Cards usage is booming in Spain and the
country benefits from having one of the most developed payment
infrastructures in Europe. But how will issuers cope with falling
interchange rates and increasing foreign competition?
Justin Bandy reports.

Spain has a robust and rapidly growing cards market. Between
2002 and 2006, the value of POS transactions increased by 63
percent, while the value of ATM transactions increased by 30
percent. This has been accompanied by strong growth in the nation’s
card accepting infrastructure, which is the most developed in all
of Europe. Since 2000, the number of ATMs in the country has
increased by 28 percent while the number of POS terminals has
increased by 68 percent. Spain now has one ATM for every 781 people
and one POS machine for every 33 people. Despite the highly
developed cards infrastructure in the country, only 13 percent to
14 percent of all payments are made with payment cards, a much
lower level than in markets such as the US or UK.

“The market has room to grow in terms of cards usage,” says José
Sirvent, MasterCard’s country manager for Spain.

Growth is being driven mainly by the increased penetration of
credit cards, which have grown rapidly in popularity over the last
five years, while debit card numbers have stagnated. Between 2001
and 2006, the number of credit cards more than doubled to 36.4
million, while the number of debit cards actually declined by
800,000 to 32 million. This is being stimulated both by organic
expansion and also by the growing presence of new entrants such as
global players Barclaycard and Capital One. Banks are also actively
promoting revolving credit, because it has the potential to be a
lucrative business and because falling interchange rates are
causing issuers to look for alternative sources of profits from
their cards businesses.

Low consumer lending levels

Although credit card usage is becoming more widespread, Spaniards
do not yet use the credit facility as much as some other European
consumers. Spain has one of the lowest rates of consumer lending
among economically advanced countries. According to Spanish banking
group BBVA, the average amount of consumer lending per capita in
Spain was $1,051 in 2006, compared with $2,633 in Germany, $4,136
in the UK and $6,230 in the US.

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With 42.3 million cards in force as of September 2006, Visa is the
dominant card network in Spain. In January 2007, Visa reported that
POS sales had surpassed ATM usage for the first time in Spain. Visa
also reported that spending with its cards at POS terminals had
grown by 15 percent in the past year, compared with only a 7.6
percent increase in usage at ATMs. Visa reported solid gains in POS
spending for all card types.

Visa recently reported that fraud relative to total spending with
its cards was very low at 0.03 percent, half the average rate of
fraud on Visa cards in Europe. Visa attributes this low rate of
fraud to the fact that 99 percent of card transactions are online
transactions, giving banks the opportunity to manage risk.

Visa has a number of objectives going forward. “Consolidating the
use of cards as the best option for consumer credit, [and] reaching
new sectors and channels by taking advantage of technological
innovations such as contactless cards for low-value payments are
some of the priorities for the current fiscal year,” said Luis
García Cristóbal, general director of Visa Europe in Spain. “We
also want to continue to offer secure payment solutions that make
e-commerce grow in Spain and to maintain a high level of cardholder
satisfaction through our broad offering of products for a variety
of needs, featuring personal designs according to personal

Visa recently launched its Verified by Visa service to help to
increase the security and reliability of mobile payments.

MasterCard is the second most important network. In conjunction
with Euro 6000, one of Spain’s major card processors, MasterCard
recently launched its contactless PayPass scheme for low-value
payments. It has already been tested for use at highway tolls.
“This system allows payments without making a conventional card
payment, and improves speed and security for the cardholder. It
incorporates an antenna and a chip, and to make a payment one only
needs to place the card within 5cm of the terminal,” said Luis
Álvarez-Cascos, marketing director for Euro 6000.

Spain is undergoing two drastic changes in the way its cards market
operates. The first is EMV adoption. Spain is scheduled to
implement full EMV migration by the beginning of 2008, and many
banks are currently in the process of replacing non-EMV compliant
cards. So far, this has been a fairly smooth process.

The second change, a lowering of interchange rates, has the
potential to be much more disruptive. A major reduction in
interchange fees has led Spanish issuers to look for new sources of
profits. In 2005, Spain’s three payment networks, a number of
commercial advocacy groups and the government signed a landmark
agreement to drastically reduce interchange rates in the country
for both debit and credit card transactions. Under the terms of the
agreement, the maximum interchange rate for credit card
transactions must gradually fall from 1.4 percent in 2006 to 0.79
percent in 2010, while debit card transactions will fall from 0.53
percent to 0.35 percent over the same time period. Already,
interchange rates have fallen significantly.

