Review of Eastern Europe Card Payment Drivers
By most accounts, Eastern Europe has been one of the fastest growing regions in terms of card payment value and that trend is projected to continue as more people, institutions and governments encourage adoption. The reasons for such robust year-on-year growth in the region can partially be attributed to the historic dependence on cash throughout the region, especially in some of the largest markets. This is illustrated by looking at the low adoption rate of all cards in the region in the early 2000s, with total cards in circulation more than quadrupling (410%) from 2002 – 2012. However, one must also consider the push by governments, banks and private issuers to incentivize card use alongside Eastern European consumers’ willingness to adopt new forms of payment as a key driver for the growth of card payments in the region.
One of the overarching roadblocks in the region when it comes to consumer adoption of payment cards is a lack of access and infrastructure, both in terms of access to cards/payment systems as well as banking services in general. The erosion of this roadblock over time can be seen across the region, with much of the onus falling on the various governments that have taken some unique approaches to solving this problem. The Russian government has started to tackle the issue of access by integrating a national bank into the postal system, giving all Russians who have access to a post office access to banking services as well. In other countries where basic access to a bank is not such an issue but rather it is more about establishing the infrastructure needed to carry out card transactions, it is often more than simply mandating increased use of connected POS terminals. Examples of this can be seen in Poland, where the Polish Central Bank has been encouraging technological advancements like contactless payment systems to encourage consumers to use cards for a wider array of purchases. Hungary is another example where they are using prepaid cards to make many of their popular cultural and musical festivals “cashless”, which promotes transparency and helps get more consumers comfortable with using card payment systems. The results of these efforts can be seen in the increase in number of cards in circulation from 2011 – 2016, with Russia outpacing the rest of the region comfortably (58% increase) where Poland and Hungary are more modest (12% and 13%, respectively) but are still near the top in the region.
The other near ubiquitous trend in the region was the impact of legislation as banks and issuers attempt to move consumers from just debit/ATM usage to more complex vehicles like credit cards. In 2016, only 11.5% of cards in Eastern Europe were credit cards (as opposed to 70% debit) so there have been concerted efforts in the region to make card transactions more than just easier ways to access your cash. Banks have done this by offering incentives for existing checking/savings clients to open lines of credit and issuers have offered up lucrative rewards programs. However, legislation regulating the amount charged on interchange fees has slowed the movement towards credit cards as banks and issuers rethink their loyalty and reward programs to remain profitable. Regardless, the early results have been encouraging. Total retail value of transactions from credit cards nearly doubled (up 98%) from 2011 – 2016 with that level of growth only trailing debit cards (up 188%).
Despite some of the hurdles this region faces and the economic slowdown it is currently experiencing, there are many card payment indicators showing positive momentum and there is massive room for growth in the area. Despite all of the advances that have recently been made in the area of card payments, after removing ATM transaction value, only 15% of the total retail value of all transactions made in Eastern Europe in 2016 were card payments.