HAPPY BIRTHDAY, CONTACTLESS CARDS · 2019-12-16 · In a well-publicised piece we ran last month, Fidor’s estimable Sophie Guibaud even headed her thoughtful article The Simple

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

Czech Republic

Card payments in Latin America are poised for

growth

Links from the digital to the physical world are more

important then ever

HAPPY BIRTHDAY,CONTACTLESS

CARDS

Issue 547 / September 2017w w w. c a r d s i n t e r n at i o n a l . c o m

CI September 547.indd 1 18/09/2017 15:26:53

2 | September 2017 | Cards International

contents

NEWS

05 / EDITOR’S LETTER06 / DIGEST• Amex partners with Delta Air Lines

to launch new credit card• Payroc launches mPOS solution• Contactless obsession puts UK

ahead of European peers• solarisBank taps SIA in Germany• SumUp launches in 15 new countries• Australia bans excessive charges• Mastercard and Visa enable

Garmin smartwatch payments• Blackhawk snaps up CashStar• Amex adds mobile payments• Mastercard turns phones into POS• Costco and Mastercard to launch co-

branded credit card in Japan• Fiserv launches wireless solution• Stripe expands into New Zealand

15 / CEPI SUMMIT AWARDS14

this month

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

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HAPPY 10TH BIRTHDAY TO THE CONTACTLESS CARD

COVER STORY

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www.cardsinternational.com | 3

contents

10

september 2017

FEATURES

10 / LATIN AMERICAIn a region struggling with issues such as large unbanked populations, high unemployment and an unpredictable US president, the prospects for payment cards in Latin America may seem questionable. This is not, however, necessarily the case, writes Ivan Castano

13 / ATM SECURITYEMV-enabling ATMs is a vital step, but additional security measures are needed to prevent fraud. Robin Arnfield interviews security experts about counter-measures for physical threats such as skimming, and logical – software-based – attacks such as malware

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

16 / KAZAKHSTANCash remains the preferred consumer payment instrument in Kazakhstan, due to a lack of adequate banking infrastructure, limited awareness of electronic payments, and low acceptance at retailers

18 / AZERBAIJANWith its unbanked population standing at 62% of the total in 2016, Azerbaijan is a largely cash-based society. Low awareness of financial products and poor payment infrastructure are key hindrances

20 / EGYPTCredit card penetration remains low in Egypt, primarily for religious reasons as Islamic principles do not permit interest. Low merchant acceptance and a fear of consumer debt are also critical factors

16

ANALYSIS

14 / CONTACTLESSIt is the 10th anniversary of the contactless card. While some nations have embraced the offline payment method, others remain to be convinced. So has it become a mainstream way to pay? Patrick Brusnahan speaks to experts

20

INDUSTRY INSIGHT

22 / ATMSWith financial services in the midst of the digital revolution, proper links from the physical to the digital world are becoming more important than ever, writes Paul Taylor, innovation director at Cardtronics


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We do this through Interact®, our digital fi nancial services platform, which enables secure customer acquisition, onboarding, engagement, transactions and servicing across any digital channel and device. Today these are predominantly focused on smartphones, PCs and tablets. However Interact® will support other devices, if and when they become mainstream.

We provide a more viable option to internally developed technology, enabling our clients with a fast route to market whilst providing the expertise to manage the complexity of multiple channels, devices and operating systems. Interact® is a continuously evolving digital customer engagement platform that ensures our clients keep pace with the fast moving digital landscape.

We are immensely proud of our achievements, in relation to our innovation, our thought leadership, our industrywide recognition, our demonstrable product differentiation, the diversity of our client base, and the calibre of our partners.

For many years we have been the digital heart of a diverse range of fi nancial services providers including Generali Worldwide, HRG, Ikano Retail Finance, Lloyds Banking Group, MotoNovo Finance, Think Money Group and Toyota Financial Services.

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IE Adverts - 2017 MG Edit.indd 1IE Adverts - 2017 MG Edit.indd 1 27/07/2017 12:46:1627/07/2017 12:46:16


editor’s letter

It is still early days, but so far Monzo is proving me wrong

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

Douglas Blakey, Editor

Amazingly, at least to me, Monzo has already signed up 400,000 customers.

Much as I like founder Tom Blomfield – and given his track record I would hesitate to bet against him – I still think he is kidding himself if he seriously believes his own hype that he can get to one billion customers in five years.

I admit I did not think he would get close to 400,000 customers this early. The current proposition is no more than a Mastercard-branded prepaid card. And a prepaid card that comes with severe limitations. Take ATM withdrawals in the UK for example – no fee for withdrawals, but the catch is that cardholders are limited to total ATM withdrawals of £3,000 ($4,066) in a 12-month period.

That would not work for this writer. But for the typical Monzo user, a number of whom work in this office, this is no hurdle. They rejoice in not using cash, unless as a last resort. The 20 and 30-somethings I know who rave about Monzo take great delight in telling me that they might use an ATM once a month, at most. They love Monzo’s spending tracker. They also love the feature that sends a push notification to their phone when money is debited from their account. And they are especially upbeat about Monzo offering free overseas spending and ATM withdrawals worldwide, again subject to limits of £250 a day, £1,000 a month or £3,000 a year.

That feature is to end with Monzo set to introduce fees for overseas ATM withdrawals by the end of the year. Monzo blames a small minority of customers for the change with a mere 13% of customers accounting for 85% of all ATM withdrawals in any given month.

There is also evidence that a number of Monzo customers – I suspect a significant proportion of the 400,000 customers – sign up for fee-free foreign ATM withdrawals and then never use the card once they return to the UK.

According to Monzo, every active ATM user among its customer base is costing it about £16 per year. In the year ending 28 February 2017, Monzo reported a loss of £6.7m. This is over four times the £1.4m loss reported in the previous year. If I wore a hat, I would doff it respectfully to any outfit that can acquire its current volume of new customers without paying customer acquisition costs of say £100-150 per customer. Blomfield estimates that it loses £40-50 per prepaid customer per year but can reduce this to about £20 per current account customer; by the end of 2017 all prepaid card customers will be migrated to a current account.

Monzo is banking on about one-half of its users trusting Monzo enough to make it their main current account. That looks to be on the optimistic side. It will also need another funding round and will need a lot more than the £22m it raised last time. For now, it is a safe bet that the next capital raising will be successful; current backers Thrive Capital and Passion are totally supportive. Monzo will also cut costs by bringing its card processing in house; and will of course cut costs by ending free international ATM withdrawals.

In all discussions this editorial desk has had with Blomfield, he has stressed that he is not planning to take the Atom or Fidor route and sell out, in whole or part, to an established bank. I will eat my non-existent hat if, in the next three to five years, Monzo is not made such an attractive offer that it sells.

ATMS: EXCITING TIMES AHEADBack to the Monzo fan-clubbers of my acquaintance; to listen to them you would think that the ATM’s days are numbered. They concede it has had a great run for 50 years, but suggest it will not have much to celebrate by the time of its 75th birthday. They are, of course, talking nonsense.

In a well-publicised piece we ran last month, Fidor’s estimable Sophie Guibaud even headed her thoughtful article The Simple Fact Is That Cash Has Had Its Day.

There is plenty of research to suggest otherwise. Mobile phones will increasingly replace the card for customer interaction with ATMs. The growth of NFC-enabled ATMs will accelerate. Artificial intelligence programmers will be incorporated into ATM software. The range of services offered by ATMs will expand. We will witness more innovation with the humble ATM in the next five years than we have seen in the past 20. The oft-forecast claim that the ATM can become a ‘bank in a box’ will be borne out.

Lastly, with due deference to the anti-cash brigade, consider current stats: The current number of ATMs in the UK is at a record high – 37% of UK adults use an ATM once a week, a further 25% once every two weeks, with 27% using an ATM once a month.

The ATM remains a key part of the banking infrastructure and will be about for some time to come – maybe even another 50 years, whatever Monzo or Fidor may argue.

And as Monzo will find out when it starts to offer current accounts, there will many many customers who are turned off by a maximum limit of £3,000 in annual ATM withdrawals. <


News | Digest


news digestAmex partners with Delta Air Lines to launch new credit card

American Express (Amex) and Delta Air Lines have teamed up to launch a new no-annual-fee credit card to attract young millennial flyers.

The Blue Delta SkyMiles Credit Card gives holders two miles per dollar spent at restaurants in the US and on eligible Delta shopping, and one mile per dollar spent on all other eligible purchases.

The new credit card, which was available from 7 September, is associated with the Delta SkyMiles loyalty programme, whose miles have no expiry date and can be redeemed worldwide with no ‘blackout’ dates on Delta flights.

