In a little over a decade, the
Czech Republic’s card payment industry has emerged as one of the
most forward-thinking in Europe, thanks to a concerted focus on
flexible offerings, enhanced technology and an eye on the
increasingly important and e-commerce savvy youth consumer segment.
Victoria Conroy
reports.
The Czech Republic has successfully transformed
itself into a capitalist society since the overthrow of communism
nearly 20 years ago, and a burgeoning consumer class is embracing
new payment methods in ever greater numbers year after year.
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The gross household saving rate of 8.2 percent
as of 2008 is one of the highest in Europe, and the Czech Republic
also has a gradually declining unemployment level, standing at 5.45
percent as of 2008, compared to 9 percent in 2005.
With a GDP growth rate in real terms of 6
percent in 2007 and 3.2 percent in 2008, and GDP per capita
increasing from $10,774 in 1995 to $18,849 in 2008, the growth of
payment card usage in the country is all the more remarkable given
that the industry has only been in existence since 1990.
The number of payment cards in the Czech
Republic has almost reached the level of the country’s population,
which as of 2008 stood at 10.45 million. According to data from the
Czech Bank Card Association, the number of payment cards issued by
Czech banks increased to 8.8 million in the first quarter of this
year.
The Czech Republic has leapfrogged ahead of
some of its Central European neighbours in the usage of payment
cards because of the absence of a vast legacy of domestic or
proprietary bank debit card usage, as Visa and MasterCard have been
present in the Republic since 1991, not long after the collapse of
communism in 1990.
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By GlobalDataAlthough domestic-only debit cards are still
in usage (as of the end of 2008 there were around 421,000 domestic
bank debit cards in usage, compared to 394,000 in 2006), more and
more banks and customers are opting for internationally-branded
cards.
The young, technologically-savvy population is
also driving growth in all forms of cards and non-cash payments.
Around 54 percent of the population over the age of 16 use the
internet, with 13.4 percent users of internet banking.
Around 87.9 percent of the population use
mobile phones, with 7 percent using mobile banking. The Czech
Republic was also one of the first countries in the world to
commence the roll-out of EMV cards, which now comprise around 90
percent of payment cards in issue.
Card usage trends
Credit cards were only launched in
the Czech Republic in 1997, and as of 2008 there were around 1.27
million bank credit cards in issue, compared to 872,000 in 2005.
Czech consumers have slowly but steadily switched a greater
proportion of their credit spending away from other forms of credit
such as instalment loans and closed-loop store cards over the past
few years.
As of the end of 2007, the ratio of credit
card credit to overall consumer credit rose slightly to 8.7 percent
year-on-year, with credit card risk quality higher than that of
total consumer credit.
Over the past few years Czech consumers have
been using both debit and credit cards for a greater proportion of
everyday purchases. Although the recession has bitten into card
issuance numbers and spending over the past year, transaction
levels have held up relatively well with double-digit growth rates
on both credit and debit card transaction levels being recorded for
the past two years.
The years 2004 to 2006 were undoubtedly the
boom years for the burgeoning Czech payment card market, as
domestic banks were acquired by Western European giants such as
UniCredit which imported their payment expertise into the
country.
Between 2005 and 2006, credit card numbers
grew by an impressive 44.3 percent, with the already debit-heavy
Czech market seeing only single-digit growth rates for debit
cards.
However, in terms of bank-issued credit cards
as opposed to retailer-issued credit cards, 2008 saw the growth
rate for credit card numbers drop to just 5 percent, compared to
37.5 percent between 2006 and 2007, largely due to the fact that
banks have retrenched their lending policies and ramped up credit
scoring and risk management procedures in response to the
recessionary climate.
But the fact that in 2008 credit card
transaction value jumped by 21.47 percent to CZK34.91 billion
($1.82 billion), indicates that banks are taking only a temporary
pause in their credit card growth activities once recessionary
tailwinds have eased.
However, payment card inactivity remains a
challenge to further growth, as is the fact that Czech consumers
regularly use their credit cards for ATM transactions.
The latest figures for the first quarter of
2009 from the Czech Bank Card Association indicate that credit
cards were used to make ATM withdrawals worth CZK4.88 billion out
of a total of CZK130.94 billion, or 3.7 percent, an increase from
the 2.7 percent figure for the whole of 2007 and 2.8 percent in
2008.
