Co-branded dominates but growth on the cards

In the pharmacy, when filling the tank, in every supermarket and home appliance store people can cut their spending by taking out one of the tens of different co-branded cards on offer. “At present and for the foreseeable the future, the main trend on the credit card market is co-branded cards, a very specific segment now developing at full speed,” said Diana Tarus, senior financial analyst at Finzoom, an online financial guide informing visitors of bank offers available on the market.
Banks and non-banking institutions issue co-branded cards as a means to attract clients who are usually reluctant to using plastic instead of paper and metal money. Both issuers and their merchant partners get something out of it. Issuers benefit from higher spending levels, access to their partner's customer base, cross-selling opportunities and added value in a competitive market. The primary benefits for merchants are additional revenue and sales.
“The increase on the segment of cobranded credit cards is driven, on one hand, by the desire of large merchants to increase the loyalty of their customers and on the other hand by the demand of the cardholders for enhanced value proposition at lower costs. At the end, we have seen banks structuring products in partnership not only with one retailer but with a poll of merchants where multiple discounts are being offered to cardholders,” said Catalin Cretu, vice-president with VISA International CEMEA.
Both lenders and their retail partners have issued co-branded cards at such a speed that they seem to have become the most popular card category since their first launch back in 2005 by Banca Transilvania.
There were more than 780,000 valid co-branded cards at the end of last year, according to central bank spokesperson Mugur Stet, which is more than 60 percent of the total number of valid credit cards at the end of the previous year – 1.29 million.
“The co-branded trend has become increasingly visible since the first few months of last year. Financial institutions continue to focus on this segment of credit cards both because they have similar characteristics to credit cards, their older relatives, and because they bring additional benefits to the owners,” said Tarus.
MasterCard alone supported the launch of more than 20 co-branded cards in partnership with retailers, GSM operators, digital television stations, car producers and so on, said Denisa Mateescu, GM for Romania and the Balkans at MasterCard Europe. “The potential for growth on this segment is very big, especially since credit card owners can carry two or three such cards depending on their hobbies and lifestyles,” said Mateescu.
In spite of what may look like a varied and bountiful offer, Mateescu said there are still sectors yet to be fully exploited by co-branded card issuers and even sectors that have not been tapped at all as yet. “We are just at the beginning and there is still room to grow, both as regards transaction volumes and additional services attached to the credit cards,” she said.
Co-branded cards available at this point are usually alone on their particular market segment which creates an unusual environment in the otherwise very competitive banking business.
“It seems the general trend is for the market to fragment, to start covering new sectors, as happened with co-branded cards which do not compete against each other. There is no real competition between the different co-branded cards available on the market, as their individual performance relies on each client's lifestyle. The sole battle is over incomes, but people can use several co-branded cards if they can afford to, as opposed to traditional credit cards,” said Tarus.
Co-branded card programs might also start diversifying soon, as they can be formed in three different ways: through straight partnerships, self issuance or the conversion of a private label portfolio. Straight partnerships are the local norm. Future developments are thus yet to come on the co-branded card market. “Competition between banks will get fiercer and fiercer. The segmentation of the market is deepening at this point in time, specific categories of clients are defined and financial institutions aim to launch products with additional services,” said Mateescu, who pointed out that there are several other sectors on which banks should focus were they not stuck in the co-branded phase.
“I think the segment offering a quite poor selection is business cards. Romanian banks have platforms for standard or corporate business cards at their disposal and can use them to launch products. Services attached to business cards can go from programs allowing VAT recovery to services administering all operational expenses, the costs of various events or business travel. What financial institutions must do in addition is demonstrate to companies the importance of these cards and their direct advantages for their business,” said Mateescu.
Tarus pointed out the lack of exposure of even more basic types of credit cards. “At marketing level, the credit card segment that is the least promoted by financial institutions seems to be traditional credit cards, the standard offers. The most facilities are attached to premium credit cards for high-revenue clients, to co-branded cards or to the overdraft facility available on debit cards,” she said.
Aside from its heavy focus on the co-branded category, the local credit card market is developing quite rapidly from one year to the next, but continues to remain well under European Union standards. Romania is the European slacker as regards card payments, according to a European Central Bank study released at the end of last year. Merely 9.5 percent of total bank transfers in 2006 were made via plastic, compared to 35 percent in Italy and France. Only Hungary and the Czech Republic have smaller card transfer percentages, but still higher than Romania's: 11 percent and 14 percent respectively.
Still, things are looking up from one year to the next. “The local card market is moving in the right direction and the pace of growth accelerated with the accession to the EU, freedom of movement and expansion of the acceptance network. In the context of this trend, the segment of credit cards is growing,” said Cretu. He added that in 2006, the number of POS transactions increased by 88 percent compared to the previous year. “Since 2007 was the accession year, it is to be expected that the same strong rate of growth will be maintained,” he said.
The trend is natural as Romanians get more used to card payments and the mere act of owning a card as well. There were in excess of 10 million bank cards on the market at the end of 2007, corresponding to a 2:1 rate against Romania's 21.5-million population. Cards facilitated more than 42.7 million transactions last year, an average of four transactions per card each year, twice as much as in 2006, when the number of card payments was 21.5 million.
The volumes paid through cards have more than doubled in the past two years. In 2007, bank card transactions totaled RON 7.8 billion (EUR 2.1 billion), from RON 3.7 billion (EUR 997 million) in 2006, according to central bank stats. Weighed against the GDP, bank card transactions represented about 7 percent of the EUR 109 billion GDP at the end of 2007.
“It will take Romanians 15 to 20 years to catch up with the rest of the EU for credit card transaction volumes and penetration rate,” said analysts from the Alpha Bank card division. Romanian banks would have to issue almost 7 million credit cards and 5 million debit cards to come close to the European average, said Cretu.
Regionally, Romania is holding up well compared to credit card markets in countries such as Bulgaria, for instance. “The Bulgarian market is in a relatively limited development stage, but the transaction volume is growing from one year to the other. More than a million credit cards are issued every year, but the product is still viewed as too complex by the average user. The variety is immense, but the implementation of the latest technologies in the field is relatively limited right now,” said Tarus. She said the most popular transactions among Bulgarians were cash withdrawals, as in Romania.
Mateescu added that Romania is in a region with high growth rates on all segments. On the credit card segment the rates are similar to those in Bulgaria and Russia. But even bordering states are difficult to compare, given their various development stages.
“It is difficult to compare between the local market and markets in neighboring countries because we are dealing with different economic conditions. There are markets that started off with credit cards and only later moved onto debit cards. In Romania, banks first started issuing debit cards, then so-called salary cards. Only in the past two or three years can we say that we are dealing with a credit card outburst,” said Mateescu.

By Ana-Maria David