Additional benefits available to Blue Delta SkyMiles credit cardholders include 20% savings in the form of a statement credit on all eligible in-flight purchases

when flying with Delta, and a welcome offer 10,000 bonus miles after spending $500 in purchases on the card within the first three months of membership.

Commenting on the launch, Delta vice-president of customer engagement and loyalty Sandeep Dube said: “We purposefully built this card with the new or casual traveller in mind.

“This card delivers incredible value to those who want to earn miles in an accelerated way while enjoying the peace of mind that their miles won’t expire – all without paying an annual fee.

“With more than a third of these consumers saying dining is their top choice for spending, earning two miles per dollar spent at US restaurants is an appealing way to earn more miles.” <

Payroc launches mPOS solutionUS-based merchant services and payment processing business Payroc has launched a mobile point-of-sale (mPOS) solution, iTransact Mobile Merchant, for iOS and android devices.

iTransact Mobile Merchant features a compact EMV chip and magnetic stripe card reader with bluetooth connectivity, and works with Payroc’s secure iTransact gateway and payment facilitator platform to offer integrated payments through online, virtual terminal, recurring billing and electronic invoicing channels.

Merchants can also access consolidated account activity and reporting, back-office functionality and user access controls. Tokenised data and primary account numbers provides enhanced security.

Payroc CEO James Oberman said: “Launching iTransact Mobile Merchant marks an important milestone in our ongoing commitment to providing exceptional technology, solutions and service. Payroc is an ideal partner for seamless anytime, anywhere omnichannel payments.” <

Contactless obsession puts UK ahead of European peersThe growing popularity of contactless payments has put the UK ahead of European peers including Poland, France, Spain and Finland, according to a new study by Visa.

According to Visa’s annual Digital Payments study, nearly 66% of Britons have used a contactless card to make a payment since their introduction in the UK in September 2007. It added that over a third of UK card payments in June of 2017 were contactless.

Millennials are driving the adoption of contactless technology, with 76% using contactless cards to purchase goods and services, representing an increase of 11 percentage points compared to the 65% figure reported in 2016.

UK citizens aged over 65 years are more hesitant to use contactless cards to make payments. Nearly 55% of this age group have used tap-and-go payment options, as compared to last year’s figure of 52%.

The report also revealed that contactless payments are mostly used in grocery stores and supermarkets, followed by fast food restaurants and transport services.

London dominates the contactless payments market, as nearly four Londoners in five (78%) have used a contactless debit or credit card, 12% above the national average.

Visa’s MD for the UK and Ireland, Kevin Jenkins, said: “The introduction of contactless cards in the UK 10 years ago was a watershed moment for consumers.

“Whether buying lunch, commuting without having to top up, queuing at bars and festivals, or donating to charity, Brits have come to expect a painless payment experience.

“Yet there’s still room for the uptake of contactless to grow, particularly outside London and the South East,” Jenkins added.

“Our study shows the appetite for adopting new payment methods is greater than ever, and with mobile devices opening up myriad new ways to pay, the next 10 years look set to see contactless payments become an ever-greater part of our day-to-day lives.”

More than 2,000 users from the UK participated in the annual Visa study. <


News | digest

solarisBank taps SIA to launch contactless debit cards in GermanyItaly-based SIA has been selected by German banking platform solarisBank to facilitate the launch of new contactless debit cards in an aim to improve electronic payment solutions in Germany.

SIA’s technology platform will oversee the transaction processes carried out using payment cards issued by solarisBank for its customers.

The newly launched debit cards will feature an advanced service to prevent and manage fraud, disputes and chargebacks. It also uses the 3-D secure authentication tool for all online payments.

“SIA will also shortly make available to solarisBank more products and services

like payment cards in other currencies and issuing in various countries,” SIA said in a statement.

solarisBank chief product officer Jörg Howein said: “With its experience and know-how, SIA is a great partner for solarisBank to launch state-of-the-art payment cards.

“The partnership is representative of our approach of including first-class companies on our banking platform.

“We’re excited to start serving our partners with our new card product and look forward to expanding our partnership with SIA into the development of further electronic payment solutions.” <


Australia bans excessive card surchargesAustralia has banned all businesses, including large and small merchants, from collecting excessive surcharges for credit and debit card payments.

The new rule, which came into effect from 1 September, will apply to all businesses based in Australia, or that use an Australian bank.

The latest move follows the Australian Competition and Consumer Commission (ACCC)’s action last September, which prohibited large businesses from collecting excessive surcharges.

Announcing the move, the ACCC said the ban prohibits merchants from charging excessive surcharges from customers who use EFTPOS (debit and prepaid), Mastercard (credit, debit and prepaid), Visa (credit, debit and prepaid) and American Express cards issued by Australian banks.

Explaining the new guidelines, the watchdog added that businesses looking to set a single surcharge for multiple payment methods would be required to do using the lowest-cost method. The surcharge should not be set at an average cost level, the ACCC clarified.

ACCC deputy chair Michael Schaper commented: “The good news for consumers is that businesses can now only surcharge what it actually costs them to process card payments, including bank fees and terminal costs.

“For example, if a business’s cost of acceptance for Visa credit is 1.5%, consumers can only be charged a surcharge of 1.5% on payments made using a Visa credit card.

“Our message to business is that you are not allowed to add on any of your own internal costs when calculating what surcharge you will charge customers. The only costs businesses can include are external costs charged to you by your financial provider.

“Our advice for businesses wanting to set a single surcharge – regardless of the type of card their customers use – is it must be the lowest of all the payment methods. You can’t use an average of all payment methods, or you will land yourself in trouble,” Schaper explained. <

SumUp expands through service launches in 15 European countries

SumUp, a London-based mobile point-of-sale provider, has doubled its global footprint by launching its service in 15 new European countries.

The service is now fully operational in Finland, Greece, Lithuania, Norway and Slovenia. Its introductions in Bulgaria, Czech Republic, Cyprus, Denmark, Estonia, Hungary, Latvia, Luxembourg, Malta and Slovakia are expected to complete by the end of October 2017.

Merchants in the new markets can accept card payments with a phone and the SumUp Air card reader without any monthly fees or contractual obligations, the company said.

The company now has presence in 31 markets on three continents, including the US, Brazil and Germany.

SumUp CEO Daniel Klein said: “We want to help business owners in our 15 new markets to grow their business – offline and online.

“Across Eastern Europe, we see a strong shift in payment behaviour from cash to card. While the UK is close to saturated with 80% of all transactions made by card, for SumUp’s new countries, the share of card transactions is closer to 25% and growing rapidly from less than 15% only five years ago.”

“We are very excited that today’s expansion will further boost our new merchant growth. More than 2,000 businesses join SumUp every single day,” Klein added.

“The global expansion will accelerate our growth further.”

The company also revealed plans to scale up existing partnerships in the new markets. Its current partners include Metro Cash & Carry, Unicredit, UBS, Tupperware and mytaxi. <



Mastercard and Visa enable Garmin smartwatch payments

Payment processors Mastercard and Visa have added payment capabilities to Garmin’s newly launched vívoactive 3 smartwatch.

The device is Garmin’s first wearable device to feature the NFC-based Garmin Pay. Users can add debit and credit cards to the vívoactive 3 in a similar way to a normal digital wallet.

Visa’s executive vice-president of innovation and strategic partnerships, Jim McCarthy, said: “The idea of wearing your wallet on your wrist is not only desired by consumers, but with Visa and Garmin it will be both convenient and secure.

“Partners like Fit Pay, Inc. are helping us accelerate the growth of IoT by bringing

payment-based features to market on devices like Garmin’s – with greater ease and speed to market.”

Mastercard senior vice-president Kiki Del Valle said: “Technology is enabling fitness companies to provide athletes with the most comprehensive performance trackers we have seen in our time.

“Adding payment capability to these devices is a natural next step to make training and fitness experiences more relevant, personal, and convenient.”

Fitbit recently partnered with Mastercard and Visa to enable contactless payments on its first smartwatch, the Fitbit Ionic, which is scheduled for release in October this year. <

Amex launches new mobile payments

American Express has launched Pay It Plan It, a new mobile feature that gives card members two new ways to pay for credit card purchases.

The new payment options, available for consumer credit and co-brand cards, enable cardholders choose to pay immediately through the American Express app, or set up monthly payments for larger purchases, all while earning rewards.

With Pay It, cardholders can use the American Express app to select smaller purchases and pay that purchase amount right away with a single tap. Members can also select purchases of more than $100 and choose to make payments in instalments ranging from three to 24 months with a fixed fee and no interest.

