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August 18, 2010updated 21 Jul 2022 4:49am

Country survey: In pole position in payments

If anyone needed convincing that Poland is a growth hotspot for electronic payments, one only needs to look at transaction volumes to be certain. Successful implementation of new payment technologies by the countrys banks is a key factor, as Victoria Conroy reports.

By Victoria Conroy

If anyone needed convincing that Poland is a growth hotspot for electronic payments, one only needs to look at transaction volumes to be certain. Successful implementation of new payment technologies by the country’s banks is a key factor, as Victoria Conroy reports.

With a population of around 38.5m, Poland has reaped the rewards of economic liberalisation since 1990 to become one of the most dynamic payment markets in the world. Its 2004 entry into the European Union (EU) accelerated the development of the country’s financial system, giving a major boost to the economy and opening a vast pool of opportunity for payment players.


Poland’s credit card market

EPI’s analysis of the Polish payment market reveals that, despite the credit crunch-related hangover which has afflicted spending volumes and bank lending over the past two years, the country is continuing to embrace credit cards with enthusiasm.

Judging by the high double-digit growth rates for credit card issuance, Poland is by far the largest credit card market in the Central and Eastern European (CEE) region. From just 2.8m credit cards in 2004, that number had risen to more than 9.4m by the end of 2008, representing 31.1% of all payment cards in Poland. This was helped in part by the waning usage of deferred debit or charge cards in favour of credit cards. Unsurprisingly, Poland is the largest market in the CEE region in terms of credit card transaction value (€5.2bn [$7.2bn] in 2008).

EPI’s analysis of Polish card numbers and card spending show credit card growth levels far outstripping debit levels, and although 2008 marked a definite slowdown in terms of spending, credit cards still managed to record a 26.42% jump in spending to total PLN26.8bn ($8.9bn).

There are many reasons why Poland has become such a growth hotspot for credit cards in recent years.

Poland’s entry into the EU in 2004 in particular saw a massive spike in credit card numbers due to the growing presence of foreign banks in the country. These banks were quick to acquire Polish rivals, with some of the leading issuers in the country becoming units of Western banking groups, such as UniCredit and Crédit Agricole. These banking giants transported their marketing and customer acquisition expertise to Poland.

Secondly, Polish consumers are already familiar with the concept of consumer credit and instalment loans, and issuers have lowered applicant acceptance criteria in recent years to reach a wider pool of potential cardholders – although this has also led to a sharp rise in bad debt recently.

With cost efficiency being the mantra for Polish banks, they have also placed much more emphasis on less costly customer acquisition channels such as the internet, and direct and mobile sales forces, along with cross-selling to existing customers. It is this approach, rather than a focus on large-scale marketing campaigns, that has helped Polish banks to record such impressive card growth numbers.

Although the rate of card issuance is slowing down, Polish banks are still recording double-digit growth rates in terms of cards issued, but activating those cards continues to be a major challenge to the market fulfilling its potential. The focus is now switching from mass card roll-outs to educating and incentivising consumers to activate and use the cards on a regular basis, typically through promotional campaigns such as prize draws, and drawing on direct sales forces to educate new cardholders at the time they sign up.

Another emerging tool to increase activation and usage is tiering or elimination of annual fees – the larger the number of transactions per month, the lower the annual fee levied, with frequent usage above a certain level of transactions per month resulting in no annual fee being charged.

In 2007, the Polish Office of Competition and Consumer Protection (OCCP), in response to a complaint brought by Polish retailers, ruled that interchange fees between banks in the Visa and MasterCard schemes were illegal and imposed fines of PLN164m on the 20 banks involved, along with ordering them to discontinue their interchange arrangements.

Interchange fees in Poland at the time were between 1% and 2%, bringing in annual revenue for the banks of around PLN400m. The OCCP stated the interchange fee level was not based on objective criteria, such as transaction costs for banks, but “determined by way of an agreement between entrepreneurs who communicated with each other in order to obtain additional revenue from each transaction made with Visa and MasterCard cards”.

However, in November 2008, the OCCP ruling was overturned following an appeal filed on behalf of the banks, in which the banks argued that the existence and standardisation of interchange fees was necessary for the proper functioning of payment card systems, and interchange fees sheltered consumers from extra costs arising in connection with each card transaction.

