Economic recovery through European Union membership and an uptake in mobile payments has helped mitigate the effects of the recession in Croatia. Cards International analyses a report by data and advisory company Timetric on the emerging opportunities in Croatia’s cards and payments industry
The Croatian card payments channel demonstrated moderate growth during the review period. In terms of the number of cards in circulation, the channel grew at a CAGR of 4.13% to reach 10.8m in the period 2008-2012. High levels of debit card penetration, economic recovery through joining the EU and the emergence of contactless payment technology contributed to the growth of channel during the review period. Card volume is expected to grow at a CAGR of 3.47% by 2017 with the fastest growth coming from prepaid cards (expected increase to 21.1% by 2017).
High debit card penetration
Croatia has a population of 4.4m in 2012, with high levels of card penetration. Debit cards have the highest penetration at 1.4 cards per person in 2008, increasing to 1.7 cards per person in 2012. Over the forecast period of 2012 to 2017the figure is projected reach 1.9 cards per person.
Economic recovery through joining the EU a positive impact
Croatia’s economy is based largely on service sectors such as banking, trade and tourism, which collectedly account for nearly 70% of real gross domestic product (GDP) in the country. In 2009, Croatia’s overall economic activity decelerated due to the global financial crisis which adversely impacted banking, tourism, exports and foreign direct investment (FDI). Croatia joined the European Union (EU) on 1 July 2013 and the country will receive the equivalent of nearly 4% of its total GDP through the EU Cohesion Policy. This financial aid is expected to bring stability and investment to the country’s economy over the forecast period, creating a favourable climate for the payments industry.
Emergence of contactless technology
Commercial banks and retail organisations have been promoting contactless payment technology to increase speed and convenience of payments for consumers throughout the world. The technology also offers improved security to control fraudulent transactions. In Croatia, banks have started to introduce contactless payment systems such as Visa’s payWave, and MasterCard’s PayPass.
In September 2012, OTP Banka in association with MasterCard PayPass launched contactless payments for low-value transaction up to HRK100 (US$17.1). Similarly, PBZ also started issuing and replacing old debit cards with contactless payment cards. Contactless cards are expected to gain popularity over the forecast period and establish themselves as a mainstream payment platform.
Growth in payment infrastructure has supported increased levels of card use
Banks and retail outlets in Croatia expanded their infrastructure networks across the country during the review period. The number of ATMs installed in Croatia increased marginally, from 3,342 in 2008 to 4,144 in 2012, at a CAGR of 1.06%. The increasing acceptance of cards at retail outlets and consumers’ shift towards making purchases directly with cards resulted in an increasing number of POS transactions during the review period. The number of POS terminals in Croatia recorded a CAGR of 7.59% during the review period, rising to 107,171 in 2012. With further increases in the volume of POSs and ATMs, the use of cards as a payment method is expected to grow further.
Increasing adoption of smartphones driving m-commerce in Croatia
The growth in m-commerce has been enhanced by increased smartphone use in Croatia. The increasing capabilities of devices, a significant rise in mobile device applications and falling prices have been instrumental in driving m-commerce. Improved search engines and price comparison sites have also been key factors, benefiting the cards and payments industry in Croatia.
Croatian card payments channel transaction value falls
In terms of transaction value, the card payments channel declined from HRK113.1bn (US$23.1bn) in 2008 to HRK110.2bn (US$18.9bn) in 2012, at a CAGR of -0.64%.The cards payments channel is forecast to grow from HRK112.6bn(US$19.3bn) in 2013 to HRK123.0bn (US$21.1bn) in 2017 at a CAGR of 2.23%.
In terms of number of transactions, the debit card category grew from 161.9m in 2008 to 199.5m in 2012, at a CAGR of 5.35%. It is expected to grow from 210.5m in 2013 to 249.2m in 2017 at a CAGR of 4.31%. The transaction value of the debit card category grew from HRK81.2 bn(US$16.6bn) in 2008 to HRK82.2bn (US$14.1bn) in 2012, at a CAGR of 0.31%. It is anticipated to grow from HRK84.6bn (US$14.5bn) in 2013 to HRK94.4bn (US$16.2bn) in 2017, at a CAGR of 2.78%.
The leading scheme providers in the debit card category are MasterCard and Visa. In 2011, MasterCard represented a category share of 54.0% and Visa held the remaining 46.0%. In total, MasterCard had 3.8m debit cards in circulation in 2011, while Visa had 3.2m.
Credit card numbers decreased
During the review period, the credit card category decreased at a CAGR of -0.53% in terms of the volume of cards in circulation. In terms of transaction value, the credit card category declined at a CAGR of -2.86% during the review period. During the review period, the total number of credit cards in circulation fell from 936,082 in 2008 to 916,369 in 2012, at a CAGR of -0.53%. Over the forecast period, the number of credit cards in circulation is forecast to increase from 928,971 in 2013 to 1,011,320 in 2017, at a projected CAGR of 2.15%.
MasterCard, Visa, Diners Club and American Express are the four scheme providers in the credit card category. Diners Club formed 28.7% of the total credit card category, followed by American Express with 26.7%. MasterCard and Visa represented 24.8% and 19.7% respectively in 2011.