Cardholders can also continue to pay bills at the end of the month, including the minimum due, the full amount, or amounts in between.

American Express head of global consumer lending Kartik Mani said: “We are thrilled to provide American Express card members new, flexible ways to pay for their purchases.

“Pay It was inspired by card members who prefer making multiple payments throughout the month. Now we’ve made it even easier to do this in our app. For larger purchases, we developed Plan It to give card members another way to pay over time with a ‘no surprises’ plan that offers transparent, monthly payments for a fixed fee.”

Mani added: “We are excited to serve our card members by giving them new payment options that they can adjust to fit their financial needs and goals, while they continue to earn a wide range of rewards and receive the service and security of American Express.”

The new options are currently being offered on more than 12 credit cards, including the EveryDay, Blue, Delta SkyMiles, Hilton Honors and Optima. <

Blackhawk Network snaps up CashStarFinancial technology company Blackhawk Network has acquired CashStar, a gift card commerce solutions provider, in a cash transaction valued at $175m.

CashStar’s commerce platform allows retailers to market and distribute digital and plastic gift cards directly to consumers and businesses across various channels.

Leveraging CashStar’s flexible platform, merchants can use digital and physical gift cards to retain consumers across the customer lifecycle, such as marketing and promotions, sales and customer service.

Blackhawk said CashStar will boost its product offering and expend merchant relationships. It will also provide retailers and distributors with more options in mobile and digital distribution.

Blackhawk Network CEO and president Talbott Roche said: “The acquisition strategically enhances Blackhawk’s ability

to provide the right digital solutions to our partners to meet the changing needs of business customers and consumers.

“With the addition of CashStar, Blackhawk is now a leading provider in the fast-growing first-party digital market. Also, with CashStar margins projected in the range of 25-30% for fiscal 2018, Blackhawk maintains its focus on margin expansion,” Roche added.

“Blackhawk remains committed to optimising capital allocation to enhance shareholder returns and will continue to evaluate acquisition candidates as well as potential share repurchases in the future.”

On completion of the transaction, CashStar will become part of Blackhawk’s digital and incentives businesses.

CashStar CEO and president Ben Kaplan will continue to manage the business and report directly to Blackhawk’s general manager of digital and incentives, David Jones. <

News | Digest



News | digest

Mastercard turns smartphones into POSMastercard is piloting a new solution that will enable small and micro merchants in Poland to receive contactless payments from customers using only a smartphone.

Mastercard has developed specific security principles that need to be adopted by all pilot participants in the project. It will pilot the new system with Elavon, Polskie ePłatności and Mobeewave.

The trials will begin this autumn and are expected to conclude in the summer of 2018. During the trial period, hundreds of small merchants from all over Poland will accept contactless card and mobile payments using just a phone and dedicated app, with no dongle. The limit for each transaction accepted will be PLN50 ($14),

which is the Polish limit for a contactless payment without the need to enter a PIN.

Mastercard country manager for Poland Bartosz Ciołkowski said: “Mastercard is committed to enable every connected device to accept payments – and I am delighted that Poland is the first country where this latest innovation in payment technologies is being tested.

“Poles have proven many times that they are open to innovations in trade and finance, and Poland needs such solutions on its way to becoming a cash-lite economy,” Ciołkowski added.

“I am proud that together with our partners we can contribute to making yet another technological leap in payments.” <

Costco and Mastercard to launch co-branded credit card in Japan

Costco Wholesale has teamed up with Mastercard and Orient Corporation to launch a new co-branded credit card programme in Japan.

The agreement means all Mastercard-branded cards will be accepted at Costco stores from February next year.

Orico will act as exclusive issuer of Costco’s co-branded card, and Mastercard will substitute American Express as the credit card network for Costco in Japan from 1 February 2018.

Costco’s new co-branded credit card will not charge any annual fee and will provide rewards and benefits to Costco members. The card will be accepted by all merchants

that accept Mastercard credit cards, including Costco locations worldwide that accept Mastercard.

Costco will provide information to its members about the anticipated transition from its existing credit card programme, and details of its new co-branded card with Mastercard, in the coming months.

Costco will continue to accept American Express cards for shopping at Costco in Japan until 31 January 2018.

Costco Wholesale operates more than 730 warehouses in 11 countries, including the US, Canada, Mexico, the UK, Korea, Taiwan, Australia, Spain, Iceland, France and Japan. <

Fiserv launches wireless solutionFinancial services technology provider Fiserv has unveiled Instant Issue Advantage, a wireless tablet solution that issues activated cards instantly for verified financial institution cardholders.

The new technology will initially verify member identity, and provide them with a tablet to access information and then instantly receive a permanent Mastercard-branded EMV debit card.

The company claims that its instant card issuance increases reliability and uptime of connections, and heightens the security of moving data.

According to Fiserv’s consumer trends research, 44% of consumers prefer branches for standard daily transactions, with consumers wanting a bricks-and-mortar experience that merges with technology and fits seamlessly into the way they live and manage their money.

Fiserv president of output solutions Clifford Skelton said: “When people lose their debit cards, they can’t put their lives on hold for ‘within seven to 10 business days’ while they wait for a new card.

“Their priority is accessing their funds where and when they want, and they expect financial institutions to stay in step and meet their needs in a rapidly moving world.” <

Stripe expands into New ZealandStripe, a digital payments firm headquartered in San Francisco, has expanded in Asia-Pacific by launching services in New Zealand.

Announcing the move in a blog post, Stripe’s head of Australia and New Zealand growth, Mac Wang, said the launch will allow businesses in New Zealand to accept payments covering more than 135 global currencies “in minutes”.

Stripe, founded by Irish brothers Patrick and John Collison in 2010, has been beta testing its products in New Zealand since the start of 2017.

Wang wrote: “During our preview, we’ve worked with some of the region’s fastest-growing businesses: Xero uses Stripe to let any of its million users accept credit cards for their invoices – one of the first accounting platforms to do so.” <



Feature | latin America

In August, Brazilian digital card operator Nubank raised headlines by announcing that Goldman Sachs had boosted its credit line 21% to BRL455m, or $144m at current exchange.

The infusion showed that investors will continue to bet on the country’s growing fintech sector despite the lingering recession and stinging corruption scandals.

Nubank is taking on the country’s top issuers such as Itaú and Bradesco by offering a platinum Mastercard with no annual fee, seducing young, recession-hit Brazilians looking to save money anywhere they can.

Its disruption comes as Latin America’s cards market is expected to grow 9% on a CAGR basis from 2014 to 2019, according to Entrust Datacard.

As it works to develop its banking rate – 210 million are unbanked – and financial inclusion, debit is expected to sharply outpace credit growth by 2020, accounting for $600bn of transactional value, from $380bn currently.

By that time, credit cards will also grow from $400bn now to reach a transactional value of $510bn, according to the card-security services provider. The digital market is also growing on the back of rapid mobile uptake in Brazil and Mexico, where 12% of the population is currently making use of a digital wallet.

‘HOLA LIBERDADE’With marketing catchphrases such as “Hola Liberdade [Hello Freedom]…” and “Finally you are in control of your money,” Nubank has quickly become the envy of Brazil’s payments circuit.

Its revenues are growing 10% monthly while big banks continue to lick their wounds as Brazil’s record recession begins to ebb. Some large banks – including Bradesco and Banco do Brasil – have launched a

competing product called Digio. While it does not charge annual fees, Digio cannot match Nubank’s other advantage: low-interest revolving credit lines.

Nubank, Digio and virtually every other issuer are fighting for a piece of the fintech banking and insurance market, which Goldman Sachs estimates will reach a value of $75bn in 10 years.

The fight is set to intensify as the cards market swings into recovery this year, and gains as much as 14% in 2018 when Latin America’s largest economy is seen to be expanding by 2.5-3%.

This year, GDP growth will inch up 0.40%, putting the country in the black after the economy contracted by over 7% in the past two years, forcing many banks to engage in painful write-offs.

“The market is staging a recovery,” confirms a senior analyst at Itaú, the country’s largest plastic issuer with 31% of the market. “Volume growth is gradually accelerating. In the first half of the year, we grew 6-7% so we could have a higher single-digit number in 2017.” Card purchases including debit and credit grew 6.6% to $349bn, he adds.

Default rates – now hovering at 40% on a revolving basis – are also improving, claims the analyst, adding that on an absolute basis they stand at 5%. Meanwhile, unemployment is easing, boosting hopes that the market will grow strongly in the next 12-18 months. As of early summer, 14 million people – representing 13% of Brazil’s population – was idle.