CEE banks: Foreign ownership – by country (percent of total assets)

Debit dominates

However, it is debit that is the dominant payment card in Poland, not surprisingly given the country’s historical dependence on cash and domestic ATM cards. In terms of card numbers, again Poland is the largest market in the CEE region, with 20.5m debit cards in circulation as of 2008, a rise of nearly 50% compared to the previous year.

Debit cards are primarily used for ATM withdrawals, which as of 2008 amounted to PLN231.9bn, a 10.8% rise compared to 2007. Cash withdrawals continue to form the bulk of debit card transactions in Poland, although there are promising signs that consumers are becoming more sophisticated and educated and are using debit at the POS in ever-greater numbers.

But, however impressive these figures are, they need to be tempered by the fact activation and usage of both debit and credit cards falls way behind more developed card markets.

In terms of average POS transaction value per card, Poland is very much on an upwards trajectory, which is encouraging for issuers and payment networks as it illustrates the fact that consumers are increasingly making a greater proportion of payments at the POS. However, the CEE region card markets have large average transaction values in common, indicating it will be some time before consumers in these markets ditch their cash addiction.

An emerging trend in 2008 regarding Polish ATM usage is that, although values and transaction volumes are rising year on year, the rate of growth is slowing markedly, with 2008 showing the largest growth rate contraction in the past 10 years.


Polish consumers embrace technology

The last two years have also seen the introduction of contactless payment in Poland for transactions under PLN50 at small individual merchants and larger retailer chains, and banks have made concerted efforts to market the technology to the country’s technologically savvy younger consumers.

One reason why contactless debit payment is being pushed by banks in the country is that average debit and credit card transaction values in Poland are relatively low compared to the rest of Europe. EPI analysis of Polish card transaction values in 2008 show the average debit card POS spend was PLN94.29, and the average credit card transaction value was PLN166.77.

Poland’s consumers are some of the most avid users of telephone and internet banking in the world. As of 2007, there were over 41m mobile phones in use, a rise of 129% since 2006, and 16m internet users. It is likely that internet shopping will see much bigger jumps in card payments in Poland in the next few years, in tandem with the roll-out of EMV-enabled cards. In 2006, only 5.5% of all cards in Poland incorporated EMV, but this had risen to 16.1% by the end of 2008.

Poland: Payment instrument statistics – number of transactions

Clearing systems

The National Bank of Poland (NBP) owns and operates the real-time gross settlement (RTGS) SORBNET payment system, where all interbank payments are settled through the commercial banks’ accounts with the NBP.

This also includes payment instructions, which originate from the National Clearing House (KIR) or the National Depository for Securities. SORBNET commenced operations in March 1996. Prior to that, banks could only present their payment instructions on paper or a floppy disk.

Transaction types handled include individual, urgent, same-day-value payments instructions in PLN related to money market, foreign exchange and securities market transactions, transactions between banks and the NBP (from other clearing systems) and high-value customer payments in excess of PLN1m. Customer transactions for lower amounts are also allowed upon an individual request.

The NBP also provides settlement services via the paperless net settlement system ELIXIR/EuroELIXIR, operated by KIR. The owners of KIR are the NBP, the Polish Bankers Association and the biggest commercial banks. The ELIXIR system was activated in March 2005, enabling all banks operating in Poland to process euro payments. The system allows both domestic as well as international payments in euros through STEP 2. ELIXIR processes credit transfers, direct debits and cheques.

Poland migrated to the pan-European TARGET2 RTGS system in May 2008 for high-value and urgent cross-border payments denominated in euros. The current pan-European RTGS system, TARGET, migrated to a single shared platform (SSP) called TARGET2 making the 16 decentralised RTGS systems of individual Eurosystem countries and the ECB’s payment mechanism (EPM) obsolete. The change-over took place in three migration waves, starting in November 2007 and ending in May 2008.

The paper-based SYBIR system was closed in July 2004, while an optical scanning system, IMBIR, continues its operations. The IMBIR scanning system optically reads and converts paper settlement documents into electronic documents for further processing in ELIXIR.

In September 2005, a new service – SWIFT Service Bureau – was introduced. It enables KIR to be an intermediate stage in statement transfer between KIR client location and SWIFTNet via KIR infrastructure. This new service allows new, as well as existing SWIFT users to have a primary or backup means of accessing the SWIFTNet for banks and financial institutions.

Banks in Poland have been implementing SEPA standards for euro-denominated payments. The country’s banks now only issue SEPA-compliant debit cards (since January 2008) and also now offer pan-European SEPA credit transfers (since January 2008). SEPA direct debits however are still not yet available as this has yet to be implemented at a pan-European level.

