CIS CountrIeS report

card & payments world MARCH 201310

Local politics challenge developmentthe 12 CIS region countries present both opportunities and challenges in the development of their

payment markets. Introduction by Morten Kriek, regional director at banking software provider Cr2.

GeorGIa payMent MarKet In brIef 2013

l 4,145,364 debit cards (January 2013)l 3,404,788 debit cards (January 2012)l 3,127,643 Visa cardsl 529,660 MasterCardsl 1,936 ATMsl 11,125 POS terminalsl Total no. of transactions (January 2013): 4,714,588l Total val. of transactions (January 2013): GEL668.81m (E311.37m)

Cards are still used mainly for cashMost payment cards in Georgia are

debit products, are held by 18-34-year-olds and are primarily used for cash withdrawal at ATMs.

The MasterIndex survey conducted by MasterCard found that cash is still the main means of payments for both card-holders and non-cardholders. Consumers said that the top three incentives that would persuade them to use cards are: interest free instalments, money refunds and promotional lotteries.

While internet usage in Georgia is quite frequent, especially among card-holders, online shopping has not yet become widespread.

The survey found that offering online identity verification for internet transac-tions has the potential to increase the number of online shoppers.

MasterCard says that the attachment of Georgians to their mobile phones points to the potential of m-payments in the country.

Sixty percent said that they would

rather lose their wallet than their mobile.In total there were 5.278 million pay-

ments cards in the country in January this year, of which 4.145 million were debit cards, and 1.133 million were debit cards

In the twelve countries of the CIS (Commonwealth of

Independent States) region the percentage of the unbanked population is far bigger than in Western Europe.

Developments such as branch expansion, the rise of electronic channels, cards and electronic payments and the downsizing of branch networks is several years behind Western Europe.

However, since the banks in the CIS region have access to the same technology as their Western peers, this makes for interesting market develop-ments.

Many banks find them-selves at a crossroads. Will they invest in further development of their branch networks or do they invest in self-service chan-nels? For the investment it takes to open up a new branch in, for example, Ukraine, you can expand your ATM network with

10-15 brand new ATMs, if not more. The ATM is open 24 hours a day, 7 days a week and are vis-ited by more of the bank’s clients and potential clients than any other customer touch point.

GeorgiaI will be speaking at the 2nd

CIS bankers international bank-ing conference and exhibition (www.cisbankers.com), which takes place from 3 to 7 June in Kiev Ukraine. The event was originally planned to take place in Tbilisi, Georgia. However, as so often happens in the CIS region, politics got in the way of the development of the banking sec-tor. Georgia is blessed with some advanced services on their ATMs and some innovative cards and payments projects. However, as the new government and the opposition are playing the wait-ing game, banks are reluctant to invest in further development.

For this reason, the organisers at CIS bankers decided to pull out of Georgia.

The CIS covers 12 countries - Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, the Russian Federation, Tajikistan, Turkmenistan, Ukraine and Uzbekistan.

It is a loose agglomeration of 12 independent countries that used to be part of the former

USSR, and has more in com-mon with the Commonwealth of Nations than a political and administrative entity such as the European Union. The Baltic former USSR states of Latvia, Lithuania and Estonia declined to join the CIS.

Co-operationThe principle objective of the

CIS is to enable cooperation in political, economic, environmen-tal, humanitarian, cultural and other fields among a number of former Soviet Republics.

Through the CIS bankers net-work, I decided to contact senior retail bankers in the different countries of the CIS region to find out more about the state of the cards and payments market in their country. What is working well, what is not and what are the key trends and innovations.

My findings are on the following four pages.

Morten KrieK

GeorGiA totaL DebIt CarDS In GeorGIa Date number of cards issuedJanuary 2010 3,049,863June 2010 2,914,380January 2011 2,654,208June 2011 3,051,519January 2012 3,404,788June 2012 3,679,474January 2013 4,145,364

Date number of cards issuedJanuary 2010 236,288June 2010 326,534January 2011 474,427June 2011 537,865January 2012 600,795June 2012 635,631January 2013 1,133,281Source: Central Bank of Georgia

totaL CreDIt CarDS In GeorGIa

MARCH 2013 card & payments world 11

CIS CountrIeS report

nfC payments the next big moveMoldova has a high proportion of cards per person, but usage is still quite low. the payment card mandate for eMV migration in eastern european countries that comes into force next

year will drive the uptake of new payment technologies, says Cristina Doros, head of the cards division at Moldova agroindbank.

are there any particular barri-ers/problems to development of the card market that you would identify?

