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  1. Analysis
July 3, 2014

Country survey: Slovakia

The Slovak economy remained resilient to the European sovereign debt crisis due to a sound banking system and prudent government spending. Ongoing government reforms in education, training, the labor market, taxation and infrastructure are likely to spur economic growth over the forecast period (2014-2019), which will have a direct impact on the Slovak cards and payments industry.

By Editorial

The Slovak economy remained resilient to the European sovereign debt crisis due to a sound banking system and prudent government spending. Ongoing government reforms in education, training, the labor market, taxation and infrastructure are likely to spur economic growth over the forecast period (2014-2019), which will have a direct impact on the Slovak cards and payments industry.

In terms of overall payment channels, credit transfers held the highest channel share of 85.3% in 2013, followed by direct debits with 12.4%. With consumers shifting to modern electronic payment systems, the channel share of card transactions increased from 1.4% in 2009 to 2.2% in 2013.

In terms of number of cards in circulation in 2013, the Slovak card payments channel was dominated by the debit cards category which held a channel share of 84.9%. The credit cards category held the second-highest channel share of 14.3%, followed by the prepaid and charge card categories which held respective shares of 0.7% and 0.2%.

Healthy growth potential

The Slovak card payments channel grew both in terms of volume and value during the review period (2009-2013). In terms of the number of cards in circulation, the channel increased from 5.1 M in 2009 to 5.7 M in 2013, during the review period at a compound annual growth rate (CAGR) of 2.83%. Over the forecast period, the card payments channel is anticipated to register a CAGR of 2.37% to reach 6.5 M cards by the end of 2018.

In terms of transaction value, the card payments channel posted a review-period CAGR of 6.32%, rising from EUR16.5 Bn (US$22.9 Bn) in 2009 to EUR21.0 Bn in 2013. The channel is expected to post a forecast-period CAGR of 3.97%, increasing EUR22.1 Bn in 2014 to EUR25.8 Bn in 2018.

Debit cards to pave way for charge and prepaid cardsWhile debit cards remained the preferred payment channel during the review period, the economic crisis and high levels of unemployment opened doors for alternative channels such as charge and prepaid cards. Charge cards are popular among Slovak businesses and are used to meet temporary credit requirements. Moreover, firms can benefit from an interest-free credit period by paying outstanding amounts at the end of the due date. It is anticipated that charge cards will continue to be popular with businesses over the forecast period.

Retail customers, however, are showing an increasing inclination towards prepaid and debit cards. While prepaid cards are popular in other European countries, their entry in Slovakia has been late. However, with banks aggressively promoting prepaid cards and developing their card portfolios, prepaid cards are becoming increasingly popular. As consumer spending becomes increasingly prudent, prepaid cards are anticipated to become popular among Slovak consumers over the forecast period.

Embracing social media to benefit the cards and payments industry

The use of social media to reach target audiences is steadily increasing among banks in Slovakia. Tatra Banka uses micro-blogging tool Twitter to communicate developments concerning its products and services, and to answer consumers’ queries. Similarly, Slovenská sporite??a has its own online forums, SporoChat and SporoCall, where customers are invited to share thoughts and suggest possible improvements. VUB Banka is present on social networking sites such as Facebook and YouTube. As more banks strengthen their presence on social media to engage with target audiences, this will have a positive impact on the cards and payments industry.

Growth of m-commerce, e-commerce and outbound travel to drive the card payments channel

Slovakia’s well-developed telecommunications infrastructure allowed it to record one of the highest mobile penetration rates of 112.9% in Europe in 2013. Major banks such as Tatra Banka, Slovenská sporite??a, ?eskoslovenská Obchodní Banka (?SOB) and Sberbank have partnered with various merchants and online retailers in Slovakia to provide easy and secure payment facilities, enabling customers to pay via mobile phones or online, linked to their bank accounts.

Slovak consumers are generally quick to adopt new payment technologies, and with the introduction of mobile contactless payments by MasterCard in 2008, the value of mobile payments (m-payments) grew to reach EUR26.2 M in 2013. With their popularity still growing, m-payments are anticipated to record a CAGR of 74.48% to reach EUR402.0 M in 2018.

E-commerce in Slovakia is growing as a result of improvements in telecommunications infrastructure and payment and security systems, as well as increased consumer willingness and awareness towards online shopping. Rising internet penetration was a key driver behind online retail sales in the country, and the evolution of the modern retail sector also significantly impacted the purchasing decisions of consumers. E-commerce registered a review-period CAGR of 28.35%, rising from EUR218.0 M in 2009 to EUR591.7 M in 2013.

Despite a dip in the number of outbound travelers, outbound travel spending among retail and corporate buyers increased at a review-period CAGR of 3.89%, and is anticipated to increase further over the forecast period at a CAGR of 7.33%, fuelling the growth of travel cards.

Adoption of secure payment technology to drive card-based transactions

Despite steps taken by Národná banka Slovenska (NBS), to reduce fraudulent card activity, the value of card fraud transactions increased from EUR747,597 in 2009 to EUR802,861 in 2013. However, card fraud through counterfeit cards reduced significantly at a review-period CAGR of -9.00%, while card-not-present fraud increased at a CAGR of 5.09%.

To offer more security to card users and enable a greater number of online and offline transactions, several banks have enhanced security features in cards. Service providers and financial institutions in Slovakia offer Europay, MasterCard and Visa (EMV) -compliant cards and near field communication (NFC) technology to control fraudulent activity.

To conduct secure online payments, banks have implemented the MasterCard SecureCode and Verified by Visa programs. The adoption of these advanced security features is projected to drive growth in card-based payments over the forecast period.Positive growth prospects for both e-commerce and conventional retail are expected to encourage growth in the debit and charge card categories. Banks are also encouraging customers to use payment cards by offering cashback offers, discounts, reward points and purchase insurance.

Rising internet penetration

Internet connectivity in Slovakia is well developed across both the business and domestic sectors, and the number of internet users increased during the review period from 3.8 M in 2009 to 4.7 M in 2013. Growth in the number of internet users was primarily due to the adoption of the National Strategy for Broadband Connection by the Slovak government in April 2005, to provide nationwide broadband internet access. Under the program the government undertook several initiatives to make internet available to both households and businesses. For example, the laying of an extensive optical fiber line network started in 2008, covering both urban and rural areas.

Slovak Telekom’s launch of a nationwide 4G network in November 2013 is likely to support growth in the number of internet users over the forecast period, from 5.0 M in 2014 to reach 6.0 M by the end of 2018. Higher internet penetration levels and an advanced card payment infrastructure offer growth potential for online card payments over the forecast period.

Adoption of new technology and enhanced infrastructure for payments

The growing popularity of contactless technology prompted banks in Slovakia to offer cards enabled with contactless technology on a wide scale. In July 2011, UniCredit launched MasterCard-branded contactless stickers that can be attached to the back of smartphones. Payments can then be made by placing the phone in front of a card reader. Generally, payments less than EUR20.0 are made using this technology, and for larger amounts a PIN is required.

Similarly, in August 2013 Tatra Banka launched mobile contactless payments services in association with telecom operators Orange Slovakia and O2. Furthermore, in January 2014, national telecoms operator Slovak Telekom introduced MyWallet, a mobile payments service. The service is currently in its pilot phase, and the company plans to integrate other features such as linking loyalty cards, discount coupons and transport cards to the service on successful completion of the pilot.

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