May 2015 Issue 519 www.cardsinternational.com

DESTINATION: DOUBLE MARKET SHARE The rise of Elo

• Report: Retail • Analysis: SME financing • Product: DCVC card • Country reports: India, US, UK

CI 519.indd 1 08/06/2015 13:11:59 Delivering innovative mobile & online solutions to organisations that need to provide secure

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IE-Advert-Dec-2014.indd 1 16/12/2014 12:25:21 Cards International EDITOR’S LETTER

CONTENTS EDITOR’S LETTER 2 COMMENT: PPRO GROUP Ralf Ohlhausen, Chief Strategy Cards use, volumes grow in Officer, PPRO Group, explains the complex challenges faced by merchants looking to expand across Asia UK; set for further growth 6 STRATEGY: ELO Brazilian domestic Elo et more reports reach the inbox The number of ATMs across the UK con - is positioning itself as an inclusive disclosing changes in consumer tinues to rise up from 67,963 at the end of brand that targets all consumer segments. With this, it plans to spending behaviour. 2013 to 69,382 at the end of 2014. double its market share. President Visa’s PR department makes In 2014, ATMs were used 2.8 billion times Eduardo Chedid tells Robin Arnfield Y the most dramatic claim kicking off a press to withdraw £189bn in the UK. 8 REPORT: NEW WORLD OF RETAIL release with the belief that the UK is “becom- Cards use continues to rise with over 35 Increased adoption of mobile ing an increasingly “cash-last” society.” million card payments made every day in devices and new payment solutions Visa goes on to make some optimistic fore- 2014 – up 12.1%. are bringing about a re-evaluation of technology. Patrick Brusnahan casts: it says that one in four Brits expect to Total UK-issued debit, credit and charge writes on MasterCard’s report on use their mobile phone to make payments on card spending both domestically and over - this trend a daily basis by 2020, growing from the one seas rose by 8.2% in 2014 to reach a record 10 ANALYSIS: VIRTUAL CREDIT CARDS in 12 who do so already today. £600.3bn. Anna Milne speaks to Wellspring The report adds that the average shopper is The average holder has two Financial’s Peter Kalen about the expected to spend £27 ($41) on mobile each cards (1.97). Young people lead the way, company’s launch of Canada’s first virtual and the week by 2020, £10 more than what is spent with 94 per cent of 16-24 year olds having opportunity it could bring for today. a debit card. retailers and consumers alike Furthermore, nearly a quarter of respond - On average, each debit card was used to 11 COMMENT: SIX PAYMENT SERVICES ents predicted that they would spend more make 106 purchases in 2014, spending just Luc Holper, Head Market than £50 a week using their mobile device over £4,500 per card, up 10 per cent on Development Financial Industry by 2020. 2013. Half of debit card holders say they use Services at SIX Payment Services, considers the emerging payment And the forecasts may well be proved to their card several times a week, with eight in trends in Europe be accurate; indeed many will analysts will ten using theirs at least once a month.

12 PRODUCT: DCVC CARD argue that Visa’s figures possibly err on the Just over 31 million people hold a credit Card security is a pressing issue in side of caution. card, about 60% of the UK adult population. the world of consumer finance. Getin Meantime, back in the real world and away I appreciate that the PRs and vendors who Bank might have found a solution. from the daily grind of gullible PRs pitching try to kid and con that we are all about to Patrick Brusnahan investigates stories about the death of cash (In Sweden, ditch cash and cards and migrate spending to 13 REVIEW: UK CARD TRANSACTIONS a fair pitch, but we are talking UK PRs here) the mobile will not appreciate the UK Cards Card payments have reached a cash is far from dead with 18 billion cash Association forecasts, but tough. record high in the United Kingdom, according to the UKCA. Patrick transactions taking place in 2014, the equiv- The UKCA estimates that the number of Brusnahan reports alent of almost 50 million payments a day. card payments made in the UK will by 66% Consumers used notes and coins for more per cent in the next ten years from 11.5 bil - 14 COUNTRY REPORT: INDIA than half (52%) of all their transactions in lion in 2014 to 19.2 million by 2024. 16 COUNTRY REPORT: US 2014. Cash is far from dead in the UK and the 18 COUNTRY REPORT: UK The next most popular payment method is cards sector remains gratifyingly healthy 20 GUEST COMMENT: TRUNOMI the debit card, which had a 26% share of all too. consumer payments made last year. Douglas Blakey [email protected]

Editor: Douglas Blakey Director of Events: Ray Giddings For more information on Timetric, visit Tel: +44 (0)20 7406 6523 Tel: +44 (0)203 096 2585 our website at www.timetric.com. As a subscriber, you are automatically entitled to Email: [email protected] Email: [email protected] online access to Cards International. For more Financial News Publishing, 2012 information, please telephone +44 (0)203 Registered in the UK No 6931627 Senior Reporter: Anna Milne Head of Subscriptions: Sharon Howley 096 2636 or email customer.services@ Tel: +44 (0)20 7406 6701 Tel: +44 (0)203 096 2636 ISSN 0956-5558 timetric.com Email: [email protected] Email: [email protected] Unauthorised photocopying is illegal. The London Office 5th Floor, contents of this publication, either in whole or Reporter: Patrick Brusnahan Tel: +44 (0)20 7406 6526 Sales Executive: Alexander Koidis Farringdon Place, part, may not be reproduced, stored in a data Email: [email protected] 20 Farringdon Road, retrieval system or transmitted by any form or Tel: +44 (0)203 096 2586 London, EC1M 3AP means, electronic, mechanical, photocopying, Email: [email protected] recording or otherwise, without the prior Asia Office 1 Finlayson Green, #09-01 permission of the publishers Group Publisher: Ameet Phadnis Customer Services: Singapore 049246 Tel: +44 (0)20 7406 6561 Tel: +44 (0) 20 3096 2636 Email: [email protected] Tel: +65 6383 4688 or +44 (0)20 3096 2622 Fax: +65 6383 5433 Sub-editors: Nick Midgley, Kev Walsh Email: [email protected] Email: [email protected]

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CI 519.indd 1 08/06/2015 13:12:03 COMMENT: PPRO GROUP Cards International

Asia: The Next E-commerce Frontier Ralf Ohlhausen, Chief Strategy Officer of the PPRO Group, examines the potential stored within Asia. While there is much opportunity in the continent, many are focusing only on China. Why is this a mistake? And how can financial institutions take full advantage of the riches held within the region?

ith retailers around the globe con- world. Burberry, for example, sold $870m in order to make the most positive impact when centrating their attention on Asia Asia last year, 18% growth on the previous entering Asian markets. as the next frontier, many make the 12 months and a total that now makes up Wmistake of focusing too heavily on some 39% of its global revenue. Whilst 37% Cash isn’t always king China. Whilst China is undoubtedly Asia’s of Dior’s global €30.9bn ($34bn) revenue Although credit cards are still the number golden child, Asia comprises the most popu- now comes from Asia. one payment method for online purchases in lous continent with a combined population of Apple has also seen particular growth Asia with 37%, e-wallets are also surprisingly approximately 4.4 billion; as such it presents across Asia in the past 12 months. Recent popular, accounting for almost 25% of online a huge opportunity for e-commerce. research showed that Apple’s latest iPhone 6 purchases. This compares with only 13% in In fact, Asia contributed a whopping 35% and iPhone 6 handsets have led to signifi- Europe and just 5% in Africa and the Middle of the world’s e-commerce turnover in 2014 cant gains in Japan, China and South Korea. East. The only real exceptions to the rule are and is continuing to grow. In the latter, it now enjoys a 33% market Bangladesh (0.8%), India (1.5%) and Taiwan There are numerous elements at play when share, overtaking LG to be the second most (1.8%) where they are scarcely used. considering the growth in this market aside popular phone manufacturer behind local The differences from country to country in from the vast populous mentioned above. success story Samsung. In Japan, Apple enjoys Asia could not be greater. Whereas in South In fact, research shows three distinct trends an overwhelming 51% of the smartphone Korea the credit card has almost a monopoly, fuelling the Asian market rise. Alongside the market. In China, Apple’s iPhone sales have accounting for three quarters of online pur- continued desire for Western products, which soared, increasing its revenue in the country chases, in Taiwan only a measly 3% of online is only increasing with the growing accessibil- by 71% to $16.8bn, helped by gift-buying for purchases are paid for by card. ity of global goods, opportunities for online Chinese New Year. It isn’t easy for retailers in the region, retailers are endless. because alternative payment methods are also With barriers such as differing currencies, Cultural differences very popular, although naturally there are cultures and languages, let alone technol- The main obstacle merchants face when look- considerable variations if we compare them ogy adoption and payment infrastructures, ing to break into the Asian market is that of country to country. Mobile payments are a it’s important to approach each country, and culture. Cultures differ significantly from hit in the Philippines, spearheaded by mobile its consumers with a tailored retail offering. country to country throughout the conti- network operators Smart Communications Current barriers need to be broken down, for nent, and also from region to region within and Globe Telecommunications, alongside which several things need to be considered. countries. Each country has its own language alternative payment providers like Dragon- and often different languages and dialects. To pay and PayPal, around 7.5% of online pur- The three trends fuelling growth in Asia make things even more complicated for retail- chases are already paid for using this method. McKinsey and Company identified three ers with an eye on Asia is the fact that many In comparison, mobile payments account for powerful trends fuelling this rise – rapid eco- Asian countries are veritable cultural melting only 0.1% of online purchases in Indonesia, nomic growth, urbanisation and the adoption pots. Malaysia, for example, comprises many and just 0.3% in Malaysia and Japan. of technology (notably Internet penetration different ethnic groups including the Malays, A special case is Taiwan, where they have and mobile technologies). Together these are Chinese and Indians, among others, each with an excellent internet infrastructure, but transforming the region, its people and its their own languages. although the Taiwanese like shopping online, economies, with e-commerce leading the way. Furthermore, each country also celebrates they actually prefer to pay offline. More than Outside of China, Nielsen predicts South- different traditional holidays at different half of all purchases are paid for by cash on east Asia will have a cash-rich middle class of times in the year, resulting in different sales delivery (52%) and payments in shops and to 400 million by 2020, hold 688 million mobile peaks and troughs. For example, many of the cash machines are also very popular (31%). devices and boast a GDP over $2.4trn. The countries in East Asia celebrate Lunar New It is imperative to not only understand your growth of e-commerce is rapid, with Frost Year whereas in Indonesia, they have a holi- potential consumer, but also their preferred and Sullivan projecting the CAGR of Indo- day in August celebrating Indonesian Inde- payment mechanisms. A tailored retail offer- nesia, Malaysia, Philippines, Singapore, Thai- pendence Day where the whole nation comes ing is critical to gaining any level of success land and Vietnam at 37.6% from 2013 to together in a riot of red and white. across Asia. Knowing where to begin and 2018, growing from $7bn to $34.5bn. Another obstacle is the lack of widespread finding the best approach can be a complex e-commerce platforms and payment methods, undertaking, which is why seeking the exper- The desire for Western products which means merchants must pay close atten- tise of global electronic payment specialists Asia’s continued desire for luxury Western tion to the buying behaviour of consumers in can help retailers unlock the potential of Asia designer brands appears unbounded, with each of the disparate markets. Merchants by building ongoing relationships and a rap- Japan now the second luxury market in the should take all of this into consideration in idly growing customer base. <

2 y May 2015 www. cardsinternational.com

CI 519.indd 2 08/06/2015 13:12:03 Cards International NEWS: ROUND-UP

DISTRIBUTION Halyk Bank accepts China UnionPay cards at ATMs in Kazakhstan UnionPay International has entered into a ance will include corporate cards, diamond at the border of China and Kazakhstan. cooperation agreement with Halyk Bank, cards and CNY/Tenge dual-currency cards At the end of 2014, the bank launched whereby the bank started accepting Union- to avoid exchange losses and meet the needs the first ever UnionPay chip debit card in Pay cards at all its ATMs and merchants in of cardholders, while the innovative services Kazakhstan. Kazakhstan. will include online payments and cross-bor- The UnionPay card acceptance network The partnership will also cover a wide der remittances. will not only provide payment convenience range of areas including local card issuance Additionally, both sides will jointly roll for Kazakhstan’s exchanges with Russia, and innovative services, as well as foreign out a scholarship program for Kazakhstan Europe and other regions but also meets the student support. students in China as well as carry out coop- personnel exchange demands between China Under the cooperation, local card issu- eration in the Khorgos Trade Zone located and Kazakhstan. <

