Finland may be one of the smallest countries in
the eurozone, but the country’s bank issuers are at the forefront
of product innovation. Two of the leading Finnish banks, Nordea and
OP-Pohjola, speak to CI about the development of the card
market to date and the importance of combination cards.

Jussi Mekkonen, NordeaIn a previous edition of Cards International
(issue 415), the country survey focused on Finland’s payment card
market, which is regarded as one of the most advanced in Europe in
terms of technological developments and consumer usage.


According to Jussi Mekkonen, head of the
household division at Nordea in Finland, the Finnish payment card
market can attribute its strong development to the entrenched usage
of debit cards among Finnish consumers, which has in turn led to
these products becoming more functionally advanced.

High penetration at an early

Finland. Cards issued
“The penetration of cards is very high and has been so for several
years,” he told CI.

“There is an effective debit card system
which was created in the Finnish marketplace sometime in the 1980s.
It was created together with the banks, and retailers were also
closely connected to its development. So at an early stage, Finland
achieved very high levels of penetration in terms of debit

Finland’s high debit usage levels are
thanks to bank and government efforts to persuade consumers to
migrate to cards from cash and cheques, helped by clear price
incentives for cards.

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By GlobalData

Historically low levels of merchant
service charges for domestic debit, in tandem with non-existing
interchange in domestic debit cards, persuaded merchants in their
droves to accept cards, which in turn has driven a clear shift away
from paper-based payment tools.

“The usage of cards overall is quite high
as we don’t use that much cash any more, and there are no cheques
in the market,” Mekkonen added.

“Looking at the situation several years
ago, when I was travelling in Europe, for example, in taxis I
always needed cash, whereas in Finland I was able to pay by card.
There was a high level of card acceptance at an early stage in the
marketplace which helped customers to use cards, and that also
impacted on cash usage at an early stage.

“In terms of the low level of acquiring
fees in Finland, the idea behind the creation of the domestic debit
system in the 1980s was to shift consumer behaviour from cash to
cards. That was a big expense issue for the banks and for the
retailers. That is why the fee level regarding the acquiring fees –
what the retailers pay to the banks – was set at a very low level,
and that supported retailers to take the card terminals at a very
early stage.”

Jarkko Anttiroiko, vice-president of cards
at OP Bank Group Cooperative, which counts OP-Pohjola as a
subsidiary, told CI that domestic debit was seen by banks
as a cost-cutting tool rather than a profit-generating product.

But now with the advent of SEPA, Finnish
banks are themselves migrating away from domestic debit cards to
the debit platforms of Visa and MasterCard, with a deadline set for
the end of 2010.

He concurs that the steady migration from
domestic-only debit cards to internationally-branded cards has
helped to accelerate usage among Finnish consumers.

“The Finnish payment card market has
enjoyed steady and relatively rapid growth for the last few years,”
Anttiroiko told CI.

“The average growth rate for payment
transactions and value has been around 14 percent per year, while
the number of cards has grown less with a compound annual growth
rate of around 8 percent between the years 2003 to 2008.

“The biggest single reason for rapid
growth in transactions and value has been the growing success of
online debit cards such as Visa Electron as a payment tool which is
supported by very good acceptance at POS. At the same time number
of ATM withdrawals has declined significantly.”

However, Finnish banks, while enjoying
high levels of debit usage, still face the challenge of how to
generate profits from debit cards, as Mekkonen explained.

“The debit card as a stand-alone product
is not profitable. We are carrying the costs of the ATM network,”
he said.

“We have quite a special structure as we
have the three big banks [Nordea, OP, Sampo, part of the Danske
Group] who own the ATM company named Automatia, which operates the
ATM network in Finland. ATM usage for the customers is actually
free. If they need cash they don’t need to pay any transaction fee
when they are taking money out of the ATM.

“This might sound quite silly because in
many other countries there are some transaction fees. But that has
been the market practice for a very long time. How the banks make
profit is based on the current account – obviously you need a
current account if you have a debit card.”

