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Nubank (NU) - This shouldn’t be a surprise, but just in case…
Hi.
On March 22, 2022, Mastercard released the public consultation AN 6229, proposing a reduction in the interchange rate on prepaid card transactions made by individuals in Brazil to 0.80%.
Interchange fees for other transactions for this product will remain at 1.20%. However, the effectiveness of such change is subject to comments by market participants, further revisions by Mastercard, and the approval of the Brazilian Central Bank (“BCB”).
According to Mastercard, this review is a direct consequence of the Public Consultation No.89/2021 (“ECP 89/2021”) and meetings held with the BCB about debit and prepaid interchange rate regulation.
What are interchange fees and Public Consultation No. 89/2021?
⚠️Interchange fees consist of the compensation received by a payment instrument in connection with a processed payment transaction.⚠️
In the case of domestic purchase transactions carried out with debit cards (those issued underpayment schemes of deposit accounts), the interchange fee is limited by ⚠️BCB Circular No. 3.887/2018, which sets forth the maximum limits of (i) 0,5% for the average interchange fee, weighted by the value of the transactions; and (ii) 0,8% as the maximum amount to be applied in any transaction.⚠️
Corporate cards and not-present transactions are excluded from the scope of the rule. In addition, the interchange fee for prepaid cards (those issued underpayment schemes of prepaid payment accounts, such as the cards issued by Nu Pagamentos) is not subject to any regulatory limitation.
In this context, the Central Bank of Brazil issued, on October 8, 2021, ⚠️Public Consultation 89/21 proposes to repeal Circular No. 3,887/2018 and impose a cap of 0.5% for interchange fees charged in domestic purchase transactions carried out using debit cards (including the debit cards linked to prepaid accounts that we currently offer).⚠️
A few of you may have received a call from your sell-side analyst, in which he tells you how he nailed that the BCB was gonna keep creating headwinds for the industry. Nevertheless, Nu informed about the CP89 in the F-1. So, technically, investors were expecting this.
Prepaid interchange fees accounted for 8.1% of the company’s revenue in 2021. Therefore, if the changes provisioned under the above-mentioned public consultation had been in place since January 1, 2021, the company’s revenue would have been reduced by 2.4%.
Considering the worst-case scenario, where the BCB decides to follow the CP89, my estimates suggest a 4% impact on revenue.
My estimate for interchange fees is 0,8% for the modeling, so there would be an additional downside for my numbers.
Stone (STNE) - Fresh Air in the BoD
Stone announced the Board of Directors (“BoD”) has approved the appointment of two new Directors, Conrado Engel and Pedro Zinner.
Both new Directors bring extensive knowledge in financial services and the leadership of large companies in Brazil, which are critical areas to Stone’s next growth phase.
Mr. Engel, a former Senior Executive Vice President at Banco Santander Brasil, CEO of HBSC Brazil, CEO of Losango Consumer Finance, and has decades of experience leading financial services and credit businesses, will become Vice-Chairman of the Board.
Mr. Zinner is currently CEO of Eneva, a leading power-generation company in Brazil, and has more than 25 years of experience in strategy, risk management, and finance.
As part of this evolution, Eduardo Pontes (Co-Founder), Ali Mazanderani (Chairman Salt Pay), and Thomas A. Patterson (Madrone Capital) have agreed to retire from the Stone Board after many years of service that began before the Company’s IPO.
The appointments of Mr. Engel and Mr. Zinner and the resignations of Mr. Pontes, Mr. Mazanderani, and Mr. Patterson are effective immediately.
“On behalf of the entire Board, I want to thank Edu, Ali, and Tom for their work and many contributions over the years to Stone and its predecessor businesses. I also want to thank Edu Pontes for his vision and service on the Board. We look forward to continuing to benefit from his advice as a shareholder,” said André Street, Chairman of the Board.
New Board of Directors Composition
As a result of these refreshment actions, Stone BoD will be composed of nine Directors, seven of whom are independent:
André Street – Chairman
Conrado Engel* – Vice-Chairman
Roberto Moses Thompson Motta*
Sílvio José Morais*
Luciana Aguiar*
Pedro Franceschi*
Mateus Scherer Schwening
Diego Fresco Gutierrez*
Pedro Zinner*
* Independent Board Members
Fresh air is welcome in Stone… Personally, Mr. Zinner’s nomination caught my attention. I know just a few fund managers that could appoint him, which could be a very positive indication for the company. So I’ll follow the following steps carefully.