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  1. Analysis
January 31, 2010

Greece embraces cards

Greece represents something of a quandary in terms of payment card usage Despite being a popular tourist destination, cards are used sparingly and the countrys economy is heavily dependent on cash usage As John Hill reports, cards are making slow progress but consumers are learning to embrace them.

By Verdict Staff

Greece represents something of a quandary in terms of payment card usage. Despite being a popular tourist destination, cards are used sparingly and the country’s economy is heavily dependent on cash usage. As John Hill reports, cards are making slow progress but consumers are learning to embrace them.

 

Greece remains a heavily cash-dependent payments market. Despite the massive investment that took place in preparation for the 2004 Athens Olympics, the country still lacks a lot of the co-operation between institutions and updating of payment infrastructure needed in order to compete with some of the more mature western markets.

According to The CIA World Factbook, Greece has a capitalist economy with the public sector accounting for about 40 percent of its GDP, with per-capita GDP around two-thirds that of the leading eurozone economies. Tourism provides 15 percent of GDP, and immigrants make up nearly one-fifth of the workforce, mainly in agricultural and unskilled jobs. Greece is a major beneficiary of European Union aid, equal to about 3.3 percent of annual GDP.

The Greek economy grew by nearly 4 percent per year between 2003 and 2007 – due partly to infrastructural spending related to the 2004 Athens Olympic Games and partly to an increased availability of credit, which has sustained record levels of consumer spending – although growth dropped to 2.9 percent in 2008.

The economy went into recession in 2009 and contracted by 2.5 percent, due to the problems caused by the collapse of Wall Street and tightening credit conditions as well as Athens’ failure to address a growing budget deficit, triggered by falling state revenues, and increased government expenditures.

Chart of card numbers in issue for Greece

Public debt, inflation, and unemployment are above the eurozone average; debt and unemployment rose in 2009, while inflation subsided. Eroding finances prompted major credit rating agencies in late 2009 to downgrade Greece’s international debt rating, which has led to increased financial instability.

Black economy dwarfs card usage

When examining the payments market in the country, it is immediately obvious it is still a cash-orientated market. There is still a large amount of black money in the market, although efforts are underway to rectify this situation – especially within the payments markets themselves, where a significant amount of revenue is disappearing between the cracks. With the exception of the larger cities, most of the population use cash for almost all transactions.

Nevertheless, much progress has been made during the last decade. The country has around 11 million inhabitants, of which four or five million are banked, and there were around 16 million cards issued in total at the end of 2008.

Despite the availability of electronic payment technology, many parts of Greece still resist adopting modern payment methods. Some of this is down to its geography, with many spread-out islands which makes building a cabled infrastructure prohibitively expensive and complex. But much of the issues with low card use in Greece are down to the way cards are viewed.

People in the country do not trust cards in general, so in order to be educated in cards they need to first be educated in how to use any kind of card correctly and smartly.

Sofia Zacharioudaki, a spokesperson at Piraeus Bank, explains the other reasons behind this reluctance.

“There has been mistrust by some Greeks surrounding the use of credit cards, so the problem is that when cards are mentioned many will automatically assume credit cards. So the mentality has to change in order to use prepaid and debit in a more rational way and to establish their relative strengths and how best to use them,” she says.

“One of the problems that needs attention is the education of the population in the ways to use different cards. For example, prepaid is generally touted as a remote payment tool, but it can also be used as an e-wallet when travelling abroad, as well as for money transfers and remittances.”

However, she does not view prepaid as being particularly viable in Greece, at least in the short-term.

“As a country we are gradually entering the prepaid market, but currently only two or three banks are issuing prepaid cards,” she told CI. “It’s not a big success. One of the reasons is that it simply doesn’t have as many viable applications as it does abroad, although in terms of new technologies, we are making very big progress regarding e-banking.

“It’s not a regulatory issue, it’s just that prepaid cards would mainly be targeted, in the Greek mentality anyway, at people who use the cards for remote payments, internet payments and e-commerce. As some Greeks are still not particularly familiar with this kind of method it hasn’t really been promoted many banks. There is one bank [Bank of Cyprus] that is dominating the market and educating people in the use of prepaid. I think the trend towards using prepaid will increase in the next few years.”

Credit card profitability

Credit cards are viewed with wariness by Greek consumers. Banks used to charge commissions based on customer’s credit card usage – for example, a customer who used their card for cash advance would be charged a particularly high commission.

The central bank of Greece has since then put pressure on banks to remove these commissions, meaning that some banks in the country have lost a significant percentage of their profitability. In addition, due to the fear by the general population that credit cards are a means for banks to make unreasonable profits, there is a push to decrease the interest rates.

For credit cards, interest rates are usually between 14 percent to19 percent. Up until recently, due to cardholders treating outstanding credit card balances more like personal loans, balance transfer programmes were very popular, although due to recent tightening of credit in general banks have almost entirely stopped offering them.

