CROSSING THE BARRIERS€¦ · growth since 2014, supported by a decline in oil prices, increased investment activity, and government policy to encourage exports and domestic demand

COUNTRY SNAPSHOTS FEATURE INSIGHTThe card payment scenes in Argentina, Mexico and the

Czech Republic

Cards launch the fightback against cash in the Middle

East and Africa

New regulation to tackle consumer affordability and

persistent debt

CROSSING THE BARRIERS

AUSTRALIA’S NEW PUSH FOR REAL-TIME PAYMENTS AND OPEN BANKING

Issue 546 / AUGUST 2017w w w. c a r d s i n t e r n at i o n a l . c o m

CI August 546.indd 1 31/08/2017 17:49:08

2 | August 2017 | Cards International

contents

NEWS

05 / EDITOR’S LETTER06 / DIGEST• HDFC Bank launches prepaid card

for students travelling abroad• Mobile contactless spending surges• UK’s eMerchantPay receives licence• DPO completes acquisition• VTB Bank, Mastercard to issue new

contactless card in Armenia• Wirecard extends support for Singtel• ICICI Bank debuts instant credit card• US debit card fraud loss rates fall

28% in 2016 after EMV launch• Commonwealth Bank to refund $8m• UnionPay partners with VTB24• Central Payment, CardFlight to

provide SwipeSimple mPOS• Worldpay sold to Vantiv for $10.4bn• Australian credit card fraud up 78%10

this month

Editor: Douglas Blakey+44 (0)20 7406 6523

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REAL-TIME PAYMENTS AND OPEN BANKING IN AUSTRALIA

COVER STORY

follow CI on twitter@Payments_News

06

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www.cardsinternational.com | 3

contents

13

august 2017

FEATURE

10 / AUSTRALIAAustralia is characterised by high contactless card usage, debit card dominance over credit cards, and stringent regulatory control. Robin Arnfield reports on the main trends and two key programmes: the real-time New Payments Platform, and the open banking initiative

13 / THE MIDDLE EAST AND AFRICACash dominates the consumer payments market across large chunks of the Middle East and Africa. However, cards are starting their fightback. Patrick Brusnahan looks into Saudi Arabia, Nigeria, Israel and Egypt with the help of GlobalData’s research

s to talk about cracking China, disrupting SWIFT, and leveraging WeChaCOUNTRY SNAPSHOTS

16 / ARGENTINACash remains the predominant payment instrument in Argentina, mainly for day-to-day and low-value transactions. Overall, cash accounted for 78.5% of the total payment transaction volume in 2016

18 / MEXICOCash remains the preferred form of consumer payment, especially among the rural population, primarily as a result of limited knowledge of payment cards or poor access to banking infrastructure

20 / THE CZECH REPUBLICThe Czech economy has registered robust growth since 2014, supported by a decline in oil prices, increased investment activity, and government policy to encourage exports and domestic demand

16

ANALYSIS

22 / PERSISTENT DEBTIn light of the FCA’s latest plan for the cards industry, Callcredit Information Group’s Eamonn Tierney looks at how organisations can be better prepared to deal with ever-changing requirements to support customers

18

CI August 546.indd 3 31/08/2017 17:49:30

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editor’s letter

CardS sector in rude health

Get in touch with the editor at: [email protected]

Douglas Blakey, Editor

Rarely a day seems to go by when I am told by someone that cards are old hat, dull, dated and under threat.

Apple Pay this, real-time payments that, cross-border payment facilities will represent a huge challenge to the card schemes. But enough about my teammate who edits sister publication Electronic Payments International.

Yes, PSD2 – to be implemented from January 2018 – will provide new entrants and non-payments participants with access to the SEPA Instant Credit Transfer scheme, potentially leading to the creation of new payments products and services that could threaten card schemes.

Given that SCT Inst will create a potentially pan-European, fast bank-to-bank payment network, it has the capacity to disrupt the role of payment cards in both domestic and cross-border payments. The scheme represents a new set of ‘rails’ on which payments can be made, facilitating the development of innovative products that can compete with cards both online and in-store. If such services are cheaper to use and accept than cards, card schemes could, in theory, find themselves cut out of the European payments value chain.

The notion that Visa and Mastercard are under threat is where I have an issue. Some 85% of all transactions globally – the figure remains a whopping 40% in a mature market such as the US – are made using cash. The idea that Bitcoin – however trendy and overpriced it may continue to trade – is an alternative is bunkum. One of the more amusing recent after-work trips I recall was a trip to hip Shoreditch with a fellow editor – I decline to name and shame – and watching him try to buy a round of drinks using Bitcoin.

On the other hand, Visa and Mastercard are masters at driving cash displacement. In quarter three, Visa again beat market forecasts with a strong set of results.

In particular, it reported strong growth in key international markets such as India, Russia, Mexico and Australia. Latest quarter earnings from Mastercard were also way ahead of analyst forecasts with earnings per share up 24% against the same quarter last year.

Visa’s prospects in India alone are hugely exciting. The Indian government is committed to cash displacement. Little over one-third of Indians hold a credit card, and with more and more Indians travelling internationally, Visa is in a great place for future growth in the region.

In Asia-Pacific, the upcoming combined Cards International/Electronic Payments International CEPI Awards and Summit on 7 September in Singapore, brings home the extent of innovation in products and services in the cards sector. A record number of submissions have been received for the awards – full details of the winners in the September issue of Cards International.

To name but a few – and in no particular order and without breaking embargoes – Citi, DBS, Maybank, ANZ, Standard Chartered, RCBC, Kasikorn Bank, Taishin Bank, Siam Commercial and CTBC are all very strong runners in the awards stakes. A very grateful thanks to all the participating banks.

Back in the UK, the latest figures show that card spending is rising at the fastest rate since 2008. The number of card transactions increased by 12.3% over the year to the end of June. Credit and charge card spending rose by 9.3% in the year to June, with debit card transactions ahead by 13.2%.

The one potential negative: Outstanding credit card debt rose to £68.5bn at the end of June, up almost £1bn from the end of the first quarter.

Not so long ago I seem to recall being told by younger teammates how Apple Pay was going to revolutionise the market in China, among other places; they seem to have at least gone quiet on that argument. <

CI August 546.indd 5 31/08/2017 17:49:32

news digestHDFC Bank launches prepaid card for students travelling abroad

India-based private sector lender HDFC Bank has launched a new co-branded prepaid card for students travelling abroad for studies or leisure.

The new HDFC Bank ISIC (International Student Identity Card) Student ForexPlus prepaid card will also serve as a valid global student ID. ISIC cards are the only internationally recognised and accepted

identity cards for students. They are endorsed by UNESCO and offer benefits in over 125 countries at more than 150,000 locations.

The new card enables students to make convenient and secure payments during studies abroad. Users can load US dollars, sterling or euros onto the card as required. It can also be used to withdraw money from ATMs.

ISIC has partnered with various merchants and institutions to offer exclusive deals and offers to cardholders.Benefits include protection against foreign exchange fluctuation and complimentary enhanced air accident insurance of INR2.5m ($39,000).

HDFC Bank’s country head for card payment products, merchant acquiring services and marketing, Parag Rao, said: “At HDFC Bank, enhancing customer convenience lies at the heart of all our new initiatives. We are delighted to offer our co-branded HDFC Bank ISIC Student ForexPlus Card to students travelling abroad for studies.

“The prepaid card meets their evolving needs and gives them great value in the form of wider acceptance, discounts, and convenience of card payments.

“We are confident that our co-branded ForexPlus Card will be a valuable addition to our growing portfolio of products.” <

UK’s eMerchantPay receives licenceUK-based payments service provider eMerchantPay has received an e-money licence from the Financial Conduct Authority.

