Cash remains king in Latvia but the government and regulators are pushing hard for card adoption. CI takes a look at the state of the Latvian card market and where it will expected to be by 2017

The Republic of Latvia is an open economy where exports contribute for almost one-third of the GDP. Latvia is a member of the United Nations (UN), European Union (EU) and International Monetary Fund (IMF). Latvia’s economy was adversely affected by the eurozone crisis in 2009.

While cash remains the dominant method of payment in Latvia, there have been concerted efforts from card issuers, the government and regulatory bodies to support card use. The nation’s debit, prepaid and charge card categories have expanded rapidly. A large part of this growth has been driven by infrastructure improvements such as contactless technology and increased adoption of smartphones.

All these factors have made payment cards far more accessible, resulting in moderate growth for the card payments channel. The channel registered a CAGR of 0.21% during the review period (2008-2012), and grew from 2.65m cards in 2008 to 2.67m in 2012.
Over the forecast period (2013-2017), the channel is forecast to grow from 2.79m cards in 2013 to 3.6m in 2017, at a CAGR of 6.73%. The key drivers for this growth include a stable inflationary forecast, positive employment opportunities and an increasing volume of corporate and leisure travelers. Latvia is also expected to register high growth in terms of online and traditional retail revenues.

Infrastructural improvements have supported industry growth

Commercial banks and retail organizations have been promoting contactless payment technology to increase speed and convenience of payments for consumers. The technology also offers improved security to control fraudulent transactions.

ontactless, EMV and mobile payments are being rolled out extensively across Latvia. The implementation of Single Euro Payments Area (SEPA) cards in Latvia was made by issuing cards complying with EMV standards at POS terminals and ATMs in 2010. As of 2012, 99.3% of credit cards in Latvia were EMV-compliant. Moreover, 99.5% of debit cards, 99.3% of POS terminals and 100% of ATMs had migrated to EMV standards. These infrastructural improvements have resulted in increased customer confidence in online payment methods, which is expected to support future industry growth.

Companies are adopting aggressive marketing and competitive pricing strategies

With competitive pressures in the Latvian cards and payments industry, banks and issuers are developing marketing and pricing strategies to attract larger customer bases. Offers such as buy-one-get-one-free promotions, reward points, increased daily limits for cash withdrawals, and insurance cover are common strategies used by banks.

Banks are segmenting their customer bases to expand their market shares in each card category. Banks such as Swedbank and Citadele offer bank cards for students and the younger population aged between 7 and 24 years in Latvia. Credit and debit cards are also being specifically designed to meet the needs of corporate customers.

High potential of m-commerce

Mobile commerce in Latvia is at a nascent stage, offering substantial opportunities for banks and service providers to offer m-commerce solutions with NFC technology. The increasing capabilities of smartphones, a significant rise in mobile device applications and falling prices are the driving factors for m-commerce. Improved search engines and price comparison sites have also been key factors benefiting the cards and payments industry in Latvia.

Increasing focus on specific consumer groups

Banks in Latvia are segmenting customers based on age and income level, and are offering debit and credit cards targeted at specific segments.

– For example, Swedbank offers a range of debit cards targeting students and the younger population in Latvia, aged between seven and 24 years. They feature 3-D Secure technology, offering secure online transactions.

– Banks also offer an extensive range of cards targeting HNWIs. Baltic International Bank offers the MasterCard Platinum targeting the affluent population in Latvia. Cardholders are offered concierge services such as information on air travel reservations, gifts and a flower delivery service. An annual fee of LVL150 is charged for the MasterCard Platinum.

Consumers shifting from credit to prepaid cards

The recent financial crisis changed the perception of the country’s middle classes towards credit and charge cards, making both public and private entities increase their focus on efficiency and reducing costs. This has resulted in significant use of debt-free cards, especially prepaid cards. Corporate and government entities are also increasing their use of prepaid cards for salaries and welfare payments.

Emergence of NFC loyalty programs in Latvia

In 2012, The Continuity Company (TCC) which is one of the leading provider in retail marketing programmes collaborated with retail group Narvesen to offer loyalty programs with NFC technology. Customers are provided with stickers which attach to their mobile phones. Customers are able to collect loyalty rewards electronically, rather than through the traditional method of collecting paper vouchers. The loyalty program increased the frequency of purchases by cardholders, resulting in increased profitability for the company.

Wide acceptance of electronic (digital) wallets

An electronic wallet is a mobile phone feature that can simultaneously store multiple applications, manage customer accounts and transaction information with financial providers, public transit agencies, or third-party enti¬ties such as health clubs, schools and office or apartment buildings. Electronic wallets can simultaneously manage up to 100 different applications, ranging from electronic money to personal IDs.

– In Latvia, Hipay is a multi-currency e-wallet enabling customers to perform online transactions and set payment limits. The e-wallet also allows merchants to reach unbanked consumers and offer secure transactions.
– Neteller offers an e-wallet service in Latvia allowing customers to load, withdraw and transfer funds online.

Increasing competition benefiting the card payments channel growth

The rapid development of the cards and payments industry in Latvia has encouraged several leading global banks to expand their business in the country. This is further supported by favorable government regulations, under which foreign banks are allowed to enter the market through bank branches, setting up subsidiaries, or acquiring shares in local banks.

The Central Bank of Latvia groups local and international banks into three schedules: Schedule I banks are domestic banks authorized to accept deposits, Schedule II banks include subsidiaries of eligible foreign banks operating in Latvia, while Schedule III banks are branches of foreign institutions that are authorized to conduct banking business in Latvia with certain restrictions.
UniCredit Bank, Swedbank, PrivatBank, Handelsbanken and Danske Bank are some of the leading foreign banks that have strengthened their presence in the Latvian cards and payments industry. To remain competitive and gain market share, domestic banks are offering cards targeting consumers on the basis of age, gender, income and psychographic profile by adopting various marketing, product and pricing strategies, including rewards and discount programs, customized cards, and co-branded products. For instance, UniCredit Bank and Danske Bank offer premium cards targeting high-income customers.