The main barrier is the lack of financial education of the popu-lation. Despite banks’ efforts in this regard people are still using cards mainly for cash withdrawals. There is a lack of incentives for merchants to grow cards accept-ance. Some regulations from the National Bank of Moldova (NBM) impede commercial card usage – for example, companies have to submit confirmation docu-ments for each commercial card transaction. However, the NBM is taking certain steps towards developing the card market – prepaid cards were introduced

What payment developments are currently taking place in Moldova, and what technolo-gies are being used (nfC, wal-lets etc)?

For the moment EMV tech-nology is being actively deployed by Moldovan banks. Although the biggest players adopted chip much earlier (2007/2008) mas-sive implementation is boosted now by the MasterCard EMV mandate for Moldova and some other Eastern European coun-tries that comes into effect on April 1, 2014. Therefore all issuers must comply and this will give additional momentum to EMV in Moldova. NFC is being seen as the next big move.

Who is leading the mobile payments initiatives – banks, mobile phone companies or retailers?

Banks and mobile operators are the main drivers for new initiatives.

How prevalent are payment cards compared to cash, and what are the levels of card acceptance at retailers?

Card payments are constantly growing, but unfortunately the percentage of card payments usage is still quite low – about 5-6%. Although card penetration is good – there are about 1 mil-lion cards in circulation for the around 1.4 million economically active population. So the main target is to drive card usage as a payment method.

are most cards now eMV cards or are there still a lot of mag-stripe cards?

Banks are issuing EMV cards, but the majority are still mag stripe. Moldova Agroindbank is now issuing only EMV cards. The overall situation is expected to change due to the payment scheme mandate in 2014.

MoLDoVA

CristinA Doros

MoLDoVa CarD & payMentS MarKet 2012 number Compared to 2011 (% increase)total cards 1,011,673 11.0total cards issued in 2012 359,322 9.5total card transactions 19,380,213 10.2total card transactions 967,680 32.7abroadtotal card transaction 20,038,111.6 52.1value (M000*) in Moldovatotal card transaction 1,296,442.7 18.6value (M000*) abroadtransactions in Moldova 1,461,724 52.1on foreign cardstotal card transaction 2,396,992.6 35.5value (M000*) on foreigncards in Moldovatotal poS terminals 9,362 17.2total atMs 924 8.6Source: National Bank of Moldova

* 1 Moldovan Leu = E0.063

into the regulation in December 2012. How profitable is the cards and payments market in your coun-try? How competitive is it?

The profitability of the card business is under constant pres-sure. Payment scheme commis-sions are quite high and force banks to maintain a high level of fees. Card payment usage is still low and doesn’t allow for interchange revenue growth. The acceptance market is pres-sured by the quite big number of acquirers. Competition is tough because all 14 banks in the mar-ket are developing their card business, which is quite a big number of banks for the size of local economy. Therefore they have to compete strongly for customers.

What are the biggest oppor-tunities for payments in Moldova?

Driving card acceptance at the POS and card usage replac-ing cash.

New innovative technologies also provide opportunitie such as ecommerce development, tackling contactless, virtual cards and e-wallets.

BeLArUsThe National Bank of Belarus is in talks with Diners Club to

enter the local market as part of its plan to get all major payment systems operating in the country by 2014.

The National Bank plans to get all major payment systems to Belarus by 2014.

Vice chairman of the board of the National Bank Sergei Dubkov said that Visa and MasterCard already issue cards and it was hoped American Express will

start shortly after reaching an agreement with authorities.

In Q2 2012 the total vol-ume of card transactions in Belarus increased BR38.3 trillion (E3.58bn), an increase of 190% on Q@ 2011. The number of cards in circulation grew by 0.9% in Q2 to 9.76 million. Non-cash transac-tions represented 18.7% of total payments, compared to 14.2% in Q2 2011.

