GBC, part of the European processing
giant SIA-SSB, is intent on making a big mark within the domestic
Hungarian market and beyond by expanding its range of services to
cover the whole card payment value chain. Victoria Conroy spoke
with Fabrizio Canedoli, CEO of GBC, to find out more.

The wave of consolidation that has swept over the European
processing market over the past few years has been underpinned by
one core driver: creating economies of scale by consolidating
payment volumes.


Small domestic European processors have
been eagerly snatched up by the likes of TSYS, First Data and other
US-headquartered giants who are looking to expand their presence in
the increasingly important SEPA-defined European market. However,
European processors, mindful of the need to strengthen their own
bases, have also embarked upon a wave of acquisitions.

In 2007, SSB (now SIA-SSB) acquired
Hungarian processor GIRO Bankkártya Zrt (GBC), which specialised in
the provision of ATM and point of sale (POS) management,
transaction switching and fraud monitoring to issuing and acquiring
customers in Hungary, Slovakia and Serbia and Montenegro. The
acquisition proved to be a canny one for SIA-SSB, as Hungary
promises huge growth potential in the cards and payments

GBC has already reaped the benefits of
Hungary’s growing demand for card payments, with the number of
processed transactions via POS and ATM growing by 18 percent and
5.6 percent respectively in 2008, and a phenomenal rise in the
number of ATM chip card transactions growing from just 184,870 in
2007 to around 4.5 million in 2008.

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Now, GBC has raised its game even further
by launching a new range of services which cover the whole value
chain of POS management through a single-service provider, giving
an end-to-end solution to domestic acquirer banks and merchants,
putting it on an equal footing with the likes of First Data and
Euronet in the region, and also challenging the stranglehold that
banks, with their own in-house processing operations, have
traditionally enjoyed in Hungary.

Alongside existing terminal handling,
transaction processing and clearing, GBC’s portfolio now includes
software development, terminal installation, service and
maintenance, merchant management, a 24/7 help desk and other
value-added services. And this is also giving GBC fresh impetus and
a springboard from which to expand into other Central and Eastern
European markets.

CI spoke to Fabrizio Canedoli,
CEO of GBC and also SIA-SSB’s group strategies and development
director, about the new range of services and also GBC’s plans
going forward, with particular emphasis on the promising potential
of the wider Central and Eastern European market. According to
Canedoli, the fact that the whole payment value chain can now be
provided by GBC offers substantial cost savings for clients, and
also enables them to focus on their respective core activities.

“This kind of service will help the
penetration of usage at the POS as we are able to cover the full
value chain in acquiring and processing activities, and in the
provision of POS maintenance and support,” he told CI.

Hungary’s growth potential for card
payments is not in dispute, not only in terms of card numbers and
transactions, but also because of the relatively high interchange
there compared to the rest of Europe, meaning profit margins are
greater. However, this has also given rise to recent regulatory
investigations by the Hungarian Competition Authority over the
issue of MasterCard’s interchange fees within Europe. The flip side
is that should further pressure on interchange cause fees to be
reduced, and service charges to be lowered, merchants may be more
amenable about accepting cards.

There is also a greater level of acquirer
competition in Hungary than compared to a few years ago,
particularly from multinational acquirers – Erste Bank entered the
market as an acquirer in 2007, although OTP Bank remains the
dominant force in the country. And more competition means more
choice for merchants. According to Canedoli, increasing the base of
installed POS terminals in the country is what will really drive
card usage and acceptance in the next few years.

Canedoli explains: “In the market at the
moment, there are 50,000 POS terminals installed, and market
forecasts are predicting growth to 100,000 POS terminals in two or
three years’ time. The reasons for growth are related to the
possibility that there will be more acquirers involved compared to
the past. Previously, the acquiring market was dominated by a few
banks, and considering the pressure on interchange fees, and
considering the necessity to enlarge POS installation, we see room
for an increase.

“With the evolution of the market, we
think the capacity to provide all the services and all the devices
is an important position for us.”

A common platform for

An important element of GBC’s service
expansion is the leverage offered by using a centralised platform,
in common with the wider SIA-SSB group, from which merchant and
card management processing activities and services can be provided.
This is in parallel with support at the local level in the
installation of POS and ATM devices.

“The possibility to use a centralised
platform both for merchant and card management and for terminal
ending should guarantee economy of scale and the possibility to
implement common strategies in different countries,” Canedoli

“This is the general philosophy and
approach that we have been using for a few years in the card
business in particular.”

Although other processing players have
also extolled the benefits of the centralised, single-platform
approach, GBC differs from its competitors in that it has been
established in Hungary for over 16 years, enabling it to leverage
its experience of the domestic market while leveraging the
expertise of its parent SIA-SSB gleaned across several business
lines and across several European markets.

