With a high mobile penetration rate, strong consumer confidence in online transactions, and the presence of a secure online gateway, growth in e-commerce has been impressive in the Czech Republic. Now the key for further payments growth in the nation is the increase of contactless payments and POS terminals
The Czech Republic is the fastest-growing economy in the European Union (EU), supported by a decline in oil prices, increased investment activity, and government policy to encourage exports and domestic demand.
Economic growth and disposable incomes are expected to accelerate between 2016 and 2020, and in turn, more investments can be expected in the country’s cards and payments industry.
The payments cards market grew significantly in the Czech Republic during 2011-2015, as consumers are increasingly spending more with payment cards. The total number of payment card transactions increased at a CAGR of 14.80% from 437.9m in 2011 to 760.4m in 2015.
The Czech Republic’s payment card penetration – the number of cards per inhabitant – was 1.10 in 2015, higher than peers Poland (0.97), Slovakia (0.95) and Hungary (0.92). Merchant card acceptance also increased, with 108,000 merchants and retailers accepting payment cards in 2015, representing an 18.5% increase over 2014.
Uptake of contactless to drive transactions
In the Czech Republic, contactless cards were first introduced by Citibank in 2011, followed by other banks; now, all domestic banks except Sberbank allow customers to make contactless payments.
According to the CNB, the number of cards with contactless functionality was 8.7 million, accounting for 75% of the total 11.6 million cards in 2015. The contactless card transaction value registered an annual growth of 63.5% to reach $8.5bn (CZK209bn) in 2015. The number of contactless transactions reached 369.2 million in 2015 – accounting for 48.5% of the country’s total payment card transactions.
According to Visa Europe, the Czech Republic was the third-largest market for Visa contactless cards in Europe with 13.9 million transactions conducted in March 2015. It was preceded by the UK (52.6m) and Poland (49.7m).
In addition, according to a 2015 report by MasterCard, nearly 52% of MasterCard and Maestro in-store transactions are contactless in the Czech Republic.
According to data reported by Visa Europe in February 2015, Czechs use contactless payments for 3.3 transactions per month per card on average – the highest in the EU, followed by Poland (2.6) and Slovakia (1.3).
E-commerce paves the way for alternatives
The Czech Republic’s e-commerce market’s total transaction value posted a CAGR of 16.11% between 2011 and 2015, from $2.5bn (CZK44.4bn) in 2011 to $4.1bn (CZK100.7bn) in 2015.
A high mobile penetration rate, consumer confidence in online transactions, and the presence of a secure online gateway drove the growth.
According to the Ecommerce Europe Association, 80% of the Czech population above the age of 14 years – equivalent to 7.1 million individuals – use the internet, and 3.7 million shop online.
Banks and other card participants are introducing innovative payment options to encourage electronic payments and improve convenience in online shopping.
For example, UniCredit Bank launched the Pay button on its internet banking platform in December 2015.
The bank in association with PayU, the online payment service provider, offers the new payment option when consumers make payments at e-commerce website and price comparison websites, including Mall.cz and Heureka.cz. Similarly, MasterCard launched MasterPass in the Czech Republic in November 2014.
Increasing number of POS terminals
The number of POS terminals in the Czech Republic recorded a CAGR of 12.63% over five years, rising from 77,651 in 2011 to 124,946 in 2015.
This was supported by an increase in the number of POS terminal installations at smaller retail outlets, enabling the growth of card-based payments.
POS terminals are expected to increase over the next five years, to reach 178,363 in 2020, owing to a rise in the number of retailers installing POS terminals that support contactless payments.
Komercní Banka announced plans to install 6,000 contactless-capable POS devices across the Czech Republic in November 2015.
The bank chose Spire Payments, the payment solution provider, and SoNet Solutions, a payment solution integrator, to deploy EMV and contactless-enabled payment terminals.
The solution includes mPOS devices, personal key injection functionalities, payWave and PayPass certification for all devices, and 3.x and 4.x PCI security certifications.
Banks offer value-added benefits
Issuers are offering reward programmes and other exclusive rewards to encourage regular use of credit cards, by allowing customers to earn points.
Access to international airport lounges, privileges for international travel, air miles and discounts on shopping and dining are some of the strategies adopted.
UniCredit Bank offers The MasterCard Miles & More Gold Card which gives cardholders a welcome bonus of 4,000 air miles, five miles for every CZK100 spent, travel insurance with CZK2.5m coverage, cashback facilities at 5,300 POS terminals, and special discounts at selected merchants.
Banks are offering a number of pricing benefits to attract new customers.
A long interest-free period is one benefit of using credit cards in the Czech Republic. Credit cards generally have a 45-55-day interest-free period, during which consumers can pay outstanding balances without paying interest.
For example, World Credit Card from CSOB offers a 55-day grace period to its customers for paying outstanding balances.
As part of its pricing strategy, UniCredit Bank introduced a Card Balance Transfer facility in October 2014 to encourage consumers to transfer outstanding credit card balances to the bank’s credit cards without interest for the first six months.
A monthly interest rate of 1.58% on the outstanding balance applies after six months. This was the first of this kind initiative by any card issuer in the country.
The service enables consumers to have significant savings due to low interest rate and to pay off their existing debts.