Credit card usage is unusual, with many consumers using debit cards for ATM transactions and credit cards for POS transactions, never swapping the two.

“POS usage in the country is dominated by credit cards, although there are more actual debit cards in issue. For much of the population, credit cards are still considered to be a type of small personal loan so people are happy to just leave balances to be charged interest. This is one of the reasons plastic is still not strictly considered a payment tool, and why many banks are trying to promote plastic usage in general, debit as well as credit,” Zacharioudaki says.

The reason that many Greeks are wary of credit cards dates back to their initial introduction. When credit cards were first introduced in Greece, they were the only cards available and people started using them freely, taking credit from banks without realising exactly what it was they were spending. This meant that when they had to pay off their monthly debts they did not realise they were going to be charged interest, and that it was the bank’s money – not their money – that was being spent.

“A lot of this is being combatted by the banks as they start to change the landscape, taking the interest rates down, in an attempt to change people’s perception,” Zacharioudaki added.

“People think that banks exploit them. It’s almost the exact opposite of markets like the UK where you have very high debit usage, because people were properly educated to use cards through the use of debit cards and then credit cards came as a form of loan, so they knew what they were using the cards for. In Greece, after the liberalisation of the lending markets people didn’t understand this and didn’t realise that the money they were getting was not their money but the bank’s.”

ATM usage and trends

ATM usage in the country is relatively high, being the most common use of a debit card – also known as a cash card.

Many cardholders do not know they can make purchases at the POS by debiting their account. This has resulted in a large difference in ATM penetration between urban and rural areas. So while there is a relatively high level of ATMs overall, there is still significant room for growth in this sector.

People do have debit cards, but most people prefer to go to a bank branch or counter to withdraw money, rather than methods they consider ‘impersonal’ like ATMs. This is especially common outside the major urban areas where people tend to have a personal relationship with the branch manager and the branch teller.

According to Zacharioudaki, there is a need for banks to come together to form both national ATM and POS networks.

“We don’t have a formal POS network in Greece. Every bank has its own POS system, and so when you go into a store you can sometimes find between 10 to 15 POS terminals at a check-out. Some private companies have tried to install systems to reduce the number of POS terminals on the front desk, while still leaving the bank with their own proprietary systems. This has been implemented at some of the larger retailers,” she says.

“In the last couple of years there has been some co-operation between the banks to organise a formal network. Progress has been slow up until now, but this will be something that will change in the next few years as banks can no longer afford to keep their own POS network running or to keep up with competitors, so one or two large networks should start to appear.”

On the ATM side, each bank has its own ATM network. A common network, a joint initiative called DIAS, is also in place. From a cardholder’s point of view, this means that they can now withdraw money using other banks’ ATMs for a fee.

Contactless and e-commerce

Although contactless and e-commerce are taking off in the rest of the world, Greek consumers and banks are still reluctant to embrace the concepts, although recent evidence suggests they may slowly be coming round.

Zacharioudaki says: “In Greece there is no contactless offering, although a lot of banks would love to be the first ones offering it. There are certainly things to come in contactless, but at the moment if someone wants to offer contactless cards they have to have made the provision of having the contactless POS terminal to acquire the payment, so it is a double investment. Within the next year or year and a half we will have some contactless cards in the Greek market.”

However, every bank has an e-banking service, with Greek e-commerce growing around 20 percent to 30 percent per year, and many merchants are also using online e-commerce services. Mobile banking, however, has not been growing at the same rate. This is partly because of the need to train both operators and customers in its usage.

E-banking has made huge progress in the past five years but there is still a long way to go – particularly as many consumers are fearful of fraud. There have been recent issues with many reports in the media stating that e-banking may not be totally safe, one of the reasons that it has perhaps not taken off as well as it should. Cardholders still worry about the safety of the internet and there is a big divide between internet users and e-banking users.

According to Zacharioudaki, EMV migration is a major target for the country’s banks.

“EMV migration is something all banks in Greece are talking about at the moment. All Greek banks are obliged to have migrated their entire card portfolio to chip by the end of this year. So I think most banks are working towards this. Most of the ATMs are EMV compliant by now,” she adds.

Issuers

Alpha Bank

Alpha Bank is one of the leading banking and financial services groups in Greece, offering a wide range of services including retail, small and medium enterprise and corporate banking, credit cards, asset management, investment banking, private banking, insurance, brokerage, leasing and factoring.

Its branch network in Greece consists of 450 branches (including Alpha private bank and commercial centres). Alpha Bank customers, both retail and corporate, maintain approximately 3.5 million accounts. Alpha Bank is the only issuer and acquirer in Greece of all three major international credit cards (American Express, Visa and MasterCard), and its portfolio is one of the largest in the market.

With around 3 million credit and debit cards issued by the bank, it has an approximate market share of 20 percent.