Regulatory concerns loom, however, with the possibility that credit card settlement times will be slashed from 30 days to three in the medium term, according to analysts, adding that the Central Bank is currently reviewing the action.

“This will be a deep change with unpredictable consequences,” predicts one analyst at Bradesco bank, going on to forecast that any changes will take “a few years” to come through, as regulators do not want to hobble the economic recovery.

latin america’s card market poised for expansionIn a region struggling with issues such as large unbanked populations, high rates of unemployment and an unpredictable – and potentially unsympathetic – US president, the prospects for payment cards in Latin America may seem questionable. This is not, however, necessarily the case, writes Ivan Castano



Feature | latin america

MEXICO SHRUGS OFF TRUMPMeanwhile, Mexico continues to ride off Trump’s protectionist threats, with consumers expected to drive up card purchases by 11% to roughly $5bn this year, observers say.

Mexico City also recently hiked the country’s GDP forecast to 1.5-2.5%, up from 1.3-2.3% earlier in the year when Trump’s anti-Mexico agenda called for an unfavourable rewrite of the NAFTA free-trade accord and a border tax against US firms manufacturing south of the border.

NAFTA negotiations have started slowly, while Trump has softened his stance, fuelling optimism that Latin America’s second-largest economy will extend a five-year growth spree, with consumption and investment growing sharply.

“We are starting to see the largest banks increase issuance” as the outlook brightens, says Jorge Benitez, analyst with GBM brokerage. “Right now, everyone is focusing on cross-selling their card products with other loan categories such as autos or mortgages to grow their portfolios.”

Betting on Mexico and Latin America’s future, in February billionaire Carlos Slim partnered with America Movil to develop digital wallet services for its 280 million regional subscribers As part of the deal, PayPal, which also entered into a similar agreement with Vodafone, will leapfrog in Latin America where rivals such as Pay U, Allpago and Cielo are rushing for market dominance.

SLOW DIGITAL ADOPTIONThe deal should help develop the $2.2trn digital payments market, growing from rapid mobile uptake but facing major challenges from slow POS and mobile-payment adoption.

Moreover, most consumers prefer to swap plastic instead of using their mobile wallets amid a lack of know-how and transaction security fears.

Despite buoyant growth Mexican card defaults are rising, with the rate now standing at 5.3%, up from 4.9% last year, says Benitez, adding that it could reach 6% by the end of the year.

Still, he believes the rate is sustainable and part of the industry’s up-cycle, trailing sharply below the 13% seen during the 2008-2009 financial meltdown.

With interest rates topping 26%, Mexico has 163 million cards in circulation – 134 million debit and 29 million credit. And with the country’s 20% banking rate – much lower than Brazil or Chile – it has huge growth potential for the Visas and Mastercards of the world, observers note. Meanwhile, new regulations forcing online operators

and other fintechs to bolster capital reserves against non-performing loans are seemingly driving M&A.

CHILE AND COLOMBIA“More than competition, I think we are going to see a period of consolidation as payment fintechs need more capital and seek larger banks to obtain it,” says Benitez.

Leading issuers such as Spain’s BBVA Bancomer or Banamex “could acquire those fintechs and obtain big synergies.”

Brazil and Mexico apart, Chile is also growing rapidly with card purchases forecast

to gain 8-9% this year, up from 6-8% in 2016, as banks work to win new customers in a firming economy.

“Last year we saw a credit slowdown because of weak economic growth, but the economic outlook is improving and banks are focusing on improving their card portfolios, especially with higher-end consumers,” says Sebastian Gallegos, analyst at brokerage business Credicorp.

“We are going to see a strong growth dynamic this year, and even more so in 2018.”

Chile, which has a 52% card penetration rate, continues to witness strong growth in debit cards with nearly 20 million in circulation, according to the latest study by market consultancy Tecnocom, which put the number of credit cards at 10 million.

Meanwhile, the market is cooling in Colombia where growth could stall this year amid sluggish economic growth, says market consultant Daniel Castellanos.

Debit and credit issuance could jump 7% this year, more than 50% below much loftier gains of 12-15% during 2012-2015, when Colombia was reaping the benefits of a commodities boom, he explains.

“A couple of years ago, we had around 5 million credit cards,” Castellanos says. “Now we have as many as 9 million because of an explosion of credit and consumption.”

While Colombia’s GDP grew around 6% annually between 2010 and 2015 it has since cooled and is forecast to gain 1.5-2% this year.

Past-due balances have climbed to 6% of total issuance form about 3% a year ago, Castellanos adds.

“The portfolio is deteriorating to worrisome levels,” he notes, adding that banks will curtail credit in coming months and may be forced to provision losses.

FRAUD ALERTSIn other developments, credit-card fraud is raising headlines, most recently in Argentina where Aerolineas Argentinas passenger Martin Fumarola was caught in a massive fraud scheme that enabled him to visit 26 cities at no cost to himself.

Fumarola, who used his name and ID to book the flights, hacked the airline’s systems to collect customers’ card numbers.

Regulators slammed the flagship carrier for failing to detect the activity, which took place over a period of four years.

Mexican department store chain Liverpool was similarly criticised in 2015 when criminals hacked its systems, stealing customers’ store-card information. <

Right now, everyone is focusing on cross-selling their card products with other loan categories such as autos or

mortgages, to grow their portfolios



Feature | ATM SECURITY

The European ATM industry migrated to EMV chip and PIN in the 2000s, resulting in a growth in

logical fraud, as criminals could no longer use cloned European mag-stripe cards in European ATMs.

According to the European Association for Secure Transactions (EAST), in the first half of 2016, 28 logical ATM attacks were recorded in the European countries EAST monitors, up from five during the same period in 2015.

The US ATM industry is migrating its estimated 75,000-500,000 ATMs to EMV. Due to a lack of EMV card readers in the US, criminals have been able to use cloned mag-stripe cards generated from card data skimmed from European EMV cards. Unfortunately, mag-stripe data can still be skimmed at EMV-compliant ATMs in Europe.

“The only way to prevent skimming would be if European issuers turned off fallback to mag-stripe for their cards when used in US non-EMV ATMs,” Martin Warwick, fraud consultant for Europe at fraud analytics firm FICO tells CI. “European issuers have turned off mag-stripe fall-back for European ATMs, but with US ATMs still not EMV-compliant, Europeans visiting the US need access to local ATMs.”

“Fallback transactions are causing high fraud losses in the US,” says Aite Group senior analyst Shirley Inscoe. “Fraudsters know that, when a card’s chip can’t be read, customers are directed to swipe their card. So the fraudsters use counterfeit chip-less cards as though they contained a chip; when the ‘chip’ can’t be

read, they swipe the card to commit fraud. Many issuers are declining higher rates of card transactions due to fallback fraud.”

The US liability shift deadline for ATM transactions made with Mastercard-branded cards was 1 October 2016, while Visa’s deadline is 1 October 2017. Mansour-Aaron Karimzadeh, CEO of EMV consultancy SCIL, says US financial institution-owned ATMs are fairly advanced in EMV migration. “The independent ATM operators are less advanced,” he says. “FI ATMs are 60-70% migrated and independents 40-50%.”

The number of FI-owned ATMs in the US has remained stable at around 125,000 ATMs, with the remainder being owned by non-FIs.

According to US debit and ATM network operator Pulse’s 2017 Debit Issuer Study, following the US payments industry’s October 2015 fraud liability shift for POS debit, an estimated 80% of US debit cards have migrated to chip cards.

SKIMMING“Skimming will remain a threat while cards have mag-stripes,” says Ben Knieff, financial fraud consultant at New York-based Outside Look. “It’s relatively cheap and easy to get into and low-risk for criminals, as the cost of skimmers has fallen while the functionality to do things like transmitting card/PIN data via SMS or Bluetooth has increased.”

In the run-up to US EMV migration, criminals are targeting non-EMV-compliant ATMs and POS terminals with skimmers to

capture mag-stripe data, says FICO’s Warwick.In 2016, the number of cards compromised

at US ATMs and POS devices monitored by FICO rose by 70%, while the number of hacked card readers at US ATMs, restaurants and merchants rose 30%. As in 2015, about 60% of compromises occurred at non-bank ATMs last year, such as in convenience stores, with the rest occurring at bank ATMs or POS devices, FICO says.

“The way forward is for FIs, ATM suppliers and industry groups to share information on attack patterns, modus operandi and geographical spread,” says Bernd Redecker, director, corporate security and fraud management at Diebold Nixdorf.

