Badly affected by the global economic crises and with the situation in Crimea creating uncertainty, Ukraine has struggled in recent years. However, as e-commerce grows, pay later card use becomes more widespread and contactless gains traction on public transport, the market is showing promise

Ukraine’s economy was severely affected by the global economic crises, and the country was extended a financial bailout package by the IMF and the EU to restore growth and revive its beleaguered banking sector.

However, prospects over the next five years are uncertain, as a result of the conflict in the Crimea region.

The Ukrainian government is undertaking several initiatives to foster the banking sector’s growth in the form of programmes to promote financial inclusion, payment infrastructure modernisation and the adoption of technologically advanced payment cards.

The government has also supported modernisation in the retail sector, and regulations introduced in September 2010 require all retailers of goods and services to accept card-based payments.

This contributed to growth in the overall payment card transaction volume between 2011 and 2015.

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Payroll programmes dominate debit cards

In Ukraine, payroll programs have led to widespread issue of debit cards, which accounted for 80.4% of the total payment cards in circulation in 2015.

Payroll card programs are gaining prominence, and all major banks in the country – such as PrivatBank, Oschadbank, Raiffeisen Bank Aval and UkrSibbank – offer them.

For instance, PrivatBank, through its Salary Project, offers salary packages with a range of benefits such as free cash withdrawals at any of the bank’s ATMs.

Account holders are offered Visa or MasterCard-branded debit cards.

Similarly, Oschadbank offers MasterCard Electronic, MasterCard Cirrus Maestro, MasterCard Electronic ZP and Visa Electron cards for salary account holders.

Pay later cards steadily gain ground

Pay later card transactions at ATMs were very high until 2013, as Ukrainian consumers used pay later cards to help meet short-term financing needs and avoid liquidity constraints.

Banks launched a number of marketing programmes and also introduced convenient payment options, such as instalment facilities, to encourage pay later card transactions at POS terminals.

As a result, pay later card transaction volumes and the frequency of use at POS terminals increased significantly from 2014. However, pay later average transaction values at POS terminals decreased, signifying more prudent consumer spending.

Gradual uptake of contactless

Contactless technology is expected to gain prominence among Ukrainian consumers. The Ukrainian government is also actively involved in the promotion of contactless technology, especially on public transport.

In September 2015, the Kiev Municipal State Administration introduced contactless payments at turnstiles on the city’s subway, enabling passengers to pay fares with MasterCard contactless cards.

As of July 2016, 17 of a total 52 subway stations in Kiev offered contactless payments; the remainder will be equipped with contactless terminals in phases.

Banks are also keen to promote contactless technology, and are launching new services to increase its uptake.

The latest of these is the launch of the contactless m-payment solution by PrivatBank in February 2014. Alfa Bank launched a contactless m-payment pilot project in partnership with Kyivstar in January 2014.

E-commerce market to increase scope

Ukraine’s e-commerce transaction value stood at $1.3bn (UAH28.1bn) in 2015.

According to the Ukrainian Processing Centre (UPC), there was growth in the number of online shops and purchases with payment cards on the internet between 2014 and 2015. The number of sites that accept Visa and MasterCard payments grew by 27% during the same period.

MasterCard’s launch of MasterPass in July 2016 is expected to drive online card-based transactions.

UPC also noted that consumers in Ukraine often pay for train, bus and air tickets with payment cards. Cinema, theatre and concert tickets are also increasingly being purchased online.

The number of card-based payments for communications, utilities and mobile top-ups is also growing.

Another trend observed by UPC is growth in the number of transactions on foreign websites. In 2015, AliExpress was the most preferred foreign website where online transactions were made.

Increasing number of POS terminals

The number of POS terminals recorded a compound annual growth rate of 12.01%, rising from 123,540 in 2011 to 194,478 in 2015; the figure is expected to increase further to reach 206,155 in 2020.

Contactless POS terminals are gaining popularity among Ukrainian merchants.

Retailers such as Metro Cash&Carry, Silpo, ATB, Novus, MegaMarket, Arsen, Intertop, Butterfly cinemas and the MaxFoxy fast-food network have all installed POS terminals with contactless functionality.

In January 2013, payment solution provider Ingenico, in partnership with Oschadbank, launched the PINPad iPP350 contactless POS terminal at all McDonald’s stores in Ukraine.

According to UPC, 10,700 POS terminals, representing 49% of all POS terminals connected to UPC, accept contactless payments.

According to the central bank of Ukraine, as of June 27, 2016 there were 88,000 contactless-enabled POS terminals in Ukraine, equivalent to 45.9% of the total.

The growing payment cards market encouraged operators in the market to introduce mobile POS (mPOS) terminals. For instance, Raiffeisen Bank Aval, Visa and MTS Ukraine introduced the Pay-Me mPOS terminal in November 2014.

The cost of the terminal is around $30, and the bank charges a 2.75% fee for payment processing.