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September 21, 2017

Kazakhstan’s cards fighting cash

By Patrick Brusnahan

Cash remains the preferred consumer payment instrument in Kazakhstan, due to a lack of adequate banking infrastructure, limited awareness of electronic payments, and low acceptance at retailers

Despite its dominance, use of cash is anticipated to decline gradually over 2017-2021 as a result of initiatives by the government and banks to promote electronic payments.

This includes expanding banking infrastructure and financial literacy, a de-dollarisation plan, forcing retailers to install POS terminals to accept payment cards, and restricting the use of cash transactions for sole proprietors and companies, with tax incentives for businesses that accept payment cards.

As a result of sustained government efforts, the share of payment cards is anticipated to rise between 2017 and 2021. One of the top priorities of Kazakhstan’s 2015-2016 de-dollarisation plan was to gradually move away from cash-based transactions. While initiatives have been taken to achieve economic stability and reduce dependence on foreign currency, the government also plans to launch new initiatives to reduce dependence on cash.

In November 2012 the central National Bank of Kazakhstan required certain categories of retailer to install POS terminals. On January 1, 2014 the regulation was extended to all traders, regardless of business model. Penalties for refusing to accept a card payment are a minimum of KZT34,620 ($103.80) for individual entrepreneurs and $259.50 for large businesses.

The central bank defines the system and method of payments, and operates payment systems. The banking law and other acts regulate the second-tier banks.

There are two payment systems in Kazakhstan: the ISMT and the System of Retail Payments. The former processes high-value payments, while the latter processes low-value payments.

In 2016, the central bank issued a new payment law, On Payments and Payment Systems. In comparison to the old payment law, the new law is more detailed and comprehensive in its approach.

Credit card growth

The credit card market in Kazakhstan is still developing, with penetration of just 13.4 cards per 100 individuals in 2016. However, credit cards registered the fastest CAGRs of 19.2% and 30.8% in terms of transaction value and volume respectively between 2012 and 2016.

To increase credit card penetration, banks have adopted customer segmentation strategies, targeting niche segments such as high-income individuals. Russian banking group Sberbank has launched a hand-crafted solid gold Visa Infinite credit card in partnership with Visa, which is studded with 26 diamonds.

Offering co-branded credit cards is another strategy banks are using to increase adoption, with the cards offered in sectors such as travel, retail and entertainment. Bank CenterCredit offers the Visa-branded Card for Fly credit card in association with Air Astana. Holders receive benefits including reward points, upgraded flight tickets, and discounts at participating Visa outlets.

Debit cards dominate

Debit card penetration in Kazakhstan stood at 74.7 cards per 100 individuals in 2016, higher than regional peers Romania (66.8), Ukraine (65.3), and Azerbaijan (47.8). This was supported by the country’s increasing banked population.

Kazakhstan has made substantial progress in terms of financial inclusion, with the percentage of the population aged 15 or above with a bank account rising from 46.2% in 2012 to 61.8% in 2016. Most bank customers became cardholders as a result of payroll projects, and the majority of cards in circulation are debit cards.

Banks are also cross-selling products such as insurance and consumer and mortgage loans to salaried employees. Debit card growth has also been supported by an increase in the number of social cards, with the government increasingly distributing social benefits such as pensions and scholarships through banks.

KazPost has also played an important role in promoting use of debit cards, as it is authorized by the central bank to issue payment cards. However, debit cards are primarily used for cash withdrawals rather than at POS terminals. Banks are attempting to counter this by offering reward points, discounts and cashback.

POS terminals

The number of POS terminals increased from 33,520 in 2012 to 107,502 in 2016, and is expected to reach 187,847 by 2021. With the rising number of POS terminal installations at retail outlets, the potential of card-based payments in the country is also expected to grow.

In addition to conventional POS terminals, merchants are installing mobile point of sale (mPOS) terminals. In August 2014, mobile operator service Kcell launched mPOS terminals called K-Pay in Kazakhstan.

The service allows users to make payments using mobile phones. K-Pay devices can be purchased at Kcell sales points and service centers. The terminal is a compact card reader compatible with Android and iOS devices.

Similarly, Halyk Bank offers Pay-Me mPOS terminals at a cost of $36, with a fixed commission of 2.75%.

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