“Fraudsters are clearly sharing information. As long as the industry continues to work in siloes on this topic, fraudsters will always be able to develop new attacks.”

PHYSICAL ATTACKS“Traditionally in Europe, we’ve seen fraud at ATMs occurring as physical attacks, for example ram raids, removal by excavator, or gas attacks,” says Andrew Martin, CEO of Retail Bank Consulting Group.

“Unfortunately, physical attacks remain one of the highest issues,” says Redecker. “Despite the evolution of logical attacks, physical attacks are about 50% of the incidents we see in the US.” Skimming constitutes a physical ATM security attack.

“Security devices can work to protect against physical attacks, and numerous deterrent devices are available,” says Martin. One example is Diebold Nixdorf ’s ActiveEdge anti-skimming device.

“While physical attacks have fallen in Europe, we see a continued trend to gas attacks,” says Martin. “In most cases the attackers mishandle the gas and destroy the banknotes. More recently, attackers have gone down the technology route and we see a dramatic increase in black box or malware attacks – these attacks are focused on the PC core itself and not on the physical ATM.”

Going forward “ATM deployers will need to not only protect the PC Core itself at the ATM but the network, as attackers will view ATMs as a network of devices and look for the weakest link into that network”.

The Payment Card Industry Security Standards Council (PCI SSC) does not have ATM-specific security standards, whereas it has specific standards for POS devices.

“ATMs are an area where PCI standards can be complicated,” says Andrew Jamieson,

enhanced ATM security a key priorityEMV-enabling ATMs is a vital step, but additional security measures are needed to prevent fraud. Robin Arnfield interviews security experts about counter-measures for physical threats such as skimming, and logical – software-based – attacks such as malware



technical manager, consumer security group at Underwriters Laboratory.

“There’s currently no overarching security standard for ATMs issued by PCI. The PCI SSC issued ATM Security Guidelines in 2013, which provides best practice but isn’t a formal standard.”

“ATMs are required to have a PCI-approved Encrypting PIN Pad (EPP), which protects and encrypts customers’ PINs, and some ATM manufacturers choose to have their software approved under the PCI Payment Application Data Security Standard (PA DSS).

Also, the entity managing and installing cryptographic keys in ATMs must comply with the PCI PIN audit requirements. But, as to what ATM manufacturers must comply with, it’s really only the EPP requirements. I’d recommend them to go beyond this. However, it isn’t mandatory for ATM manufacturers to have their ATM security assessed prior to release.”

BEST PRACTICEJamieson recommends that ATM vendors use the ATM Industry Association (ATMIA)’s ATM software security best practices as a guide when developing their ATM software.

“There’s often a lot of software in an ATM – from the computer that controls the screen and other peripherals, to the peripherals themselves like the card reader and cash dispenser,” he says. “Each one of these is open to potential exploit if access can be obtained.”

Jamieson says software security best practice across all industries is trending towards on-going maintenance and risk management, and it’s worth considering how this may apply to ATMs. “If your base operating system needs patching, how is that applied to your ATM?

“If you’re an ATM distributor, do you have agreements with your vendors about how they will maintain their ATM software’s security over time? Who is responsible for any software vulnerability that is exploited? Are you testing the security of the system, and if so, is that a one-time thing or an ongoing process?

“It’s increasingly common to hear of ‘black box’ attacks on ATMs, where a bug is placed onto an accessible cable and malware is installed using this channel. It’s important to consider such attacks when designing an ATM’s physical and logical aspects. How accessible are the cables? Do you limit or otherwise lock-down connections on the USB interfaces? Are the communications between your controlling computer and peripherals encrypted? Is the BIOS of your controller

locked? And do you use Trusted Boot options that may be available?”

Jamieson stresses the importance of understanding the threats to an ATM network. “We have clients who have different levels of security for their ATMs depending on the environment or even the country into which the ATM will be deployed,” he says.

“Originally, criminals mainly focused on onsite attacks directly targeting single ATMs,” says Redecker, who stresses the importance of “locking down” an ATM software stack and network connections so they cannot be controlled by hackers. “In recent years, this has significantly broadened from single-ATM attacks,” he notes.

“Fraudsters have started to attack banking networks, with malicious access to ATMs as a side effect. In all variants, we see enhanced technology and organisational levels on the attackers’ side. In addition, comparable threats are spreading the globe much faster than previously. An attack in Asia can no longer be considered irrelevant for a US bank: It might arrive there tomorrow.”

Knieff notes that many ATMs are still running Windows XP. Microsoft stopped supporting XP in April 2014 and told users to migrate to Windows 7 and above.

“There are a surprisingly large number of ATMs still running XP, despite the lack of support from Microsoft and the October 2013 Federal Financial Institutions Examination Council (FFIEC) guidance on the risks of using XP,” he says.

“One reason is that, in many cases, a hardware upgrade is required to support a newer operating system, and many ATMs run on basic hardware that may not support newer operating systems. Also, their ATM software may not support newer operating systems’ 64-bit architecture.”

BIOMETRICS“Biometrics is an interesting way of improving ATM security, making the data acquired from skimming less valuable, and improving customer experience,” says Knieff.

“There are two challenges: The cost of enabling ATMs for many types of biometrics – such as fingerprint or palm vein – or upgrades for biometrics such as facial or iris recognition.

“The other major challenge is getting users enrolled in biometric schemes. But if ATM deployers offer cardless ATM withdrawals, the biometric is already on the smartphone hardware – such as Touch ID – and the user is already enrolled. So cardless ATM transactions

solve some of the above challenges in hardware and user experience.”

“Biometrics are used at ATMs in several countries, probably most heavily in Japan, where over 80,000 biometric ATMs are currently in use,” says Inscoe. “Many use fingerprint technology, palm or finger-vein technology, or facial recognition.

In Poland, ATMs using finger-vein biometrics are being introduced, which is an extra safeguard to prevent impersonation. For example, while a fingerprint might be able to be ‘lifted’ from a surface where it has been captured, and used on an ATM, the veins are underneath the skin, so the biometric pattern can’t be reproduced.”

Readers will have heard about photos of people being used to overcome facial recognition technologies. “There are three primary risks related to using any form of biometric,” says Inscoe. “The most critical relates to enrolment. It’s imperative to ensure that the person’s biometric being captured is who they claim to be. We saw tremendous losses when Apple Pay was introduced. None were due to Apple Pay not working securely, but related to fraudsters enrolling credit cards using data stolen from data breaches.

“The second most risky element with biometrics is not including some type of liveness test. Whether this is a temperature check or requiring eye movement, it’s essential that the biometric ensures a live human is presenting it.

“Fortunately, many new devices are being equipped with upgrades that will help measure these types of things and ensure that someone isn’t presenting a picture or using a lifted fingerprint,” Inscoe continues.

“The final risk is more for consumers than the companies relying on biometrics - that there will be a data breach of these elements, and they may be stolen. While an individual can change their telephone number, they can’t change their finger, face or eye.”

Redecker says moving biometric authentication to smartphones has numerous advantages. “It helps address issues banks face in securely storing clients’ biometric credentials, as the biometric template – in the case of TouchID – is stored locally on customers’ phones. It could address the off-us problem with biometrics.

“With biometric readers installed on ATMs, only customers of issuing banks would be able to utilise the biometric to access their funds, as only they would have their biometric template enrolled in the system – unlike with authentication on phones.” <

Feature | ATM security



analysis | contactless

Lu Zurawski, solutions practice lead, consumer payments, ACI WorldwideContactless technology is a hugely impressive piece of social technology. Its impact will go far beyond the world of plastic cards; it really is the beginning of an era of mobile payments where consumers feel comfortable waving smartphones or wearable devices like watches or rings to initiate their payments.

It seems inevitable that a shift to contactless universal payments is now well established. If current adoption rates continue, mobile contactless will reach three billion transactions in 2020, the same volume as card contactless in 2016 – an impressive catch-up if this is sustained momentum.

It is tempting to think that debates about consumer payment techniques and standards may now be done and dusted. For all our familiarity with contactless here in the UK, the transaction volumes for contactless usage are dwarfed when compared to the figures of – predominantly Chinese – mobile payments users who use optical barcode scanning techniques within schemes such as Alipay and WeChat Pay.

A significant proportion of Chinese consumers travel abroad and – not unreasonably – expect retailers to be familiar with their preferred way to pay. This is why high-value merchants across Europe and the US are currently working hard to add Alipay and WeChat Pay to their points of sale.

Despite their impressive volumes, I still doubt that this will derail the progress of contactless. For many of us in cards markets,

we are not keen on changing our habits and having to learn yet another new payment method.