In October 2008 the bank’s partnership agreement with American Express was renewed for a period of 10 years, and the bank remains the exclusive partner of American Express in Greece for issuing and acquiring cards. The bank has also issued several co-branded cards (FokasBonus American Express, Wind Bonus Visa, Kalogirou American Express, and Olympic American Express).

In acquiring, with a network of around 120,000 associated firms of which 55,000 are equipped with POS terminals, the bank now holds a market share of around 30 percent. Turnover in 2008 grew by 16.5 percent and stood at €2.45 billion ($3.41 billion). In parallel, the bank’s network of POS terminals was upgraded, with around 75 percent of the POS terminals supporting EMV technology cards.

Piraeus

Piraeus’ consumer loans balance in Greece rose to €3.5 billion at the end of 2008 versus €3.1 billion at the end of 2007, achieving an increase of 11 percent and setting the bank’s market share at 8.6 percent.

The bank increased its credit card market share to 7 percent in 2008 from 6.5 percent in 2007, with balances boosted to €706 million from €576 million in 2007, mainly as a result of customer mobilisation programmes. Credit card turnover rose by 11 percent to €824 million, while the turnover of acquiring through the bank’s POS reached €827 million (a rise of 8 percent).

In the first year of its operation, Piraeus’ Instant Cash service (cash transfer and withdrawal via ATMs without the prerequisite of a bank account or debit card) performed 26,000 cash transfers, whereby 60 percent were withdrawn from the bank’s ATMs.

In the first year of its launch the prepaid weBuy virtual card was issued 15,000 times to winbank (internet banking branch of Piraeus) customers who used it 95,000 times for payments to e-shops and internet sites, with a total payments volume of €6.5 million.

At the end of 2008, the bank’s easypay machine was installed in 287 branches in the country (80 percent coverage ratio) as well as in 33 off-site locations, an increase of 20 percent versus 2007.

Transactions via these machines rose by 80 percent, reaching 1.6 million and accounting for 18 percent of branch transactions. Specifically, 36 percent of total loan, credit card and third-party payments and 6.5 percent of total deposits were performed via easypay machines.

In 2008, 308,000 customer debit cards (a rise of 38 percent from 2007) were activated and 210,000 new debit cards were issued to customers, totalling 860,000 cards at the end of the year and having performed approximately 24 million transactions – up 20 percent compared to 2007.

Greece

Interbank system statistics

Transactions

2002

2003

2004

2005

2006

2007

2008

Cheque (m)

12.3

12.2

12.4

12.4

12.8

14.6

15

Direct debit (m)

2.3

4.9

5.8

7.1

7.9

9.3

13.6

Credit transfer (m)

97.7

449.8

565.4

981.7

1,453

2,017

3,055

POS (000s)

10.463

12.161

19.662

28.558

26.512

30.638

35.468

ATMs (m)

16.6

16.7

17.1

16.9

17.6

19.6

21.2

Total

55.7

59.9

63.1

64.2

66.2

74

81.6

Source: DIAS

National Bank of Greece

National Bank of Greece’s (NBG) consumer credit volume (consumer loans and credit cards) grew by around 21.4 percent to €11.5 billion in 2008, reflecting the 26 percent increase in consumer loans and a 12.7 percent increase in credit cards.

In 2008, the bank focused on further expanding its credit card book by focusing on their ‘go’ and ‘My Cash’ cards, as well as on the ‘go National’ programme that enables cardholders to enjoy cash refunds and special offers from partner commercial businesses.

NBG’s credit card portfolio posted satisfactory growth in 2008. Balances rose by 12 percent to €1.75 billion at the end of the year, compared with €1.56 billion at the end of 2007. In addition, 276,000 new cards were issued in 2008, raising the total number of active credit cards to 1,163,000 by the year-end. The bank’s branch network made the greatest contribution to new sales, showing particular dynamism and an exceptional response to the targets set. At the end of 2008 the bank had more than 60,000 electronic funds transfer/POS terminals in the Greek market and co-operated with 71,000 businesses in total.

Emporiki

Emporiki Bank was the first Greek bank to provide the service Emporiki Bank Secure, which guarantees secure internet purchases for cardholders – a service certified by Visa.

The total number of co-operating merchant companies amounted to 46,582 at the end of 2008, showing an increase by 23.5 percent compared to the end of 2007. The number of POS terminals rose to 35,908, of which approximately 75 percent were EMV-enabled. In 2008 the bank completed an ATM modernisation procedure which saw 319 ATMs replaced.

In 2000 Crédit Agricole took a 6.7 percent stake in the bank. Crédit Agricole increased the stake to 8.74 percent in 2002 and to 71.97 percent in 2006. It now holds 82.48 percent.

The bank lost €492 million in 2008 and remained loss-making in the first quarter of 2009, launching a set of productivity improvements and cost-saving measures to return to profitability by 2011.

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