The company, which already offers a number of online, mobile and POS payment services to e-commerce businesses, will now also be able to issue payouts, e-wallets and prepaid cards.

eMerchantPay has also joined the Prepaid International Forum (PIF), a UK-

based trade association that advocates globally for the prepaid industry.

eMerchantPay CEO Jonas Reynisson said: “The EMI license allows for the opportunity to develop new payments capabilities for our merchants, who in turn will benefit from additional revenue streams. We continue to invest in our payments technology and look forward to working closely with PIF, providing a unified voice for the prepaid sector.” <


News | Digest

Mobile contactless spending surges in UK

Mobile tap-and-pay spending has recorded substantial growth in the UK, driven by the growing popularity of contactless payments at the POS, according to new transaction data from payments processor Worldpay.

Mobile contactless transactions topped £370m ($476m) in the first six months of 2017, a 336% year-on-year rise in spending.

After the launch of Apple Pay in 2015, use of mobile devices to make in-store payments has grown steadily. The tap-and-pay trend was further fuelled by the launch of Android Pay in 2016 and Samsung Pay in 2017.

According to the report, spending on all forms of contactless systems now accounts for 38% of all non-cash transactions in the UK.

Total contactless spend in 2017 reached £9bn up to June, compared to £10bn throughout the whole of 2016.

Supermarkets and grocery stores continue to dominate the mobile tap-and-pay market, accounting for 55% of the total spend so far in 2017.

Londoners still spend the most on their mobiles; however, the proportion of transactions concentrated around the capital has reduced from 32% at the end of 2016, to 28% in 2017, as adoption becomes more widespread across the UK.

Worldpay’s CMO for the UK, James Frost, said: “Mobile spending has shaken off the novelty tag, and is breaking its own spending records virtually every month.

“Granted there is still some way to go before we start cutting up our cards and chucking away our wallets, but it is easy to see why everyone from startups to tech giants is eager to have a stake in the technology.” <

CI August 546.indd 6 31/08/2017 17:49:35

News | digest

VTB Bank, Mastercard to issue new contactless card in ArmeniaVTB Bank (Armenia) has launched Mastercard PayPass contactless payment cards in Armenia.

Card members can tap contactless cards on POS terminals equipped with contactless technology to complete a transaction. One-touch payments can also be made instantly at the POS-terminal without entering a PIN for payments less than AMD10.

The card does not need to be given to the cashier to pay for a purchase, as

the cardholder completely controls the payment process, which helps to protect card data and prevent the risk of possible fraud. Mastercard PayPass contactless payment cards will be accepted at all stores and at service points where the PayPass logo is displayed.

In a statement, VTB Bank commented: “The unique technology of PayPass is one of the most modern, fast, affordable and reliable ways of making card payments around the world.” <

Direct Pay Online wraps up acquisition of Virtual Card Services South AfricaDirect Pay Online Group (DPO), a provider of e-commerce and online shopping services, has concluded its acquisition of Virtual Card Services (VCS) South Africa.

The latest transaction marks the completion of DPO’s acquisition of VCS Group. DPO has already acquired VCS Namibia and VCS Botswana. DPO believes the acquisition will also strengthen its presence in South Africa, following its acquisitions of PayThru and PayGate. DPO also plans to merge VCS and PayThru with PayGate to establish a leading payments service provider in South Africa.

Established in 1996, VCS has over 20 years’ experience in developing and implementing

credit, debit and smart card processing systems for major card issuers in South Africa.

DPO group CEO Eran Feinstein said: “We are excited to finally have VCS South Africa on board. By merging VCS and PayThru South Africa with PayGate, we will be able to position ourselves as the largest PSP in Africa serving over 20,000 merchants.

“With every acquisition we make, our merchants across the continent benefit by receiving an unparalleled offering of services and geographical exposure.

“I believe we are well on our way to providing one payment solution across Africa,” Feinstein added. <


ICICI Bank debuts instant credit card

Indian private sector lender ICICI Bank has launched an instant credit card service, allowing the bank’s savings account customers to receive credit cards instantly.

The new service will enable customers to receive credit card numbers and other required details online, through which they can shop online without having to wait for the physical card to arrive. Based on pre-checked bureau scores, customers can access a card with a credit limit of up to INR400,000 ($6,254).

An additional level of authentication has been included to make the offering secure, and customers receive physical credit cards within a few working days. Customers can currently use the facility through the bank’s internet banking platform. It will be made available on the bank’s mobile banking app, iMobile, at a later date.

ICICI Bank executive director Anup Bagchi said: “At ICICI Bank, our philosophy is ‘ready for you, ready for tomorrow’.

“We are committed to offering innovative products and services to our customers at the fastest possible speed and with the highest level of convenience. The introduction of instant credit cards is an outcome of this vision.

“With the festive season just around the corner, there will be many interesting offers with online partners in various categories like shopping, travel and entertainment, among others.

“We believe that this unique proposition – which is first of its kind in the industry – will empower our customers to instantly get the credit card online in a few steps and immediately start transacting on e-commerce sites to take advantage of the offers,” Bagchi added. <

Wirecard extends support for Singtel launch in SingaporeGerman payment technology company Wirecard has teamed up with Singtel to support the recent launch of Singapore’s first Visa-branded virtual card for Singtel’s mobile wallet, Dash.

Promoted as Singapore’s most widely accepted all-in-one digital wallet, Singtel Dash allows customers to shop, pay transport fares and remit money using a smartphone.

Following the launch of the Visa virtual account in July this year, Singtel Dash’s over 500,000 customers have been using mobile phones to make payments at over 50,000 PayWave-enabled merchants across Singapore, and at Singapore-based e-commerce stores.

Wirecard executive vice-president of global financial services Grigoriy Kuznetsov said: “Singtel can now process mobile virtual Visa payments with Wirecard as a Bank Identification Number [BIN] sponsor. This further reinforces our position as a leading global prepaid issuer and BIN sponsor. It also demonstrates our state-of-the-art card processing capabilities.”

Singtel’s head of Singapore consumer m-commerce, Gilbert Chuah, commented: “Singtel Dash has gained more traction as a payment option of choice.

“With the adoption of Wirecard’s card processing solution, our customers can now make hassle-free mobile virtual Visa payments.” <

CI August 546.indd 7 31/08/2017 17:49:39

News | Digest

US debit card fraud loss rates fall 28% in 2016 after EMV launch

US debit card fraud loss rates have declined by about 28% in 2016 compared to 2015 levels, according to a report issued by debit/ATM network operator Pulse.

The 2017 Debit Issuer Study report stated that after the fraud liability shift for most debit transactions took effect in 2015, an estimated 80% of US debit cards have migrated to chip cards.

However, despite the growing adoption of EMV standards, fraud continues to challenge debit card issuers, with US financial institutions losing an estimated $900m to debit card fraud in 2016.

The study also revealed that enrolment of debit cards onto Apple Pay increased by

80% in 2016. Three out of four issuers now support debit cards being loaded onto at least one mobile wallet.

Despite this growth, use of debit cards in mobile wallets remains low. Apple Pay, Android Pay and Samsung Pay combined only account for around a quarter of 1% of US debit transactions.

The total number of debit transactions continued to increase, rising by an average of 7% year on year in 2016 for the issuers in the study.

The number of debit transactions per active consumer card reached a record high of 23.6 transactions per month, which marks a 6% increase over the results reported in the 2016 study.

Pulse’s vice-president of fraud and risk management, Jim Lerdal, said: “The financial services industry has taken a number of measures that likely impacted the reduction in fraud losses for debit card issuers.

“Among them are the conversions to chip debit cards, greater use of tokenisation in mobile commerce, and continued investment in fraud-mitigation solutions.

“The more financial institutions tighten fraud-tolerance limits, the more they risk negatively impacting the cardholder experience. It is a balancing act because declining potentially fraudulent transactions could lead to ‘false positive’ fraud identification, which can frustrate account holders and potentially drive them to other methods of payment.” <

Commonwealth Bank to refund $8m

Commonwealth Bank has been ordered by the Australian Securities and Investments Commission (ASIC) to reimburse around A$10m ($7.87m) to more than 65,000 customers after selling them unsuitable consumer credit insurance (CCI).

CCI is a type of add-on insurance offered to borrowers who take out credit cards and personal, home and car loans. In the event of sickness, injury or involuntarily unemployment, repayments are fulfilled through CCI.