Nevertheless, the impact that WeChat Pay will have on developing markets should not be ignored.

Oscar Nieboer, chief marketing officer, PaysafeSince 2007 contactless has represented a faster and more convenient way to pay. But it is not just the consumer checkout experience that has been affected by the rise of contactless cards.

The introduction of contactless cards in the UK represented the first tentative steps away from traditional payment methods, towards the cutting-edge digital alternatives of the future.

Most prominently, the contactless functionality first introduced within cards has paved the way for smartphone apps like Apple Pay and Android Pay to introduce their popular ‘tap-and-go’ functions. But this is just the start.

Contactless cards have set the ball rolling in the payments industry, and their legacy will be observed in the subsequent technologies and innovations that have opened up awareness of payments in the minds of vendors, merchants and consumers.

The simple act of moving beyond physical money has opened our eyes to how quick, simple, and convenient payments can be. In turn, this realisation has cultivated the environment for myriad fintech innovations to emerge, develop and thrive – from digital wallets and smartphone apps and biometrics to cryptocurrencies such as Bitcoin.

Ian Bradbury, CTO for financial services, Fujitsu UK and IrelandIt is hard to believe that contactless cards have now been around for a decade, as we have only in recent years seen them receive significant uptake with consumers.

What was once seen as scary and unsafe to use, is now – thanks to its ease and education – resonating and growing in popularity with today’s consumers, and is now responsible for a third of all card transactions.

We expect this adoption of contactless payments to only grow, and become an increasingly important feature in the UK payments landscape. Ultimately, both consumers and retailers are choosing to adopt solutions that are secure, quick and easy to use, as well as ubiquitous.

Not only are contactless payments quicker and easier to use than chip and PIN, they are in a variety of ways more practical than small change and notes. The notable corresponding growth in debit card transactions also implies that this is not just growth fuelled by debt and easy credit – much of this increase will be a

result of contactless payments being made purely due to ease.

Moreover, contactless payments have the added

value of fuelling other payment solutions such as Apple and Android pay and other wearable technology, which is not so easily done with

chip and PIN.The success of

contactless payments highlights consumers today are

quick to adopt new payments solutions that focus on improving their experience. That said, because consumer experience can cover many aspects including convenience, security, speed and ubiquity, it is essential that providers put in place ways to improve the experience over current solutions.

If future payment solutions do not address all of these areas – which are fast-becoming an everyday expectation from consumers – then they are unlikely to be successful. <

in 10 years, what has the contactless card achieved? It is the 10th anniversary of the contactless card. While some nations have embraced the offline payment method, such as the UK, others remain to be convinced. So, 10 years on, has contactless become a mainstream way to pay? Patrick Brusnahan speaks to experts



news feature | CEPI SUMMIT AWARDS

the cream of asia: The cepi awards winners revealedHearty congratulations to all the winners at the CEPI Summit Awards on 7 September in Singapore!

CEPI Asia Leadership Award – Institutional

The winning bank won a total of eight awards and one commendation, which is testament to its cards and payments prowess. Year on year it continues to impress with its products and results.

Its approach to technology and innovation is unique. It is a bank in which the CIO is the only tech person in his team, a bank which values people over technology, fostering the right culture rather than developing technology for technology’s sake.

This is a well-deserved win.

Winner: DBS Bank

CEPI Asia Leadership Award – Individual

The winner has been CEO of Maybank Singapore since 1 January 2014. He is responsible for driving the bank’s community banking strategy across all geographies.

If a bank enlists you to grow the business of all the banks entities in Singapore, spanning the full suite of products and services, it is no insignificant vote of confidence.

In his career spanning 35 years for Maybank, he has won awards for his work and helped steer the bank to being the top-tier institution it is today. A member of various banking associations internationally, his expertise is keenly sought by peers across the globe.

Winner: Datuk Lim Hong Tat, Maybank

CEPI Asia Disruptor Award – Institutional

The multiple-award-winning disruptor to take the crown in this category has developed a payments gateway service and technology which is being utilised in over 13 countries worldwide. The solution has been widely adopted by 5,000 e-businesses and over 100 financial institutions.

It undergoes continual upgrades to keep up with the fast-changing payments environment, and this continuous improvement is achieved through the company’s 90-plus team members.

Winner: Asiapay

CARDSBest Card Offering – North AsiaWinner: E.Sun BankBest Card Offering – South & Central AsiaWinner: Citibank ThailandBest Card Offering – Southeast AsiaHighly commended: FE Credit – VP Bank, RCBC BankardWinner: DBS BankBest Card DesignHighly commended: DBS Bank, Taishin BankWinner: RCBC BankardBest Contactless Card InitiativeWinner: Citibank ThailandBest Debit Card Product, Asia-PacificHighly commended: E.Sun, Kasikorn BankWinner: Siam Commercial BankBest Commercial Card Product, Asia-PacificWinner: Taishin BankBest Prepaid Card Product, Asia-PacificWinner: CB BankBest Credit Card Product, Asia-PacificWinner: DBS Bank

TECHNOLOGYBest Initiative for Customer EngagementWinner: MaybankBest Data Analytics ProgrammeWinner: CTBC BankBest Security InitiativeWinner: E.Sun BankBest NFC-Enabled Service InitiativeWinner: Maybank Best Mobile and Point of Sale InitiativeHighly Commended: E.Sun BankWinner: DBS BankMost Innovative Digital Solution – Consumer Highly Commended: MaybankWinner: Citibank SingaporeBest Technology Implementation – Back OfficeHighly Commended: CTBC BankWinner: DBS BankBest Technology Implementation – Front EndHighly Commended: Citibank IndiaWinner: FE Credit – VP Bank

MERCHANT ACQUIRINGBest Merchant Product OfferingWinner: Kasikorn BankBest Merchant CRM ProgrammeWinner: Taishin BankBest Merchant Acquiring Technology Solution Winner: Kasikorn BankBest Merchant E-commerce SolutionWinner: E.Sun BankBest Merchant Acquiring InitiativeWinner: Taishin Bank

MARKETING & COMMUNICATIONSBest Affinity Co-Branded ProgrammeHighly Commended: Siam Commercial BankWinner: DBS BankBest Loyalty ProgrammeWinner: DBS BankBest Social Media Marketing CampaignWinner: Citibank SingaporeBest Digital Marketing CampaignWinner: Citibank SingaporeBest Product, Service or Innovation LaunchWinner: CTBC BankBest Brand Engagement ProgrammeHighly Commended: Taishin BankWinner: Citibank SingaporeBest CSR InitiativeHighly Commended: Citibank IndiaWinner: DBS BankBest Marketing Campaign – OverallHighly Commended: Kasikorn BankWinner: Citibank Singapore

CATEGORY 5 PAYMENTSBest Digital Wallet InitiativeWinner: Citibank Singapore Best Omni-Channel Payments InitiativeBest Peer-to-Peer Payments InitiativeBest Commercial Payment OfferingBest Remittance OfferingWinner: Standard Chartered Bank Most Innovative Retailer AdoptionWinner: DBS BankBest Payments Initiative – OverallWinner: ANZ Banking Group



country snapshot | kazakhstan

Cash remains the preferred consumer payment instrument in Kazakhstan, due to a lack of adequate banking infrastructure, limited awareness of electronic payments, and low acceptance at retailers

Despite its dominance, use of cash is anticipated to decline gradually over 2017-2021 as a result of

initiatives by the government and banks to promote electronic payments.

This includes expanding banking infrastructure and financial literacy, a de-dollarisation plan, forcing retailers to install POS terminals to accept payment cards,

and restricting the use of cash transactions for sole proprietors and companies, with tax incentives for businesses that accept payment cards.

As a result of sustained government efforts, the share of payment cards is anticipated to rise between 2017 and 2021. One of the top priorities of Kazakhstan’s 2015-2016 de-dollarisation

plan was to gradually move away from cash-based transactions. While initiatives have been taken to achieve economic stability and reduce dependence on foreign currency, the government also plans to launch new initiatives to reduce dependence on cash.

In November 2012 the central National Bank of Kazakhstan required

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KAZAKHSTAN

country snapshot: kazakhstan



country snapshot | kazakhstan

certain categories of retailer to install POS terminals. On January 1, 2014 the regulation was extended to all traders, regardless of business model. Penalties for refusing to accept a card payment are a minimum of KZT34,620 ($103.80) for individual entrepreneurs and $259.50 for large businesses.

The central bank defines the system and method of payments, and operates payment systems. The banking law and other acts regulate the second-tier banks.