It is not yet known how long the transition period will last for national payment products to be fully replaced by SEPA payments.

Poland: Payment card statistics – number of cards

Other payment methods

Cheque usage is low and has been in decline over recent years in favour of electronic payment instruments (particularly payment cards). Cheques are of little importance commercially and banks do not readily cash in cheques of non-customers.

Although the cashier’s cheque is a popular method of payment, it is classed as a cash payment under Polish law.

By far credit transfers are the predominant way of settling payments in Poland and their share of total value transfers processed by KIR is more than 99%. The existing system for the settlement of customers’ transactions via KIR (ELIXIR) enables credit transfers between customers of two different banks to be settled on the same day.

Business-to-business credit transfers are electronic in their vast majority.

The first direct debit transactions were executed in July 1998. The number of direct debits in Poland is still low compared to mature markets such as Germany and the Benelux countries. There are two types of instruments in the market: the widely used direct debit, known as Polecenie Zaplaty, and the business-to-business direct debit, known as GOBI.

Polecenie Zaplaty is commonly used and has the same format as direct debits in other countries so it is widely accepted. There is a limit of €1,000 ($1,300) on each transaction value if it is a direct debit to an individual/non-corporate, and it also has a revocation period of 30 days. If the recipient (debtor) is a corporate, the transaction limit is €50,000 and the revocation period is five days. The transaction limit of €50,000 and the revocation option means that this is a more popular choice for corporates than GOBI.

GOBI business-to-business direct debit is supported by a limited number of banks and is irrevocable. There is no limit to the value of each transaction. This means that, if two business parties agree to use this instrument, it is a very effective collection method for the recipient. However, its irrevocability is also an impediment to its widespread use, as not all corporate treasurers are comfortable with this aspect.


The development of e-commerce

Figures from 2007 show the percentage of internet users and online shoppers in the European Union. Although the UK had the largest percentage of online shoppers (44%), in Poland, 11% of the society aged 16-74 shopped online, ranking the country first among the new EU member states from the CEE region. This was only slightly lower than Spain (13%) but higher than Italy (7%) and Portugal (6%).

At the turn of the millennium, e-commerce played a minor role in Poland, and it was only in 2004 that its take-off began. According to data from the Interactive Advertising Bureau, the first time e-commerce accounted for 1% of total retail trade in Poland was in 2005 (whereas it was 2.5% in Western Europe and 4% in the US).

In 2007, Polish e-commerce turnover increased by 61% and equalled €2.12bn. A typical feature of the Polish internet market is a large share of online auction markets, accounting for 50% to 60% of total turnover. The development of e-commerce in Poland is driven by a sharply increasing number of internet users, which rose from 8.8m to 14.1m between 2005 and 2007, according to website Internet World Stats.

Electronic banking is becoming increasingly common in Poland and is generally based on the MultiCash Plus multi-banking system (the most common in Poland) although banks are increasingly using their own custom-built proprietary solutions.

There are two broad trends that characterise the Polish electronic banking market: the increasing popularity of web-based solutions that are developing at a rapid pace and are now offered by all major banks in the corporate services space; and the evolution of e-banking applications and systems which offer increasing functionality to corporate clients.

Web-based electronic banking is being used more widely by small and medium-sized enterprises in Poland as well as big domestic and international firms. Most big companies that demand advanced functionality now have online electronic interfaces with their banks.

Another factor driving the demand for online platforms is the added technical security and reliability of having the platform hosted almost entirely by the bank’s IT infrastructure, which makes any adjustments to the system easier for the bank to make. Alongside the development of electronic trading, new payment services have appeared whereby payment can be made online for products and/or services in online shops and auctions.

Online payments are usually effected using electronic transfers from bank accounts which a customer can access online, with payment cards and via other methods (eg prepaid internet accounts with service providers, prepaid cards and text messaging). Nonetheless, e-payments are not widely used in Poland.

Electronic invoicing is still at the development stage in Poland and market standards are still to be decided. While there is demand from Polish corporates for a solution that lowers their cost of invoice processing and management, e-invoicing is also dependent on other market factors, such as the volumes of electronic credit transfers in the consumer market and the levels of direct debits.

As there is demand from corporates, as well as banks seeking additional features for their retail e-banking platforms, it is likely that e-invoicing will be introduced in Poland in the foreseeable future.

Poland: Card spending – share of transaction volume by card type

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