ATM trends, loyalty and the rise of
cashback
In the debit card space, Visa
Electron is the dominant card, accounting for over half of all
debit cards in issue in the Czech Republic. However, MasterCard
dominates the credit card sector, accounting for nearly half of all
credit cards issued. The year 2008 saw something of a breakthrough
in the Czech market, with figures from the Czech Bank Card
Association showing that payment card transaction numbers at the
point of sale had surpassed ATM transaction numbers for the first
time.
With 3,596 ATMs as of March 2009, Czech
consumers overwhelmingly still use payment cards to make cash
withdrawals. However, while ATM transaction numbers are still
showing double-digit growth rates year on year, the rate of growth
in average ATM withdrawal values appears to be flattening – this
could be in part due to the fact that the number of card-accepting
merchants is growing at a faster rate than the number of ATMs.
Card-accepting merchant locations grew by 6.75 percent in 2008,
compared to ATMs which grew by 5.27 percent.
Between 2006 and 2007, merchant growth was
hampered by the global economic slowdown, leading to a short-lived
fall in the number of card-accepting locations and also the switch
to EMV technology. But now that the majority of issued cards and
POS terminals have been upgraded, it is to be expected that
merchant acceptance growth will once again outpace ATM growth.
The roll-out of loyalty programmes and
cashback schemes at merchant locations is also pulling more card
transactions to the POS channel. One of the best-known examples is
from Ceská sporitelna, which in 2003 rolled out its ‘Bonus’ loyalty
programme for both debit and credit cards in a bid to increase
activation of debit cards and incremental revenues.
With the majority of its customers using their
debit cards primarily for ATM cash withdrawals, Ceská sporitelna
wanted to increase the proportion of “active” cards (defined as
cards used for at least one POS transaction per month).
All of the bank’s cardholders were
automatically enrolled into Bonus, with Bonus points accumulated
for all POS spending. Points can be redeemed against a wide range
of merchandise and services, including card fee waivers. Each year,
customers receive a printed annual catalogue of available rewards
and three update catalogues.
Since its launch in 2003, the proportion of
active cardholders has increased from less than 20 percent to more
than 36 percent. Between 2003 and 2005, the proportion of POS
spending almost doubled (from ten percent to 20 percent of all
volumes).
In terms of the total number of redemptions,
this increased from less than 65,000 in 2004, to nearly 190,000 in
2005, to more than 300,000 in the first half of 2006.
Mobile phone top-ups have emerged as the most
popular rewards option (accounting for around 20 percent of all
redemptions in 2006) followed by charity donations, household goods
and card fee waivers. The Bonus programme is consistently promoted
through in-branch literature, ATM screens and the Ceská sporitelna
website.
In 2008 Bonus was expanded to introduce
registered membership. From the original 2.3 million automatically
assigned members, 700,000 clients were registered for the new
programme.
Since August 2008, clients may collect points
33 percent faster if they activate the Bonus programme service on
their ‘Clever’ credit cards. The bank also introduced a new
approach to distributing bonuses using an electronic voucher, which
allows the bonus to be collected immediately in shops.
In April 2008, Komercní banka launched
cashback at its payment terminals. Cashback is accessible for
holders of all Visa and MasterCard cards issued by Komercní banka.
If the purchase value exceeds CZK300 ($15.68), the cardholder can
withdraw a cash amount up to CZK1,500. Merchants pay no charge for
the service. In the case of cards issued by Komercní banka, the
same fee is charged for cashback transactions as in the case of a
withdrawal from a Komercní banka ATM.
In January 2009, Raiffeisen Bank launched a
merchant coalition credit card loyalty programme, ‘Exclusive’,
offering points for POS purchases at a range of partner merchants.
Points can be exchanged for vouchers to be redeemed in partner
merchants, or can be deposited into life insurance or pension
scheme products. Alternatively cardholders can redeem points
against card fees.
Card personalisation
Czech banks have made concerted
efforts to reach out to younger cardholders through the use of card
personalisation, allowing cardholders to place onto their cards
photos or approved images. In early June 2009, Ceská sporitelna
announced that more than 100,000 customers now had a payment card
with a personalised design. Interest in the ‘Card to Your Liking’
service is greatest among the holders of Ceská sporitelna Cool
cards – they account for more than 97 percent of the overall number
of cards with an individual design.
In May 2009, the total number of Ceská
sporitelna Cool cards reached 200,000. The most popular images that
clients use on their payments cards include photos of their family
and friends, followed by pictures with animal motifs and snaps from
their vacations.
Prepaid growth
Prepaid cards have been in existence
in the Czech market for over four years – in 2004 there were
101,000 e-money cards in circulation, rising to over 856,000 by
2007. Transaction numbers grew from 10.37 million in 2004 to 60.18
million by 2007, reaching CZK505.55 million in value.
