A study on operational impacts – Federal Law 12,865/13 and derived regulation of the Payment Card Industry

By Luciano Fantin – This article relates to the one that I wrote about the payment card industry as of February 24 2014.

As cited in my last article about this subject as of February 24 2014, the market vividly comments about the impacts on cost, complexity, governance, processes etc. in order for the companies to adapt themselves to the new demands of Federal Law 12,865/13 and its derived regulation. Many owners of payment schemes (brands) and payment institutions (issuers and acquirers) are not subject to the Brazilian Central Bank regulation and monitoring. On the other hand they are concerned about the new set of controls and processes that they will be subject to.

In order to be able to precisely estimate the impact each institution will be subject to, a gap analysis has to take place. Which are the existing organizational and functional structures, as well as levels of governance and systemic and processes infrastructure that can cater for the new demands? Which ones will have to be reinforced or even created?

To respond to this question The Sharp Fintech has produced an impact study on necessary investments and needed expenses for the adaptation to the new regulatory framework.

Follows a summary of this study. Details can be obtained by contacting us.

  • This study aims at producing an overview on the potential operational impacts translated into investments and expenses that owners of payment schemes (OPS) and payment institutions (PI) will be subject to;
  • This is a generic study and considers only companies, which currently are out of Brazilian Monetary Council and Brazilian Central Bank spheres of influence. It also considers that this will be a fully incremental effort, i.e. from scratch as if no compliance whatsoever would currently exist. As in any modeling study it contains subjective aspects;
  • Each individual case should be handled exclusively. In order to precisely estimate the impacts that each company will be subject to an individual gap analysis should be made. It is therefore important that each OPS and PS execute their own detailed analysis on the existing processes and controls before any investment decision is taken;
  • As in a budgetary process, we have measured amortizable investments and current expenses (“CAPEX” and “OPEX”);
  • In order to demonstrate the actual financial impact to the companies, we have also estimated the internal hours, which will be spent with projects and initiatives by the employees. Nonetheless we have also produced a view excluding them;
  • Following are the items, which have been estimated:
    • Acquisition of systems and applications, internal and external project hours and investment amortization;
    • Systemic infrastructure and investment amortization;
    • Maintenance of systems and applications, internal and external hour for its management;
    • Total cost of new employees;
    • External support;
    • Overhead;
  • The minimum requirements on equity or even capital have not been considered as they are prudential allocations without investment or expense connotation;
  • We have adopted as a premise that a Business Continuity Plan and a Disaster Recovery Plan will be in place, as well as that the company will opt for its own Brazilian Payment System (SPB) set-up;
  • Those investments of OPS, which also act as PI have been estimated separately without considering potential synergic effects;
  • The study considered relevant payment schemes, which are thus beyond regulatory threshold;
  • It also considers the production of a feasibility study to be presented during the authorization process, even if this might be not demanded (as e.g. PI already in the market);

We utilized a basis scenario and applied a 30% up and down deviation for respective worst and best case scenarios. Our conclusions are the following, with rounded-up figures:

  • Taken into consideration only external expenditures, PI have to invest between BRL 2 and 3 million. The incremental monthly expenses lie between BRL 125 and 235 thousand. We estimated between 10 and 20 incremental employees;
  • Taken into consideration only external expenditures, the OPS will have to invest between BRL 500 and 900 thousand. The incremental monthly expenses lie between BRL 10 and 20 thousand. We estimated between 5 and 9 incremental employees.

The aforementioned conclusions are based on a study that utilizes economic and financial premises, and therefore do not constitute any form of guarantee in terms of results. The impacts derive from the application of variables on estimated scenarios, according to a financial modeling. Any interpretation for decision taking purposes should carefully take these aspects into consideration.



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