SECURITY PAYMENTS Danske Bank to deploy Zwipe SBI partners with biometric credit cards PayPal for cross- border payments Denmark-based Danske Bank is planning Zwipe has previously rolled out several to launch biometric credit cards developed pilot projects with its biometric credit card. State Bank of India (SBI) has teamed by Norwegian firm Zwipe by the end of the It is reportedly working with MasterCard to up with digital payments firm PayPal year. create a credit card that combines biomet- to allow its customers to use their debit According to reports, the bank’s market- ric authentication and cards for buying products from overseas ing manager Simon Steen-Petersen said the technology. websites. new payment solution is expected to be com- In an interview with Finansfokus.no, The partnership aims to facilitate pleted in a year. Zwipes CEO Kim Humborstad said: “Pilot cross-border transactions and domes- Steen-Petersen said: “We are throwing projects are showing good results so far. tic payments as well as offer financial ourselves into this because we have a desire Now we will soon put them on the market solutions to the merchants using PayPal to be an innovative bank.” for commercial use.” < services. It will also enable the bank’s micro small and medium enterprise (MSME) customers to access overseas PRODUCTS markets using PayPal’s secure digital payment solutions. Federal Bank and SBI Card to Additionally, both the companies will set up a joint co-ordination committee to execute and expand the partnership. launch new co-branded credit cards SBI managing director B Sriram said: “It provides a perfect opportunity to India-based private sector bank Federal Bank international airport lounge access and golf both of us to collaborate and offer a has partnered with SBI Card to launch Fed- course access as well as exclusive gift voucher wide gamut of customised financial eral Bank-SBI co-branded credit cards. worth INR3,000 ($47) on payment of fees. solutions to merchants across the board. The collaboration will allow Federal Bank The Platinum variant will have a credit This would bring new opportunities for to launch two new variants of Visa up to INR500,000 ($7,848), while our SME customer base.” cards for its customers, namely Platinum and the Gold variant will have credit limit of PayPal managing director and coun- Gold ‘N More. INR175,000 ($2,747.4). try manager (India) Vikram Narayan The two new variants will be chip-based These credit cards will be rolled out in two said: “PayPal has a strong role to play cards offering a high level of security for phases, the first phase will include the avail- in the ‘Make in India’ initiative. Col - cardholders and will be accepted worldwide ability of the card at select branches of Fed- laborating with us gives SBI’s customers in over 27 million outlets including three mil- eral Bank and more branches will be added global access to businesses and consum- lion outlets in India. in the second phase. ers alike.” The platinum variant, namely the Federal SBI Card CEO Vijay Jasuja said: Meantime, SBI has partnered with Bank SBI Platinum Credit Card, will provide “Through this collaboration we hope to Snapdeal to offer credit to sellers reg - benefits to customers of the bank mainly for extend our bouquet of best-in-class services istered on the e-commerce portal at fuel payments and dining. and rewarding offers to Federal Bank cus- easier interest rates. The bank has also The platinum card will also offer benefits tomers. We are confident that the new card partnered with Amazon to provide pay- such as reward points for every use at din- will add value to the consumers of Federal ment and commerce solutions. < ing, departmental and international stores, Bank.” <

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CI 519.indd 3 08/06/2015 13:12:03 NEWS: ROUND-UP Cards International

DISTRIBUTION SECURITY Axis Bank to launch new POS Getin Bank to launch new DCVC terminals for NFC-based card card for secure acceptance online transactions India-based private sector bank Axis Bank plans to relax two factor norms for NFC is planning to launch 20,000 point-of-sale based payments below INR2,000 ($31.45). Getin Bank has rolled out a pilot program (POS) terminals at merchants for NFC- Axis Bank president for retail lending with MasterCard to launch a new dynam- based card payment acceptance. and payments Jairam Sridharan said: “Axis ic card verification code (DCVC) on the The bank will start issuing NFC-based Bank is committed to catalysing this new back of its payment cards in Poland. EMV chips for both credit and debit cards ecosystem on both sides by enabling a large With this DCVC code, the bank aims to to facilitate tap and pay or contactless pay- number of merchant terminals for NFC, as replace the static three-digit security code ments. well as starting to issue NFC cards.” on its cards with a dynamic, changeable Additionally, the bank has unveiled plans Earlier this month, Axis Bank launched code that can be constantly changed elec- to roll out a further 50,000 of these termi- PingPay, a multi-social payment solution tronically to enhance security. nals by the end of the year to process NFC to enable customers to transfer money and The bank intends to launch the new contactless credit and debit cards. mobile recharge, person-to-person, includ- DCVC card to customers by the end of The move follows Reserve Bank of India ing to non-Axis Bank account holders. < the second quarter of 2015. The pilot electronic CVC security code will be displayed on an integrated mini- MARKETING screen that is automatically refreshed every hour. The technology has been Apple to launch new designed to fight potential theft, fraud in online transactions and database hacking. rewards program The solution is considered to be much fast- er than other security protocols for secur- Apple is planning to launch a new rewards Watch, the program will offer users bet - ing online transactions such as 3D Secure. program for its mobile payments service ter deals and discounts by paying from the Getin Bank management board member Apple Pay at the upcoming annual World- NFC-based Apple Pay. Maciej Szczechura said: “The DCVC card wide Developers Conference (WWDC). The company expects to rollout of the employs advanced technologies to guar- The rewards program has been designed program along with iOS 9, later this fall. antee the top security level, while provid- to offer perks to consumers who make In addition, Google has also launched ing even more convenient access to online purchases with the service. Compatible Android Pay at the Google I/O developer payments.” < with the iPhone 6, iPhone 6 Plus and Apple conference. <

REGULATION DIGITAL Visa and Mastercard to process BitStamp launches new electronic payments in China prepaid card

China has introduced new rules that clearing all renminbi payments. BitStamp, a Slovenia-based Bitcoin exchange, has allow Visa and Mastercard to clear According to a Central Bank unveiled a new prepaid card that can be loaded with electronic payments in its domestic report, banks had issued 4.9 billion Bitcoin, either physically or virtually. market. debit and credit cards and retail pay- The prepaid cards program has been launched in part- In April, the Chinese government ments totalling RMB42 trillion ($6.8 nership with payment processor Astropay. published rules that allow foreign trillion) in the country by the end of The card will be accepted by any business that accepts firms to set up their own clearing com- 2014. major credit and debit cards and will be denominated panies in China and apply for licenses Former China general manager for either in British pounds, euros or American dollars. to the central bank starting from 1 MasterCard and now greater China The card has three different stages of verification, June 2015. general manager at First Data James each with its own spending limit. The first stage does The rule change follows a 2012 Chen told the Financial Times: “Visa not require know-your-customer verification and allows ruling by the World Trade Organi- and MasterCard need to build up for €2,500 ($2726) worth of transactions annually. The sation in support of the US, after it their local infrastructure. In the past other stages require government ID, proof of residence, complained about China’s closed pay- they just operated as a sales office. and a certified source of funds document for annual ments market. They don’t really have the physical spending limit of €125,000. The rules will end the monopoly presence. With this card, users can transfer funds from a Bit- held by China UnionPay, the country’s “They need to start to recruit peo- Stamp account to the card at a $10 flat rate for transfers domestic cards and payments firm, ple and buy equipment -- basically of $1,000 or less. However, a 2% fee will be charged for which was previously responsible for build from ground zero.” < transfers above $1,000. <

4 y May 2015 www. cardsinternational.com

CI 519.indd 4 08/06/2015 13:12:03 Cards International NEWS: ROUND UP

PRODUCTS National Bank rolls out new MasterCard platinum credit card

Bangladesh-based National Bank has rolled tional Airport together with three compan- areas since National Bank strongly believes out a new MasterCard platinum credit card ions, one free corporate health check-up at in expanding its services for the develop- that offers cardholders a range of privileges. United Hospital, free Card for lifetime and ment of the country.” The new credit card will provide benefits discount offers at over 250 major merchant MasterCard Bangladesh country man- such as ‘buy-one-get-one’ offers for a buffet outlets. ager Syed Mohammad Kamal said: lunch or dinner at Grandiose Restaurant of National Bank Limited managing direc- “Cardholders now have the opportunity Dhaka Regency, free access at Balaka Exec- tor Shamsul Huda Khan said: “We are to get rewarded for their regular expenses utive Lounge and Ruposhi Bangla Hotel delighted to be able to provide the world while continuing to enjoy a safe, secure and Bangladesh. class technology-based services to its cus- convenient shopping experience. In addition, the card will offer tomers through its different initiatives in “We are also hopeful that the introduc- cardholders with a priority passenger han- the coming days, by which the country will tion of this card will further promote elec- dling service in Hajrat Shahjalal Interna - also move to cashless transactions at rural tronic payments in the country.” <

REGULATION SECURITY Visa and MasterCard shift card processing in BBVA launches Russia to local system remote control wallet app Visa and MasterCard will now process all The new system will enable Russians’ credit their transactions in Russia through a newly cards to continue functioning though foreign created local payment system. payment systems switched off access. It was Spanish banking group BBVA has added The shift to the new payment system launched after Visa and MasterCard new functions to its mobile payment system aims to prevent the US credit card stopped providing services for by launching a new app that acts as a remote companies from suspending ser- some Russian banks that were control for cards. vice. sanctioned over Moscow’s role The app enables users to control the “We transferred all transac- in the Ukraine crisis. spending on each card, limit its use to ecom- tions done with MasterCard Last week, Russia’s new merce or take money out of an ATM, as well cards in April, and literally national payment card sys- as temporarily block it if it is lost or reacti- last night we completed a full tem said that it had selected a vate it when the user finds it. transition for all banks using brand name and image for its With this new version of BBVA Wallet, Visa,” Central Bank deputy head first bank cards, to be released customers can turn the cards on or off based Olga Skorobogatova was quoted as later this year. on their specific needs at any given time. It saying. The brand name, which in Russian also provides users total control over their Skorobogatova added that Visa has also means both ‘the world’ and ‘peace’, will transactions, allowing them to set up alerts moved processing of its card transactions in include an image of the world and cartoon- as well as allow them to manage their cards Russia to a local system. like wings. < efficiently via smartphone. Customers can also set up and limit the REGULATION use of each card or even deactivate the card in the case of a trip abroad. The app provides Target’s $19m data breach settlement with customers with greater security and allows them to manage credit card transactions and MasterCard thwarted make mobile payments via smartphone. BBVA global payments systems head Target’s proposed $19m settlement with According to plaintiffs, the settlement Mehmet Sezgin said: “The new version of MasterCard over the retailer’s data breach would cover only ‘pennies on the dollar’ BBVA Wallet turns our customers’ smart- in 2013 has been voided as it did not for security breach losses. The legal counsel phones into a remote control to do whatever receive enough support from the affected said it will push the lawsuit forward, seek- they want with each one of their cards. banks and credit unions. ing class-action status later this year. “Personalising cards up to now never The breach compromised 40 million National Association of Federal Credit meant more than choosing a photo to deco- credit and debit card accounts. Unions’ Government Affairs and Gen - rate them, but now BBVA’s customers have Target said that 90% of card issuers eral Counsel senior vice president Carrie the ability to set up their own cards, cancel were required to go for the settlement by Hunt said: “The failure to opt in to the them and modify each one to meet their 20 May, but MasterCard informed the for- settlement by financial institutions sends needs and circumstances,” added Sezgin. mer that the threshold was not met. a strong signal to card companies that the BBVA Wallet has achieved more than MasterCard said that not enough issuers current reimbursement system does not 570,000 downloads in Spain. The new app have approved the deal and it will continue work and financial institutions need to be has been launched in Chile this year, with work to resolve the issue. made whole.” < plans for roll out in other regions, such as the US and Mexico, shortly. <

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CI 519.indd 5 08/06/2015 13:12:05 STRATEGY: ELO Cards International