During its investigation, ASIC found that CommBank sold CreditCard Plus, insurance for credit card repayments to 65,000 customers such as students and the unemployed, who were unlikely to meet the employment criteria and would therefore be unable to claim the insurance.

The regulator said customers were often unaware that they had signed up and paid for the cover, which could be included in the fine print of loan documentation.

The Australian bank has also agreed to repay nearly A$586,000 in premiums to around 10,000 customers after overinsuring them for Home Loan Protection CCI taken out with a Commonwealth Bank home loan, resulting in the overcharging of premiums.

ASIC deputy chair Peter Kell said it was unacceptable that customers were sold insurance that did not meet their needs.

“One of ASIC’s priorities is addressing poor consumer outcomes associated with add-on insurance, including CCI. Consumers should not be sold products that provide little or no benefit, and banks should have processes in place that ensure this,” Kell commented.

CommBank will contact applicable CreditCard Plus customers who were sold the product between 2011 and 2015, who were either unemployed or students. <

UnionPay partners with VTB24 to boost card acceptance in RussiaUnionPay International, a wholly owned subsidiary of China UnionPay, has extended its co-operation with Russia-based bank VTB24 to enable 120,000 POS terminals in the country to accept UnionPay cards.

Most of VTB24’s POS terminals will also support mobile QuickPass, UnionPay’s new mobile payment technology that allows users to transact using a smartphone. The bank has already enabled all its ATMs to accept UnionPay cards.

With the latest collaboration, the top four banks in Russia now accept UnionPay cards.

UnionPay payments will also be available at over 80% of local merchants and ATMs in Russia by the end of 2017.

According to UnionPay, the latest collaboration will provide Chinese tourists with convenient payment service, while encouraging more local residents to sign up for and use UnionPay cards.

UnionPay cards can be used online and offline. Over 500,000 POS terminals and 90,000 ATMs accept UnionPay cards, and some merchants also support mobile QuickPass in Russia. <


CI August 546.indd 8 31/08/2017 17:49:43


News | digest

Central Payment, CardFlight to provide SwipeSimple mobile POS to merchantsMobile POS (mPOS) technology provider CardFlight and merchant service provider Central Payment (CPay) have entered into a partnership through which CPay will offer CardFlight’s SwipeSimple mPOS solution to merchants.

The new mPOS solution will allow merchants to accept EMV chip card payments from mobile devices.

The SwipeSimple solution includes an EMV chip card reader, mobile app for iOS and Android, and a back-office web dashboard for merchants to accept payments and manage their business.

With the new solution, merchants can manage inventories in real time through SwipeSimple’s cloud-based inventory and item-tracking facility. They can also adjust tip and tax levels through an easy-to-use tip and tax option interface.

Merchants will also have access to smart analytics, with SwipeSimple’s comprehensive reporting enabling merchants to make better decisions.

CPay vice-president of operations Tommy Chang said: “Providing our merchants with a secure, advanced, EMV-enabled mobile payments solution is key to helping them run their business successfully.

“CardFlight has proven themselves as a leader in the mobile POS space, and we are excited to offer SwipeSimple to our merchants and partners.”

CPay is an affiliate and part of a joint venture with TSYS, a provider of secure and payment solutions with operations in over 80 countries, including local offices in the Americas, Europe, the Middle East, Africa and Asia-Pacific. <

Worldpay sold to Vantiv for $10.4bn

US payment processing business Vantiv has struck a deal to acquire UK rival Worldpay in a deal worth £8bn ($10.4bn).

Vantiv will pay £3.97 for each share in Worldpay, representing a premium of around 22.7% on Worldpay’s closing price per share of £3.20 on 3 July 2017.

On completion of the deal, Vantiv shareholders will own 57% of the combined entity, while Worldpay shareholders will own the remaining 43%. The combined entity will have a pro forma enterprise value of approximately £22.2bn.

RBS sold off Worldpay as part of its bailout conditions in 2010, retaining a 20% stake; the remaining 20% was sold in 2013.

In a statement, Worldpay said: “The boards of Worldpay and Vantiv see compelling strategic, commercial and financial rationale for combining Worldpay and Vantiv’s complementary businesses.

“The potential merger creates a scale world-class payments group in a dynamic market, with deep payments capabilities, product and vertical expertise and strong distribution channels to serve merchants around the world in the global e-commerce market, and in-store and online in the UK and US markets,” the statement added.

The two companies have decided to maintain the group’s headquarters in Cincinnati, but will run its international operations from London.

Vantiv chief Charles Drucker will become executive chair and co-CEO of the new company, while Worldpay boss Philip Jansen will report to Drucker and act as co-CEO. Stephanie Ferris will be CFO.

The new entity will process nearly $1.5trn in payments and 40bn transactions through more than 300 payment methods in 146 countries and 126 currencies. <

Australian online credit card fraud up 78% in 2016Card-not-present fraud rose to A$417.6m ($330.8m), accounting for 78% of total card fraud in 2016, according to a report published by industry body the Australian Payments Network.

With increased transition to online platforms, online payment fraud has more than doubled in the country in the past six years. In 2016, Australians transacted a record A$714.5bn on cards, of which fraud accounted for A$534m, representing 0.074% of the total. The report highlights that card and cheque fraud was under 0.03% of the A$1.86trn total transacted.

According to the 2016 Australian Payments Fraud Data Report, there was a 13% increase in card-skimming fraud from A$22.9m in 2015 to A$25.8m in 2016. Many of these fraudulent transactions were executed through ‘ghost terminals’, which are false terminals made to look like real card readers but are not connected to the payments network.

For every A$1,000 spent on credit cards, fraud accounted for A$0.747, up from A$0.669 in 2015 and A$0.438 in 2012.

The report predicts that only one-fifth of transactions will involve the input of card details through internet browsers by 2020, as a result of the growth of mobile wallets and increasing sophistication of online shopping carts.

Australian Payments Network CEO Leila Fourie said: “Card-not-present fraud continues to grow as perpetrators follow increased payments activity online.

“Australia compares favourably to the UK and US when it comes to fraud rates – and the industry is continuing its efforts to provide fraud-prevention strategies that adapt to changing payments trends.

“Australia is well advanced in fraud prevention technology, thanks to the industry’s leading investment in EMV chips, tokenisation and online customer authentication tools,” Fourie continued.

“Over the next year our focus is to continue to educate businesses about online fraud prevention and support the roll-out of risk-based customer authentication, including investigations into how biometrics, geolocation and social media enable this.” <

CI August 546.indd 9 31/08/2017 17:49:46


Feature | AUSTRALIA

The Australian credit card industry is dominated by the country’s four largest banks: ANZ,

Commonwealth Bank of Australia (CBA), Westpac, and National and Australia Bank (NAB).

In November 2016, Citi became a major player when it acquired Australian retailer Coles Group’s Mastercard-branded credit card portfolio, which had receivables in the region of A$880m ($694m).

Due to downward pressure on interchange by the Reserve Bank of Australia (RBA), high debit card usage and relatively low credit card balances, the Australian credit card market has not grown as rapidly as in other countries.

MORTGAGES A PRIORITY“The big banks have been concentrating on the mortgage market rather than the credit card market,” Grant Halverson, CEO of Australian payments consultancy McLean Roche, tells CI.

“The average Australian credit card balance is just over A$1,000, which puts Australia on a par with Malaysia and the Philippines, while the average UK balance is A$6,200 and the average US balance is A$9,300.”

While Australian credit card receivables totalled A$32bn in December 2016, Halverson says, citing RBA data, home

lending totalled A$1.5trn.“So that’s where the banks are focusing

their efforts and ignoring credit cards and unsecured lending,” he notes. “Debit is growing at 9.2% a year in Australia, which is three times the year-on-year rate of credit card sales growth.”

In 2016, Australian credit card purchases, excluding cash advances, rose by 3% year on year to A$302.7bn, while total credit card transactions excluding cash advances rose by 9% to 2.5bn, according to the RBA.

Debit card purchases rose from A$228bn in 2015 to A$249bn in 2016, while debit card transactions increased by 13.8% to 4.84bn.