In terms of transaction value, the credit card category decreased at a CAGR of -2.86% during the review period, from HRK9.1bn (US$1.9bn) in 2008 to HRK8.1 (US$1.4bn) in 2012. However, over the forecast period, the category is expected to grow at a CAGR of 2.38%, from HRK8.2bn (US$1.4bn) in 2013 to HRK9.0bn (US$1.6bn) in 2017. The number of transactions in the credit cards category decreased at a CAGR of -1.72% during the review period, from 32.9m in 2008 to 30.7m in 2012. Over the forecast period, the total number of transactions is expected to grow from 30.7m in 2013 to 32.6m in 2017, at a CAGR of 1.51%.
Prepaid cards fastest growing category
The Croatian payment system is dominated by cash and direct debit transactions, which collectively account for more than an 80% share in terms of value. The share of cash-based transactions has, however, declined due to improved security and developments in alternative payment methods such as cards, direct debits, e- payments and m-payments systems.
The share of cash-based transactions in Croatia fell from 71.2% in 2008 to 55.0% in 2012, while the value of direct debit transactions grew at a CAGR of 60.2% in the review period to gain a market share of 29.5% in 2012, compared to 6.2% in 2008. Card payments is the third most preferred channel with a 15.4% share in 2012.
Cheques on the decline; cash preferred method
Cheques are one of the oldest forms of payment in Croatia but their place is rapidly being taken by cash, direct debits, credit transfers and card payments. Checks accounted for just 0.05% of Croatian payments in 2012, largely due to technological innovations and the emergence of alternative, more convenient channels.
Cash remains the preferred method of payment among consumers. According to Timetric analysis, 71.2% of payment transactions were cash-based in 2008. However, this share declined to 55.0% in 2012, valuing HRK393.2bn (US$67.4bn) after recording a CAGR of 1.82% during the review period.
Zagreba?ka Banka, founded in 1914, is the largest bank in Croatia, owned by UniCredit group of Italy. The bank has 80,000 corporate customers and 1.1m retail customers. At the end of 2012, the bank operated with 132 branches and more than 840 ATMs. The bank operates primarily through three business segments: retail banking, corporate and private banking, and market and investment banking.
Zagreba?ka was the leading bank in terms of volume of debit card volume in 2011, accounting for 36.1% of the total number of debit cards. Key competitors in the category include PBZ, Erste & Steiermärkische Bank, Hrvatska Postanska and Splitska Banka which accounted for 32.1%, 10.1%, 6.9% and 4.7% shares respectively in 2011. In terms of the number of cards in circulation, Zagreba?ka had 2.6m debit cards in 2011, whereas PBZ had 2.3m.
As of 2011, Zagreba?ka bank was the leading operator in terms of the volume of credit cards in circulation, representing a category share of 30.8%, followed by PBZ, and Erste & Steiermärkische Bank with 23.0% and 13.9% respectively. Zagreba?ka bank had 281,978 cards in circulation in 2011, while PBZ and Erste & Steiermärkische Bank had 210,499 and 127,007 respectively.
Zagreba?ka Banka collaborated with Avenue Mall and Visa to introduce a co-branded card, Visa Avenue Mall, enabling cardholders to receive special discounts and earn rewards points at Avenue Mall. The bank has also launched the Visa Avenue Mall prepaid gift card.
Privredna Banka Zagreb is the second-largest bank in Croatia, established in 1966. In January 2007 the bank merged with Banca Intesa and Sanpaolo and became a member of the Sanpaolo group. At the end of 2012, the bank had more than 200 branches with 600 ATMs and a customer base of 1.6m.
Along with retail and banking services, it offers a diverse range of services such as leasing, loans, real estate business, fund management, credit card services, foreign exchange operations and underwriting and arranging debt securities.
The bank operates primarily through three business segments: retail banking, corporate banking and finance banking. Under its retail banking segment, the bank offers a range of products and services such as current and saving accounts, overdrafts, consumer loans and other branch-related services to individual customers.
The bank provides an extensive range of credit cards, including the Visa My Classic card, the American Express My Way card, the American Express Croatia Airline card, and the PBZ American Express shopping card. Cardholders can access benefits, reward points and discounts, such as access to Premier Lounges and over 600 VIP Lounges in airports around the world with Priority Pass, through the Travel Pass card. Cardholders can redeem Pass Points for air tickets, hotel stays, car rentals and goods. Additional cards are available, and cardholders can set spending limits.
Erste&Steiermärkische Bank d.d.
Erste&Steiermärkische Bank d.d. was established in 1954, and operates as a subsidiary of Erste Group Bank AG. At the end of 2012, the bank operated a distribution network of 130 branches, nine entrepreneur centers in 31 locations, and 615 ATMs in 590 locations.
Under this segment, the bank offers a range of products and services such as current and savings accounts, internet banking, consumer loans, overdrafts and card facilities to individual customers. This segment offers loans and other credit facilities, current and savings accounts, internet banking and card facilities to corporate customers. Erste&Steiermärkische Bank d.d.’s finance marketing segment comprises investment banking and trading activities.