UPDATE 2-Brazil to set up rules for mobile phone payments

Mon Oct 29, 2012 5:40pm EDT

* Framework bill to be introduced this year-official

* Aims to deepen banking penetration, boost competition

* New framework may hamper profits-analysts

By Alonso Soto

PORTO ALEGRE, Brazil, Oct 29 (Reuters) - Brazil's government is finalizing a new regulatory framework for payments through mobile phones, officials said on Monday, in a move that aims to bring more poor Brazilians into the financial system and spur competition among payment providers.

The action aims to lower the cost of payment operations, raise competition among merchant service providers and deepen banking penetration, central bank chief Alexandre Tombini said during a central bank event in Porto Alegre.

"The measure aims to bring about the security necessary for those involved in these new payment methods, and hands the central bank the task of regulation," Tombini added.

The new framework has raised some concerns, however.

Analysts a BTG Pactual last week cut the price target for shares of Brazil's largest card payment processor, Cielo , to 48 reais from 63 reais previously, saying government efforts to cut the cost of financial services in Brazil might hamper profit within the sector.

"Regulatory risks have become more apparent," analysts led by Marcelo Henriques wrote in a client note.

A bill is likely to be introduced in Congress this year, Communications Minister Paulo Bernardo told journalists at the event. He said details were being discussed with banks, credit card issuers and other service providers.

The framework could also be implemented via an executive order, a measure that would give it immediate effect, but that ultimately would need to be ratified by Congress, officials said.

PLENTY OF OPPORTUNITIES

Regulation of mobile payments would open the door for the use of pre-paid accounts for payment of bills, money wire transfers between users and the adoption of technologies for mobile payments for users that have no credit or debit plastic cards.

"We know of phone operators and several banks that want to create partnerships and launch new products," central bank director Aldo Mendes told reporters.

Murilo Portugal, president of the federation of Brazilian banks, told Reuters that mobile payments represent an opportunity for banks to take advantage of a low-cost and widespread technology.

"I see many opportunities because this is a widely used technology in Brazil," Portugal said at the event.

Cell phones are widely used in Brazil, from Amazon jungle outposts to the densely populated cities in the southeast. There are 259 million cell phones in a country of about 190 million people, according to government data.

Shares of Cielo rose 1.54 percent to 49.50 reais on Monday. Brazil's benchmark stock index Bovespa ended the day down 0.17 percent.

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