Credit card balances incurring interest declined by 3% from A$32.9bn in December 2015 to A$31.9bn in December 2016, continuing the trend of consumers not revolving.

“The revolve rate is now 60%, an all-time low which has serious implications for portfolio profitably,” Halverson says. “The trend of consumers using credit cards to purchase items and not ‘revolve’ also signals the growth of lower-value contactless payments, which have an A$100 limit, with the average transaction declining to A$121.”

The Australian credit card market is showing little growth and a lack of genuine competition outside the four banks, which dominate the bank issuers, Halverson notes.

“The RBA’s ‘reforms’ of the credit card market have not encouraged new competition or new entrants,” he argues.

PAYMENTS SURVEYIn 2017, the RBA released the results of its triennial survey on payments methods by Australian consumers. Its report, How Australians Pay: Evidence from the 2016 Consumer Payments Survey, said Australians’ enthusiasm for contactless payments helped card payments to overtake cash payments in Australia for the first time in 2016.

Cards were the most frequently used means of payment in the 2016 survey, accounting for 52% of total transactions (30% debit and 22% credit/charge cards), compared to 37% for cash. In 2013, cash was used in 47% of payments, compared to 43% for cards (24% debit and 19% credit/charge cards).

“The increased use of cards for lower-value payments since 2013 has been facilitated by the adoption of contactless ‘tap and go’ functionality by consumers and merchants at the point of sale,” the RBA report says.

“Around one-third of all point-of-sale transactions were conducted using contactless cards in 2016, which is three-and-a-half times the share reported by the participants in the 2013 survey.

“As a share of card payments only, nearly

playing catch-up in real-time payments and open bankingAustralia’s cards market is characterised by high contactless card usage, debit card dominance over credit cards, and stringent regulatory controls by the Central Bank. Robin Arnfield reports on the main trends and two key payments industry programmes: the country’s real-time New Payments Platform, and its open banking initiative

$

CI August 546.indd 10 31/08/2017 17:49:50


Feature | AUSTRALIA

two-thirds of all point-of-sale payments were contactless in 2016.”

CI understands that over two-thirds of POS payments at the major supermarket chains are now contactless, and that mobile POS payments are still very small. Because of Apple’s control of its app store, proprietary bank-owned mobile wallets are only available on the Android platform.

“Apple Pay has been unsuccessful in Australia in terms of payments volumes, and Android Pay has also failed to gain adoption,” says Halverson. “What has killed the mobile wallets is the continuing popularity of contactless card payments in Australia. Every age group has got used to contactless, which is so well entrenched that mobile will find it very difficult to get any traction.”

ANZ and Amex are currently the only major issuers to offer Apple Pay in Australia. The other big banks have refused to pay the additional fee required by Apple to accept Apple Pay transactions, on the grounds that interchange is so low in Australia, Halverson explains.

Cuscal, a payments processor for smaller Australian financial institutions (FIs), signed an agreement to accept Apple Pay in 2016 on behalf of 31 of its members.

In March 2017, the Australian Competition and Consumer Commission (ACCC) refused an application by CBA, NAB, Westpac, and Bendigo and Adelaide Bank for the right to collectively bargain with Apple over adding their proprietary digital wallets to iPhones and collectively to boycott Apple Pay.

These banks had argued to the ACCC that Apple had prevented them from developing their own integrated digital wallets for iPhones, which was anti-competitive.

2003 CARDS REFORMSIn 2003, the RBA sent shockwaves around the global credit card industry by cutting Visa and Mastercard credit card interchange rates from a weighted average of 0.94% to 0.50%.

One of the most significant effects of the cut was the reduced use of rewards credit cards by Australians, due to ensuing higher rewards membership fees, as well as increased use of debit cards.

The RBA removed the ‘no surcharge’ rule established by Visa and Mastercard, and eliminated card scheme rules banning merchants from steering customers to lower-cost card transactions.

It introduced a cap on Visa debit interchange and on EFTPOS – Australia’s

domestic debit scheme – debit interchange, and removed Visa’s ‘honour all cards’ rule.

Mastercard voluntarily agreed to remove its ‘honour all cards’ rule and to accept the same cap on debit interchange as Visa. Amex and Diners voluntarily agreed to accept the RBA’s ban on no-steering rules.

For Visa and Mastercard debit cards, the RBA set the cap on interchange at A$0.12 per transaction. For EFTPOS bilateral interchange, the cap was set at A$0.05 per purchase-only transaction, and for multilateral interchange at A$0.12.

REVIEWIn May 2016, the RBA published its review of its payment card regulations and introduced new rules. These latest regulatory reforms are evolutionary in comparison with the RBA’s revolutionary regulations in 2003.

From September 2016, for large merchants and from September 2017 for other merchants, surcharges are restricted to the average percentage cost of acceptance in a surcharging merchant’s annual statement for that card type. The rule is enforceable by the ACCC.

CI understands that only 3% of Australian merchants – typically those receiving large numbers of platinum and corporate card transactions – have opted to surcharge and that surcharging merchants have fallen in line voluntarily with the new regulations. The airlines, for example, have now moved from a fixed dollar surcharge to a charge of 1.3% of the transaction value.

“If merchants wish to surcharge, the fee they pass on to consumers must be more closely aligned to the fee they pay their FI for accepting that payment method,” says Dr Leila Fourie, CEO of Australian Payments Network – formerly the Australian Payments Clearing Network – the self-regulatory body for the country’s payments industry.

“It can also include the cost of fraud

prevention and any terminal costs. The RBA indicated, as a guide, that the costs to merchants of accepting payments by debit cards is in the order of 0.5%, by credit card 1-1.5%, and for Amex cards 2-3%. Some merchants’ costs might be higher than these indicative figures.”

From July 2017, the RBA imposed a cap on four-party credit card interchange fees of a weighted average of 0.50% of the transaction value and a maximum of 0.80%. The cap was needed because, under the previous regulatory regime, credit card interchange fees were measured over a period of three years, which led to weighted average benchmarks rising during these periods.

There is now a quarterly requirement for compliance reporting for interchange rates, instead of the previous triennial regime.

The RBA has capped debit card interchange fees at a weighted average of A$0.08 and at a maximum of A$0.12 or 0.20% of the transaction value.

Another reform is that the RBA now regulates interchange for companion Amex cards, although standalone Amex cards are not regulated.

Australian banks have been issuing companion Amex cards to their Visa and Mastercard cardholders on a single card account. From July 2017, these companion cards are subject to the same interchange regulations as Visa and Mastercard.

Prepaid debit cards are now subject to the same interchange regulations as standard debit cards. However, due to high banking penetration, the Australian prepaid debit card market is not as large as in the US, and the majority of Australian prepaid cards are issued by airlines.

NEW PAYMENT PLATFORMWhile Australia has been a leader in regulating cards interchange, it has lagged other countries in migrating to faster or real-time payments.

If merchants wish to surcharge, the fee they pass on to consumers must be more closely aligned to the fee they pay their

FI for accepting that payment method

CI August 546.indd 11 31/08/2017 17:49:50


If all goes according to plan, the Australian banking industry will launch the New Payment Platform (NPP) by late 2017 or early 2018. The NPP offers:• Speed: The ability to make real-time

payments, with close to immediate funds availability to the recipient;

• 24/7 availability: The ability to make and receive low-value payments 24/7 outside normal banking hours;

• Data-enriched: The ability to send more complete remittance information with payments, and

• Simple Addressing: The PayID system will enable users to address payments to any recipient using their phone number, email address, Australian Business Number (ABN), or organisational identifier.

“The industry is in the middle of a thorough testing programme,” says Adrian Lovney, CEO of New Payments Platform, the company owned by the 13 FIs, including the RBA, participating in the NPP.

“All participants are actively engaged and progressing through this critical phase. Collectively, there is still more to complete, but we are on track for a ramp-up of the central infrastructure commencing in November 2017.”

It is envisaged that a number of new payment services will be overlaid on the NPP. Osko, a P2P and consumer-to-business fund transfer service offered by Australian online bill payment service BPAY, is the first overlay service developed for the NPP, and will be offered to consumers via the platform’s participants. Owned by the big four banks, BPAY is offered by virtually all Australian FIs.