There are two payment systems in Kazakhstan: the ISMT and the System of Retail Payments. The former processes high-value payments, while the latter processes low-value payments.

In 2016, the central bank issued a new payment law, On Payments and Payment Systems. In comparison to the old payment law, the new law is more detailed and comprehensive in its approach.

CREDIT CARD GROWTHThe credit card market in Kazakhstan is still developing, with penetration of just 13.4 cards per 100 individuals in 2016. However, credit cards registered the fastest CAGRs of 19.2% and 30.8% in terms of transaction value and volume respectively between 2012 and 2016.

To increase credit card penetration, banks have adopted customer segmentation strategies, targeting niche segments such as high-income individuals. Russian banking group Sberbank has launched a hand-crafted solid gold Visa Infinite credit card in partnership with Visa, which is studded with 26 diamonds.

Offering co-branded credit cards is another strategy banks are using to increase adoption, with the cards offered in sectors such as travel, retail and entertainment. Bank CenterCredit offers the Visa-branded Card for Fly credit card in association with Air Astana. Holders receive benefits including reward points, upgraded flight tickets, and discounts at participating Visa outlets.

DEBIT CARDS DOMINATEDebit card penetration in Kazakhstan stood at 74.7 cards per 100 individuals in 2016, higher than regional peers Romania (66.8), Ukraine (65.3), and Azerbaijan (47.8). This was supported by the country’s increasing banked population.

Kazakhstan has made substantial progress in terms of financial inclusion, with the percentage of the population aged 15 or above with a bank account rising from 46.2% in 2012 to 61.8% in 2016. Most bank customers became cardholders as a result of payroll projects, and the majority of cards in circulation are debit cards.

Banks are also cross-selling products such as insurance and consumer and mortgage loans to salaried employees. Debit card growth has also been supported by an increase in the number of social cards, with the government increasingly distributing social benefits such as pensions and scholarships through banks.

KazPost has also played an important role in promoting use of debit cards, as it is authorized by the central bank to issue payment cards. However, debit cards are primarily used for cash withdrawals rather than at POS terminals. Banks are attempting to counter this by offering reward points, discounts and cashback.

POS TERMINALSThe number of POS terminals increased from 33,520 in 2012 to 107,502 in 2016, and is expected to reach 187,847 by 2021. With the rising number of POS terminal installations at retail outlets, the potential of card-based payments in the country is also expected to grow.

In addition to conventional POS terminals, merchants are installing mobile point of sale (mPOS) terminals. In August 2014, mobile operator service Kcell launched mPOS terminals called K-Pay in Kazakhstan.

The service allows users to make payments using mobile phones. K-Pay devices can be purchased at Kcell sales points and service centers. The terminal is a compact card reader compatible with Android and iOS devices.

Similarly, Halyk Bank offers Pay-Me mPOS terminals at a cost of $36, with a fixed commission of 2.75%. <

Others42.5%

Halyk Bank32.9%

Kazkommertsbank18.9%

EurasianBank 5.7%

Debit card shares by issuer

Source: GlobalData

Others10.7%

Mastercard21.7%

Visa67.6%

Debit card shares by scheme

Source: BIS, GlobalData

Others21.3%

Kaspi Bank78.7%

pay later shares by issuer

Source: GlobalData

Mastercard10.9%

Visa87.4%

Others1.7%

pay later shares by scheme

Source: GlobalData



country snapshot | azerbaijan

With its unbanked population standing at 62% of the total in 2016, Azerbaijan is a largely cash-based society. Low awareness of financial products and poor payment infrastructure are key hindrances

AZERBAIJAN

country snapshot: azerbaijan

Cash’s dominance and low levels of financial literacy are hindering the overall development of Azerbaijan’s

financial system.To overcome this, the government

has taken several initiatives to increase consumer awareness of non-cash payments through financial literacy programs, higher cash-withdrawal fees, and the

introduction of new regulations to limit cash transactions among individuals and businesses.

Payment cards gradually gained prominence in Azerbaijan between 2012 and 2016, as a result of the government’s sustained efforts and banks’ and scheme providers’ marketing strategies to promote their use.

The government launched an e-government site in 2013, enabling citizens to pay utility bills, tax bills, and customs payments online, to promote the wider use of electronic payments.

FINANCIAL INCLUSIONThe Central Bank of the Republic of Azerbaijan has focused on financial inclusion, in aim to bring the country’s large unbanked population into the financial mainstream.

It has conducted various workshops and promotional campaigns in association with banks and scheme providers for the purpose of developing and promoting card payments.

National postal service provider Azeri Post has also played a key role in promoting the use of payment cards. On April 16, 2010 Azeri Post was granted a licence by the central bank to provide financial services such postal accounts, money transfers and postal savings, and to issue postal cheques as well as debit and credit cards. Azeri Post signed an agreement

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with MilliKart on June 15, 2010 to issue payment cards.

As a result of these initiatives, the country’s banked population gradually increased over the past five years. According to World Bank statistics, the percentage of individuals with an account at a bank or other type of financial institution grew from just 19.8% in 2012 to 38.0% in 2016.

E-COMMERCE GROWTHThe e-commerce market in Azerbaijan grew significantly from $899,151 (AZN1.6m) in 2012 to $8.6m in 2016, at a CAGR of 75.7%. Its value is anticipated to reach $18.2m by 2020.

Rising smartphone and internet penetration are among the key factors that are driving the e-commerce market in Azerbaijan.

Furthermore, various online payment processors are establishing operations in Azerbaijan, which is also an important contributor to the growth of the e-commerce market. US-based online payment processor Net Element established a subsidiary called PayOnline in December 2016, in collaboration with online travel agency Flight.az and AGBank. The agreement allows PayOnline to process online transactions for merchants in Azerbaijan.

Banks are offering virtual cards for individuals who frequently buy products or services online, in response to the rising number of online shoppers and overall growth in online retail in Azerbaijan. The Visa Virtual card by Kapital Bank and the Visa Internet Card and Mastercard WebCard by IBA are typical examples of these cards.

SOCIAL BENEFITSThe primary use of debit cards in Azerbaijan is for the distribution of salaries and social benefits. According to recent statistics from the central bank, the number of social cards stood at 2.6 million, and salary cards (debit cards) stood at 1.5 million as of December 2016.

The government distributes social benefits such as pensions and social insurance through banks, under the State Social Protection Fund (SSPF). This has encouraged banks to offer social cards, and all major banks now offer cards to

senior citizens to enable them to withdraw monthly pensions.

According to SSPF statistics, there were 3.2 million beneficiaries registered under the SSPF as of March 1, 2016.

LOW CREDIT CARD UPTAKEPay-later card penetration in Azerbaijan was just 6.7 per 100 individuals in 2016, which is low compared to its peers Turkey (75.5), Russia (20.3), Poland (16.0), Romania (13.5), Kazakhstan (13.4), and Ukraine (6.6).

The low penetration rate for credit cards is primarily a result of the widespread low level of financial literacy in the country. The high cost of lending – which generally varies from 10% to 35% – has also affected the credit card market’s growth.

In addition, the availability of overdraft facilities with bank accounts means that much of the banked population in Azerbaijan does not perceive any real need for a separate credit card.

Several Banks in Azerbaijan offer overdraft facilities on salary debit cards. For instance, Pasha Bank currently offers an overdraft facility of up to 80% of the cardholder’s net salary.

PAYMENT INFRASTRUCTUREThe number of POS terminals has grown, recording a CAGR of 21.0% between 2012 and 2016. The volume increased from 36,860 in 2012 to 79,000 in 2016.

The increasing shift in consumer behaviour regarding card-based payments is driving the growth of POS terminals.

In addition to conventional POS terminals, many merchants in Azerbaijan are installing m-POS terminals. As an example, MilliKart launched the M+ m-payment solution in Azerbaijan in September 2014, in partnership with goSwiff. M+ is an m-payment platform designed to accept payment cards using mobile phones. <

country snapshot | azerbaijan

Kapital Bank44.2%

IBA36.7%

Others17.7%

BankTechnique

1.4%


Source: GlobalData

Mastercard43.6%

Visa48.1%

Others8.3%


Source: GlobalData

Bank of Baku 24.5%

Others40.6%

UniBank23.6%

IBA11.3%


Source: GlobalData

Visa44.4%

Mastercard52.5%

Others3.1%


Source: GlobalData



Country snapshot | egypt

Credit card penetration remains low in Egypt, primarily for religious reasons as Islamic principles do not permit interest. Low merchant acceptance and a fear of consumer debt are also critical factors

EGYPT

country snapshot: egypt

Egypt remains a cash-driven society, with cash accounting for 95.7% of the overall payment volume in 2016,

mainly for low-value payments in both rural and urban areas.

