Things are looking good for the cards market in Kazakhstan. Incredible growth of 50% in 2012 helped the country to reach unprecedented levels of card adoption. CI takes a look at where the country will go from here
Kazakhstan’s card payments channel demonstrated robust growth during the review period. Improved banking infrastructure, consumers’ shift towards card-based payments and adoption of new technology to offer safe and secure banking contributed to the growth of the channel during the review period. Steady growth in the economy and e-commerce, rising disposable incomes and increasing adoption of new technology for secure banking are expected to support the growth of the card payments channel over the forecast period.
In terms of number of cards in circulation, the credit cards category recorded the highest growth rate of 49.51% during the review period to reach 2.1m cards at the end of 2012. Over the forecast period, the category is projected to record the highest growth rate of 15.30% to reach 6.1m by 2017. The prepaid cards category recorded the second-highest growth rate of 18.13% during the review period and is projected to record a CAGR of 11.28% over the forecast period.
The key drivers for the substantial growth were growing consumer awareness of the benefits of credit cards, customer-centric services, adoption of advanced technology to offer secure banking, and reward programs offered by card issuers.
The card payments channel presents positive growth potential
The card payments channel grew from 7.2m cards in 2008 to 11.9m in 2012, at a CAGR of 13.38%. Over the forecast period, the total number of cards is projected to grow from 13.9m to 17.9m, at a CAGR of 6.55%. In terms of transaction value, the overall card payments channel grew at a CAGR of 25.43% during the review period, and is projected to grow from KZT7.0tr (US$47.7bn) in 2013 to KZT10.4tr in 2017 at a CAGR of 10.28% over the forecast period. In terms of number of transactions, the overall card payments channel grew at a CAGR of 16.27% during the review period and is forecast to increase from 214.2m transactions in 2013 to 266.2m in 2017, at a CAGR of 5.58%.
Shift towards cashless transactions, predominantly card payments
Non-cash payments in Kazakhstan were dominated by credit transfers with a total transaction value of KZT104.6tr in 2008, while card payments valued KZT2.3tr. During the review period, card payments recorded a CAGR of 25.43% to value KZT5.7tr in 2012, while credit transfer recorded a CAGR of 3.26% to value KZT118.9tr in 2012.
Growing consumer awareness, increasing acceptance of cards at retail outlets, benefits through card-based reward programs and adoption of cards that offer secure banking were key factors for the growth of card payments.
Growth in online and conventional retail resulting in increased card use
Growth in internet penetration and rising disposable incomes and consumer spending resulted in increased online retail sales in the country. During the review period, e-commerce grew at a CAGR of 91.51% to reach KZT58.5bn at the end of 2012.
To further regulate and develop the e-commerce industry in the country, the government decided to introduce a law on e-commerce to be implemented by the end of 2013. As a result, the e-commerce industry is projected to reach US$2.4bn by the end of 2016.
Kazakhstan’s conventional retail industry also recorded healthy growth during the review period, recording a CAGR of 16.94% to reach KZT4.6tr in 2012. To benefit from the growth in online and conventional retail, banks are increasingly expanding their merchant and point-of-sale (POS) networks, as well as improving their internet banking infrastructure, resulting in increased volumes of card payments.
Contactless cards – the future of Kazakhstan’s card payments channel
In June 2013, MasterCard and Visa started to offer contactless credit card systems called PayPass and payWave respectively. Kazkommertsbank was the first bank to introduce contactless cards. The cards were issued in collaboration with both MasterCard and Visa. The bank is also planning to implement contactless features on mobile phones. Improved efficiency, speed and security on the cards will positively impact the card payments channel.
Rising demand for cards with enhanced security measures
The value of card fraud increased during the review period from KZT288.5m in 2008 to KZT303.7m in 2012. Commercial banks in Kazakhstan are offering cards secured by chip-and-PIN technology. The cards are secured further with the 3-D Secure service, providing additional security in making online payments. The adoption of secure payment technology will drive the growth of e-commerce market in the country, which is expected to increase card use.
Prepaid cards offer growth prospects
Prepaid cards are in a nascent stage in Kazakhstan. In terms of number of cards in circulation, they accounted for a negligible 0.1% of the overall card payments channel in 2012. With just a few banks offering these cards, there is a huge potential for the growth of prepaid cards in the country. For instance, Halyk Bank, Kazkommertsbank and Bank CenterCredit offer gift cards for retail customers.
Expansion of retail market offers growth prospects
Kazakhstan entered into bilateral trade agreements with Russia and Belarus in 2010 to increase business inflows from these countries. The agreements have opened up trade potential, and retail trade volume in Kazakhstan increased from KZT2.4tr in 2008 to KZT4.6tr in 2012, at a CAGR of 16.94%. The largest share belongs to non-food products, accounting for almost 63%.
The country is experiencing rapid economic development, improved consumer purchasing power and employment, and rising consumer spending, a trend which is expected to continue in the future. These positive factors, coupled with rising retail trade volume, are expected to benefit the card payments channel.
Improvement in payment infrastructure
In 2012, the debit cards category accounted for 81.9% of the overall card payments channel in terms of number of cards in circulation. Its growth was due to its increasing popularity in the form of payroll cards and card-based products designed for salary receipts. Banks recognize the value of debit cards in the overall banking sector and are making concerted efforts to encourage the direct deposit of salaries. Halyk Bank and Kazkommertsbank have developed projects to encourage companies to deposit employees’ salaries directly into bank accounts, which will lead to the increased use of cards.