The first version of Osko will be restricted to P2P transfers, which will take place 24/7 in near-real time. But Osko will evolve to include payments with documents and the ability to send requests for payment, Lovney says.

“The NPP is a later arrival on the scene of instant [near-real-time] payment systems globally,” says Aite Group senior analyst Ron van Wezel, author of the Payments Down Under: Australia’s Leading Examples report.

“The Australian payments industry had the chance to study the existing instant payment systems and design a new system combining: • Service ubiquity, since, right from the start,

all major banks are participating;• 24/7/365 availability;• Real-time settlement through the RBA’s

new Fast Settlement Service (FSS);• End-to-end clearing of payments within 10

seconds;

• Use of account number proxies, such as mobile number and email address;

• Request payment service – a payee can request multiple payers to pay with a single message, and

• Based on global SWIFT/ISO 20022 standards

“Based on this late-mover advantage, the NPP has the potential to scale more quickly than other instant payment schemes [in other countries],” says van Wezel.

OPEN BANKINGAustralia’s Treasurer, Scott Morrison MP, announced in May 2017 that the government intends to introduce an open-banking regime in Australia.

“Over the course of the last year, two separate Australian Government inquiries have examined open banking and data availability,” says Fourie. “A review of the banking sector by (Australia’s) House of Representatives Economics Committee recommended the introduction of an open banking regime.

“In May 2017, the government announced that it would adopt most of the report’s recommendations, and asked Treasury to conduct an independent review into implementation of open banking. In August 2017, Treasury released a consultation paper

asking for feedback on implementation timing, regulatory structure, and other technical details. Comments on the consultation paper are due by 22 September 2017, and the review is due to be finalised by the end of 2017.”

“The [open banking] regime should give customers ‘a comprehensive right’ to access their own data,” says van Wezel. “The independent review will recommend a framework for open banking – for example what data will be shared, whom it would be shared with, timeframes and regulatory structures – with a report due by the end of 2017, for implementation by 2018.

“This means Australia will likely see an open-banking initiative similar to that in the UK, giving fintech companies and other third parties access to bank account data. The access will be read-only; unlike in Europe, there is no mandate to provide third-party access to the payment account for transaction initiation.”

In March 2017, in a separate initiative to the open banking project, the government’s Productivity Commission finalised its Data Availability and Use enquiry, which examined issues such as the benefits and costs of making public and private datasets more available, and options for the collection, sharing and release of data.

The commission’s final report recommended that the government adopt an economy-wide data-sharing and release mandate, including a Data Sharing and Release Act, a National Data Custodian to monitor new data access and use arrangements, and a comprehensive right for individuals and SMEs to enjoy active use of their own data.

“The government has not yet published a response to the (data sharing) recommendations,” says Fourie.

“A cross-agency taskforce is currently co-ordinating the development of the response, which is due to be finalised by the end of 2017,” she adds.

“The subject matter of the two work streams – open banking and data availability – is closely related, and we understand that the two enquiries are working closely together.” <

Feature | interchange

RBA CREDIT CARD DATA 20162016 2015 Change

Sales/purchases (exc. cash advances) A$302.7bn A$292.0bn 3%

Transactions (exc. cash advances) 2,485m 2,261m 9%

Sales, December 2016 A$27.6bn A$27.4bn 0.072%

Card balances incurring interest, December 2016 A$31.9bn A$32.9bn -3%

Source: McLean Roche based on RBA data

CI August 546.indd 12 31/08/2017 17:49:51


Feature | the middle east and africa

Saudi Arabia uses a staggering amount of cash. According to GlobalData, 92.4% of consumer payments, and most low-value transactions, are carried out with cash.

Usage of payment cards is rising, but this is mainly for cash withdrawals at ATMs.

The average annual spend per card in Saudi Arabia stood at $2,478 in 2016, much lower than in neighbouring Israel ($8.025). Nigeria is in a similar position: payment card penetration is startlingly low, at 0.2 cards per inhabitant.

Cash accounted for 95.7% of Egypt’s overall payments volume in 2016. Card penetration is also low in Egypt, with only 22.6 cards per 100 individuals. In contrast, Israel is one of the most developed payment card markets in the Middle East.

In 2016, there were 155.4 transactions per card, compared to 99 in Saudi Arabia, 62 in Iran, 54.9 in Kuwait, and the UAE with 49.8.

CARDS INSTEAD OF CASHIsraeli customers still have an inclination towards cash, despite the abundance of cards. As a result, the Bank of Israel has made several regulatory interventions to boost electronic payments and reduce dependence on cash, such as introducing a cap on cash transactions.

In addition, new types of banking, such as mobile-only, are starting to be allowed into the market, such Bank Leumi’s Pepper.

Pay later cards have a greater market presence than debit cards in Israel. To combat this, the Israeli government requires banks to offer debit cards free of charge to new and existing accounts. In addition, it has reduced interchange fees on debit card transactions and abolished bank fees for debit card transactions.

A number of moves have also been made in Saudi Arabia to promote debit cards. The Wages Protection System, introduced in June 2013

payment cards and the fight against cash in the middle east and africaCash dominates consumer payments across large chunks of the Middle East and Africa. However, cards are commencing their fightback. Patrick Brusnahan looks into Saudi Arabia, Nigeria, Israel and Egypt with the help of GlobalData’s research

CI August 546.indd 13 31/08/2017 17:49:52


and implemented in phases, mandated that employee salaries were paid directly into bank accounts. From November 2015, it became mandatory for companies with 100 or more employees to transfer salaries into bank accounts.

Mada, a new modified electronic payment system, was launched by the Saudi Arabian Monetary Agency in September 2015. All cards are issued by local banks and can be used at all ATMs and POS terminals operated by local banks in the country.

The Central Bank of Egypt has also attempted to promote payments cards. In 2011, a project was launched to pay the salaries of 5m government employees directly into their bank accounts. New government departments are being added to the project every year. This has successfully led to an increase in the number of debit cards and bank accounts in Egypt.

COMPLIANT CREDITAs in many Middle Eastern countries, credit card usage in Saudi Arabia is low for religious reasons. Islam forbids the receipt or payment of interest. As a result, banks have started to offer a wider range of Sharia-compliant credit cards. Close to all leading credit card issuers now have this option.

Promotional offers are also in place to encourage credit card use, mainly through gifts, reward points, travel privileges and insurance.

Credit cards accounted for a minor 4.6% of the total payment cards transaction value in 2016. However, between 2012 and 2016, the market recorded growths in CAGR for both transaction value and volume, at 17.23% and 21.03% respectively.

Credit cards are not faring well in Nigeria either. They totalled 2.8% of Nigeria’s payment cards transaction value in 2016. Penetration is very low at 0.6 cards per 100 inhabitants.

It can be said, however, that this is a massive opportunity for credit card issuers. O3 Capital Nigeria launched the country’s first non-bank credit card in September 2014. With its chip-and-PIN security, relaxed

qualification criteria and high merchant acceptance, it looks set to give the market a boost.

Faring slightly better in Egypt, credit cards have a penetration of 3.5 cards per 100 inhabitants. However, religious reasons are hindering its progress, as is the ongoing issue of generally low acceptance among Egyptian merchants.

Israel’s credit card market is largely composed of the three main credit card issuers, which are owned by the country’s main banking groups. Isracard, Leumi Card and ICC Cal have all gone unchallenged, mainly due to the barriers to entry for foreign issuers. As foreign firms lack the wide branch networks and distribution points of domestic issuers, it has become hard to compete.

To crack down on the duopoly of Bank Leumi and Bank Hapoalim, both have been required to separate ownership of their credit card companies. Standalone credit card units are being encouraged to become banks through incentives such as lower capital requirements. This is expected to increase competition in the space.

ALTERNATIVESEgypt’s e-commerce market is starting to flourish. Despite limited financial literacy and payment infrastructure, Egypt’s e-commerce market grew from $1.2bn in 2012 to £3.1bn in 2016. GlobalData expects this to reach $6.6bn by 2020.