Growth has been driven by telephone and petrol
companies which have issued single-purpose prepaid cards, and
public transport bodies which have issued their own card-based
prepaid transit cards for payment of fares on public transport.
Banks have also targeted the youth consumer segment with a range of
tailored prepaid offerings aimed at students and those who like to
shop on the internet.
As of October 2008 there were 10 foreign
e-money institutions operating in the Czech Republic, with 52
‘waived’ institutions, according to the country’s central bank.
Citi’s co-branded card partnership with telco
o2 saw the launch of the o2 Citi card, which can also be used as a
prepaid card by customers unable to get a credit limit. Komercní
banka’s e-Card prepaid offering is a virtual 16-digit card number
for use exclusively on the internet and is valid for three
years.
Issuers
Ceská
sporitelna
Ceská sporitelna, part of Erste
Bank, reported that it had 3.28 million payment cards in issue as
of March 2009, compared to 3.35 million in the year-ago period,
with credit cards amounting to 533,000 of that figure, a fall of
2.1 percent compared to the year-ago period.
Credit card loans totalled CZK3.71 billion, an
increase of 13.5 percent, while the volume of cards transactions
rose by 49.5 percent to reach CZK15.02 billion. As of May 2009, all
of the bank’s payment cards are now EMV-enabled. The end of April 2009 saw the expiry of the last non-chip
magnetic stripe cards.
In August 2008, the bank launched the ‘Clever’
credit card, the latest ‘flexible’ product from the bank, allowing
customers to choose card design and functions and optional
services.
The most popular services among Clever
cardholders were free use of the card, the advantageous Bonus
programme, the Sphere discount programme, and a pension fund bonus.
Only 15 percent of cardholders have the same combination of
services on the card.
Over 100,000 Clever cards were issued in 2008
alone, driving 15 percent growth in the bank’s net fee income from
payment and cards transactions to CZK6.3 million, and increasing
card transactions by 21 percent.
In 2008 the number of payment card
transactions in Ceská sporitelna’s network grew by 54 percent, and
the number of ATM withdrawals rose by 6 percent. The volume of ATM
withdrawals and payment transactions using credit cards grew by 20
percent to reach CZK8.6 billion.
Despite the total decrease in the number of
credit cards relating to the introduction of the Clever card and
exclusion of inactive cards from registration, the volume of credit
card loans grew by 17 percent towards the end of 2008 to CZK3.7
billion year on year. Successful development was also seen in the
number of cards activated for making non-cash payments in
shops.
Ceská sporitelna reported a 19 percent
increase in debit and credit card payments in shops in 2008 with
the number of payments amounting to nearly 74 million. The volume
of transactions grew by 19 percent to CZK69 billion.
Payment cardholders performed 43 million
transactions in 2008, which is 63 percent more than in the previous
year. The volume of transactions made through Ceská sporitelna
terminals, an important indicator in terms of transaction fees,
grew by 54 percent year-on-year to CZK54.6 billion.
Major business partners who started
co-operating with the bank in 2008 include Tesco Stores Czech
Republic with 100 sales points and OBI Czech Republic with 17
stores.
By March 2009 the number of acceptance
locations had increased to more than 17,000. According to the bank,
the number of payment card transactions has
increased more than eight-fold over the last eight years, and the
volume of transactions is nearly seven times higher. In
2008, holders of Ceská sporitelna payment cards executed an average
of 23 transactions, 13 transactions more than in 2001.
UniCredit Czech
Republic
UniCredit Czech Republic launched
its activities in the Czech market in November 2007. It came into
being through the integration of Živnostenská banka and HVB
Bank.
In January 2009, UniCredit expanded its
personal account range with the option to obtain a co-branded Czech
Airlines Visa credit card with a 50 percent annual fee discount,
becoming the first bank in the market to include the card as a
standard service.
The card was launched in February 2008,
allowing cardholders to accumulate frequent flier miles for
everyday spending. Other co-branded cards issued by the bank
include the Axa, Generali, Renome and Schlecker partner cards.
In 2008, UniCredit announced that the number
of Visa classic credit cards incorporating a charity donation
option had increased by more than a third. Upon the credit card’s
activation, UniCredit Bank makes a one-off contribution of CZK100
to a foundation selected by the client and then donates CZK1 for
each subsequent card payment. To date, almost CZK150,000 has been
collected and distributed among three foundations.