Mekkonen added: “The market practice has
been that interest rate levels for current accounts have been very
low and are actually now close to zero. That has been an income
driver for the banks. So debit card revenue comes indirectly from
the current account business.

“All debit cards have some small fees and
the level is somewhere in between €10 [$12.5] to €20 per year per
debit card. So the monthly payment is around €1 or €1.5 per

“Of course, because of the number of debit
cards in the market, banks can always earn something because of
those fees, as every customer has a debit card because of their
current accounts. But there are also expenses incurred, of

Anttiroiko told CI there are also
various kinds of service packages available, which means pricing
can be somewhat blurred depending on which services are on offer.
Not-on-us ATM transactions can also carry a fee.

Combination cards

Finland. Payment cards by feature
It is the advent of combination or dual functionality cards that
really sets Finland apart from the rest of Europe, and they have
also provided banks with valuable cross-selling opportunities, as
Nordea’s Mekkonen explains.

“We had a domestic credit card system in
the 1980s. Also, Visa was launched in the early 1980s and
MasterCard launched heavily into the market at 1999. The idea in
Finland came up around combination cards in the early 1980s when
the domestic bank card system was created.”

“Penetration of combination cards is
really high as consumers and retailers are well used to them. We do
not have that many stand-alone credit cards, so in almost all
instances credit cards are combo cards,” Mekkonen added.

“Younger customers, those not in permanent
work or those who have problems with their credit history might
have stand-alone debit cards, but it is the market practice that
almost everyone has a combo card. The exception are Visa Electron
cards, which we launched a couple of years ago. They were initially
launched for younger customers, but it also seems that older
customers have taken Visa Electron as a second or third card in
their wallet.”

Finland. Value of card payments
In terms of the market shares of the payment networks, Mekkonen
stated that in the 1990s, it was Visa which dominated the credit
card market, but at the end of the 1990s Nordea launched MasterCard
credit cards.

“Nowadays Visa is still the bigger brand
in the marketplace but MasterCard is growing much faster,” he

Anttiroiko states that the move to
combination cards also has revenue implications for Finnish

“Over the last two to three years the
effects of SEPA can be seen in numbers of cards issued,” he told

“Banks are actively promoting these
combination cards since these cards tend to be more profitable
thanks to credit-related revenues, they are relatively easy to sell
and churn is much lower than in traditional credit cards and
especially in co-branded or affinity cards.”

Customers can only receive a combination
card once they have opened a current account, with credit payment
functionality bolted on. Although it is the debit application that
is most commonly used by consumers, banks can also leverage the
high levels of debit usage to cross-sell other services.
Jarkko Anttiroiko, OP Bank Group
“Someone who is not a Nordea customer but has used a combo card
before has to open a current account in order to get a Nordea combo
card,” Mekkonen said.

“Then we have to establish a debit and
credit relationship with that customer. That gives us a good
opportunity to do some cross-selling. It is much more than to have
simply a credit relationship with the customer.”

OP’s Anttiroiko highlights the cost and
revenue benefits of combo cards, which are driven by the ability
for consumers to use those cards outside of Finland, which in turn
boosts transaction and spending volume.

“Currently OP-Pohjola Group promotes
international debit cards,” he told CI.

“Consumers benefit from the international
acceptance and the bank can meet SEPA requirements and cover the
cost better thanks to the interchange on those cards.

“Combination cards play a main role in our
card strategy. Since this product offers cardholder the opportunity
to choose at the point of sale whether to use debit or credit, it
makes our bank the most likely choice when the cardholder uses
credit. This is true even in situations when the cardholder has
multiple cards.

“The card used most often gets priority.
This is highlighted in chip and PIN transactions when people tend
to remember the PIN of just one or two cards.”

Credit card usage



Estimation of current merchant mark-up


Bank and credit card tariffs

Domestic debit cards

€0.03 to €0.05 cents per transaction

debit cards

0.33% of turnover


0.6% to 1% of turnover

MasterCard/Visa credit cards

1% to 1.2% of turnover

Other credit cards

2.7% to 4% of turnover

Source: Bank of Finland

Because of the entrenchment of debit, credit card usage is starkly
lower, and there are several reasons given by the banks, one of
which is the fact that debit acceptance at the point of sale is so

Nordea’s Mekkonen said: “Customers are
very used to having combo cards.