Although interchange rates in most economic sectors have fallen,
the size of this reduction varies between industries. Merchant
discount rates for car rental agencies and jewellery stores have
fallen by more than 100 basis points, whereas retailers,
supermarkets and petrol stations have received only tiny

Corresponding with the fall in interchange rates has been an
increase in fees on credit card accounts. According to figures from
Spain’s central bank, credit card account maintenance fees
increased by 14 percent in the first half of 2006 to €26.07
($33.78). This rise in fees on credit cards contrasts with a
general decline in fees for other retail banking products. Many of
Spain’s banks have stated publicly that they will be raising fees
to compensate for a decline in interchange revenue.

There are an estimated 5,000 types of cards currently in use in the
Spanish market. Several issuers have capitalised on Spaniards’ love
of football, for example: there are an estimated 300,000 football
affinity cards in Spain, in both debit and credit varieties.

Several football affinity cards come with loyalty programmes that
are tied to the performance of their club. Banesto offers rewards
of up to €2 per goal scored for its Real Madrid cardholders, and
also offers a 9 month interest-free period for club membership dues
paid for with the credit card. La Caixa offers similar
interest-free instalment payments for club membership dues.

Not all football cards in Spain are tied to one club. Caja Madrid,
for example, offers the Champions MasterCard, which gives
cardholders the possibility of winning a €10,000 prize if they
correctly predict the outcome of a week’s matches.

Another popular type of affinity card in Spain is the airline card.
One of the most successful programmes is the Iberia Cards
programme, set up in 2001 by Spanish carrier Iberia and three banks
– Caja Madrid, BBVA and Banco Popular. Iberia Cards issues Visa
payment cards that are linked to the airline’s Iberia Plus loyalty
programme. In March 2006, BBVA and Caja Madrid reduced their stakes
in the Iberia Cards programme to 7 percent each, while Banco
Popular and Iberia increased their stakes to 43.5 percent and 42.5
percent, respectively. Over 500,000 cards have been issued, and the
programme has a annual turnover of roughly €2.5 billion.

The 2006 holiday season saw a variety of innovative marketing
campaigns in the cards sector in Spain. According to BBVA, shopping
in Spain jumped by 30 percent during the Christmas season,
providing a strong incentive for card issuers to try to capture
more holiday spending on their cards.

Both BBVA and Santander extended their holiday promotions through
the end of January. Santander ran a lottery whereby credit and
debit cardholders had the chance to get their purchases for free.
Santander also entered active cardholders into a prize draw for an
Audi car at the end of each month. BBVA also gave away cars – a
Hyundai Accent every day among active card users.

Many issuers offered discounts on spending during the Christmas
season. Banesto offered a special 5 percent discount at fashion and
toy stores for its Gold and Platinum cardholders, while its Visa Tú
cardholders received a 10 percent discount at these stores.
Bankinter ran a similar promotion, giving 5 percent discounts for
gifts and toys paid for with its revolving credit cards. The
discount was granted only if the cardholder spent more than €1,000
with the card.

Other issuers also ran creative holiday spending incentive
programmes. Unicaja had a promotion giving customers a three-month
interest-free period for holiday purchases, while Banco Pastor gave
a 10 percent discount on the first purchase cardholders made, and
also entered cardholders into a holiday sweepstake. Banco Popular
gave a 7 percent discount on spending for new Visa Hop customers,
while Banco Sabadell gave a €30 charitable donation for each new
card activated during the holiday period.

Key players

Santander Central Hispano

Santander Central Hispano is Spain’s biggest bank and runs its
European consumer finance operations through its subsidiary
Santander Consumer Finance (SCF), the top specialised consumer
finance operator in Spain. In Spain, Santander offers a full range
of cards products including credit, debit and prepaid cards. The
bank has linked some of its cards offerings to other retail banking
product lines. For example, interest on its standard Light card is
normally 18.44 percent annually, but is reduced to 9.9 percent if
the customer has a mortgage with the bank and uses the card to
acquire home furnishings. The interest rate drops to 6.93 percent
if the customer holds selected asset management products with

The bank is also actively targeting certain attractive customer
segments. Its Tarjeta 4B MasterCard International Express product
is specifically designed for immigrants and the bank also has a
number of affinity cards.

