Playing their cards right

The evolution of the local card market can be split into two stages: up to and including 2008 and the year so far since January. Taking its development until last year, the picture was the same as for the whole financial services market: exuberant growth with increases of over 60 percent a year in the value of POS transactions. But since January, things have changed for the card industry, with the first quarter of 2009 being weaker that usual. “We clearly noticed a significant shrinkage in the average and total value traded by card and in the total volume of POS payments,” says Catalin Cretu, country manager for Romania at Visa Europe. Increased unemployment was responsible for the negative impact, affecting both the increase of the number of cards in circulation and the amount of money spent on them, due to the higher level of uncertainty. A smaller outlay – for basic products and services – and the reduced purchase of auxiliary goods are now market realities. Less foreign travel and therefore fewer international transactions by card both in Europe and Romania were another visible trend. But it’s not all doom and gloom. Cosmin Vladimirescu, account manager for Romania at MasterCard Europe, reports that in the last year the Romanian card market has been stable and even posted a small increase in the third quarter of 2009, with the total number of valid cards increasing by 0.9 percent on the end of the second quarter, according to National Bank of Romania (BNR) data. “This increase was both a quantitative and a qualitative one, including the volume of transactions,” says Vladimirescu. According to him, Romania has 0.6 bank cards per inhabitant, compared to 2.5-2.6 in Great Britain and the Nordic countries. “But we are optimistic, as long as products from any segment are available to people. Plus, we have the up-to-the minute and safest technologies, both chip and contactless, on the local market,” says Vladimirescu. 

A trump card in tough times
There was limited growth in the second half of the year, especially on the credit card segment, while consumer loans posted a significant decrease over last year. “One of the explanations is that financial institutions have bet on short-term lending, including credit cards, because they involve a lower risk,” says the account manager. He quotes data from Credit Bureau, which reveals that the number of credit files send to be verified by the institution was 515,000 in October 2008-September 2009 that means an increase of 100,000 files compared to October 2007 – September 2008. “As for the consumers, credit cards are one of the few sources of credit available in such a period,” points out Vladimirescu. He adds that now, more than ever, financial institutions have focused on getting to know their customers better, in order to be able to offer them the products that best meet their needs. “The focus has also been on services and additional benefits attached to payment instruments, which make the difference between products and keep customers loyal,” says Vladimirescu. Cash return (for each transaction made by card, the customer gets a percentage of the payment in return) and the payment rate system are some of the benefits that credit cards offer to their users. Cretu of Visa stresses that the debit card portfolio has held up better than other cards in the face of the current crisis. The reason is that Romanians are still worried about getting into debt in such a difficult period. “It is obvious that the debit card segment has also been hit by the crisis, because of higher unemployment. But although the average transaction value on debit cards has decreased, banks have succeeded in selling salary cards around the country,” says Cretu.On the local market, migration toward chip technologies and entering on new segments, such as prepaid cards, are among the main trends. Meanwhile, financial institutions have consolidated their position on the premium segment, extending their portfolios with new cards. MasterCard, along with APS and the Romanian Mail Company, this year launched the first prepaid card for payment for general use in Romania. It also premiered, working with UniCredit Tiriac Bank, the Gold Miles & More credit card and, with Credit Europe Bank, CardAvantaj MasterCard Platinum. Looking to the future, ING Bank Romania representatives say that the competition for market shares will lessen, with lenders staying focused on increasing their existing customers’ loyalty. They also think that cards will begin to be used more for different payments – and that the market will see the arrival of new banking and non-banking players with the right to issue and accept cards locally, according to the European Directive of Payments Services. 

Players lay their cards on the table
The small increase in the credit card market could be down to their advantages over consumer credit. They are available for any kind of shopping and don’t require approval from the bank every time they are used, only once at the beginning. Users can also take a grace period, during which no interest on payments made by card is incurred, and enjoy added-value services such as loyalty programs. “Plus, we should mention that the validity period for a credit card is about two years, as long as the user behaves responsibly. So a credit card can be used even if the owner lose his or her job, while there is no chance of getting consumer credit in times of crisis,” says Vladimirescu. Lenders act fast if the credit card is not used as intended or the owner fails to keep up with regular minimum payments. “If there are products that have not been used for a long time, lenders prefer to drop them, because it is cheaper than keeping them in the system. At the same time, they are monitoring the behavior of their customers more carefully,” says Cretu. He cites as examples unused POSs that have been relocated to other retailers that harness them better. The country manager says, “Our portfolio continues to post a very moderate increase in credit cards.” In his opinion, the impact of the downturn on credit cards is smaller that on loans, but this is influenced by the risk management policy adopted by each lender. “Financial institutions segmented their product portfolios more strictly, in order to be able to meet the needs of very clearly defined categories of consumers. They have also made efforts to offer added value to their customers through some additional services attached to bank cards,” says Vladimirescu. Such tactics are working for some. The cards portfolio of ING Bank Romania posted an increase of 29 percent in the last year, with the lender continuing its strategy of increasing both debit and credit cards. “We worked to increase the efficiency of all the components of card operations: we rebuilt our internal processes, making them simpler; we carefully selected our customers, in order to minimize the proportion of inactive cards; we stimulated inactive or rarely active customers and we proceeded to implement a detailed cost-control process on each segment of activity,” say ING representatives. Elsewhere, the strategy of UniCredit Tiriac Bank on the cards segment had many components, with the implementation of chip cards being one of them. “During 2009 UniCredit Group decided to harmonize its card design. We focused on increasing the number of credit cards and on diversifying our credit card portfolio by launching two new co-branded products. We also continued to make efforts to increase the activation and usage of these products,” say the lender’s representatives. They add that the main measures to boost the efficiency of card activity have been to cancel the cards and accounts that had had no activity for six months; cautiously increase the sale of credit cards and launch products for individuals and companies.

Cash still king
The main challenge on the local card market remains Romanians’ preference for cash. According to BNR data quoted by Cretu, 12-13 percent of the value traded by card is POS payments, while 87-88 percent is cash withdrawals. “Our battle is basically with cash. In fact, the 87 percent represents this industry’s growth potential. This is an opportunity that remains huge despite the current crisis,” adds Cretu. But Vladimirescu says that according to BNR data, the value of POS payments was 9 percent higher in the third quarter on the same period of last year. “It is true that the value of cash withdrawals is still high, but if we compare it with the value posted in the third quarter of last year, we see an increase of only two percent,” says Vladimirescu. One of the main problems for players in Romania is the low level of financial education regarding card use, and both Visa and MasterCard are currently working on campaigns to remedy this. Meanwhile, Visa is working on a project to extend card payments to public administrations in order to collect local taxes. Some 23 city halls from large cities around the country are now accepting card payments with four doing it online. On top of this, another eight smaller municipalities are accepting card payments, with two doing so online. “Furthermore, we are in discussions with insurance companies interested in collecting online payments for car insurance, in order to reduce their costs,” says Cretu. Despite its current travails, the market is still trying to innovate. Since November, inhabitants of Bucharest have been able to recharge their contactless public transport card in various ways: at BCR ATMs, over the internet and at the POSs installed in the RATB booths. A co-branded card is also set to be launched in the second half of 2010. BCR has installed 30 especially equipped ATMs in Bucharest which allow the recharge of the public transportation cards issued by the Autonomous State-Owned Transportation Company of Bucharest. “There are cities where you can use ATMs to recharge public transport cards and there are cities where you can do this at POSs. Bucharest is the first city to provide both these options,” said Gheorghe Aron, GM of the RATB.
anda.dragan@business-review.ro

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