E-commerce is driving payment card market growth in a country still feeling the effects of the banking crisis, but it is the gradual adoption of contactless technology that is anticipated to solidify the future of electronic payments in Portugal and bring prosper to the cards market present in the country
The Portuguese banking sector was deeply affected by the financial crisis and subsequent European debt crisis. Amid growing debt and a decrease in profitability, many banks were forced to close operations, triggering a number of mergers and acquisitions (M&As), which had a direct bearing on the country’s payment cards market.
Profitability in the payment card market decreased following the implementation of EU regulations on the interchange fee cap. Consequently, large banks saw payment card revenues decrease.
In a bid to combat revenue erosion, banks increased maintenance and annual fees, and raised minimum balances for current accounts.
Debit cards accounted for 94.8% of the total payment card transaction value in 2016, with consumers on marginal household incomes tending to be cautious of debt.
Uncertain economic conditions discouraged consumers from making unnecessary purchases, preferring debit cards as a mode of payment. An increase in debit card use for low-value transactions was also supported by an increase in the acceptance of contactless payments at retail outlets. The convenience of making payments of up to €20 ($22.20) without entering a PIN encouraged consumers to use contactless debit cards.
Millennium BCP offers four types of contactless debit card: Maestro, Visa Electron, Maestro Go debit, and Visa Prestige.
During the economic crisis, Portuguese consumers increasingly used credit cards to help meet short-term financing needs and avoid liquidity constraints. However, the increase in unemployment forced many consumers to default on payments, resulting in high debts.
Amid increasing debts and a decrease in profitability, banks were forced to close dormant credit card accounts and those of payment defaulters, resulting in a decrease in the total volume of credit cards in circulation.
Gradual adoption of contactless
Contactless payments are expected to gain further prominence in Portugal as consumers have been encouraged by banks to gradually shift from cash to card-based payments.
While banks are issuing contactless payment cards, merchants have started to provide the necessary infrastructure to support them; Caixa Geral de Depósitos (CGD), Novo Banco and Banco BPI all offer contactless payment cards.
The number of contactless cards in circulation increased from three million in 2012 to 8.2 million in 2016.
According to the Portuguese Central Bank, contactless card transactions grew by 900% in 2015, both in volume and in value terms – 5.7m transactions, totalling $81.6m.
However, there is still scope for growth, as contactless transactions accounted for only 0.7% of the total volume and 0.2% of the total value of the country’s transactions in 2015.
Rise in e-commerce to support card growth
Portugal’s e-commerce market grew from $3.1bn in 2012 to $3.9bn in 2016 and is acting as a key driver of payment card market growth, as the majority of consumers use payment cards to make online purchases.
Payment cards accounted for 80.4% of the country’s total e-commerce transaction value in 2016.
Banks offer payment cards exclusively for online shopping. Millennium BCP offers a Visa-branded web card for an annual fee of $11.10.
Banks are also partnering with online retailers to offer co-branded cards to online shoppers. CGD offers LA Visa, a co-branded card in partnership with Lanidor. Emerging payment methods such as digital and mobile wallets are gradually gaining prominence in Portugal and are expected to continue to do so to 2020.
Overall, digital and mobile wallets and carrier billing collectively accounted for 6.1% of the total e-commerce transaction value in 2016, increasing from 3% in 2012.
Uptake of prepaid cards
Prepaid cards are increasingly gaining acceptance among Portuguese consumers, primarily due to prudent consumer spending as a result of subdued economic growth. The number of prepaid cards grew from 554,745 in 2012 to 2.5 million in 2016, at a compound annual growth rate (CAGR) of 45.7%.
Banks are offering prepaid cards targeted at children, shoppers and travellers. CGD offers MasterCard-branded prepaid cards for children. The My Baby prepaid card can be loaded with funds of up to $2,220 online, at ATMs or in branch.
Cardholders are entitled to discounts upon the purchase of baby products at retail outlets and receive benefits at Lusiads hospitals. Similarly, the LOL Junior card is aimed at children aged over 10.
Other Visa-branded prepaid cards targeted at the young include the Free Junior and Pocket NB cards from Millennium BCP and Novo Banco respectively.
With consumers in Portugal increasingly using payment cards to shop online, banks are providing more prepaid web cards, including the Webuy PrePaid Cash card, the PrePaid Card Pro by CGD, the Free Web card by Millennium BCP, and the Virtual Cash card by Banco BPI.