Romanian card market finds ace up its sleeve in crisis

Newsroom 14/11/2011 | 10:39

The economic crisis has in fact boosted the card payment industry and increased cards’ visibility among other banking products. With innovation leading the way, the industry is now at a crossroads, and is calibrating the way it will integrate new developments such as contactless technology, mobile phone payment and multi-retailer schemes into electronic payments.
 

Anda Sebesi

 

In the midst of the financial turmoil, the Romanian card market has developed well this year and seems to be avoiding the worst of the impact. In addition, Romanians have started to use their cards more, not only in their dealings with traditional retailers but also on the internet. Many retailers have realized the benefits of e-commerce and set up a virtual version of their offline stores. “Despite the current economic crisis, the local card market has been very active in 2011, both in terms of issuing and acceptance and the value and volume of transactions,” says Cosmin Vladimirescu, country manager for Romania and the Republic of Moldova at MasterCard Europe.

He adds that financial institutions have launched new card programs that have focused mainly on technological innovation and offering some facilities such as an extended grace period, the possibility to pay in installments, online access, discounts to more retailers and complex insurance packages. Plus, according to Vladimirescu, the number of POS reached 113,000 nationwide in the second half of the year, compared with 107,100 in 2010.

“Cards have proven to be the most resilient banking products during the crisis. In the last year, the number of valid cards in circulation varied between 12.5 and 13 million, slightly decreasing because of the poor evolution of credit cards. Demand for new debit cards stayed at a level that made up for the number of cards that had expired. Therefore, the number of debit cards in circulation has varied between 10.4 and 10.7 million units in the last two years,” says Catalin Cretu, country manager Romania at Visa Europe. According to him, the credit card portfolio dropped below 2 million units this year, for the first time in the last three years, down from a peak of 2.75 million in March 2009. “Nevertheless, the volume of purchases on credit cards increased, which shows that banks mostly cancelled inactive cards,” adds Cretu. According to Central Bank data, quoted by the country manager, the average value per transaction slid gradually, which shows an increased tendency to use the card for daily shopping, while the use of cards at retailers’ outlets has also risen significantly. “The number and value of payment transactions by card have both increased by over 20 percent each in the last year,” he says.

Asked about the development of the local card market, the Visa country manager says that in many respects, local credit and debit products are more sophisticated than those in Central and Eastern Europe. “It is our reluctance to use a card to make purchases in store that puts us behind our neighbors. But I believe we are catching up fast and the new technologies and innovative products we are introducing will support the fast pace of our card industry,” he says. Like many other countries from the HGEM region (High Growth European Markets), Romania is mainly a debit card market and one that has not reached its growth potential. “By level of development we are slightly behind Serbia but we are ahead of Bulgaria and the Republic of Moldova. We rank alongside countries that have a tradition in using cards: we have loyalty platforms and PayPass technology, even cards with display. As for chip cards we are ahead of many Western countries. But we need to work to the level of dissemination of these technologies. For example, more points of acceptance of PayPass cards will allow users that have such a card to fully benefit from its advantages – easier and quicker transactions,” adds Vladimirescu.

Specialists say that the current economic downturn has not hit the local card market hard compared with other fields of activity that have felt its negative effects more keenly. Subsequently, lenders decided to reevaluate their portfolios of credit cards two years ago in order to write off inactive cards. “At the same time, banks used this period and segmented their portfolios, launching different cards depending on the different needs of their customers,” says the representative of MasterCard Europe.

Certainly one of the most important lessons that Romanians have learned during the crisis was to take more control of their personal finances and to ask themselves what they really wanted from a specific financial product and how could it help them. “Romanians realized that a card can be a very useful tool to plan the management of their budgets,” says Vladimirescu. Asked to what extent the current downturn has affected the local card market, Cretu of Visa Europe says that the crisis was to some extent characterized by an improvement in the card industry’s performance and greater visibility for the product among other banking instruments. “Volumes have continued to increase even on the credit card portfolio, which was strongly affected by the crisis, because the general public understood that cards offer significant benefits that cash does not. The main players on the card market have realized the very big potential of these banking products and have started to invest more, to stimulate the use of cards, including educational and information campaigns,” says the country manager. Visa, along with its member banks, has invested EUR 1 million over the past two years in its communication strategy alone, and the firm plans to maintain the same level of investment in public education campaigns aimed at boosting payments by card.

