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Santander Chile to end credit card contract with Transbank

Banco Santander Chile said it would not renew its credit card contract, set to expire next year, with card payment processor Transbank SA, La Tercera reported, citing a letter from Santander Chile.

Transbank currently operates as payment operator and acquirer, which means that the company processes transactions and at the same time partners with merchants so that they accept cards from banks in their point-of-sale systems, after which they charge a fee.

However, the termination of the contract will end Transbank's role as a card operator for Santander Chile. The end of the contract could generate greater competition in the card payment processing segment as Santander Chile could offer personalized products and services not guided by conditions set by Transbank as well as offer benefits other than those already available in the market, the publication said.

In conjunction with the move, Santander Chile will adopt a four-part model, dividing the roles for cardholders, merchants, issuers and acquirers. The bank's current three-part model involves the delegation of the acquirer role to Transbank.

The four-part model is currently used by Mastercard, which developed a system in which most Chilean banks are connected and wherein customers of any bank can use their card.

The agreement between Santander Chile and Transbank, which was signed in 1997, will expire in 2019. After the contract, Santander Chile will begin to operate with the exchange rate set by Mastercard, while the acquirers will compete for commissions.

Santander Chile's decision comes after a legal battle between antitrust regulator TDLC and Transbank, in which the competition body claims that the company charges abusive fees to affiliated businesses. TDLC ordered Transbank to set a new rate that does not discriminate by categories or items but will be tied to the number of transactions in each trade. The court also recommended separating Transbank's functions of payments acquisitions and payments processing.

Finance Minister Felipe Larraín said the end of the contract could open up more competition in the payment processing market, Diario Financiero reported. "We would especially like the cost of cards to be lower, the transactional cost, especially for [small and medium-sized enterprises], for people," Larraín said.

Transbank, which was created in 1989, is owned by a group of seven Chilean banks including Santander Chile, which currently owns a 24.99% stake.