Diners Club invited

CIS CountrIeS report

card & payments world MARCH 201312

Internet banking provides opportunities for growth

The Ukraine payments mar-ket remains heavily oriented

towards cash – which accounts for around 90% of transactions – but internet banking provides an opportunity to develop the electronic payments sector.

Svetlana Cherkay, deputy CEO and head of retail banking at Erste Bank Ukraine, says that all the country’s largest banks have been offering customer internet banking solutions since 2010, but so far they have had limited functionality.

“The main opportunities we see are in expanding func-tionalities such as the ability to receive and pay bills,” says Cherkay. “We also plan to offer smart phone applications to internet-banking users, and pay-ments in foreign currency.”

The development of remote payments and online person to person transfers through mobile apps are major opportunities for banks the Ukraine, accord-ing to Piotr Kaczmarek, head

of retail banking at Alfa-bank Ukraine.

Kaczmarek adds that NFC will play a key role in develop-ing mobile payments over the next three years.

Asked which sectors will be the major players in m-pay-ments in the country he says: “It’s not yet decided. All parties are interested - mobile opera-

tors, banks, service providers as well as mobile phone compa-nies and merchants who wants

to promote mobile payments and attract new customers. The international payment systems, Visa and MasterCard, will also play a key role in develop-ment.”

barriers to plasticAround 70 million pay-

ment cards are in issuance in the Ukraine, but only around 32 million of these are “active” (used in the last three months), according to the Independent Association of Ukrainian Banks.

Bank card use is expanding in the country but, according to Cherkay, the prevalence of pay-roll/salary cards for company employees is one of the factors standing in the way of further increases, with cards generally used to withdraw cash via ATMs rather than as a debit card.

Despite this cards are being used more for purchase transac-tions, according to figures from Alfa-bank. In 2012 there were 348 million POS transactions (32.4% of total card transac-tions), up by nearly 300% from the 121 million POS transactions in 2010. In the same period, ATM transactions increased by 120% to 700 milliion during 2012.

Cash still accounts for 90% of transactions

problems after poS lawFrom January 1 2014, all busi-

nesses in Kazakhstan will be required to accept POS card payments.

A law actually came into effect requiring most merchants to have POS devices from the start of 2013, but 12 months grace has been given to some groups including individual trad-ers and those operating in areas with no general use communica-tions networks.

The law has led to some problems, according to Halyk Bank officials, who said there is a waiting list of two months among its merchant customers, with over 200 queuing to obtain a POS terminal in the country’s biggest city Almaty alone.

The Soyuz Atameken busi-ness union says that more time should be given to businessmen to install POS terminals.

According to the National Bank of Kazakhstan, penalties for refusing to accept payment via a bank card will range from

34,620 tenge (around US$231) for individual entrepreneurs to 86,550 (US$577) for large busi-nesses.

On January 1 2013 there were 12.65 million payment cards in the country (up from 10.26 mil-lion in January 2012), accord-ing to figures from the National Bank.

Of these, 9.40 million were debit cards, 1.91 million were credit cards, and around 950,000 were prepaid products.

Visa International had 10.46 million cards, and MasterCard had 1.56 million. There was a total of 35.17 million POS termi-nals (compared to 28.93 million in January 2012).

UKrAine

uKraIne CarD & payMentS MarKet*

total number of active payment cards 32.199 milliontotal number of card issuing banks 143total number of debit cards 25.671 milliontotal number of credit cards 6.528 milliontotal personal payment cards 30.882 milliontotal corporate payment cards 1.317 millionnumber of magnetic stripe cards 30.488 millionnumber of chip cards 762,000number of chip/magstripe cards 670,000number of internet cards 279,000

Main card issuing banks and % market share:privatbank 14.464 million cards (45% market share)oschadbank 4.273 million cards (13% market share)raiffeisen 2.88 million cards (9% market share)

number of payment cards in major population centres and % market share:City of Kyiv 4.041 million cards (12.6% market share)Dnipr region 3.461 million cards (10.7% market share)Donetsk region 3.193 million cards (9.9% market share)Source: Independent Association of Ukrainian Banks

* Figures as at July 1, 2012

sVetLAnA CherKAy

Piotr KAszMAreK

KAzAKhstAn

MARCH 2013 card & payments world 13

CIS CountrIeS report

Lack of competition brings high credit card profits

Loyalty services help expand market

The low level of compe-tition in the Azerbaijan

credit card market – which has high APR and commissions rates – makes the business more profitable than in many other countries.