Cash on delivery remains the preferred mode of payment for e-commerce transactions, accounting for 62% of the total e-commerce transaction value in 2016. Payment cards took 20.3% of that value.

Digital wallets are gaining prominence, with 6.7% of the total e-commerce transaction value in 2016. CIB, Banque Misr and NBE are just a few of the prominent providers.

Israel saw Mastercard’s Masterpass launch in November 2015, with PayPal, ICC Cal and mobile carrier service provider Pelephone also having active presences in the market.

The e-commerce transaction value has grown rapidly in Saudi Arabia, from $1bn in 2012 to $3.5bn in 2016. This has been attributed to the rise in internet penetration in the country, and improved regulation. The Ministry of Commerce and Investment introduced the first draft of the E-Commerce Law in February 2015 to increase the competitiveness

of the e-commerce market, and to enhance customer trust in online retail. In addition, laws issued in 2015 required online merchants to list all terms and conditions, product information, addition charges, and delivery dates. Non-compliant companies are charged SAR1m ($266,628).

Contactless technology is also slowly gaining prominence in Saudi Arabia with the help of government initiatives.

In September 2015, Riyad Bank launched the first contactless cards in the country. SAMA launched a contactless payment service, called Mada Atheer, in November 2016 and other banks and card issuers are

expected to follow the trend. Nigeria is also embracing contactless. United Bank of Africa (UBA)

launched its first contactless debit cards in November 2015. This followed an agreement between UBA, Access Bank, FirstBank, Zenith Bank, Skye Bank, and Diamond Bank to launch PayAttitude in May 2015, an NFC-enabled tag-based mobile payment solution.


as in many Middle Eastern countries, credit card usage in Saudi Arabia is low for

religious reasons. Islam forbids the receipt or payment of interest

BENCHMARKING PAYMENT CARDS

CArd penetrationAvg. no of monthly card transactions

avg. annual spend per card

Saudi Arabia 0.87 1.89 2,478

Israel 1.06 11.88 8,025

Nigeria 0.33 0.23 99

Egypt 0.23 0.2 86

Source: GlobalData

CI August 546.indd 14 31/08/2017 17:49:52


DRIVERSAccording to the General Authority of Statistics, immigrants accounted for 10.9m of Saudi Arabia’s total population of 32.2m in 2016. Migrant workers often use banking products, such as current accounts and payment cards to conduct financial transactions and remit funds to their home countries. Outward remittances rose from $29.5bn in 2012 to $37.2bn in 2016.

Internet penetration reached 69.6% in 2015, which can also aid online payments over the next five years. Smartphone penetration is not far behind at 65%. Banks such as Al Rajhi Bank, Samba Financial Group and NCB have partnered with merchants and online retailers to provide secure payment facilities for mobile phones and online.

Nigeria’s economically active population, aged 15-64 years, made up 54% of its 185.3m-strong population. This offers scope for banking and card payment services.

The government introduced the Nigerian Broadband Plan (2013-2018) to provide internet access to the large population, with an ambitious aim to increase internet penetration fivefold. This is set to greatly increase e-commerce and m-commerce, in turn benefiting the local cards market.

Egypt’s population is set to reach nearly 100m by 2020, according to the Central Agency for Public Mobilisation and Statistics. With 62.6% of the population being economically active, this offers a significant opportunity for financial products. In addition, a third of the population have internet access, which can generate growth in card payments.

POS terminals in the country recorded a CAGR of 11.9% between 2012 and 2016, growing from 42,544 to 66,781. GlobalData forecasts them to reach 96,792 by 2020.

Bank branches have also increased to 3,903 in 2016 from 3,610 in 2012. This has made cards and banking more accessible to consumers.

Smartphone and internet penetration were fairly high in Israel, at 78.9% and 59% respectively. Israel’s position as one of the world’s most technologically advanced countries will aid the growth of electronic payments.

While the Africa and the Middle East are still very much cash economies, that will not be the case for much longer. With aid from their respective regulators and governments, cards and alternative payments are receiving a much-needed boost.

Will cards displace cash? Not in the short term, but they will definitely grasp a decent market share. <


36.3%

Inner ring: 2012Outer ring: 2016

Payment cardsChequesCredit transfers

61.3%

2.5%

89.3%

9.4%

0.8%Clockwise from top:

(Data for cashnot available)

nigeria

Source: GlobalData

66.8%


Payment cardsDirect debitCredit transfers

13.4%

10.9%

72.9%

8.3%7.6%

Clockwise from top:

(Data for cashnot available)

8.9%Cheques 11.2%

israel

Source: BIS, GlobalData

95.9%


CashPayment cards

92.4%

7.3%

Clockwise from top:

3.9%

saudi arabia

Source: GlobalData

payment instrument shares by transaction volume

96.8%


CashPayment cardsCheques

2.1%

95.7%

3.3% 1.0%Clockwise from top:

1.0%

Source: GlobalData

egypt

CI August 546.indd 15 31/08/2017 17:49:54


country snapshot | argentina

Cash remains the predominant payment instrument in Argentina, mainly for day-to-day and low-value transactions. Overall, cash accounted for 78.5% of the total payment transaction volume in 2016

High interchange fees on debit and credit cards are discouraging retailers from accepting electronic

payments. The average interchange fees on debit and pay later cards stood at 1.50% and 2.17%, respectively.

Government financial inclusion initiatives and improvements to commercial bank infrastructure have led to a gradual rise in

electronic payments. In 2016, the average number of monthly card transactions in Argentina stood at 2.36 – higher than peer countries including Chile (2.32), Brazil (2.24), Peru (1.13), and Colombia (1.02).

The government has been encouraging the use of debit and credit cards by offering tax benefits and by strongly promoting the use of payroll cards in the country.

One initiative was the implementation of a mandatory wage account regulation by the Central Bank of Argentina. The regulation requires payroll funds to be directly credited into wage accounts, to encourage cashless transactions. The regulation was first introduced in 1997 and came into force in 2001. The account is also used for the disbursement of social

0

10

20

30

40

50

60

20122013

20152016

(estimated)2014

$bn

value of credit tRanSfers

Source: Central Bank of Argentina, GlobalData

0

50

100

150

200

250

300

20122013

20152016

(estimated)2014

$bn

value of cheque payments

Source: Central Bank of Argentina, GlobalData

0

20

40

60

80

100

20122013

20152016

(estimated)2014

$bn

value of payment cards

Source: GlobalData

ARGENTINA

country snapshot: argentina

CI August 546.indd 16 31/08/2017 17:50:01


country snapshot | argentina

benefits such as retirement, pensions, and social welfare funds.

In line with these objectives, in 2016 the central bank introduced guidelines for convenient account opening and switching between banks, with the aim of promoting competition.

DEBIT CARDS DOMINATEDebit cards remain the preferred payment card type, accounting for 66.3% of the total payment cards transaction value in 2016. In Argentina, debit cards are offered as complimentary products with savings or current accounts.

In line with the government’s wage account regulation, banks are increasingly offering payroll accounts. All major banks including Banco Nación, Banco Provincia, and Banco Galicia now offer payroll accounts to their customers.

These accounts are usually preferred over current accounts as they are exempted from government taxes applicable to current account deposits and withdrawals. Account holders are also offered a range of benefits such as no annual fees, preferential interest rates on personal and mortgage loans, and cash advance facilities.

While debit cards continue to dominate, the use of credit cards is anticipated to rise due to the abolition of the tax on credit card transactions made in foreign currencies. The rise in Argentina’s middle-class population and increasing household consumption are anticipated to drive demand for consumer credit.

THE ‘LESS-CASH’ SOCIETYPayment companies are developing voucher-based payments to cater to the significant unbanked population in Argentina, allowing consumers to make payments without the need for a bank account or payment card.

Cash-based payments through vouchers such as Pago Fácil and Rapipago remain the preferred mode of payment among consumers. Pago Fácil users make a purchase, print a voucher, and take it to a local payment location to make cash payment. Payments can be made at 4,000 Pago Fácil locations across the country. Similarly, Rapipago vouchers are accepted at 3,000 locations.