Elo growth challenges Visa and MasterCard in Brazil Brazilian domestic card scheme Elo has made rapid progress since its launch in March 2011, and now offers card products for low-, middle- and high-income consumers. Elo is positioning itself as an inclusive brand that targets all consumer segments, its president Eduardo Chedid tells Robin Arnfield

n April 2010, and Brad- clients perceive debit cards as a bank card Going up-market esco, which jointly control Brazilian (i.e., a Bradesco card) more than as a brand In the first quarter of 2015, Elo moved up- acquirer Cielo, founded Elo as a domes- card (i.e., a Visa card),” they wrote. “Hence, market with the launch by Banco do Bra- tic card scheme competing with the Visa changing brands is easier on debit cards. sil, Bradesco and Caixa of two Elo-branded I The Brazilian credit and debit card market and MasterCard brands. In August 2010, rewards credit cards targeted at high-income Brazilian government-owned savings bank rose by 14.8 per cent year-on-year in 2014 customers, Elo Grafite and Elo Nanquim. It Caixa Econômica Federal joined Elo, whose to BRL978.8 billion ($322.7 billion), not also announced that Elo cardholders can pay cards are currently exclusively acquired by allowing for inflation, according to Brazilian with their smartphones through a Brazilian Cielo. card industry association Associação Bra- partnership with Israel-based restaurant and Elo, which encompasses credit, debit, sileira das Empresas de Cartões de Crédito e hospitality mobile payment service MyCheck. prepaid and benefits cards, initially targeted Serviços (Brazilian association of credit cards The launch of Elo Grafite and Elo Nan- unbanked and low-income consumers in the and services companies). ABECS predicts the quim follows the November 2014 launch of C and D segments. It has since developed market will grow by 12-13 percent in 2015 to Elo Mais, a rewards card targeted at middle- products for higher-income consumers. BRL1.1 trillion ($363 billion). income consumers. “Our goal is to be an inclusive brand, with Elo’s rewards cards provide higher levels of a wide variety of products and services tar- Cards market review rewards points than those offered by rewards geted at all consumer segments,” says Chedid. Elo owes its launch to a 2010 review of the cards branded with other schemes’ logos, Elo However, Brazil’s 55 million unbanked con- Brazilian cards market by Banco Central do says. Strategic partnerships are expected to sumers are still an important market for Elo. Brasil, Kendrick Sands, a consumer finance play a major role in helping to promote Elo’s “We see an opportunity to target unbanked analyst at Euromonitor International, wrote rewards cards. consumers, for whom cards represent an in a blog. Elo’s other card products include its Elo important point of entry to the banking sys- The Central Bank’s review concluded that Nacional credit card, the Elo Débito debit tem,” Chedid says. there were too few competitors and too much card, the Elo Empresarial SME credit card, the vertical integration in Brazil, resulting in arti- Vale-Presente reloadable prepaid card, and a Launch ficially high prices for payment processing. range of employee meals prepaid cards issued The Elo card brand was formally launched Its directives to correct this included ending with Alelo. It also issues cards for specific ver- in Brazil in March 2011, and, in addition to the ban on acquirers processing both Visa and tical markets such as the Elo Agro card for Visa and MasterCard, competes with two MasterCard, establishing interoperability of farmers with a rural line of credit linked to small domestic Brazilian card schemes, major POS terminals, and strengthening domestic their bank account, and Elo BNDES ( Banco Brazilian bank Itaú’s Hipercard brand and card schemes to compete with MasterCard Nacional de Desenvolvimento Econômico e Banricompras, which is owned by regional and Visa. Social/National Economic and Social Devel- bank Banrisul. Elo’s cards use contactless and According to a January 2015 J.P. Morgan opment Bank), which provides financing for contact-based EMV chip technology devel- research note on Cielo, a key benefit of cre- investments by SMEs. oped by Gemalto, ating Elo is that its three participating banks According to an April 2015 research note have sovereignty over the Elo card payment Potential on Cielo by J.P. Morgan analysts Domingos structure, which is controlled by the brand. Chedid says that there is an enormous poten- Falavina, Saul Martinez, Yuri Fernandes and In 2011, Alelo (formerly known as Com- tial for Elo to target the fast-growing Brazil- Christopher Delgado, Bradesco, Banco do panhia Brasileira de Soluções e Serviços/Bra- ian high-income credit card market. “Provid- Brasil and Caixa together hold approximately zilian solutions and services company), an ing credit cards to high-income consumers 60 per cent of Brazil's banking market. Che- employee benefits prepaid card issuer owned will help us expand our market share and our did says Elo’s goal is to gain 15 percent of the by Banco do Brasil and Bradesco, became profitability,” he says. Brazilian cards market by 2017. a wholly-owned subsidiary of Elo Partici- “It’s a big challenge for Elo to attract the “Given the relevance of Elo’s (participat- pações, the Bradesco- and Banco do Brasil- attention of, and to be chosen by, affluent ing) banks, we find the target achievable,” owned holding company for the Elo scheme. consumers,” says Boanerges Ramos Freire, the J.P. Morgan analysts wrote. “Currently, Elo Participações, in which Bradesco has president of Brazilian cards consultancy Elo has approximately a 9 per cent share of a 50.01 percent stake and Banco do Bra- Boanerges & Cia. “They’re more sophis- the cards market.” sil 49.99 percent, owns 66.66 percent of Elo ticated and demanding, and are already According to the J.P. Morgan analysts, Serviços, the company which operates the Elo well served by many issuers and other card Elo is growing faster in debit cards than scheme. Caixa has a 33.34 percent stake in brands.” credit cards, as it is easier to convert clients Elo Serviços. “The high-income segment will be chal- to Elo debit cards. “According to Bradesco, lenging, since Elo has so far focused on the

6 y May 2015 www. cardsinternational.com

CI 519.indd 6 08/06/2015 13:12:05 Cards International STRATEGY: ELO

mass market, and its competitors have well- ‘emerging-class-Brazilian card brand’ to a In March 2015, MasterCard and Itaú established programs and brands,” agrees full-size brand.” agreed to develop a new local MasterCard- Guilherme Lima, founder of Brazilian cards operated acceptance network, for which Itaú consultancy Ponto Futuro Consultoria Estra- Ambitious goals will issue credit, debit and prepaid cards. tégica. “Moreover, Elo still doesn’t have inter- “Elo’s goals are very ambitious,” says Lima. “This is a defensive move aimed straight at national acceptance, and that enormously “Doubling its market share by 2017 will be Elo and its issuers,” says Lima. erodes Elo’s value proposition for the high- especially challenging, given that the Bra- income segment.” zilian cards market is maturing and should International acceptance “On the plus side, Elo is supported - some have inflation-adjusted single-digits annual Elo is seeking deals with acquirers in other would argue subsidised - by its shareholders growth during 2015-2016. Having very countries so its cards can be used outside and issuing banks,” says Lima. “It is offering large issuers on Elo’s side, the key challenges Brazil. Chedid told Cards International in rewards programs that have more aggressive are expanding its acceptance, as well as cre- May 2015 that Elo will make an announce- points accrual than Visa and MasterCard. ating brand preference among consumers. ment about a foreign acquiring partnership Also, Bradesco is giving its premium Elo Elo is trying to address both issues.” “in the near future”. The partnership, which cardholders access to VIP airport lounges, In a bid to widen the Elo scheme’s accept- will have a global reach, will be implemented a feature which previously has been avail- ance, Elo cards will be accepted by Itaú’s Rede in the second half of 2015, Chedid says. able only to Amex cardholders in Brazil. So I (formerly Redecard) and Banco Santander “Lack of international acceptance is a expect the high-income segment will contrib- Brasil’s GetNet Brazilian acquiring subsidiar- restriction for the Elo brand, especially con- ute somewhat to meeting Elo’s overall market ies from July 2015. sidering Elo’s goal of moving upwards in the share target.” “It remains to be seen how long will it take socio-economic pyramid,” says Ramos Freire. for consumers to erase the perception that “Elo’s aim is to develop partnerships with Domestic success there is an card acceptance gap for Elo,” says local and/or international networks not just As of May 2015, there were 70 million Elo- Lima. “In the past, MasterCard had invested in Latin America but worldwide.” branded cards in issue in Brazil, which were a lot to influence that perception.” “There are no signs that it is a priority for accepted at 1.65 million merchants includ- Elo to penetrate other card issuing markets ing mobile and e-commerce merchants. Elo Marketing in Latin America,” says Lima. “Elo’s found- doesn’t provide any breakdown of how many Lima says Elo has been the Brazilian card ing banks don’t have a retail presence outside of its cards are credit, debit, prepaid or ben- brand with the highest marketing invest- Brazil, unlike their rival Itaú, for instance, efits cards. ments since the beginning of 2015. “Elo was which is present in Argentina, Chile, Para- In 2014, Elo’s cardholders carried out 1 bil- clearly the most visible brand during Brazil’s guay and Uruguay. lion card transactions worth a total of BRL68 most recent summer vacation season, includ- “What is a priority is signing an interna- billion ($22.4 billion), according to a report ing intense point-of-sale advertising with tional acceptance deal, which should priori- by Brazilian newspaper Exame.com. the support of Cielo. Also, it has sponsored tise Latin America and the US as key travel “Elo’s domestic success in Brazil can be high-profile events such as Rio de Janeiro’s destinations. Elo’s negotiations with foreign attributed to the fact that it has the signifi- and Salvador’s carnivals as well as football acquirers are advanced and, by the end of cant advantage of being backed by three of championships.” 2015, Elo should have international accept- the largest Brazilian banks,” says Tristan “During 2014, we promoted the Elo brand ance.” Hugo-Webb, associate director of Mercator at football events such as the World Cup and Speculating on whether Elo would want to Advisory Group’s Global Payments Advisory the Campeonato Brasileiro (Brazilian cham- partner with issuers in other Latin American Service. “So from the start, Elo had a large pionship) professional football league,” says countries, Mercator’s Hugo-Webb said Elo potential reach and the resources behind it Chedid. “We are also an official sponsor of could have some success in countries that to significantly invest in card issuance and the Copa Sadia do Brasil (Sadia Cup) during neighbour Brazil. to build out its brand. This has had a com- 2015 to 2017. “However, the issue is less the card brand pounding effect over the years since its formal “Our football strategy is intended to show than the market’s maturity,” he says. “In launch in 2011.” our customers that we support football. In many markets across Latin America, bank “Up to now, Elo issuance has been exclu- addition, we have a number of partnerships account penetration, let alone debit and credit sively based on the three Elo shareholders’ that stress the fact that we are a Brazilian card card penetration, among adults is below 50 sales efforts,” says Ramos Freire. “I under- brand. per cent, if not much lower. stand that the majority of Elo-branded cards “For example, in March 2015 we signed “As a result, Elo would have to wait for in issue are debit cards, most of them associ- a deal with internationally-celebrated Brazil- each national card market to develop suf- ated with basic/simplified current accounts ian artist Romero Britto to use his designs in ficiently before it could be really successful. such as Caixa’s Conta Caixa Fácil (simple our point-of-sale promotional material along But, of course, it could build up brand aware- Caixa account). with the hashtag #soubrasileiro (I am Brazil- ness during this process.” “Now Elo is moving to a more open ian). We are also planning a series of aspira- Hugo-Webb notes that, while other brands approach involving other issuing banks tional events for our cardholders in order to such as China UnionPay and India’s RuPay besides the shareholders and other Brazilian promote the Elo brand and to stimulate Elo are trying to build out networks to rival Visa acquirers besides the current exclusive rela- card transactions.” and MasterCard, these brands’ international tionship with Cielo. “Elo has recruited a highly qualified execu- expansion has focused on Europe and other “With the launch of more sophisticated tive team, with specific brand/network expe- key markets, leaving Latin America relatively products targeted at high-income segments rience,” Lima says. “So the elements for untouched. and with its plans for international accept- growth are in place, but how far Elo will “This presents an opportunity for Elo to ance, Elo is trying to reposition its brand, grow is still uncertain, and will also depend take on Visa and MasterCard in Latin Amer- moving from the current perception of an on Visa and MasterCard’s moves.” ica,” he says. <

www.cardsinternational.com May 2015 y 7

CI 519.indd 7 08/06/2015 13:12:05 REPORT: NEW WORLD OF RETAIL Cards International