“All new operators who try to come into
the marketplace have tried to sell the stand-alone credit card
without debit functionality, and it might be the case that
consumers are not willing to take a stand-alone credit card.

“On the other hand, the likes of Citi and
GE Money among other companies are offering different kinds of
credit cards, but they haven’t been very successful so far.”

The consolidation of the Finnish banking
sector between three main players is also highlighted as a factor,
as a lack of competition in the marketplace has hampered the range
of features and benefits currently on offer.

Mekkonen said: “There are not that many
operators in the market. Because of consolidation there are not
many banks left, so competition has not been that heavy.”

Anttiroiko’s view is that Finnish
consumers are reluctant to switch banks as often as consumers in
other European countries.

“Finnish people have a culture of building
just one main banking relationship at a time and they tend to
concentrate all their activities in the same bank, which most often
is the bank they have a mortgage from. Finns don’t generally shop
around for financial products such as credit cards,” Anttiroiko
told CI.

“Some credit card issuers have tried to
build business through direct mailings and the internet but their
market share has remained low even though they have used many kinds
of loyalty programmes with offers such as cashback. It might be
that these campaigns have attracted bad applicants and resulted in
high credit losses or the acquisition cost has grown bigger than

“However, these entrants have disappeared
one after another,” Anttiroiko added.

Loyalty programmes are also somewhat basic
in terms of offerings when compared to the rest of Europe, and
there are challenges for banks in terms of expanding in this area,
not least due to most of the country’s big retailers having already
partnered with banks.

“My personal opinion is that loyalty
programmes are in the middle of the lifecycle,” Mekkonen told

“There are increasing criticisms in the
marketplace related to loyalty programmes from areas such as
consumer authorities, and also the media. They say that consumers
end up paying the final bill for these programmes so there are no
real benefits for the consumer. That kind of discussion is

“But on the other hand, we have seen that
when banks have launched a co-branding offering together with the
retailers, they have been quite successful. But also the market is
full and mature. Big banks and retailers have found that there are
fewer and fewer partners to pick from.

“There are no new possibilities of
co-branding operations in the Finnish marketplace any more because
the big banks and retailers already have co-branding schemes.”

As a result, Finnish banks are examining
other ways of driving credit card usage.

Anttiroiko told CI: “OP-Pohjola
Group offers purchase protection insurance and bonus points that
can be used for paying banking and insurance fees provided by
OP-Pohjola Group if the purchase is made with credit instead of
debit. These incentives are working and currently credit usage is
growing faster than debit usage in our bank. I will expect that
banks will introduce more programmes to grow the usage of

Both Mekkonen and Anttiroiko have mixed
feelings about the future direction of the credit card market in

“Of course there is still room to increase
numbers of credit cards,” Mekkonen said. “But I do not have an
estimate of what the target level would be, for example in 2010 or
2012. The difficult situation in the banking sector might lead to a
point where there are not that many incomers into the marketplace
because Finland is of course a small market.

“It is also a difficult market for
newcomers to enter and to reach break-even point. However, we will
see some new products in the marketplace.”

“Regarding profitability, it is under
pressure of course. The problems in the financial sector might help
us to keep prices as they are, but on the other hand, when we have
more and more co-branding schemes, we have to share the profit in
between bank and retailer. Those are some of the factors that are
affecting profitability,” he added.

Ainttiroiko concurs that the global
economic downturn makes things very difficult to predict.

“I will assume that some players will
withdraw from Finnish card market if credit losses grow
significantly at least for some time. Banks with well-established
businesses and large well-known customer bases are most likely to
stand better the recession.

“In the longer term it is likely that the
Finnish credit card market will adapt in many ways to other
European markets. Strong retail players have a big role in credit
card markets and possible consolidation in retail trade on a
European level might have an effect.”