Brazil's Itaú sees card processor unit profitable after no-charge move

FILE PHOTO: A man walks past an Itau Unibanco logo in Rio de Janeiro, Brazil September 6, 2017. REUTERS/Pilar Olivares/File Photo

SAO PAULO (Reuters) - Brazil’s biggest private sector lender Itaú Unibanco Holding SA said its card processor unit Rede will continue to be profitable despite a decision to stop charging interest rates and repaying merchants using its machines in two days, a bank executive said on Thursday evening.

Rede CEO Marcos Magalhães told Reuters Itaú decided to advance payments to merchants in as little as two days, compared with the usual 30-day period, in order to close the gap with international practices. The decision is effective May 2 and includes zeroing interest rates.

The executive, declining to elaborate, said Itaú hopes to increase businesses with current clients and attract new merchants to add revenue and compensate for its new free-cash advance policy.

After Itaú’s move, shares in Brazilian card processors such as Cielo SA, PagSeguro Digital Ltd and StoneCo Ltd tanked, as their profits are likely to drop if they decide to follow Rede’s new practice in order to retain clients.

Magalhães said the bank’s decision is not a sales promotion for a limited time, but a new way of working with small- and medium-sized companies. This segment corresponds to 94 percent of Itaú’s clients.

On Thursday, Brazilian antitrust watchdog Cade sent Itaú a request for more information on the decision to cut interest rates, asking for an answer by May 3. Magalhães declined to comment on the matter.

Reporting by Carolina Mandl; Editing by Chizu Nomiyama