The New World of Retail leading the way for banks The retail industry is affecting everything around it, from banking to information and communication technology. The increased adoption of mobile devices, which shows no sign of slowing down, and the emergence of new payment solutions are forcing a re-evaluation of technology. Patrick Brusnahan writes

n The New World of Retail, a report less options are available to customers both the smaller the transaction value, the higher compiled by MasterCard and Innovalue, online and offline. the probability it will be settled by cash. a strategic management advisory firm, The report states: “Today, online and in- The shift is set to accelerate in Europe as considers how the retail sector is forcing shop buying experiences are converging as a the European Union Commission has ration- I consequence of consumer adoption of new alised the cost of electronic payments to a change upon the industries surrounding it. The study claims that the development of devices and increased availability of real-time degree that arguably these are lower than Apple Pay and the roll-out of NFC-enabled connectivity.” cash handling to retailers, thereby eliminat- Android and Microsoft phones are important Considering the fast growth of e-commerce ing a perceived cost barrier to card payments to push forward the usage of solutions such and m-commerce, retailers now have oppor- acceptance for smaller retailers. as NFC. Furthermore, this is allowing con- tunities that were not available a few years Online and e-commerce payments are simi- sumers to change their payment preferences ago. However, the establishment of these new lar to shops in terms of volume and growth at checkout. channels and devices does not only imply that rates, but compared to physical channels, Consumers prioritise comfort, safety and there are new ways to reach consumers, but online payments have much more variation convenience when choosing a specific pay- also that consumers are mixing channels on and different fragments. ment product. Convenience and availability a single purchase. Customers can review a In the retail space, e-commerce has been particularly influence the probably of comple- product online and purchase it offline later. growing by a double-digit percentage rate, tion of the checkout process. Alternatively, they can browse in a brick-and- which is crucial to the growth of all retail As a consequence, these key factors not mortar store and then complete the transac- sectors. Europe’s total e-commerce market only influence payment decisions, but also tion online. in 2013 was €518bn and it is expected to hit consumers’ shopping preferences and the If retailers focus on only one channel, or €826bn by 2018; this equates to an average success of a checkout process. In addition, by even not integrating channels at all, they growth rate of 11.4% per year. consumers are asking for innovative payment risk a disconnection with their customers and The United Kingdom is currently the acceptance solutions, as well as seamless losing revenue in the time where a competing e-commerce leader in Europe with a value of shopping experiences that cross channels and retailer is one click away. €128.9bn of online purchases and is expected touch-points. Retailers are not only concerned with the to hold on to its position until 2018 with an With the emergence of mobile wallet solu- requirement to operate through multiple estimated transaction value of €175.3bn. tions, increased adoption of NFC and the channels, but to make sure that all of these Despite the value of e-commerce growing proliferation of new methods of capturing channels are integrated. This ‘channel conver- at a fast rate, it still represents only a small and storing transactions and credentials, gence’ or ‘omnichannel retailing’ is summed percentage of the total value of retailers’ retailers are faced by not only increased com- up in the customers’ ability to shop anywhere, transactions. Overall, e-commerce in Europe plexity of payment options at checkout, but anytime and anyhow. The demand for this is was less than 10% of the total retail revenues also by an increased risk to their customers increasing as digital channels have become in 2013. and ultimately to their businesses. more integral to consumers’ daily lives. E-commerce is very fragmented in terms of Fraud is still a major threat to retailers. Not Payments are a strong indicator in reflect- payment methods used by consumers com- only can it cause some severe short-term loss- ing the change that is taking place in the retail pared to retail POS where cash and cards are es, but it can ruin a retailing brand’s value and industry. the kings. With the online world, card pay- consumers’ trust in the long run. Research Traditional ‘brick and mortar’ shops are ments lead the market with a share of 51%, undertaken by MasterCard highlighted how still the most relevant channel with the high- followed by PayPal with a share of 19%, consumers’ of retailer, channel and est volumes, but this includes relatively small bank transfer with 9%, and cash at delivery payment type can be heavily influenced by growth rates. Electronic payments are gaining that holds a share of 8%. a negative experience of a fraud incident, relevance in this sphere, but the share of pay- Mobile payments and payments based on regardless of who was actually responsible ments in cash is still significant. mobile infrastructures are still a small-sized for the fraud. In 2013, retail shops in Europe had an channel, but this is compensated by high Ultimately, the report says, the payment is approximate market value of €5,452bn growth rates and show signs of containing only the final step in a customer journey that ($5,949bn). 42.4% of these sales were com- an even higher degree of fragmentation than should be an enabler and not a barrier to the pleted through a card payment while 57.6% e-commerce. completion of a purchase. Both consumers were settled via cash. With the exponential rise of smartphones, and retailers demand simplicity, seamlessness While cash is still dominant, it is losing part their increasing functions and capabil - and safety, but it is up to the payment sector of its market share due to the increase of elec- ity, mobile devices are increasingly used for to provide these features and to retailers to tronic payment. However, this varies depend- the purchase of goods and services. Mobile ensure that the easier, safer and more seam- ing on the value of the transaction. Generally, devices are predominantly used to buy virtual

8 y May 2015 www. cardsinternational.com

CI 519.indd 8 08/06/2015 13:12:06 Cards International REPORT: NEW WORLD OF RETAIL

n SOLUTIONS THAT MERCHANTS DEEMED TO BE n CONSUMERS’ PREFERRED SECURITY n M-COMMERCE PER CAPITA IN SELECTED BEST FOR THEIR BUSINESSES AUTHENTICATION METHODS FOR MOBILE DEVICES COUNTRIES (2013-2018 FORECAST) Contactless cards 63% Fingerprint reader 45% 2013 2018 Mobile NFC 47% Password > 4 digits 43% Poland € 20 € 224 Contact-based cards 46% Face recognition 21% Denmark € 60 € 196 Online Bank Transfers 28% Draw a pattern on the 14% Norway € 140 € 176 screen Remote m-payments 16% Austria € 60 € 140 None of the above 10% QR Codes 11% UK € 56 € 104 Source: Mercator Advisory Group Source: PCM Research, 2013 France € 60 € 84 Spain € 20 € 84 ogy is omnipresent in the lives of mil- goods, such as music or applications. Mobile lennials (or Generation Y) to the point Sweden € 28 € 76 phones are only now being used for proximity that smartphones are often quoted as the Source: Passport, The Mobile Wallet 2014 payments through a POS terminal. channel of choice for any type of service. Mobile proximity payments are expected • Emerging new models and industry to grow at a higher rate than previously seen convergence: Start-ups from the finance phone. as payment applications, such as Google Wal- sector and technology providers have While most consumers prefer to pay with let and Apple Pay, gain wider adoption. This been monitoring technology innova- a card or cash at the retail POS with cash is expected to be aided as Square has allegedly tions to develop new services and evolve payments being most prevalent for low value been working on an Android tablet of its own existing services. The size and the brand transactions, typically for low-cost purchases that would replace the iPad-powered Square value of companies such as MasterCard, (between €0.01 and €25), this is chang - Registers for small businesses. Apple and Google are not only influenc- ing. Contactless payments through cards or As a reaction to Apple Pay, Google has been ing and shaping consumer preferences mobiles are offering more convenient meth- working on a new mobile payments system but reshaping the retail environment ods to eliminate cash in low value payments. named ‘Plaso’. It is currently being tested at a through the development of new pay- The NFC transaction market is forecasted few retailers and the service allows customers ment solutions as well as evolving their to experience startling growth in the next to pay at checkout by just confirming their established products. eight years according to ReportsnReports. name or initials to the cashier. Initiatives such com, increasing at an estimated CAGR of as these would bring more mobile-initiated The report states: “These drivers of change 8.83% from 2014 to 2022, hitting a total payments into the brick-and-mortar world. are highly interconnected. Moreover, they do global contactless transaction value of The mobile commerce market in Europe not only influence the way consumers expect $16.25bn by 2022. is still low compared to in-store and online or are looking to complete a transaction, Preferences with regards to mobile pay- purchases, only accounting for a value of but also affect many other parts of daily life. ments are slightly more complicated. €158.7bn in 2013. However, it is expected to From a retailer’s perspective, the changes go The report says: “Consumer mobile pay- rise to €450.8bn by 2018. well beyond payments, and one typical exam- ment preferences appear to be driven by a ple is the retail channel convergence. more complex number of factors, e.g., the Drivers of change “Consumers require and expect sales and growing number of smartphones, improved Payments are in the middle of a period of access to information to be integrated into mobile data connectivity and overall social dynamic change. This is a result of the new a seamless and consistent user experience. changes. Analysing these drivers for consum- and emerging technologies in the market. Their expectations about payment avail- er adoption of m-payments, one of the key Card functionality being integrated into ability and performance are only one of the factors is once again ‘convenience’. phones is just one example of new possible many aspects of channel convergence, but it “But it is worth noting that ‘speed of pay- business models, like the implementation of is a crucial part of the user experience as well ments’ (including a quick purchase in-store NFC transactions or the possibility to pay for as an influencing factor for the completion of as well as 1-click-ordering via mobile apps) goods via scanning a QR code that has been a sales journey.” and value added services, like incentives and printed into a catalogue. All of these changes personalised offers, also score highly within suggest a sizable cost to upgrade infrastruc- New channels, attitudes and preferences the context of the research. These new factors ture and an increase of risk from the perspec- Consumer behaviour can change significantly appear to be highly relevant in the context of tive of retailers. depending on which form of payment they mobile commerce and provide a valuable According the report, there are three crucial prefer. Therefore, understanding consumer indicator to retailers searching to maximise drivers of change: preferences and having the ability to leverage sales through the mobile channel.” the right triggers for the desired consumer The report concludes: “Ultimately, the • The rise of smartphones: Since 2007, behaviour is important to increase the rate of payment is only the final step in a customer with the launch of the first iPhone and checkout completion. journey that should be an enabler and not a Android based devices, the mobile The demands of the modern consumer are barrier to the completion of a purchase. Both has been transformed into a ‘port - more varied than ever before. While consum- consumers and retailers demand simplicity, able, pocket-sized computer’. Along- ers still have traditional needs, such as con- seamlessness and safety but it is up to the side the increase of data connectivity, venience and security, there are now a new set payment industry to provide such features, smartphones are now an ever-present of requirements, which include seamless and and to the retailer to ensure that the simpler, e-commerce opportunity consistent experiences, value added services, seamless and safer option is made available to • The rise of millennials: Digital technol- and all of these services connected to a mobile consumers both online and offline.” <

www.cardsinternational.com May 2015 y 9

CI 519.indd 9 08/06/2015 13:12:06 ANALYSIS: VIRTUAL CREDIT CARDS Cards International

