Its 2007 GDP growth rate of 12 percent marked
Georgia out as one of the rising economic stars of Eastern Europe,
prompting the World Bank to it hail as “the number one economic
reformer in the world”, and growth numbers suggest that despite
recent political turmoil, all forms of electronic payment are
rapidly gaining in popularity.

The short-lived military conflict between
Georgia and Russia in August 2008 had a disastrous effect on the
value of Georgian banks and scared away many investors, leaving the
country’s banks with a much lower capital base from which to fund
their lending operations.

Significant areas of Georgia’s telecoms and
gateway infrastructure (including airports and seaports) were also
destroyed during the conflict, disrupting the country’s economy –
according to various reports, the conflict caused an estimated $2.8
billion in damage to Georgia (including damage to the economy) and
reduced projected economic growth for 2008 by as much as four
percent.

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Among the population of 4.6 million, median
household incomes are much lower than in most other European
countries – GDP per capita was just $4,700 as of 2008, ranking it
145 in the world. But this has not stopped Georgian consumers from
embracing payment cards in huge numbers, as evidenced by figures
from the National Bank of Georgia. The country’s central bank and
government have also made efforts to improve the regulatory
situation – in 2007 the Ministry of Justice registered regulations
on plastic bank cards following a series of presidential
decrees.

With over 2.6 million mobile phones in use and
over half a million internet users, Georgia represents a small yet
functionally advanced payment market that is ripe for further
growth – and levels of card penetration are some of the most
impressive in the world, given the rapid development of the payment
card market in such a short space of time.

Indeed, payment cards form a key part of the
National Bank of Georgia’s plans for continuing modernisation and
infrastructure development. In its 2006-2009 strategy plan, the
central bank’s stated goals include increasing the savings volume
and the number of individual depositors in the banking sector,
growing the number of non-cash transactions via debit and credit
cards, increasing service quality of
plastic card settlement and decreasing its costs in order to
further expand settlement with plastic cards, and increasing
payment card settlement turnover. Other objectives include
increasing the volume of loans, and increasing the number of
customers using advanced technology banking services such as online
banking.

Card usage

Payment cards only really came into
existence in Georgia around six years ago. As with other Eastern
European economies, debit cards dominate the landscape, but one
notable characteristic of the Georgian market is the preference for
internationally-branded payment cards, partly driven by Visa’s
long-standing presence in the country, and by the influx of foreign
banking groups who have recently set up shop there. This influx
brought with it a tremendous amount of competitive activity, with
banks aggressively launching card issuance programmes and
consumer-orientated promotions.

As of the beginning of 2006, there were just
over 500,000 bank-issued debit cards in circulation, but as of May
2009, that figure had risen to over 3.09 million. Debit card
numbers have recorded healthy double-digit growth rates over the
past three years, rising from 1.13 million in 2006 to 3.09 million
by May 2009.

Although debit dominates, its share of total
cards in circulation has been gradually slipping over the past few
years. In 2007, debit cards accounted for 92.9 percent of all cards
in circulation but this had dropped to 85.4 percent as of December
2008.

The overwhelming majority of card transactions
in Georgia are ATM withdrawals. As of May 2009, over 2.5 million
domestic card transactions had been conducted with a value of
GEL342.5 million ($205.4 million), of which 1.4 million
transactions were ATM withdrawals totalling GEL244.4 million.

CI analysis of Georgian card transaction
levels shows that as of 2008, the average POS card transaction
value was GEL108 ($64.7), while the average ATM transaction was
GEL190.48 ($114.2)

Credit cards in Georgia are mostly aimed at
affluent cardholders, typically marketed as gold, premium and
platinum offerings. The vast majority of credit cards in Georgia
charge annual fees in the range of GEL30 to GEL50, and APRs are
typically in the 30 percent to 40 percent range, although the bulk
of credit cardholders tend to use instalment repayment facilities,
enabling them to pay off purchases over a fixed number of
months.

Credit cards really began to take off in
Georgia in 2006 after a period of bank consolidation which saw
banks in the country combining resources and investment to produce
more efficient and effective application, marketing and
distribution processes. As of December 2008, the banking sector in
Georgia was represented by 20 commercial banks, including 15
foreign-controlled banks and 2 branches of non-resident banks. The
latest entrant into the Georgian marketplace is HSBC, which
established its operations in the country in June 2008 and
initially offered gold Visa cards as part of its VIP ‘Status’
account package for affluent customers. However, June 2009 saw the
bank quit the retail business to focus solely on corporate
customers.

