than just integrating the universal branded payments scheme.