Payment card penetration in Egypt stood at 22.6 cards per 100 individuals in 2016, the lowest in comparison to peer countries such as South Africa, Morocco, and Kenya.

The main factors driving this low payment card penetration include the large unbanked population, and a widespread lack of financial awareness.

With the government working to improve financial inclusion and financial infrastructure in the country, use of payment cards is expected to increase over the next five years.

PAYROLL PROJECTDebit card penetration in Egypt stood at 19.1 cards per 100 individuals in 2016, lower than peer countries South Africa with 90.2, Morocco with 37.4, Kenya with 24.4 and Nigeria with 22.0.

The Central Bank of Egypt has, however, been making efforts to promote payment

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500

1,000

1,500

2,000

2,500

20122013

20152016

(estimated)2014

$bn


Source: Central Bank of Egypt, GlobalData

0

10

20

30

40

50

60

70

80

20122013

20152016

(estimated)2014

$bn



0.0

0.5

1.0

1.5

2.0

20122013

20152016

(estimated)2014

$bn

value of payment cards




Country snapshot | egypt

cards. One initiative in collaboration with the Ministry of Finance is a project launched in 2011 to pay the salaries of five million government employees directly into their bank accounts. The project aims to reduce administration costs and keep money within the financial system. New government departments are being added to the project every year, resulting in an increase in the number of accounts and debit cards held in Egypt. National Bank of Egypt (NBE), Banque Misr, Housing and Development Bank, Banque de Caire, and Arab African International Bank (AAIB) are all participants in the project.

In November 2016, the central bank issued new regulations that permit banks to deploy banking agents. These agents can offer all types of banking service, establish customer relationships, and verify customers’ identities. This is expected to support growth in the debit card market.

CREDIT CARD ADOPTIONEgypt’s credit card market is still in early stages of development, with a penetration of 3.5 cards per 100 individuals in 2016. Credit card penetration remains low, primarily for religious reasons, with fear of falling into debt and low merchant acceptance also factors.

Strict guidelines have also contributed to the low adoption. Banks are cautious when issuing credit cards and require details of income and credit history. There are also age and income requirements and limits.

Issuers are, however, taking initiatives to increase credit card penetration, including offering reward programs, interest-free credit periods, flexible repayment options, low minimum payments, free supplementary cards, and a range of insurance services.

E-COMMERCE GROWTHDespite limited financial literacy and payment infrastructure, and a large rural population, Egypt’s e-commerce market grew significantly between 2012 and 2016, from $1.2bn (EGP22.5bn) to $3.1bn at a CAGR of 25.6%. The market is anticipated to reach $6.6bn by 2020.

Cash on delivery remains the preferred mode of payment, accounting for 62.0% of the total e-commerce transaction value in 2016. However, with a growing young population and improved infrastructure

and technology, payment cards are gaining traction, accounting for 20.3% of the total e-commerce value in 2016. Banks such as NBE, Commercial International Bank (CIB), Banque Misr, and QNB Alahli Bank also offer exclusive cards for online purchases.

While traditional methods such as cash, cards and credit transfers account for the majority of the e-commerce transaction value, alternatives are slowly gaining prominence.

Digital and mobile wallets and carrier billing together accounted for 6.7% of the total e-commerce transaction value in 2016. CIB launched its Smart Wallet in 2016, and other banks such as Banque Misr and NBE also offer digital wallets.

PREFERENCE FOR PREPAIDPrepaid cards recorded robust growth during the review period, in terms of both the number of cards in circulation and transaction value.

With 82% of the population being unbanked in the country in 2016, prepaid cards provide an opportunity, especially among younger people for whom it is difficult to obtain debit or credit cards due to perceived levels of financial instability.

In an aim to gain access the younger market, a number of issuers offer customised prepaid cards for students and young people. NBE offers the Mastercard Al-Ahly lel Shabab prepaid card. It is a reloadable card with an extendable validity that allows holders to make secure in-store and online payments.

Banks are also offering prepaid cards exclusively for online shoppers and travellers. For online shoppers, AAIB provides the Visa 4U internet prepaid card with three years’ validity and an annual fee of $1.40. The maximum that can be added to the card is $827.20.

Similarly, NBE and Banque Misr offer the Mastercard Internet and Visa Internet prepaid cards respectively. <

NBE33.9%

Banque Misr18.9%

Others40.0%

Qatar NationalBank 7.2%


Source: GlobalData

123 Network40.3%

Visa25.8%

Mastercard33.9%


Source: BIS, GlobalData

NBE24.9%

Banque Misr15.4%

Others50.3%

CIB9.3%


Source: GlobalData

Visa57.2%

Mastercard40.5%

Others2.4%


Source: GlobalData



industry insight | atms

Customer expectations are changing as the world of technological possibilities is growing and banks

and other providers are focused on keeping up the pace in developing their digital channels.

But, while the fintech revolution is marching on, it remains true that the demand for physical financial services is not going to disappear any time soon. The key in any channel strategy is therefore to carefully balance digital services with physical touchpoints that ensure people are given access to basic services wherever and whenever needed.

Enter the ATM, where in the UK we have a record network with over 70,000 machines in local communities. Worldwide, the number of ATMs is also continuously increasing: While in 2005 the World Bank Group estimated that there were only around 16 ATMs per 100,000 adults, that figure rose to 41 ATMs within just 10 years.

A new partnership between independent ATM operator Cardtronics UK and a digital wallet provider illustrates the advantages of making use of an existing network of physical touchpoints to bridge the physical and the digital worlds. We were approached by innovative digital wallet startup CashDash, which was looking for a partner with the necessary footprint and infrastructure to make sure its customers could access their funds whenever and wherever needed.

We worked with it to enable the withdrawal of cash from the CashDash digital wallet on 1,000 of our ATMs across London – a key location for CashDash, as its service is

aimed at foreign visitors who are looking to convert their funds digitally into sterling at an attractive exchange rate.

The CashDash example makes the advantages of giving customers access to a physical ATM network clear: Foreign visitors to the UK are looking for a reliable way to pay, without having to worry whether the next shop or restaurant will accept their cards or smartwatches. Enabling withdrawals of the digital funds in cash means flexibility and guaranteed acceptance wherever they go – and the necessary link to make the digital service practical and usable is established.

Not only for tourists, but for all UK consumers, cash continues to be the most important payment method – despite the current technological arms race in the payments industry. The latest data from UK Finance found that consumers and businesses spent £240bn ($318bn) worth of cash through 15.4bn payments in 2016. This is 25%, or 3.8bn, more payments than the second most frequently used payment method – debit cards.

What is more, 79% of payments in UK local shops are made in cash, showing the significance of a ready physical cash supply in UK communities for consumers and businesses alike. Recognising the ongoing necessity of a steady cash supply to local communities will clearly be a vital pillar in any successful financial services strategy for years to come.

For the world of financial institutions in the UK, the question of which physical services should remain a key pillar of their channel strategy is of particular importance as their established physical branch networks are currently undergoing one of the greatest shake-ups in their history: According to data consultancy CACI, only 10,000 bank branches remained in the UK in 2016, with that number expected to half within the next 10 years. While the average person is predicted to visit their local bank branch only four times by 2022, overall customer interaction with banks will increase 54% over the same period. This is down to the convenience of automated services, particularly app-based transactions, which are predicted to rise 121% by 2022.

While branch networks need to be reduced, using the established networks of specialist technology providers can be an efficient way for banks to make sure their customers still have access to the local touchpoints they demand. In particular, the increasing use of smartphones, and continued reliance on cash will increase demand for digital-to-cash and cash-to-digital functionality on ATMs, such as we can see in the example of the partnership between CashDash and Cardtronics.

Using the ATM as the link to the digital future of financial services means great potential for innovation within the fintech industry – and the guarantee that innovations are practical and can be implemented. As customers’ digital convenience expectations rise, it will be partnerships between innovators, established FIs and specialist ATM providers that link to the future of financial service and make sure the worlds of digital and physical remain in balance. <

link to the digital revolution via the ATMWith financial services in the midst of the digital revolution, proper links from the physical to the digital world are becoming more important than ever, writes Paul Taylor, innovation director at Cardtronics


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HAPPY BIRTHDAY, CONTACTLESS CARDS · 2019-12-16 · In a well-publicised piece we ran last month, Fidor’s estimable Sophie Guibaud even headed her thoughtful article The Simple