CI analysis of cards numbers shows that from
2006 to 2007, credit card numbers jumped by a staggering 2,014
percent, with the growth rate between 2007 and 2008 falling back to
240 percent, or 549,328 credit cards in total.

However, credit card numbers have dropped
significantly since then, falling back to 397,807 cards as of May
2009.

The National Bank of Georgia reported at the
time of the August 2008 conflict that while the number of bank
cards in circulation was growing at an average monthly rate of 5.7
percent, in August 2008 this number decreased by 0.2 percent
compared to the previous month, with the number of credit cards in
circulation increasing by only by 2.7 percent as compared to July
2008 instead of 21 percent average monthly growth over 2008.

Tensions between the two nations continues to
simmer, which could put the brakes on further capital market
expansion and inward investment in Georgia, not to mention the
disruption caused by the severance of diplomatic, trade and
transport links between Georgia and Russia.

Another factor impeding further credit card
growth is the weakening of the Georgian currency (GEL) against
other international currencies, the US dollar in particular.
Figures from the National Bank of Georgia show that the currency
composition of loans in 2008 changed in favour of foreign
currencies: 27.9 percent of all loans were now denominated in GEL
and 72.1 percent in foreign currency, instead of 31.4 and 68.6
percent respectively as of 2007.

Another factor has been the threat of
inflation, a direct cause of the global economic downturn. In
December 2008 the National Bank lowered its policy rate by 100
basis points to 8 percent. Despite growth in deposits in the
banking system, commercial banks remain cautious in extending new
loans, leading to a sharp contraction in demand.

In terms of credit card lending, overdue
credit card debt in Georgia increased by GEL62.7 million in the
first quarter of 2009 to amount to GEL222 million, or 3.9 percent
of the total credit portfolio of banks of GEL5.6 billion. Overdue
credit debt reached 2.6 percent of total Georgian bank
resources.

Card segmentation and
innovation

Despite the fall in credit card growth, Georgian banks have
benefited from highly effective marketing strategies aimed at the
more affluent cardholder segment, encompassing card
personalisation, targeted co-branding tie-ups with major merchants
and retailers, and a sophisticated degree of card designs, such as
women’s cards offered by the likes of TBC Bank and Kor Standard
Bank.

TBC currently offers a Cosmo co-branded card,
offered in conjunction with the global women’s fashion magazine
Cosmopolitan. Female cardholders can choose from 5 different
designs of Visa Electron and Visa Classic cards and can also get
discounts of between 3 and 15 percent at selected women’s
retailers, restaurants and spas. The classic version of the card
comes with an annual fee of $20.

Other cards on offer from TBC include several
co-branded products in conjunction with telecom companies, petrol
companies and other retailers, all of which incorporate varying
levels of rewards and discount programmes.

Kor Standard Bank’s ‘EGO No.5’ debit card is
exclusively for women and allows cardholders to receive discounts
of between 2 and 25 percent at selected women’s merchants, medical
centres and spa and sports locations. Cardholders are charged an
annual fee of GEL35 and the card has an expiry period of one year.
ATM withdrawals are not allowed with the card.

In June 2009 People’s Bank launched the
contactless Visa-branded Voyage card which also incorporates the
MIFARE transport ticketing application. The Voyage Card is also the
first Visa payWave contactless card in the world to use Oberthur
Technologies’ state-of-the-art ‘Hot Foil Stamping’ card design
technique, which provides People’s Bank with a new look for their
card without any risk of transaction interference.

Part of the card’s design (a world map) is
stamped with holographic material onto the card’s surface.

Payment networks

Visa has the dominant share of both
credit and debit cards in Georgia, accounting for 80.5 percent of
all cards in circulation as of December 2008, with
MasterCard/Eurocard comprising 12.9 percent (local cards form the
remainder of 6.6 percent). The share of Visa cards among the total
number of cards in circulation increased by 7 percentage points in
2008 compared to 2007.

Issuers

TBC Bank

TBC Bank offers a wide range of Visa
and MasterCard-branded payment cards, including the credit card
with the longest grace period (55 days) in the Georgian market. The
credit card differs from most in the Georgian market in that it
doesn’t require any collateral from cardholders. The card is
available to those with over 6 months’ employment with a minimum
monthly income of GEL300.

TBC’s instalment card, launched in December
2007, is offered on the Visa Electron platform and is instantly
issued inside the bank. It allows cardholders to split the cost of
purchases over a number of even monthly instalments up to ten
months, and in some partner stores discounts of up to 20 percent
are available. TBC is touting the card as a product that will help
customers build up a credit history.