Although voucher-based payments provide a convenient shopping experience

for consumers due to their wide acceptance, they are also hindering the government’s vision of turning Argentina into a ‘less-cash’ society.

PREFERENCE FOR PREPAIDThe number of prepaid cards in circulation recorded a CAGR of 4.6% between 2012 and 2016, rising from 11.2m in 2012 to 13.4m in 2016.

Growth in the prepaid card market can be attributed to improved POS infrastructure, offers and benefits provided by card issuers, enhanced security features, and the adoption of contactless technology. The number of prepaid cards in circulation is anticipated to record a CAGR of 2.7% over the next few years to reach 15m by 2020.

The total transaction value of prepaid cards decreased over the last five years, from $2.6bn (ARS11.7bn) in 2012 to $1.4bn in 2016, due to the significant

depreciation of the local currency against the US dollar. In local currency terms, the transaction value of prepaid cards registered a CAGR of 16.1% during the same period.

The unbanked population in Argentina, which stood at 42.4% in 2016, remained the key driving factor for prepaid cards market growth. Prepaid card issuers have partnered with government departments and businesses to extend social benefits to consumers without a bank account.

Gift cards are an alternative to cash and are becoming increasingly popular in Argentina. Banco Galicia offers the free Galicia Visa Gift card, with different designs for occasions such as birthdays, weddings, and Christmas.

Card schemes are also capitalising on the growing prepaid cards market in Argentina. For instance Visa has collaborated with Banco Provincia, Bank Santander Río, BBVA Banco Francés, and New Bank of Santa Fe to issue rechargeable Visa cards. <

Others64.7%

Banco de laNacion17.1%

BancoProvincia

9.9%

BancoGalicia8.3%

Debit card shares by issuer

Source: GlobalData

Cabal4.3%

Mastercard34.4%

Visa61.3%

Debit card shares by scheme


Others60.0%

BBVA9.6%

Santander13.2%

BancoGalicia17.2%

pay later shares by issuer

Source: GlobalData

Mastercard9.2%

Visa54.0%

Others64.7%

pay later shares by scheme

Source: GlobalData

CI August 546.indd 17 31/08/2017 17:50:02


country snapshot | mexico

Cash remains the preferred form of consumer payment, especially among the rural population, primarily due to limited knowledge of payment cards or poor access to banking infrastructure

MEXICO

country snapshot: mexico

Cash is primarily used to make small-value payments at retailers, and for the payment of utility bills, taxes

and transport fares. A significant proportion of the population

is engaged in informal activities. These include farmers, street vendors, domestic servants and self-employed workers.

Card penetration in Mexico stood at

138.4 per 100 inhabitants, which is lower in comparison to its peers Brazil (243.1), Chile (196.6), Argentina (178.4), and Venezuela (151.5).

The low penetration rate is a result of the low banked population and the low level of financial literacy. As the government and banks have started to provide basic financial and banking services to the

unbanked population – by expanding banking infrastructure, launching new branches, adopting the agent banking model, and making efforts to change consumer payment habits – payment cards have gradually become more accepted, with their use consequently growing between 2012 and 2016.

0

3,000

6,000

9,000

12,000

15,000

20122013

20152016

(estimated)2014

$bn


Source: Central Bank of Mexico, BIS, GlobalData

0

100

200

300

400

500

20122013

20152016

(estimated)2014

$bn



0

10

20

30

40

50

60

70

80

20122013

20152016

(estimated)2014

$bn



CI August 546.indd 18 31/08/2017 17:50:10


FINANCIAL INCLUSIONThe government has identified access to financial services as a priority, and encouraged initiatives that make bank accounts essential for every individual.

The central Banco de México has directed banks to simplify the process of opening bank accounts, making access to basic banking products such as bank accounts and debit cards easier.

Debit cards have grown in prominence with the introduction of electronic payroll services, a rise in the banked population, and the government’s distribution of social welfare funds through cards.

Mexico’s government is focusing on financial inclusion through three social benefits programmes: Oportunidades, Programa para Adultos Mayores, and Procampo, disbursing benefits through bank accounts and cards. These programmes are supervised by the Ministry of Social Development.

Banks have also supported the financial inclusion programmes, resulting in an increase in the banked population from 31.5% in 2012 to 46.8% in 2016, which has supported a rise in debit card penetration.

CREDIT CARD SLOWDOWNDespite its small size, the Mexican credit card market has recorded robust growth in terms of the number of cards in circulation, as well as transaction value and volume, supported by high consumer spending.

However, the market is likely to be affected by Donald Trump’s victory in the US presidential election. Consequently, banks are cutting credit card exposure to counter a potential rise in consumer defaults and the risks of an economic shock should the new US government restrict trade and business with Mexico.

Banks are therefore reducing credit card spending limits and raising consumer lending standards.

Banks’ profits would suffer if the US government scraps the North American Free Trade Agreement or discourages US companies from moving to Mexico.

ALTERNATIVE PAYMENTS The Mexican e-commerce market posted a CAGR of 40.8% between 2012 and 2016, growing from $4.1bn (MXN85.7bn) in 2012 to $16.2bn in 2016, with the

market anticipated to reach $35.8bn by 2020. Payment cards remain the most popular payment method among online shoppers, accounting for 60.8% of the total e-commerce transaction value in 2016.

In addition to payment cards, alternative payments such as PayPal, MercadoPago, DineroMail and SafetyPay are all used extensively for online shopping.

The availability of digital wallet services, and the security and convenience they offer, has made them popular among consumers. Mobile wallets, digital wallets, and carrier billing collectively accounted for 10.7% of total e-commerce transaction value in 2016, up from 5.1% in 2012.

GROWING INFRASTRUCTUREThe number of POS terminals recorded a CAGR of 11.1% between 2012 and 2016, rising from 621,628 in 2012 to 946,419 in 2016. The figure is anticipated to reach 1.3m by 2020.

In November 2014, the Mexican tax authority Sistema de Administración Tributaria (Tax Administration System) and the Confederación de Cámaras Nacionales de Comercio, Servicios y Turismo (National Chambers of Commerce, Services and Tourism) launched the Tableta Concanaco scheme to provide micro-enterprises and SMEs with mobile POS terminals at subsidised rates. As of February 2015, 20,000 mPOS terminals had been issued under the scheme.

The growing payment card market has prompted domestic and international solutions providers to launch POS terminals in the country. For instance, in May 2016 Banorte and Planet Payment, an international and multi-currency payment processor, launched currency conversion POS solution, Pay in Your Currency.

The solution allows international customers to pay in the currency of their choice, while Mexican merchants can continue to settle in pesos. <

country snapshot | mexico

BBVABancomer

16.1%

Others59.7%

BanamexCitibank12.1%

BanCommel12.2%


Source: GlobalData

Visa55.6%

Mastercard43.0%

Carnet1.5%



BBVABancomer

19.1%

Others54.0%

BanamexCitibank16.5%

BanCommel10.5%


Source: GlobalData

Visa59.0%

Mastercard37.8%

Others3.2%


Source: GlobalData

CI August 546.indd 19 31/08/2017 17:50:12


Country snapshot | the czech republic

The Czech economy has registered robust growth since 2014, supported by a decline in oil prices, increased investment activity, and government policy to encourage exports and domestic demand

CZECH REPUBLIC

country snapshot: the czech republic

Economic growth and disposable incomes are expected to accelerate over the next five years, which will

drive investment in the Czech cards and payments industry.

Cash remains the preferred method of consumer payment, accounting for 56.2% of the total transaction volume in 2016.

Consumers in the Czech Republic generally use cash for day-to-day, low-

value transactions. However, its use has declined since 2012 due to a growing preference for payment cards and an increase in contactless transactions. The payment cards market grew significantly

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

20122013

20152016

(estimated)2014

$bn


Source: ECB, GlobalData

0.0

0.3

0.6

0.9

1.2

1.5

20122013

20152016

(estimated)2014

$bn


Source: ECB, GlobalData

0

5

10

15

20

25

20122013

20152016

(estimated)2014

$bn


Source: The Bank Card Association of Czech Republic, GlobalData

CI August 546.indd 20 31/08/2017 17:50:21


Country snapshot | the czech republic

in the Czech Republic between 2012 and 2016 as consumers were increasingly spending more with their payment cards.