“I remember thinking I wouldn’t wish launching a credit card from scratch on my worst enemy” What does it take to launch a credit card- indeed a virtual credit card? Anna Milne talks to Wellspring Financial’s Peter Kalen about the Canadian SME financing market- how he spotted a gap in the market to launch Canada’s first virtual credit card, and how he intends to help retailers increase ‘big ticket’ sales

round 2012, Peter Kalen noticed (previously they input on a form and hand excruciatingly complex undertaking. On an a lot of competitors and SMEs over to the sales assistant so there is an instalment loan it’s straightforward, you fig- weren’t advertising promotional extra degree of privacy with this format). A ure out the interest rate and there’s a repay- financing anymore- no 0% inter - summary of T&Cs is presented to them on ment schedule and you’re done. On a credit A screen, which they click accept to, and the card there are all kinds of variables- what if est or deferred payments. Given that Canada hadn’t fully recovered from application is processed there and then. The someone has two plans, misses a payment recession, he felt this seemed strange. He merchant photographs the receipt, which or makes a partial payment? It is extremely decided to do something about it. “GE is sent to the back office- it’s all paperless. complicated but it’s where the opportunity is. Money, HSBC Finance, Wells Fargo and In Canada, first use of the credit card is “I remember walking around at the begin- Citi Financial had all retreated from the deemed acceptance of the terms and con- ning, thinking I wouldn’t wish launching a market, the first three completely exited, ditions therefore they need the terms in credit card from scratch on my worst enemy.” Citi Financial curtailed their lending and advance. The customer receives the QR activities and a lot of SMEs were left code (their virtual private label credit card) Benefits of virtual? without the ability to offer sales financ - and they can present it on their phone to be A virtual card means not having to maintain ing and to compete with the big guys. It scanned or it can be printed and scanned. an inventory of T&Cs at retail locations. By seemed like the perfect opportunity to get Wellspring adjudicates and underwrites being virtual with its own closed loop and into the market and address that gap.” the customer, in the merchants’ loca - network, there’s no need to form a relation- Kalen left Sears in June 2013 and launched tion. The merchant gets paid in a couple ship with all the merchant acquirers because a pilot phase in July 2014. It took about a of days, and the customer pays Wellspring the plastic doesn’t need to be recognised. year to get fully off the ground- “which, according to whatever plan was selected. Challenges included uncharted territory for a credit card company I would say is “If you’re in a less competitive space then on regulations: “Working with partners from record time”. Wellspring Financial received you can afford to charge a bit of interest- credit bureaus and lawyers to insurance and a huge boost in the form of funding from it really depends on category merchant is so on, working out how it would work with KGS Investment bank so it is well placed to in. There are 100-plus different options.” a virtual credit card was complex. increase distribution, fast. So far, it has up “For the foreseeable future this is a big to 350 retailers but “hopes to be in thou - Speed of launch market opportunity, merchants need to sands of locations over the next few years”. have options and we want to provide those. • A great team, experienced in the People are familiar with promotional Canadian market credit card space. And sleepless nights financing for big ticket purchase in cer - In Canada, SMEs represent a large portion • Leverage industry experts- building tain spaces. For other categories, such as of retail sales in household goods. Depending yourself poses risk and takes time. clothes, a tombstone, veterinary procedures on the category, anywhere from 40-60% is For credit adjudication we outsourced or cosmetic surgery, they feel uncomfort- SME. Not being able to offer sales financing to Experian- putting our own credit able. Some of the more progressive retailers is a massive disadvantage. criteria into an existing product are starting to use it but there’s a leap that “Speed, ease of application and high needs to happen in the customer’s mind. approval rates are the key success fac- Equally, with the call centre, Wellspring “In the long run, I think everybody should tors. Good retailers recognise the power partnered with Millenium One solutions, offer it. In a big ticket purchase environ - of financing to close a sale when a cus - the same platform Citi Bank has 200 million ment a merchant is doing himself a dis - tomer is wavering on buying something- if credit cards on, allowing Kalen to focus on service by not offering it, regardless of the deferred payment or payment in instal - the business model- signing up merchants, market segment they’re going after. A lot of ments is offered it can often close a sale. refining the offering and pricing. high end retailers say their customers don’t “We have a private label credit card, “Starting up a company is all about miti- need financing; they use credit cards or cash. meaning each merchant gets their own gating risk- if you introduce risk, the more But my response to that would be there is credit card with a dedicated line- a store you develop yourself, the more risk you’re a number for everybody, beyond which they card. The process begins with a tablet, the introducing in different areas are uncomfortable paying upfront in one fell sales person enters finance amount, plan “I thought I knew most things one needed swoop. For most people that number is 1500. type and ID and a credit card is tapped to to know about credit cards, given that I’ve A big ticket purchase is an unusual, out of pre-populate the customer’s details. Almost been at it my whole life and that I’ve been the ordinary expense and for the average per- every credit card in Canada now is issued fortunate enough to work in medium-sized son, $1,500-3,000 is definitely a big ticket with contactless technology. Income infor- companies, giving me an end-to-end view. purchase. I think all retailers should offer it mation is inputted privately by customer Launching a credit card from scratch is an and our goal would be to enable that.” <

10 y May 2015 www. cardsinternational.com

CI 519.indd 10 08/06/2015 13:12:06 Cards International COMMENT: SIX PAYMENT SERVICES

A European view of consumer payment behaviour Luc Holper, Head Market Development Financial Industry Services at SIX Payment Services, deciphers the differing attitudes towards payments across Europe, with particularly attention paid towards Germany, Italy and Poland. How do these markets differ? And are they all so accepting of the cashless movement?

n recent years, there has been an increase counts, price comparison sites and the ease minals with contactless capability replacing in the variety of cashless payment meth- of buying from home. many older style point-of-sale systems. New ods encompassing card transactions, terminals allow payments of €25 or less to mobile payments, online systems and Italy be made more quickly and efficiently than I before and are expected to drive greater card even virtual currencies. In Italy, cash remains the mostly preferred Consequently, consumers across Europe method of payment although there has use in low-value transactions. now have more choice than ever when it been a gradual increase in the number of For historical reasons, Eastern Euro - comes to how they make cashless payments card payments – between 2009 and 2013, pean countries have the advantage of a less and the favoured solutions vary from coun- the number of cards in circulation rose by entrenched payments infrastructure, unbur- try to country. Despite continental economic 6.96% to 116 million. dened by legacy processes and technology. As integration and - with a few exceptions - a The Italian Post Office has put significant a result, they have been able to push forward shared currency, customers continue to have resources into promoting prepaid cards and onto the latest technologies and systems as very different dispositions when it comes to the response has been positive, particularly easily – and in many cases more easily – than making payments. amongst lower income consumers who can their more commercially established western In some cases this is related to national leg- now make internet payments. Between 2013 European counterparts. islation but, more often it is simply a matter and 2018, prepaid card ownership is predict- of consumer or retailer preference. The dom- ed to increase by approximately 17 per cent POS inant payment mechanisms are whatever and register a compound annual growth rate Poland is a good example, having a good people feel most comfortable with. Knowing (CAGR) of more than 13 per cent in terms of POS infrastructure in place, and in Warsaw, how customers like to pay is key for retailers transactions. contactless payments are probably as natu- who wish to expand in these markets. Credit card use in Italy has remained ral a thing as they are in the UK. However, stagnant in recent years but a growth effect despite the potential benefit of being able to Established cultural behaviours have an comes from a government imposed cap on adopt new payment practices quickly, the important influence on payment practices. cash payments, all purchases of over €1,000 majority of the Polish population remains With the exception of large purchases such must be made by card or bank transfer. heavily attached to cash. Poland has the as property or motor vehicles, Germans In stark contrast to its southern neighbour, highest cash payments proportion in Europe have traditionally been reluctant to taking card payments are well established in Swit- at around 90%. There are many cardholders on credit. In Germany, cash continues to be zerland. This has facilitated strong growth but frequency of use remains relatively low. the most common method of payment for in online shopping and as Switzerland is not As with many areas of life, people are nat- everyday purchases. It is rare for consumers part of the Eurozone and has an appreciating urally suspicious of new things unless they to offer card payment for a transaction of currency, items from outside the country are see a clear and tangible benefit and are com- less than five euros due to worries that they cheaper for Swiss consumers. fortable using it. may be seen as not ‘having the money’ - or It’s a similar story in Luxembourg and There is a growing acceptance of cash to avoid discussions around a surcharge for Lichtenstein. In all three countries, debit alternatives and the benefits that they offer. card use that occasionally retailers ask for. cards are the preferred non-cash payment For retailers, there are lower costs due to less However, attitudes are changing thanks to method with credit cards less popular. As a administration being needed and the relative cashless payment methods being adapted to result, there is still room for these markets to security of cashless transactions as well as mirror traditional consumer behaviour. One grow and evolve. customer insight based on data and loyalty example of this would be credit cards that In Austria, the number of card transactions programmes. For the consumer, going cash- are actually deferred debit - where the bal- has grown steadily, but cash still remains the less offers greater flexibility, security and effi- ance is repaid in full at regular intervals. most commonly used method of payment. ciency. Alternative payments through mobile German retailers, especially high frequency With a card population of 8 million, debit phones are on the rise as well, reflecting the businesses, are keen to introduce new tech- cards are the most popular alternative. Yet worldwide trend to have everything on a nology but acceptance among consumers is credit and charge cards have increased in smartphone. slow. However, trust in payment technology number, and so has card usage. Currently, the cashless payment method of has increased with the rise of e-commerce As in every maturing market, the increase choice varies across Europe. It is likely that and security concerns have eased. Online in card usages and the evolution into a com- new technologies will increase the diversity banking has become more prevalent, modity results in lower average transaction of payment preferences over the next few although Germany still lags slightly behind volumes. This development calls for efficien- years. Over time however, cashless payment the UK. Germans are becoming enthusiastic cy at check-outs. There has been increased methods will permeate further and become online shoppers, taking advantage of dis- investment in payment infrastructure as ter- an integral part of society. <

www.cardsinternational.com May 2015 y 11

CI 519.indd 11 08/06/2015 13:12:06 PRODUCT: DCVC CARD Cards International

Ever-changing card security with DCVC As the rush for cards to become more flexible and more accessible continues, it is easy for security to get left behind. However, this is not the case for Getin Bank’s new DCVC card, the world’s first, which combines the three key factors. Patrick Brusnahan reports on this new innovative offering and the others not too far behind

oland-based Getin Bank has not mandatory. the top level of safety. The DCVC Card is launched its new DCVC (Dynamic Wawiernia says: “While building the our response to the growing concerns about Card Verification Code) card. It deployment strategy, we are carefully moni- the security of online financial services. P looks and acts like any other pay - toring the market demand and the custom- “This year, we are also planning to intro- ment card consumers have in their wal - ers’ reception of the innovation. We truly duce another revolutionary product; a bio- lets, but with one key difference. The believe that the increasing need for improv- metric payment card featuring an embedded static three-digit verification code is no ing transaction security will result in a posi- finger print sensor. This innovative solution, longer static. According to the bank, this tive response to the dynamic security code integrating a biometric authentication sys- is the first, and currently only, payment solution.” tem, will help to significantly raise the secu- card with a dynamic CVC security code. One possible roadblock, especially con- rity level of contactless payments.” A new code is refreshed and generated sidering that the DCVC Card is an optional Getin Bank is looking like a bank that automatically every hour. This is due to the solution, is whether customers will actually wants to heavily raise its profile and not only embedded chip in the card which contains take it on board. While newer, younger con- in the security sphere. According to reports, a code configuration algorithm. This elimi- sumers are happy to welcome innovation; the chief executive of the Polish lender, nates potential security threats, such as theft, the older, more traditional consumer may Krzysztof Rosinski, said that his goal is to fraudulent card-not-present (CNP) transac- not be willing to change. The key is not to exceed market expectations and wants the tions, database hacking, and others. focus on the differences of the card, but the bank to earn PLN340m ($95.3m) in 2015. The process is identical to using a regular benefits. In addition, he also believed that in the card. Clients enter the required data, includ- Wawierna says: “Our marketing plan second quarter, the bank’s provisions for ing the new verification code (displayed on aims at highlighting the key benefits of the bad loans will be lower than in the first the mini-screen on the reverse of the card). DCVC card, which provides clients with three months of the year and that he expects Upon authorisation, the payment acceptance a secure access to online services together improvement in the net interest income. is automatically transferred to the online with an unchanged user experience. We’d Last year, the bank, controlled by billion- shop. like to reach a diversified target group. Not aire Lesnek Czarnecki, had a net profit of According to the bank, the solution is also only customers looking for the latest digital PLN360m. more intuitive and faster than other secu- banking solutions, but also more tradition- In addition, sources have suggested that rity protocols for securing online transac- al clients, who up till now have been quite Getin were one of the banks looking to take tions, such as 3D Secure, which needs the reluctant towards online payments.” control of another Polish lender, Alior Bank, cardholder to enter additional codes sent earlier this year. However, the 25% stake by SMS on a mobile phone, adding time to Secure solutions was eventually bought by Poland’s state- online transactions. The key thing with online payments, par- controlled insure firm PZU for $436m. < When talking to CI, Paweł Wawiernia, ticularly when considering older consumers, Head of Cards and Alternative Payments, is to make everything as secure as possible. Getin Noble Bank, says: “The DCVC tech- Not only that, but also convincing your cus- nology is compliant with the existing online tomers that it is as secure as the bank says it payment infrastructure, so it is easily imple- is. Getin is trying to do that, but also mentable for e-merchants. They don’t have has a few other security options to specially adapt the payment form on their coming up. website or manage additional connections. Wawierna says: “One of our The DCVC number entered by the client is main priorities is to provide being processed just as a regular CVC veri- our clients with secure and fication code in a standard online transac- reliable processing of their tion.” transactions, including both virtual and station- Deployment ary methods. The product is still in the pilot stage to make “As a bank, we rec- sure that the product meets Getin Bank’s cus- ommend our clients to tomers’ expectations and needs. However, take usual precautions the bank hopes to have the fully out to its regarding payment securi- customers by the end of the second quarter ty, but above all, we offer the wide of the year. However, it will be optional and range of banking products, guaranteeing