UniCredit also gives cardholders the option of
linking their debit cards to foreign currency accounts, and the
share of cards linked to two accounts in different currencies is
currently around 7 percent. The option is most preferred by
business cardholders or foreign nationals resident in the Czech
Republic.
Komercní banka
Komercní banka is part of the
Société Générale Group. In the first quarter of 2009 Komercní
banka’s number of active payment cards grew 3.5 percent to 1.69
million, with credit cards growing by 13.9 percent to 243,000.
The year 2008 saw the bank launching a
cashback scheme, and in March 2009 the bank reported that demand
for multi-purpose payment cards was growing strongly, led by the
T-Mobile Bonus co-branded card, which recruited 33,500 customers in
less than a year since its launch.
The card is intended for T-Mobile’s contract
clients and is tied to the T-Mobile Bonus loyalty scheme. Its
members collect points for using T-Mobile’s services and also for
paying at retailers with the T-Mobile Bonus card. The scheme
members can use their points for buying rewards from a catalogue,
such as new handsets, free minutes, SMS, and MMS, discount vouchers
and so on.
Moreover, when paying by their T-Mobile Bonus
cards clients are also granted an immediate discount at selected
partners, for example, Alpine Pro, Sony, Swatch, Fokus optik and
Cedok. The card also offers an interest-free grace period of up to
76 days, the longest in the Czech market.
In January 2009 the bank launched the Prima
card as part of its children’s account offering. More than 9,000
cards have been issued to date and the card is available to
children account owners aged eight and over, allowing for ATM
withdrawals.
Cards are issued with Japanese ‘manga comic’
pictures but cardholders can also select their own images. Parents
can send pocket money to the child‘s account and set the weekly
limits so as to be able to oversee the amount of withdrawals from
ATMs. Komercní banka currently maintains more than 171,000
children’s accounts.
One of the bank’s most successful card
products is the multi-use student card Unikarta, combining an
international payment card, contactless functionality and student
ID card.
Citibank Czech
Republic
Having been present in the Czech
Republic for 16 years, as of January 2008, Citi converted into a
subsidiary of Citibank Europe plc, based in Ireland. Since 2001, it
has offered retail banking services, including debit and credit
cards, with a particularly strong presence in the co-branded card
sector issuing in partnership with the companies Shell, CSA and
o2.
In 2007, Citi became the only bank in the
country to offer credit cards free from any administrative fees. In
the same year, the number of new credit cardholders increased by 57
percent across the entire product portfolio. The total number of
cardholder accounts exceeded the 200,000 mark while maintaining a
high level of card activation and usage.
In April 2007, the product parameters for the
Citi âSA credit card were changed through doubling the number of
miles acquired and decreasing administration fees by almost one
half.
In March 2008 Citi, in co-operation with GTS
Alive, launched a student credit card entitling cardholders to
several discounts across a range of merchandise and services.
Credit limits are tiered depending on which year the student is in,
and no proof of income is required.
CSOB
CSOB, part of Belgium’s KBC group, had around 105,000
credit cards in issue as of March 2009, compared to 100,000 in
December 2008. Its total number of payment cards was 1.94 million,
compared to 1.93 in December 2008. Total outstandings of consumer
loans grew 26 percent year-on-year to reach CZK15.8 billion, with
consumer loans and credit cards making up CZK10.2 billion of that
figure.
CSOB offers a range of personalised payment
cards for retail customers, with bank research showing that people
mainly choose to put photographs of their families on their cards,
with other popular options being pets or nature shots. Its Image
card is one of its most popular offerings. Other card offerings
include the Flexi card – a consumer loan granted through a card –
and MaxKarta.
Raiffeisen Bank
Raiffeisen Bank has provided a range
of banking services in the Czech Republic to individuals as well as
corporate clients since 1993. In 2006, the bank started merging
with eBanka; the two banks completed the integration process in the
summer of 2008. In 2008, Raiffeisen Bank increased its profits by
almost 40 percent, totalling CZK1.4 billion. Total assets of the
bank exceeded CZK182 billion.
Its eKonto offering, launched in 2007,
includes free current account maintenance, a savings account,
internet banking, debit card and overdraft facility. Incoming
payments and two ATM cash withdrawals are included as part of the
account and are free of charge.
Recently the bank decided to cancel several
banking fees that had proved unpopular with customers, but
introduced a new CZK10 fee on credit cards for accessing cashback.
Cashback remains free of charge on debit cards. Raiffeisen also
announced that if cardholders of a Visa classic credit card spend
at least CZK3,000 at retailer points of sale within the monthly
billing cycle, the standard monthly card maintenance fee of CZK35
would be waived.