The total number of payment card transactions increased at a CAGR of 15.8% from 480.6m in 2012 to 865.1m in 2016.

The Czech Republic’s payment card penetration (cards per inhabitant) was 1.1 in 2016, which is high compared with its peers Slovakia (1.0), Bulgaria (1.0), Hungary (0.9), Poland (0.9) and Romania (0.8).

The high penetration of payment cards offers further scope for growth in the country’s cards and payments market.

UPTAKE OF CONTACTLESSContactless cards were first introduced in the Czech Republic by Citibank in 2011. This was followed by other banks, and the majority of domestic banks now allow their customers to carry out contactless payments.

The number of cards with contactless functionality was 10.9m in 2016. According to data reported by Visa Europe in February 2015, Czechs use contactless payments for 3.3 transactions per month per card on average – the highest rate in the EU, followed by Poland (2.6) and Slovakia (1.3).

According to Visa Europe, the Czech Republic was the third-largest market for Visa contactless cards in Europe with 13.9m transactions conducted in March 2015. This was preceded by the UK (52.6m) and Poland (49.7m).

In addition, according to a 2015 report by Mastercard, nearly 52% of Mastercard and Maestro in-store transactions are contactless in the Czech Republic.

E-COMMERCE GROWTHThe total transaction value of the e-commerce market posted a CAGR of 32.2% over five years, from $2.0bn (CZK52.9bn) in 2012 to $6.3bn in 2016.

A high mobile penetration rate, consumer confidence in online transactions, and the presence of a secure online gateway were responsible for driving this growth. According to Ecommerce Europe, 80.0% of the Czech population above the age of 14 years – equivalent to 7.1m individuals – use the internet, and 3.7m people shop online.

Banks and other card participants are introducing innovative payment options to encourage electronic payments and

improve convenience in online shopping. For example, UniCredit Bank launched

the Pay button on its internet banking platform in December 2015.

The bank, in association with online payment service provider PayU, offers the new payment option when consumers make payments on e-commerce and price comparison websites, including Mall.cz and Heureka.cz.

Similarly, Mastercard launched Masterpass in the Czech Republic in November 2014.

DEMAND FOR PREPAIDPrepaid cards are increasingly gaining acceptance among Czechs, as they do not require a bank account and are accessible to consumers who do not otherwise qualify for a bank card.

The number of prepaid cards in circulation rose from 360,559 in 2012 to 477,552 in 2016, at a CAGR of 7.3%. The

value of transactions via prepaid cards rose from $3.1m in 2012 to $8.6m in 2016.

Banks in the Czech Republic offer a number of prepaid cards to serve different consumer segments. For instance, ČSOB offers the COOL prepaid card in collaboration with Mastercard, which is primarily designed for students.

Targeting corporate customers, ČSAS offers the Maestro corporate business prepaid card in collaboration with Mastercard. The card has a validity period of three years, and incorporates chip-and-PIN technology. However, this card can only be used for ATM withdrawals and in-store payments.

Several companies and card service providers collaborate with international scheme providers to offer prepaid cards. For instance, prepaid card issuer FreePay collaborated with Mastercard to offer a reloadable prepaid card that can be used worldwide through the Mastercard network. <

ČSAS31.3%

Others30.9%

Komerčníbanka15.5%

ČSOB22.3%


Source: GlobalData

Visa51.0%

Mastercard49.0%



ČSAS11.8%

Others64.8% Komerční

banka8.9%

RaiffeisenBank 14.4%


Source: GlobalData

Visa51.0%

Mastercard80.0%

Others11.7%


Source: GlobalData

CI August 546.indd 21 31/08/2017 17:50:27


industry insight | persistent debt

Earlier this year, the Financial Conduct Authority (FCA) announced that credit card

companies will have to not just provide more support to customers in persistent debt, but intervene earlier to help them avoid getting into financial difficulty in the first place.

As this example demonstrates, processes around assessing affordability and treating customers fairly continue to evolve at a rapid pace. To better understand the changing attitudes towards affordability over the past decade, we undertook some independent research amongst risk professionals and customer experience managers.

The research identified the key concerns facing lenders over affordability checks, as well as their main business priorities and future predictions when it comes to affordability assessments.

Our research found that lenders are now more focused on the customer than ever before, and are truly beginning to put them at the heart of every decision they make. A large majority (72%) believe they have a social responsibility to prevent customers from overstretching themselves financially – a trend the recent FCA proposal will likely only accelerate.

Affordability assessments play a central role in helping lenders achieve this in practice. Using big data technologies, modern assessments can provide the most accurate, real-time view of a customer’s full financial situation, including their income, living costs and spending habits. This comprehensive understanding of a customer’s financial

background gives lenders a better view of a potential borrower’s ability to make repayments, helping them take more informed lending decisions.

But the need for responsible lending does not stop at the initial lending decision, as a customer’s circumstances could change at any time. Rather it should be an ongoing priority in order to avoid individual’s getting into financial difficulty throughout the entire customer lifecycle.

ASSESSING AFFORDABILITYAssessing affordability, both at point of application and future sustainability, is key to helping consumers not just avoid financial difficulty but manage their finances more effectively.

In addition to giving lenders a comprehensive view of their customer as a whole, consistently carrying out affordability assessments can help flag when a person’s financial situation changes early on, and identify those customers who truly need support. These insights can be used to tailor services and payment plans to better meet customers’ individual needs, and help them avoid getting into arrears or agreeing to unsustainable repayment plans.

What is more, by being able to easily identify those customers already in financial difficulty, lenders can then also take steps to help them better manage their debt.

A number of banks currently using affordability data as an identification trigger for a pre-delinquency contact, are then proactively trying to engage customers to

review their financial situation and see if they can support them – for example, by giving debt advice through internal or external referrals and suggesting arrangement plans or full debt restructures. By enabling them to identify and reach out to the customer at the right time before they meet the persistent debt definition, this approach will help lenders meet regulatory requirements such as the FCA’s recent proposal on credit cards.

Despite this positive impact, and the growing importance of affordability assessments within organisations, some are concerned about the potential impact more robust processes would have on the customer experience. Close to one in five (17%) of respondents disclosed that they have had a customer complain about affordability checks.

The technology available today means that lenders should be able to assess all the necessary affordability indicators without hindering the customer journey. This is particularly important in a pre-delinquency environment, where individuals are not yet in persistent debt, and a wrong approach to their circumstances could damage the customer relationship and result in a loss of business.

Organisations can use technology and data to verify income and expenditure, often without having to ask consumers to provide supporting paperwork or documents. And when specific evidence of income and expenditure is needed, with the consumer’s permission, a digitalised view of transactional data from a consumer’s bank account can be accessed. Using data and technology in this way enables lenders to identify customers heading for financial difficulty early on, without any manual intervention or interruption to the customer journey.

The need for robust affordability assessments will only increase further, as both regulators and lenders continue to focus on the wellbeing of their customers.

In order to truly thrive, the future of affordability needs to be built on firm foundations like accurate data and technology that can evolve. This will help lenders meet regulatory requirements, such as the FCA’s recent credit card proposal, limit the impact on your customers and reduce over indebtedness.

If organisations want to remain at the forefront of regulatory and other changes, and truly understand an individual’s ability to afford credit, far from being a static, tick-box exercise, affordability assessments need to be an ever-evolving core consideration for the business. <

new affordability and tackling persistent debt In light of the FCA’s latest plan for the cards industry, Callcredit Information Group’s Eamonn Tierney looks at how organisations can be better prepared to deal with ever-changing requirements to support customers

CI August 546.indd 22 31/08/2017 17:50:27

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CROSSING THE BARRIERS€¦ · growth since 2014, supported by a decline in oil prices, increased investment activity, and government policy to encourage exports and domestic demand