Romanians begin greeting cards

The economic turbulence has brought about a change in Romanians’ mentality when it comes to managing their financial resources, and people have started to choose banking products only after in-depth research into their benefits and risks. This has made products designed to meet some well determined needs the most popular. “A significant change is that
Romanians have started to look for those cards than combine their role of making payments with new benefits,” says Vladimirescu. So customers prefer cards that have a loyalty program attached, offer discounts at retailers or payment by installments, extended period grace or new technologies attached, meant to ease transactions.

“The crisis has repositioned the customer at the center of the business. We are talking about a customer who gets well informed, who has opinions and who shares them with other potential customers, who appreciates and is willing to pay for the value of a product and who has a very large range of options. The total amount of money spent on cards has stagnated,
but Romanians have increasingly moved away from withdrawing money from ATMs to paying by card directly at the merchant. Over 1 in 3 transactions with a card is
now made at a merchant,” reveals Cretu of Visa.

Trump cards

According to Vladimirescu, cards incorporating contactless technology have been popular with customers and a source of growth this year. For example, the number of contactless cards issued by BRD Groupe Societe Generale had exceeded 30,000 by September 1. “In addition, the number of merchants that accept contactless cards has increased since the beginning of 2011, covering significant areas of the market not only in Bucharest but also in the rest of the country,” says Vladimirescu. BRD debuted the contactless concept on the local market at national level last year and has over 1,300 contactless acceptance points so far. The PayPass contactless card can be used in a range of popular outlets such as Carrefour, Inmedio, Pizza Hut, KFC, Mic.ro, Ikea, Metrorex, RATB and many other transportation companies across Romania.

According to Cretu, credit and business cards have ranked as the most dynamic products on the cards market in terms of volume growth this year. “Also, I can certainly say that 2011 is dominated by the launch of contactless technology. The main effect of this is the fact that it gets people to use their cards daily for small payments, under RON 100. Interest in these products is high, although banks that have launched them have just started to promote them, and this means that Romanians are very interested in finding new ways to make their daily life easier and to save time,” says Cretu.

Co-branded and affinity cards have also done well this year. “The main condition for affinity cards to have success is to target the public they address adeptly and to promote causes they strike a chord with. Meanwhile, co-branded ones need to offer attractive benefits such as discounts, bonuses and special offers,” says Vladimirescu. For example, Raiffeisen Bank completed its card portfolio by launching two co-branded debit cards in the first half of this year: one with FC Steaua and the other with the For SMURD Foundation (Fundatia pentru SMURD), in support of the emergency services. “We will continue to launch co-branded cards in partnership with organizations from different fields – social, educational, sports, the environment, arts and culture – because we are a responsible bank with direct involvement in the community where we are active,” said Magda Sandulescu, director of the management of the passives division at Raiffeisen Bank, earlier this year.

Last but not least, the premium cards segment has grown. “We had launches mainly in the debit card area because the market needed some premium debit cards. Financial institutions identified this need and took action. Through these instruments they address a segment of customers that had not been covered previously: high earners, interested only in the premium benefits and not by the credit line,” says Vladimirescu. For example, BCR’s Gold cards are four times as popular as its standard ones. “Customers who use a Gold card have greater expectations. That’s why we studied their shopping behavior carefully and offer them appropriate benefits: discounts in clothes and accessories stores and on travel insurance,” said Ahu Atay, executive director of the card division at BCR, earlier this year. The lender’s representatives also revealed that BCR intends to increase its volume of transactions at merchants by 20 percent. In order to achieve its goal, the bank launched in January a marketing campaign giving customers five times as many loyalty points as usual when they use their cards at a merchant.

anda.sebesi@business-review.ro

BR Magazine | Latest Issue

Download PDF: Business Review Magazine March (II) 2024 Issue

The March (II) 2024 issue of Business Review Magazine is now available in digital format, featuring the main cover story titled “BAT DBS Romania Hub: A Vibrant New Office For An Employee-Centric
Newsroom | 27/03/2024 | 17:32
Advertisement Advertisement
Close ×

We use cookies for keeping our website reliable and secure, personalising content and ads, providing social media features and to analyse how our website is used.

Accept & continue