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 sector.
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.
A full end-to-end service
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 growth
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 says.
“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 markets
Canedoli 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 continue.
“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 on
In 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.”