12 y May 2015 www. cardsinternational.com

CI 519.indd 12 08/06/2015 13:12:08 Cards International REVIEW: UK CARD TRANSACTIONS

Cards reach record levels in the UK Debit cards continued to be utilised more than credit cards as spending on payment cards reached £49.6bn ($76.1bn) in February 2015, according to the UK Cards Association. This is a record high. Has the decline of cards been exaggerated or are they holding on for dear life? Patrick Brusnahan reports

ayment cards spending increased by The strong annual growth rate of the num- £2.6bn. 0.8% to hit £49.6bn ($75.7bn) in Feb- ber of purchases in the last three years has In terms of the number of transactions, the ruary, £0.4bn above the level recorded continued, exceeding that of values, which services sector grew by 2.9 million to 336 mil- P in January. The UK Cards Associa- shows an emerging preference for using card lion with a £352m rise in spending to reach tion (UKCA) believed that this growth was cards for lower value payments. In February, £26.2bn overall. A huge contributor to this mainly driven by the improving economy the annual purchases number grew by 9.8%. rise was the other services sub-sector, which and higher wage growth, increasing dispos- Annual growth in the service sector out- reported an increase of £215m to £8bn. able income. stripped that of retail sales. The service indus- Entertainment also had a strong month after Purchase numbers also rose, by 4.4 million, try increased by 10.2%, more than double increasing by £23m to £4.1bn, mainly driven to reach a record monthly total of over 1.05 the growth of retail spending, which was 4%. by an increase in spending at restaurants. billion. The current migration of low value Growth within retail was especially strong in purchases to cards, rather than cash, due to entertainment and travel. Recreational spending contactless and online spending, is stated to The average transaction value (ATV) on all The largest spike in spending was appar- be the main reason for this growth. payment cards remained £46.92. The ATV ent in merchants offering more recreational Contactless transactions accounted for for retail sales declined by 24p to £32.64 and services such as aquariums (which recorded 4.6% of total purchases, up from 4% in the the ATV for services rose by 31p to £77.54. a rise of over 60% in total card spending), previous month. The corresponding pro- Over the last three years, the trend of higher amusement parks and tourist attractions. portion for online was 11.3%, down from growth rates in volumes relative to values, has There was also a notable increase in spend- 12.3% in the previous month. been boosted by the contactless card usage on ing at florists, most likely linked to Valen- Richard Koch, head of policy at the UKCA, the Transport for London network. tine’s Day. Spending on educational estab- said: “Consumers are using their cards more In the digital space, the ATVs tend to be lishments and government services recorded than ever before, with over 435 transactions higher than in the face-to-face environment. the largest decreases in spending. taking place every second, meaning a great However, the downward trend is also pre- An increasing number of consumers are number of smaller transactions. At the same sent here. The ATV on all payment cards via turning to online channels for shopping and time, as inflation remains at a record low, it online channels amounted to £103.62 in Feb- entertainment. This is due to these being means we’re seeing the growth in the amount ruary 2015, more than double the ATV via faster, more convenient and often cheaper. In people spend on cards slowing.” all channels. addition, shopping on the move with mobile devices is becoming increasingly common. Growth rates Sector spending The number of card purchases made online While growth in payment card spending The amount of transactions within the retail amounts to 11.3% of total card purchases in stalled, debit card spending still grew by 7.7% sector rose by 1.5 million to reach 716 mil- February, with corresponding online spending and credit card spending increased by 5.6%. lion. The corresponding expenditure rose by representing 24.4% of total card expenditure. The slowdown in growth was driven by fall- £34m to hit £23.4bn. Most of this increase In the services sector, 20% of purchases and ing general price inflation. was attributed to the food and drink and 7% of retail sales were made online. The most UKCA figures showed annual consumer household sub-sectors, reaching £9bn and prominent sub-sector for online shopping was price inflation at a record low of 0% for the £3.7bn respectively. entertainment, accounting for 29% of the second month in a row, down from 0.3% On the other hand, spending in the auto- total of online purchases, an increase from in January and 1.7% in February of 2014, motive fuels sub-sector fell for the sixth the 27% recorded in the previous month. The attributed in the main to reduced food prices. month in a row with a decline of £34m to higher proportion of online spending was reg- istered in other services, hitting 31%. Financial services were also a popular n CARD EXPENDITURE STATISTICS (FEBRUARY 2015) choice consisting of 7% of online volumes and 26% of values. Within the sub-sectors, Total spending (£bn) Annual growth rates for Number of purchases government service, airlines and tax pay- spending (millions) ments totalled 34% of all online spending. Feb-15 Feb-14 Feb-15 Feb-14 Feb-15 Feb-14 The report concludes: “The trends reflect All payment cards 49.6 46.9 7.10% 7.70% 1,053 975 the increasing use of cards over cash within Debit cards 35.2 32.9 7.70% 8.60% 807 750 the retail space, driven by new technology and the continuous change in consumer hab- Credit cards 14.4 14 5.60% 5.70% 246 225 its alongside the underlying improvement in Source: The UK Cards Association the economy.” <

www.cardsinternational.com May 2015 y 13

CI 519.indd 13 08/06/2015 13:12:09 COUNTRY REPORT: INDIA Cards International

Indian’s strong economy sets scene for cards growth Schemes rolled out by banks, mobile operators and the Indian government provide a platform for increased cards circulation and a growing proportion of the population becoming banked. From prepaid cards to smartphone payments, the potential is huge as the younger generation and rural population are targeted

ndia’s economy has been characterised by action value and volume, payment cards card penetration and competition among card strong growth. Despite the country’s eco- registered respective CAGRs of 20.78% and scheme providers. Public sector banks such nomic progress during the last ten years, 14.41%, with a similar trend expected over as SBI, Bank of Baroda, Bank of India and Ithe penetration of financial services is the next five years. Union Bank of India launched RuPay debit still relatively low, indicating untapped poten- cards in the same year. tial. India’s economic growth has enhanced Use of payment cards is increasing In August 2014, the Indian government job creation and household income, and led a Cash continues to be the most popular pay- announced the Pradhan Mantri Jan-Dhan greater number of previously unbanked peo- ment instrument for the majority of Indians, Yojana (PMJDY) programme to provide ple to use financial services. primarily due to a limited public awareness basic affordable financial services such as Changing lifestyles, the rise of a young and of other payment instruments, or little to no banking, savings and deposit accounts, remit- employed population, increased per capita access to banking infrastructure, especially tances, credit, insurance and pensions to the disposable income, and the growing popu- in rural areas. Cash is mainly used for small- unbanked population. An unbanked Indian larity of online shopping all supported the value retail payments, utility bills, taxes and citizen aged over ten can open a new bank growth of the cards and payments industry transport fares. Use of cash is particularly account with a zero balance at any bank between 2010 and 2014. high among the rural population. branch or through BCs, specially designed Banks have responded to the opportunity Consumer acceptance of payment cards for the purpose of opening accounts under the and introduced a number of cards targeted at gradually increased during the review period, scheme. Account holders are issued a RuPay the unbanked population. Leading card issu- as the government and banks began to pro- debit card for use at ATMs and retailers. ers have offered improved products, services vide basic financial access to the unbanked As RuPay’s processing fee is 40% lower and marketing campaigns, and the govern- population. This included the expansion of than its competitors, it is expected to gain sig- ment has encouraged electronic payments infrastructure such as ATMs, the appoint- nificant domestic market share and increase through its financial inclusion programme. ment of banking correspondents (BCs), the penetration rates. It will also make it more In terms of the number of cards in circu- launch of new branches, and specific efforts viable for small retailers to accept cards, lation, Indian payment cards – comprising to change Indian consumer payment habits. increasing overall acceptance. debit, credit and charge cards – registered significant growth from 2010 to 2014, at a RuPay to compete with Visa and MasterCard Mobile payments are gaining prominence compound annual growth rate (CAGR) of The National Payment Corporation of India Mobile payments are an emerging trend in 18.55%, increasing from 246.2m cards in (NPCI) launched the RuPay domestic card India and new systems allow merchants to 2010 to 486.4m in 2014. In terms of trans- scheme in March 2012, to increase payment process credit and debit payments via smart- phones and tablets. Younger consumers in n n particular are extremely comfortable with VALUE OF CREDIT TRANSFERS ($bn) VALUE OF CHEQUE PAYMENTS ($bn) various types of electronic payment methods, IN INDIA, 2010–2014 IN INDIA, 2010–2014 and typically use smartphones to make pay- ments. US$ bn US$ bn Although mobile payment systems have 20,000 2,500 been available in the Indian market since 2010, many of the companies had to close 2,000 down due to low adoption and technology 15,000 issues. For instance, Beam Money Private 1,500 Ltd, which was offering Beam Money prepaid wallet, wound up their wallet service in June 10,000 2013 on account of low adoption. 1,000 A growing preference for electronic pay- ments offering enhanced security, coupled 5,000 500 with a growing younger population and increased smart phone sales, saw new com- panies enter the Indian market. For instance, 0 0 Vodafone partnered with ICICI to launch 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 M-Pesa in December 2013. Another mobile payment solution provid- Source: Reserve Bank of India and Timetric Source: Reserve Bank of India and Timetric er, PayTm in January 2014, launched a ser-

14 y May 2015 www. cardsinternational.com

CI 519.indd 14 08/06/2015 13:12:10 Cards International COUNTRY REPORT: INDIA

n INDIA DEBIT CARDS MARKET SHARE BY n INDIA DEBIT CARDS MARKET SHARE BY n INDIA CREDIT CARDS MARKET SHARE BY ISSUERS (%), 2014 ISSUERS (%), 2014 ISSUERS (%), 2014 State Bank of India 32.76% Ahli United Bank Ahli United Bank 27.0% HDFC Bank 8.51% 27.0% ICICI Bank 8.48% Others 8.8% Axis Bank 7.26% Punjab National Bank 4.23% Visa Bank of Baroda 2.70% 37% Mastercard Bank of India 2.03% Visa Mastercard 29.5% Indian Bank 1.98% 63% 61.7% Canara Bank 1.85% Union Bank of India 1.53% Citibank 1.13% Standard Chartered Bank 0.35% HSBC 0.15% Others 27.00% Source: Timetric Source: Timetric Source: Timetric