That is the view of Elchin Abdullayev, head of the retail products division at JSC Bank Standard.

Abdullayev commented: “We have seen progress in credit card penetration and the retail share in total card turno-ver, especially after the launch of loyalty cards with bonus & installments services.”

He says factors holding back

the penetration of cards include a low level of financial litera-cy – particularly in the regions outside the capital Baku.

In terms of opportunities for his bank’s payment business, Abdullyev says: “There is great potential due to the low credit card penetration and the exist-ence of latent demand for such products.

“The absence of fully-fledged solutions for online banking and money transfers also present opportunities for us, as does the growing popularity of loy-alty programmes.”

premium cards targeted

What are the biggest oppor-tunities for your payments business?

Increasing the penetration of premium cards, increasing the average amount of non-cash transactions, and creating new distance channels for card usage, such as improving the functionality of ATMs and self-service terminals.

What are the specific barri-ers to the development of the card market?

There is a low penetra-tion rate of POS-acquiring in the regions outside of Yerevan, as a result low level of cards noncash usage. This is a major obstacle for cards market force-ful development and has rather impact on the cards penetration indicator.

How prevalent are payment cards compared to cash, and what are the levels of card acceptance at retailers?

Year by year payment cards are becoming more and more popular. Currently about 10% of overall transaction volume at the retailers is via payment cards.

The total number of cards in the country is 1.3 million in an economically active popula-tion of 2.2 million. But the main usage of cards remains ATMs withdrawls, especially outside of Yerevan [the capital].

How has eMV card deployment progressed in the country? 12 of the 21 banks in Armenia issue EMV cards. However mag-stripe cards still prevail in the local card market.

What developments are cur-rently taking place in mobile payments in armenia, and what technologies are being

used (nfC, wallets etc)?Mobile payments is an emerg-

ing business in Armenia and currently mobile wallets have become comparatively popular in the country. There is only one implemented mobile wal-let product based on the USSD interface named “MobiDram” which has limited functionality (domestic P2P transfers, utility payments etc.).

NFC technologies have not yet been introduced in the country, and are not in the short term plans of banks and mobile operators

Who is leading the mobile payments initiatives – banks, mobile phone companies or retailers?

Both mobile operators and banks, but mostly the initiative comes from mobile operators as an infrastructure key founder.

What particularly important recent payment innovations have there been in armenia?

Distance banking services have developed, particularly card-to-card transfers, mobile banking, and virtual cards (cardholders have became more active in internet-based transactions over the last few years).

ArMeniA

AzerBAiJAn

Don’t miss our country report on russia in the april issue of Card & payments World

premium cards and increasing atM functionality are creting major opportunities in armenia says

artak Khachatryan, director of retail business development at Vtb bank.

ArtAK KAChAtryAn

Date Debit cards Credit cardsJune 2010 4,019000 127,000January 2011 4,118,000 135,000June 2011 4,250,000 139,000January 2012 4,437,000 184,000June 2012 4,679,000 247,000September 2012 4,602,000 318,000

Date number of credit Value of credit & debit transactions & debit transactions (in Ma: Ma1 = E0.996)June 2010 3,499,000 454,000,000January 2011 3,411,000 448,000,000June 2011 3,830,000 552,000,000January 2012 3,541,000 531,000,000June 2012 4,405,000 676,000,000September 2012 4,690,000 734,000,000

number of non-cash payments via atM and poS:Date atM payments poS payments January 2010 52,000 34,0000January 2011 83,000 73,000June 2011 93,000 125,000January 2012 65,000 205,000September 2012 50,000 349,000Source: Central Bank of the Republic of Azerbaijan

aZerbaIJan CarD & payMentS MarKet