In 2008, TBC’s plastic card fee and commission
income totalled GEL10.44 million, compared to GEL5.51 million in
2007, while expenses totalled GEL2.14 million, compared to GEL1.89
million in 2007.

Bank of Georgia

Bank of Georgia has partnered with a
wide range of merchants to produce co-branded cards including the
collateral-free Orange credit card, available to those earning a
minimum of GEL200 a month.

The Magti, Geocell and Populi cards, offered
in conjunction with telecom companies, offer interest-free credit
periods along with discounts on the cost of making mobile phone
calls. Other cards on offer include the Chemebi card, granting 5
percent discounts at any Aversi Pharma pharmacies. The card is
intended for customers of Aldagi BCI insurance products.

Its Bali card is a contactless payment and
transit card offered to students, and comes with discounts on
mobile phone airtime charges, free SMS banking and discounts at
selected merchants.

Credit cards and overdrafts made up 17 percent
of the bank’s loan portfolio of GEL974 million in the first quarter
of 2009 and the bank had 141,417 credit cards outstanding as of
March 2009, compared to 164,938 as of the end of 2008.

ProCredit Bank

ProCredit Bank is a full-service
bank focusing on lending to small and medium-sized enterprises – it
does not promote consumer loans in line with its mission statement
describing the organisation as a torchbearer for responsible
lending.

In 2008 the bank launched several services
aimed at tapping into increased technology innovation in the retail
banking area. Customers can receive information on their mobile
phones about transfers, card transactions and standing orders via
SMS messages, and the bank has also expanded its range of internet
banking services and introduced express money transfers in
conjunction with MoneyGram. In 2008 the number of ATMs operated by
ProCredit Bank nearly doubled, rising to 98, and it has also
installed 217 POS terminals at customers’ business premises.

In 2009, ProCredit launched a Visa business
card for its existing clients, allowing them to record and control
business expenses. Currently the bank has more than 53,000 business
clients in Georgia.

In 2008 fees and commissions from plastic card
operations totalled GEL690,000 compared to GEL633,000 in 2007,
while plastic card operations expenses declined to GEL1.3 million
compared to GEL1.36 million in 2007.

People’s Bank of
Georgia

People’s Bank of Georgia offers an
extensive range of Visa-branded cards aimed at different consumer
segments. Aside from the usual standard and gold cards, People’s
Bank also offers some innovative products, such as a health card
offering medical and insurance benefits through People’s Insurance,
and the Pupil card, a contactless product which is personalised
with a photo of the cardholder, aimed at youngsters and linked to a
parent’s card account.

The bank plans to issue cards to students and
teachers in Tbilisi, a key customer segment for the bank to
encourage the use of contactless technology, and plans to rollout
Visa payWave in pharmacies, railway stations, fast food stores,
schools and universities.

It also offers personalised photo
cards on standard debit and credit cards. Its Social card is free
for pensioners, refugees and people involved in government support
programmes, while its state employee card is a payroll card.
People’s Bank also offers a co-branded card with Georgian National
Airlines.

People’s Bank has a range of tailored
offerings for various segments of state employees such as teachers,
railway workers and policemen offering discounts at selected
merchants.

Cartu Bank

Cartu Bank offers a range of
EMV-enabled debit cards on both Visa and MasterCard platforms and
standard, classic and gold credit cards. Cartu Bank has deployed
instant issuance allowing successful card applicants to obtain
their cards the same day within 30 minutes if their application is
approved.

Cartu Bank also offers green, gold, platinum
and centurion American Express-branded cards denominated in US
dollars or euros – green cardmembers are required to have a minimum
balance of $10,000, and the annual fee is $100.

BasisBank

Aside from standard debit cards
available to customers of the bank, BasisBank also offers salary
payroll card programmes in the Georgian marketplace.

The Megobarati and Geocell credit cards are
two of the few true revolving products in Georgia, and are unique
in that they are also available with a debit function. They offer
discounts and bonus minutes through telecom operator Magti.

In its 2008 annual report, BasisBank stated
that credit cards for individuals accounted for 27.21 percent of
the bank’s retail loan portfolio.

For 2008, fee and commission income for cards
amounted to GEL1.36 million, compared to GEL915,000 in 2007, while
expenses amounted to GEL873,000, compared to GEL405,000 in 2007.
Credit card loans to customers in 2008 amounted to GEL9.91 million,
compared to GEL5.99 million in 2007.