Santander also runs an online bank, branded Openbank. As one of its
services for cardholders, Openbank offers a short message service
(SMS) mobile phone alert for Visa purchases. Visa Gold cardholders
can receive an SMS for each purchase they make, while Visa Classic
cardholders receive SMS alerts for purchases of €50 or more. The
SMS contains the amount of the purchase and the name of the
merchant, as well as the date and time of the transaction.


BBVA has roughly 3.7 million credit cards and 3.5 million debit
cards in the Spanish market. There has been rapid growth in the
popularity of BBVA’s Visa Diez and Tarjeta Diez Fácil programmes –
a combined total of over 1 million of these popular cards has been
issued. The Tarjeta Diez Fácil has a loyalty programme that gives a
2 percent discount at petrol stations Repsol, Campsa and Petronor.
For purchases greater than €50, cardholders have the option of
choosing various payment methods for their purchases, including
immediate payment, paying at the end of the month or paying in
instalments. BBVA has also seen success in BBVAnet, its online
banking platform, which links its cards programmes to savings
accounts and other retail banking products. The bank has a large
ATM network, with roughly 5,000 terminals across the country. BBVA
has a number of subsidiaries, including Uno-e, an online bank that
offers credit cards.

The bank has reported that its direct marketing and branch selling
efforts are its most successful customer recruitment channels,
while the internet is becoming an important touch point for
existing customers. BBVA has a number of partnerships and
co-branded alliances with companies in several economic sectors
including airlines, travel and entertainment, petrol and retail.
BBVA is the country’s leader in prepaid cards, and is especially
focused on corporate prepaid cards.

La Caixa

As of 30 September 2006, La Caixa had 8.8 million cards in
circulation, an increase of 16.4 percent over the previous year. In
the first nine months of 2006, La Caixa’s cards generated 368
million transactions worth €21.7 billion. Between the end of 2001
and 30 September 2006, the number of La Caixa cards in force
increased by 48 percent, a rate above the average increase in the
Spanish market. The bank’s cards products include instalment
credit, revolving credit, debit, prepaid and cyber cards, and the
bank issues cards with the Visa, MasterCard, American Express,
Diners Club and JCB logos. La Caixa is a global leader in card
design and has several non-traditional card shapes and

All credit and debit cardholders gain automatic access to La
Caixa’s internet banking service, where they can consult their
balances and perform transactions. La Caixa operates 123,000 POS
terminals in Spain, and all merchants have access to the Comercio
Abierto service which gives them online access to their accounts as
well as a statistical description of their transactions. The bank’s
Puntos Estrella is a successful points-based loyalty programme that
was initiated in 1997.

Banco Popular

Banco Popular has roughly 5.5 million debit, charge and revolving
cards in circulation and 833,000 members registered for its
internet service. It has partnered with airline Iberia to offer the
co-branded Visa Iberia card. It also issues a Solred card, which
offers a 2 percent discount at Repsol Group service stations (under
the brands Repsol, Campsa and Petronor) and can be used to pay
motorway tolls and for services at selected garages. Banco Popular
has co-branded cards with several major retailers including Sony
and GEA.


Banesto reported a 19 percent increase in credit cards outstanding
in 2006, bringing its total to more than 1 million cards in force.
In January, 2007, Banesto signed a distribution agreement with
insurance group Axa Winterthur to cross-sell products to one
another’s clients, including credit cards. In October 2006, Banesto
launched the F1 credit card, a credit card featuring the F1 brand
in order to capitalise on the popularity of Formula One racing. As
part of the agreement, Banesto has exclusive rights to use the F1
brand until December 2008. Cardholders receive a discount of 10
percent on petrol at any petrol station in Spain bought using the
card. Banesto has announced it plans to issue 100,000 F1

Other players

Spain has a number of savings banks (known as cajas or caixas)
which are important players in the nation’s credit card market. In
addition, several foreign players such as MBNA, Cetelem, Capital
One and American Express have significant Spanish operations.

MBNA has replicated its affinity model in Spain, and Barclaycard
promotes more than 300 different combinations of cards and price to
the Spanish market. Barclaycard also sponsors a number of sporting
events in Spain in an attempt to increase its brand awareness.
Barclaycard acquired an important bricks-and-mortar presence in
2003 when it purchased Banco Zaragozano, which at the time was
Spain’s 11th-largest bank.