Financial Cards and Payments Set to Increase in Eastern Europe

Though cash is the leading consumer payment instrument in all researched markets in Eastern Europe, across the region card payment transactions’ value recorded strong growth in 2016 as consumers increasingly used financial cards due to greater convenience achieved through wider merchant acceptance. Debit cards lead every market in Eastern Europe by card payment value. Debit is particular popular in Russia where the additional 23 million consumers became banked from 2011 to 2016. Despite a decline in the number of debit cards in circulation for the first time from 2015 to 2016, the card function maintained healthy payment value growth due to greater merchant acceptance; the total number of POS terminals has increased nearly three times since 2011.

The move away from cash transactions to card payments among consumers has been driven by several factors. First, the financial literacy of consumers has increased and there is more awareness as to the advantages of cashless payments. A rise in the banked population is, meanwhile, resulting in more consumers gaining access to financial cards and a marked shift towards card payments. Consumers are increasingly attracted by the convenience offered by card payments thanks to rising merchant acceptance, with leading banks pushing to expand their POS networks. One of the 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.

Expected performance over the forecast period is positive for mobile payments. Consumers will use their cards more often and therefore the spending per card is going to grow at a strong pace. The number of cards in circulation will grow very slowly, but their usage will continue rising. The first key driver will be implementation of mobile payments. Second will be the increase in the number of point-of-sale terminals, following the implementation of legislation mandating all entrepreneurs to register payments electronically. Banks are offering solutions that fulfil the law requirements and also accept the point-of-sale payments.

Many banks innovate to stay ahead of competition. Innovation is a strong word in financial cards and payments. Over the review period, the adoption of new technologies such as contactless payments increased at high rates. The average time spent on transactions decreased significantly from 40-50 seconds for traditional transactions that require a PIN code down to no more than 10 seconds for contactless payments. Using contactless technology, probably the most eye-catching innovation in 2016 was launched by Banca Transilvania. The contactless bracelet works just like a contactless card and it has the advantage of being used in certain situations such as during a music festival.

Smartphone adoption has contributed to the rapidly expanding m-commerce adoption throughout the region. Proximity mobile phone payments saw impressive current value growth in 2016 in Poland and the Czech Republic. Leading banks are keen to encourage both m-commerce and online banking, recognising that a surge in the number of consumers going online offers strong opportunities for growth at a lower cost than building a traditional branch network. Alior Sync was launched in 2012 in Poland as the markets first digital only bank. The success of this bank has made others provide online similar services. Across the region m-commerce growth rates are expected to moderate as the overall value has increased over the survey period. A strict tipping point in terms of adoption is not expected over the next five years but is likely just beyond. The Western most markets in the region are adopting EU payment standards that have increased competition among issuers and networks that has led to more innovative payment solutions. Additionally the utilization of customer payment data by m-commerce payment platforms offers a clear value proposition to merchants to accept their payment solution. The companies that are able to leverage this consumer data to merchants effectively will have the most success over the forecast period.

Over the forecast period, the unbanked population will continue to represent great potential for development across the region. The educational initiatives taken on the national level by banks and public institutions are expected to intensify to support the development of paper payment alternatives and consumer awareness. The safety of transactions and the fight against the black market represent great incentives for increased use of debit and credit cards. However, the infrastructure that is missing, especially in rural areas and small towns, will require significant investment that could prove challenging if economic growth in the region continues to moderate.