Before its acquisition by SIA-SSB in 2007,
GBC was owned by K&H Bank and HVB Bank, but was spun off so the
banks could focus on their core retail and corporate operations.
And where banks which still have their own in-house processing
operations are now finding themselves constrained by capital
funding pressures brought on by the economic slowdown, GBC retains
a degree of flexibility that it is using to its advantage.

“We have a common platform that can be
customised and used in different countries,” Canedoli says. “As
part of the SIA-SSB group, we have a unique position as we offer
four different business lines to our customers – cards, payments,
networking, and capital markets operations.

“Using the payment and the networking
business lines in combination with the cards business, we are able
to offer unique services or combinations of services and support.
In my opinion, this gives us a unique positioning in the Hungarian
market and also in the wider market.”

GBC currently manages a network of 1,550
ATMs and 17,000 POS terminals, alongside performing authorisation
services for 2 million bank cards and processing 8 million
transactions monthly. On this basis alone, it appears that SIA-SSB
made a wise investment, and GBC’s positioning also gives it a
springboard from which to expand into the rest of the Central and
Eastern European region.

Canedoli says: “The main aims of the
acquisition were to create in Budapest a centre of competence for
customers of the group, and a place to base our operations – our
presence in Hungary is a combination of domestic opportunities and
regional opportunities.

“We are investing a lot in order to have a
major competence centre in the region, we are enlarging the scope
of the company, and we are starting to address the Central and
Eastern European region from here.”

He adds: “In terms of our positioning in
the domestic Hungarian market, there are two different things that
we are leveraging. One is the up-selling to existing customers. We
are launching new services aimed at them, but there is also room to
increase the presence in the Hungarian market in general. In order
to do that, we are working to combine the different parts of our
offerings, both in the card-processing area but also in the more
general payments area.

“The fact we have the possibility to
combine the card management, merchant management together with
terminal ending and device provision and maintenance will have an
important impact in the Hungarian market.”

Leveraging experience from other

GBC. Growth in transaction numbersCanedoli sees GBC’s opportunities in the wider region
as being informed by SIA-SSB’s experiences in other European
markets, not least the core Italian market.

“In Italy we have a multi-channel
approach. By using a common infrastructure we have the possibility
to let end users pay using different methods – at the POS, ATM,
internet and through mobile phones,” he says.

“In the wider region, our expectation is
to open new branches in the most important countries in order to
replicate what we are doing here. For example, we have opened an
office in Poland. In Romania we are investing a lot in order to
have a presence, considering the marketing opportunities there, and
we are reinforcing our presence in Czech Republic, and also in
Slovakia. We consider these to be the most important countries in
the region.”

However, business expansion for GBC and
for its parent SIA-SSB (and for other European payment players
looking to bolster their positions) is still, for the time being,
going to be a combination of organic growth and further
acquisitions, but with the number of domestic processors rapidly
dwindling, the window of opportunity to acquire other companies
appears to be shrinking. With this in mind, Canedoli is resolute
that the policy of making further acquisitions needs to

“At the moment it is important to qualify
the market opportunities and the opportunities to acquire companies
– the situation is quite fluid at the moment,” he says.

“We are already a huge company and there
is room for organic growth, but my personal point of view is that
in order to grow, it is absolutely important to consider also the
possibility to buy other companies in order to consolidate our
presence in the region. That will give us the opportunity to
increase the value of our service offerings and our presence in the
most important markets.”

With regards to the future of European
processing, and with the unbundling of schemes and processing
giving banks more options, the question of what strategy SIA-SSB
itself will take has become the subject of fervent speculation in
recent months.

SIA-SSB bid process goes

GBC. Vital statistics as of December 2008In November 2008, CI
reported SIA-SSB was on the auction block, and is believed to have
attracted as many as 30 businesses when it put out a tender for
bids. Those rumoured to still be in the running include Telecom
Italia, Atos Origin, TSYS, Bridgepoint Capital, Advent
International, Bain Capital and Cinven.

Telecom Italia, which already holds a 4.1
percent stake in SIA-SSB, is rumoured to have partnered with
MasterCard to strengthen its bid and is alleged to be looked at
acquiring a 63 percent total stake in the Italian processor.

Canedoli refused to be drawn on the
matter, instead preferring to focus on what a post-SEPA processing
market will mean for payment players in the region.

“The card market is evolving in a very
fast way,” he says. “It is changing rapidly, and it is important to
consolidate volumes in order to bring about cheaper prices. There
are three drivers – simplification for the customer, cost
reduction, and revenue generation.

“We are also trying to define new services
that will provide our customers with the opportunity to generate
additional revenues. Economy of scale and economy of scope, new
services, and full coverage of the value chain are in my opinion
mandatory. There is always more demand for services at the European
level, and this demand will also have a strong impact on the
domestic market.”