n Growing banking infrastructure were 24,000 mPOS devices in India. INDIA CREDIT CARDS MARKET SHARE BY The number of ATMs increased at a CAGR ISSUERS (%), 2014 of 30.44%, from 74,505 in 2010 to 215,660 Prepaid cards are gaining prominence HDFC Bank 27.08% in 2014, and is anticipated to increase fur- Indian consumers tend to prefer to spend Citibank 16.93% ther over the next five years, from 274,346 within their means, giving rise to prepaid 10.54% in 2015 to 474,017 in 2019 at a CAGR of card popularity. Other benefits include being 14.65%. accessible to people who do not qualify for ICICI Bank 10.27% Banks are also expanding their ATM net- a credit card. The number of prepaid cards State Bank of India 9.91% works and expanding generally into rural grew from 12.6m in 2010 to 49.8m in 2014, Standard Chartered Bank 6.59% areas to provide basic financial services to at a CAGR of 41.12%. Axis Bank 3.22% the unbanked population. RBI has had a key role in promoting inno- The number of POS terminals in India vative payment technology and reducing cash HSBC 2.42% recorded a CAGR of 22.23%, rising from payments, allowing all manner of organisa- Bank of India 0.26% 589,328 in 2010 to 1.3m in 2014. This tions to issue prepaid cards. The cards also Punjab National Bank 0.21% makes potential for card-based payments enable government benefit payments. Bank of Baroda 0.20% in the country likely to grow. POS terminal The Indian government launched the Saral penetration also rose from 49.3 per 100,000 Money Prepaid Card in December 2012, to Union Bank of India 0.17% in 2010 to 104.4 in 2014. It is expected to provide banking services to those unable to Indian Bank 0.14% expand further to reach 174.9 in 2019. open a bank account due to lack of support- Canara Bank 0.13% The rapid growth in India’s retail sector has ing documents. Others 11.92% led to demand for secure and low-cost POS The project was launched in New Delhi terminals, as companies move towards cash- and expanded to other cities. The prepaid Source: Timetric less transactions. Currently, POS terminals card was launched by five prominent banks, vice called PayTm Cash Wallet, with which are relatively expensive Axis Bank, HDFC Bank, ICICI Bank, Indian users can pay for different services. Likewise, In July 2013, Ezetap launched a low- Overseas Bank and SBI, in collaboration with Ezetap and Mswipe are offering mobile pay- cost mPOS terminal, costing around $50 Visa and Aadhar. ment services. (INR3,000.0), which can be plugged into a In December 2014, RBI raised the limit As of January 2015, there are 26 compa- smartphone. The device has a magnetic strip, that can be loaded onto prepaid cards from nies authorised by the central bank to provide chip card reader and integrated PIN pad. $824.7 to $1,649.5. It also increased the mobile payment services. The country has The company’s mPOS supports ten banks validity of gift cards from one to three years. reached a stage where mobile payments are in India. SBI and Ezetap tied up in June 2014 RBI has also permitted banks to issue Indi- poised to jump into a higher trajectory, driven to deploy mPOS devices in semi-urban and an rupee-dominated prepaid cards to foreign largely by high mobile penetration, growing rural areas, which can be used to make card nationals and non-resident Indians (NRIs), adoption of smart phones and availability of payments or withdraw cash. Nearly 4,000 on condition that cards are issued by an Indi- new technology such as 3G and 4G. of the devices had been installed by October an bank operating overseas directly, or by Mobile payments are well poised to emerge 2014, and the bank plans to launch another co-branding with money transmitters up to as a preferred retail payment instrument over 500,000 the end of 2019. a maximum amount of $3,298.9 by loading the forecast period, in terms of costs, conveni- There are ten new competitors planning from a KYC-compliant bank account. These ence, speed and reach. All this points to more to enter the market, including Mahindra prepaid cards are activated by the bank after opportunities in the offing for both existing Comviva, MRL Posnet, Aassan Pay, Bijli Pay, the traveller arrives in India, and cash with- and new entrants. PayNear and Indepay. As of June 2014, there drawals are restricted to $824.7 pcm. <

www.cardsinternational.com May 2015 y 15

CI 519.indd 15 08/06/2015 13:12:10 COUNTRY REPORT: THE US

Apple Pay and Starbucks lead US payments evolution US consumers are being encouraged to adopt new methods of payment through online, prepaid and mobile solutions. As a result, the cards and payments market is undergoing healthy growth. Restored customer trust and convenience are two key factors and banks, merchants and the government alike are all for it it

he US has the world’s largest pay - of Android Pay and CurrentC later in 2015. with US economic growth from 2010. Sup- ments market, and one of the high - In a highly competitive and mature mar- ported by a strengthening economy and low est levels of card penetration. In ket, banks and card issuers are facing chang- credit card delinquency, banks have again 2014, the US accounted for 86.0% ing regulatory, competitive and customer started to focus on credit card business, T dynamics. While card issuers are subject to and 87.7% of North America’s transac - albeit adopting a more cautious approach in tion value and volume respectively. rising regulatory requirements and increased terms of issue. Electronic payments have steadily gained competition, consumers’ behaviour has also In addition to targeting consumers with ground in the US, and in terms of transaction changed; they are becoming increasingly high FICO scores, banks and card issuers are volume they have overtaken the once-dom- value-driven and are looking for benefits now also offering cards to consumers with inant cheque. The decline in cheque trans- beyond traditional products or services. This low credit ratings. For consumers with bad actions gathered pace in the last ten years, has put increased pressure on profitability, or fair credit histories, the average percent- largely due to a surge in the conversion of forcing issuers to reassess products, costs age rate (APR) is higher than normal, and cheques into automated clearing house and revenue streams. the cardholder is required to make a security (ACH) debits. deposit with the bank to obtain a credit card. The shift towards electronic payments Credit cards market recovering has also been aided by contactless technol- The US economy and employment levels Banks’ profitability under pressure ogy, which was launched in 2004 and is now were badly hit by the global financial cri- Profitability in the cards and payments gaining significant momentum. US consum- sis of 2008–2009, forcing many consumers industry fell following regulation on inter- ers have a variety of contactless proposi- to default on credit card payments. Banks change in 2011. In the US, checking account tions to choose from, as all major payment subsequently recorded high volumes of bad and debit card market conditions changed networks – Visa, MasterCard, American debt. Most banks cleaned their customer dramatically with the enactment of the Dur- Express and Discover – have bin Amendment. The regulation’s contactless cards available to “mPOS devices are transforming the retail industry interchange rate caps created a sig- consumers. in a way that few technologies have done before” nificant revenue shortfall for large Focus has also increased on banks, forcing them to lose revenue mobile payments, with the launch of solu- bases and deactivated bad credit accounts; and rework checking account pricing strate- tions such as Apple Pay and the Starbucks the number of credit cards in circulation fell gies. mobile wallet. Competition in the industry as a result. Banks are now combating further revenue is likely to intensify further with the launch Employment opportunities have improved erosion by increasing checking account min- imum-balance requirements, increasing fees, n n and limiting reward programmes. According VALUE OF CREDIT TRANSFERS ($ TRILLION) VALUE OF CHEQUE PAYMENTS ($ TRILLION) to Bankrate, the proportion of free check- IN THE US, 2010–2014 IN THE US, 2010–2014 ing accounts in the US dropped from 76%

US$ trn in 2009 to 38% in 2013. US$ trn However, the Durbin Amendment applies 80 35 only to financial institutions (FIs) with assets 70 30 of more than $10bn. With the large banks’ emphasis shifting from debit to credit cards, 60 25 an opportunity exists for smaller banks and 50 other financial institutions (FIs) to expand 20 their debit card business. 40 15 30 Guidelines for prepaid card issuers 10 In November 2014, the Consumer Financial 20 Protection Bureau (CFPB) proposed a com- 10 5 prehensive range of consumer protection for US prepaid cards. The proposals require 0 0 prepaid card issuers to limit consumers’ loss- 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 es when funds are stolen or cards are lost, investigate and resolve errors, and provide Source: Bank for International Settlements and Timetric Source: Bank for International Settlements and Timetric easy and free access to account information.

16 y May 2015 www. cardsinternational.com

CI 519.indd 16 08/06/2015 13:12:11 Cards International COUNTRY REPORT: THE US

and also free up floor space for product n THE US DEBIT CARDS MARKET SHARE BY n THE US DEBIT CARDS MARKET SHARE BY promotions, mPOS had gained prominence ISSUERS (%), 2014 SCHEMES (%), 2014 among both small and large retailers in the Bank of America 11.85% United States. Others Wells Fargo 8.27% Star According to the 2013 Yankee Group 3.1% 4.8% Ahli UnitedTechnology Bank Roadmap report Revolutionis- JPMorgan Chase 6.54% 27.0% Pulse ing Retail With mPOS: US Bank 2.05% 5.8% “mPOS devices are transforming the retail The Bancorp Bank 1.87% industry in a way that few technologies have PNC 1.87% done before. Retailers which have eschewed Regions Bank 1.73% cumbersome cash wraps in favour of a mobi- lised checkout are already reaping increased SunTrust 1.64% Mastercard Visa savings, sales and customer satisfaction.” 57.7% Citibank 1.54% 28.6% Early adopters such as Apple have TD Bank 1.53% received a lot of attention for taking card USAA 1.53% payments with iPod Touch devices in retail stores. Other early adopters of mPOS devic- BB & T 1.32% es include home improvement retailer Home Fifth Third 1.21% Depot, which began issuing mPOS devices to Capital One 0.97% its US staff in 2010, according to Bloomb- Source: Timetric MetaBank 0.05% erg. Home Depot’s mPOS devices combine inventory management with payment card Others 56.02% acceptance. Source: Timetric n THE US CREDIT CARDS MARKET SHARE BY SCHEMES (%), 2014 E-commerce offers growth prospects for n THE US CREDIT CARDS MARKET SHARE BY payments ISSUERS (%), 2014 5.6% AhliThe United growing Bank market for e-commerce in the US is a primary factor for the expansion of American Express 21.54% 27.0% the country’s payment cards market, espe- JPMorgan Chase 19.52% cially for credit and debit cards. Although Citibank 10.30% cash on delivery is emerging as a preferred Bank of America 9.38% American mode of payment for online shopping in the Express US, credit and debit cards still dominate due Capital One 9.32% 21.4% to promotional offers, such as discounts and Discover 5.32% Visa coupons offered by credit and debit card Wells Fargo 4.35% 48.7% issuers. The benefits offered by online retail, such Barclays Bank 2.59% Mastercard as low cost and high convenience, are expect- The Bancorp Bank 2.49% 24.3% ed to further increase US credit and debit Others 15.19% card ownership, encouraging consumers to Source: Timetric experiment with cashless purchases. How- ever, e-merchants and regulatory authorities Source: Timetric The proposal also includes strong pro- should concentrate on increasing consumer tections in connection with credit products confidence in the safety of online retail. that allow consumers to pay to spend more The number of POS terminals recorded a The increasing young and urban money than they have deposited into the CAGR of 0.83%, rising from 9m in 2010 to populations have a strong inclination for prepaid account. Under the proposed rule, 9.3m in 2014. With the increased number of mobile devices and online media use, giv- if consumers choose to use a credit product POS terminal installations at retail outlets, ing a platform for e-commerce companies to related to their prepaid account, they would the potential of card-based payments in the reach more potential customers. The growth be entitled to the same protections that credit country is also expected to grow. POS termi- in online shopping is expected to create card consumers receive today. The regula- nal penetration – calculated as the number opportunities for growth in the cards and tions are anticipated to restrict the fast- of POS terminals per 100,000 inhabitants – payments industry over the forecast period. growing prepaid cards market. also rose from 2,896.7 in 2010 to 2,908.9 Banks and card issuers such as American in 2014. This is expected to expand even Express, JPMorgan Chase, Citibank, Wells Improved payment infrastructure further over the next half-decade, to reach Fargo and Capital One offer benefits such supported the growth of payment cards 3,047.6 in 2019. as cashback, reward points, discounts, pur- The number of ATMs increased at a CAGR The number of merchants installing chase protection insurance, extended war- of 1.24%, from 430,100 in 2010 to 451,876 mobile POS (mPOS) is gradually increasing ranty, zero card fraud liability and flexible in 2014, and is anticipated to increase fur- in the country, primarily as more merchants repayment options, to encourage online ther over the next five years, at a CAGR of see the benefit of switching from traditional shopping. The anticipated growth of the 0.72% to reach 469,850. Banks are also POS terminals to ones with more features e-commerce industry is anticipated to have a expanding their ATM networks to increase and mobility. Additionally, as it can help positive effect on the US cards and payments banking convenience. improve the customer shopping experience industry. <

www.cardsinternational.com May 2015 y 17

CI 519.indd 17 08/06/2015 13:12:11 COUNTRY REPORT: UK Cards International

E-commerce, mobile, contactless surge UK card use Since the crisis, popularity for prepaid cards has grown in the UK market, across most sectors. The growth of e-commerce and increased smartphone adoption, coupled with high consumer confidence in online transactions has boosted the cards and payments industry with further healthy growth predicted ahead

he UK is Europe’s largest and flexible repayment options, consumers have in 2003, and by 2014 there were nearly 58m most highly competitive industry shown a preference for using credit cards fre- cards in circulation featuring contactless for payment cards. It accounted quently, due to the value-added services. The functionality, accounting for a 36.3% share T for 17.6% of Europe’s total trans - financial crisis adversely affected the UK’s of the total payment cards in circulation. action value in 2014, and 20.3% of its economy, unemployment levels and dispos- Most leading banks in the UK – Barclays, transaction volume. The UK payment able income, and had a direct impact on the Capital One, Clydesdale, American Express, cards market is mature, with a high pene- number of credit card purchases as consum- MBNA, HSBC and Royal Bank of Scotland tration of credit and debit cards. Follow - ers were forced to cut down on unnecessary (RBS) – are offering payment cards with ing the financial crisis, banks and card purchases and borrowing. contactless features. issuers were forced to introduce bespoke With the UK’s economy recovering from The ease of making quick payments using product and service offerings in order to the crisis and employment opportunities contactless cards has gained in popularity retain their market share. gradually growing from 2013 onwards, among both consumers and retailers in the Consumers in the UK – especially the consumers have started to use credit cards UK. An increase in the number of retail out- younger generation – are showing an incli- more frequently. However, consumers are lets accepting contactless payments enabled nation towards faster and more secure pay- using credit cards for low-value transactions consumers to opt for card-based payments. ment options. This has resulted in mobile at POS terminals as they look to benefit from To further encourage contactless payments, operators, traditional and online retailers low-rate long duration balance transfer facil- the UK Cards Association is increasing the and other service providers introducing ities and reward programmes. spending limit from the existing £20 to £30 quick and efficient digital payment options. Consequently, low-rate long duration bal- from September 2015 onwards. Consequently, payment cards are anticipated ance transfer periods have emerged as a vital to lose share to alternative payment instru- marketing tool for banks and card issuers. regulations to impact the ments between 2015 and 2019. As the country’s economy is anticipated to UK’s payment cards market gradually improve over the forecast period, In July 2014, the European Commission Credit cards market to get see growth credit cards transaction value and volumes (EC) published proposals to regulate card The UK credit cards market is mature, with are anticipated to grow. payments across Europe by creating a new a variety of product offerings available. inflexible interchange rate. Under the EC’s Banks and card issuers offer value-add ser- Adoption of contactless payments to proposals, interchange fees for debit and vices such as cashback offers, reward points increase scope of card payments credit transactions in the EEA are capped and discounts on purchases. Coupled with Contactless cards were first issued in the UK at 0.2% and 0.3% of the transaction value respectively. These caps will enter into force in a phased manner: n VALUE OF CREDIT TRANSFERS($Wtrn) n VALUE OF CHEQUE PAYMENTS ($trn) IN THE UK, 2010–2014 IN THE UK, 2010–2014 • During the first phase, all cross-border

US$ trn transactions in EEA member states will US$ trn have to comply with the caps. The caps 150 2.0 will also apply to centrally acquired (domestic) transactions, for example 120 1.5 when a merchant contracts with an acquirer established in another EEA 90 member state, the central acquirer will pay a 0.2/0.3% interchange fee; 1.0 60 • In the second phase, after 22 months, all domestic transactions – including 0.5 30 domestic transactions acquired by a domestic acquirer – are capped at the 0 same level; 0.0 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 • Commercial card interchange fees are not subject to the cap (but are subject Source: UK Payment Council and Timetric Source: UK Payment Council and Timetric to the other provisions rest of the pro-

18 y May 2015 www. cardsinternational.com

CI 519.indd 18 08/06/2015 13:12:12 Cards International COUNTRY REPORT: UK

UK companies are increasingly offering n THE UK’S DEBIT CARDS MARKET SHARE BY n THE UK’S DEBIT CARDS MARKET SHARE BY prepaid cards to employees either under ISSUERS (%), 2014 SCHEMES (%), 2014 reward and recognition schemes, to manage Lloyds Bank 26.87 Mastercard expenses or to pay staff that don’t have bank Barclays Bank 15.99 accounts. To increase the reach of prepaid 2.4% Ahli United Bank HSBC 12.94 27.0%cards to low-income groups, in August 2014 prepaid card company Pockit, introduced a Santander 9.55 card that can be loaded online free of charge. RBS 13.42 This prepaid MasterCard costs $50.4 a year Nationwide 6.91 and includes cashback offers. The Co-operative Bank 3.25 As the low- and middle-income populations are increasing, prepaid cards are Clydesdale Bank 3.27 being used more often to pay utility bills and Others 7.79 taxes. There has been an increase in usage Source: UK Cards Association and Timetric Visa from students, as these cards keep check on 97.6% spending and offer no risk of running into debt. The number of prepaid cards in circu- n THE UK’S CREDIT CARDS MARKET SHARE BY lation grew during the review period. ISSUERS (%), 2014 Barclays Bank 21.37 E-commerce offers growth prospects Source: UK Cards Association and Timetric HSBC 16.70 The UK is Europe’s leading e-commerce Lloyds Bank 14.88 market. E-commerce posted a CAGR of 16.02%, going from $90.4bn in 2010 to RBS 9.80 n LUXEMBOURG CREDIT CARDS CATEGORY SHARE BY SCHEMES (%), 2013 $163.7bn in 2014. Although the UK is a MBNA 8.12 smaller consumer market than that of the Capital one 5.08 American Express US, Germany, China or Japan, its shoppers Tesco Bank 4.90 3.1% Ahli Unitedspend Bank more money online. 27.0% According to eMarketer, a digital market- Nationwide 4.49 ing research firm, B2C online sales in the UK Santander 3.58 averaged $3,585 per individual in 2012. It Sainsbury’s Bank 1.81 further states that UK shoppers make 13.5% The Co-operative Bank 1.72 of their purchases online – more than their Visa counterparts in Germany, the US or South American Express 1.63 30.5% Korea – which are considered some of the Others 5.85 world’s most digitally active populations. Mastercard Source: UK Cards Association and Timetric 66.4% By 2016, online retail is expected to make up 23% of the UK’s retail sales, up from posed regulation), and 13.5% in 2010, according to a report by the Boston Consulting Group. This is the high- • All forms of interchange fee are covered est proportion of any of the G20 economies. – when set by the scheme, or set multi- The rapid growth of the e-commerce market laterally by the banks – as well as set was due to rising online and mobile penetra- Source: UK Cards Association and Timetric bilaterally by an issuer-acquirer pair. tion, high consumer confidence in online transactions and the increasing presence of The already mature UK payment cards mar- Even if retailers did pass on savings from online gateways. ket will be affected by the proposals. A study their Merchant Service Charge (MSC) reduc- A contributing factor to the growth of by Europe Economics examined the possible tions in full to consumers, prices would only UK e-commerce in the last five years was economic impact if this regulation is forced fall by between $0.0005–0.13 per transac- an increased focus on customer retention upon the UK: tion for debit cards and between $0.60–93 tactics used by retailers, which included cus- per transaction for credit cards, while credit tomised e-mails to consumers based on their • Losses in card issuers’ revenues of up to and debit card fees would increase. buying patterns, display ads about product $3.8bn (£2.4bn); and services on their social networking pages Growth prospects in prepaid cards market based on their previous purchases and on- • Cardholder fees would rise by up to Following the financial crisis, prepaid cards site personalisation features offering them an $17.3 for debit cards and $39.3 for gained popularity in the UK. Banks and card enhanced shopping experience. These initia- credit cards; issuers are offering a comprehensive range tives have led to a healthy relationship with of prepaid cards, including youth, transport, customers, and resulted in repeat purchases. • Large retailer savings of up to $3.5bn, fuel, and shopping and remittance cards. The young population has a strong incli- and Prepaid cards are also gaining prominence nation for mobile devices and online-media among businesses as they offer better control use, providing opportunity for e-commerce • No evidence that these savings would over employees’ spending, more efficient risk companies. Online shopping including be passed on to the consumer in the management and immediate liquidity, and mobile transactions is expected to grow form of lower prices are more secure than cash. between now and 2019.<

www.cardsinternational.com May 2015 y 19

CI 519.indd 19 08/06/2015 13:12:13 GUEST COMMENT: TRUNOMI Cards International

Hype or here to stay: Emerging trends of FinTech FinTech is here; evidenced by new and emerging solutions that continue to revolutionise financial services, impacting how we manage customers and how they, in turn, manage their money. The industry is in disaggregation with FinTech startups deploying solutions that are luring customers out of typical banks

ustomer-centric solutions such as ware on a CD-ROM is ancient history – the backed up by regulatory enforcement. peer-to-peer lending, personal cur- market has moved to cloud-hosted and SaaS rency and direct payments are offered solutions. These require little to no spend Distributed Cat a fraction of the price. on hardware and enable rapid technological Technology is moving toward a distributed Mobility is a key driver and payment improvement rather than resales. approach. Bitcoin, for example, has taken revolutions like Apple Pay are creating currency and distributed and digitised headline news. However, the key to creat- Demonetised it. Personal data should, and will be soon ing a true value-proposition and better user A consumer can download a personal finan- become distributed, or put back into each experience is the personalisation of services. cial management app, use it to track spend- consumer’s hands to control. This is best achieved by collecting and ana- ing and better save for a deposit on a house lysing customer data, or Personally Identifi- – a completely free, life-changing tool. Many Decentralised able Information (PII). new technologies not only offer exception- We are moving away from centralised con- Changing regulations across the globe are ally high value, but are also incredibly trol of information by the government and impacting the level at which companies can affordable for a business or a consumer to large consolidated warehouses. Instead, collect and store PII data. New laws will use. Square, for example, allows small busi- information is increasingly housed in small- soon prevent companies in Europe and the nesses – a cab driver or a local fruit stand er data sets distributed over broad networks US from using this data without consent owner – to collect payments easily using a of computers and systems. This is a positive from its owner – the consumer – and tech- small, inexpensive piece of hardware. change, as it reduces the industry’s energy nology is playing a huge role in determin - As consumers, we often accept ‘freeware’, footprint and decreases risk of a single ing how customer behaviour can be seen, complicit of the trade-off we enter into. point of failure for data-breach. tracked and leveraged without explicit per- The internet music streaming service Spo - Financial organisations the world over mission. This role can be explained under tify serves a series of unavoidable adverts are clamouring to find ways to mine and what we call the ‘Six Ds’ – the latest trends to subscribers of its free service. Consum- use customer data, which, in turn is giving of emerging financial technology. ers are beginning to understand that, in the rise to consumers becoming more aware of context of technology, nothing is truly free, how their data is tracked and used. Con - Digitised although awareness has not yet hit its peak. sumers are comfortable trading spending The financial industry has seen rising Many users of Uber, for example, are una- history for a free service, but are beginning demand from consumers for more online ware of the data collected and utilised by to question why a taxi company such as and mobile services for several years. Many the company. Like it or not, this is a major Uber should have access to family photos. consumers now even wish to handle trans- trend. This raised level of awareness will require actions as complex as mortgage agreements a whole new business model to emerge to online. This cultural shift and the prolif- Disruptive address the use of personal data. The con- eration of social media have created more We all use technology that, upon estab - sumer will be at the core of that business data than ever for corporations to collect, lishment, disrupted its respective industry model – and in the future will even be able extrapolate and even sell. However, while in order to bring consumers a new service. to self-monetise the utility value of their the industry moves toward digital pro - Uber reinvented how we view taxi services. PII. In order for this to happen, regulation, cesses to save money, time and trees, many The Uber app makes finding a car in your public policy and consumer demand will systems for customer account opening and area easy, but it allows you to pay less for soon collide in a battle around ‘consent-to- customer account data still rely heavily on your journey and in a more convenient way. share’. As a result, new solutions are already paper-based processes and document stor- Airbnb now sells more rooms per night than coming to market that enable consumers to age. Personal information will soon be in a the top 11 hotel chains combined. digitally manage and share their identifying digitised format too, available via an app for Me2B technologies for the financial information across most of industries and customers alone to update and give compa- industry will soon embrace another big verticals. Now is the time to start standard- nies permission to access. change, allowing individuals to update and ising these solutions. We believe that this control the use of their PII data via an app. standard will quickly become the minimum Dematerialised By granting a bank or business real-time level expected from consumers. How the The days of walking around with a camera, permission to access their personal data, industry will respond is yet to be seen, but a GPS device, a phone and a compass are consumers protect their personal infor - one thing’s for certain – however readily it is indeed long gone. As technology becomes mation and streamline processes such as embraced, data, its ownership and privacy increasingly sophisticated, separate devices opening a bank account. They will also be will help shape the future of the banking are rendered redundant and, instead, dem- able to control who uses and accesses their world. < aterialised into applications hosted on a data, eliminating the Big Brother factor and smartphone or tablet. Similarly, buying soft- ensuring prior consent to its use is granted, Stuart Lacey is CEO of Trunomi

20 y May 2015 www. cardsinternational.com

CI 519.indd 20 08/06/2015 13:12:13

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