Credit Cards - Austria

HEADLINES

• 5% transaction volume and 6% current value growth from 2009 to 37 million transactions and €4.1 billion in 2010

• Challenges to traditional applications but rise in everyday usage in 2010

• Half a percentage point growth in current value average transaction price in 2010

• UniCredit Bank extends lead marginally to account for 33% transaction value share in 2009

• 6% transaction volume CAGR and 5% constant value CAGR expected for forecast period

TRENDS

• Credit cards are not typically used by Austrians for everyday purchases, with many consumers remaining wary of these cards. In addition, credit cards faced growing challenges to their usage for a number of key consumer applications towards the end of the review period. Credit cards are typically used in situations where debit cards are not accepted by merchants. However, widening merchant acceptance for debit cards reduced the frequency of this form of usage. Credit cards are also used in order to facilitate larger purchases, enabling the cost of these to be gradually paid back. However, many consumers remain cautious about accruing debt, particularly following the economic downturn seen during the review period. Consequently, many were keen to reduce their debt levels and to increase savings towards the end of the review period, with many postponing larger purchases as a result.

• Consumers also typically opt for credit cards when travelling abroad, with foreign transactions accounting for 31% of overall transaction value in 2010. However, in this area credit cards faced growing competition from open loop pre-paid cards, which are regarded as safer and easier to use. Consequently, credit cards saw a slight decline in the share of foreign transactions from 2009, with these transactions losing over three percentage points in transaction value share during the review period as a whole.

• Despite these challenges, credit cards saw a strong performance in 2010, with transaction volume and current value largely in line with the review period CAGR at 5% and 6% respectively. This was due to growth from a low base, with the household penetration of credit cards being low. In 2010, there was less than one card per six Austrians and an average of four credit cards per capita in the year. There is thus considerable scope for credit cards to grow sales value and transaction volume as consumers become more comfortable in using their cards and merchant acceptance continues to broaden.

• Growth in credit card usage was also encouraged by a rise in internet retailing in Austria during the review period. A growing number of consumers regard credit cards as a securer payment method online in comparison to debit cards, with this being encouraged by banks positioning credit cards as an ideal online payment instrument. Consequently, credit cards saw the strongest current value growth in cardholder not present transactions in 2010 over the previous year, rising by 17%. These transactions gained a percentage point in transaction value share in 2010 over the previous year, rising to account for 10% share.

• At the start of the review period, growth in card volume greatly outpaced transaction volume growth, with 2007-2008 for example seeing 7% card volume growth annually but just 4-5% growth in transaction volume. However, at the end of the review period banks became considerably more cautious in issuing credit cards, tightening their credit requirements in response to the economic downturn and fears of accruing bad debt. Consequently, card volume grew by just 2% in 2010 over the previous year. Growth in transaction volume and current value was thus instead driven by existing cardholders using their cards with increasing frequency.

• Credit cards continue to be used mainly for higher-priced purchases, with this resulting in a high average transaction price of €110 in 2010. There were differing trends in average transaction price in commercial and personal credit cards in 2010. Commercial credit cards continued to see a marked decline in average transaction price due to stronger everyday usage for smaller purchases. These cards thus saw a current value decline of 6% in 2010 over the previous year and a drop in average transaction price from €201 in 2005 to just €85 in 2010. In contrast, consumers remained wary of using their credit cards less for everyday purchases towards the end of the review period, due to fear over accruing debt. Consequently, personal credit cards saw little change in current value average transaction price in 2010 over the previous year.

• Commercial credit cards saw the strongest growth rates in 2010 over the previous year, expanding card volume by 6%, transaction volume by 18% and current value by 11%. These impressive growth rates are chiefly linked to a low base, however, with personal credit cards greatly outpacing commercial credit cards in terms of absolute growth. Growth in commercial credit cards was driven by the leading banks increasingly targeting small and medium-sized companies in Austria, while widening merchant acceptance encouraged business people to increasingly use these cards for smaller purchases such as food, fuel and train tickets.

COMPETITIVE LANDSCAPE

• UniCredit Bank Austria, Erste Bank and Raiffeisen are the clear leaders in Austrian credit cards, accounting for 33%, 31% and 28% of transaction value in 2009. These are leading banks in Austria and benefit from strong reputations and a large customer base. In addition, many Austria banks are reluctant to offer credit cards, particularly following the economic downturn, for fear of accruing bad debt.

• UniCredit Bank Austria, Erste Bank and Raiffeisen offer both commercial and personal credit cards but are stronger in the latter, where they accounted for a combined 92% transaction value share in 2009. In contrast, the three leaders accounted for just 37% transaction value share in commercial credit cards, where there are numerous smaller players. In 2009, “others” thus accounted for 61% transaction value share in commercial credit cards, with these players often targeting business travellers by offering travel- or accommodation-related benefits.

• There were few fluctuations in share towards the end of the review period. UniCredit and Raiffeisen gained share marginally, while Erste Bank lost share marginally due to tightening credit requirements. In card volume terms, “others” saw the strongest performance, meanwhile, gaining half a percentage point in share from to account for 4% share in 2009. This was due to Austrian players tightening their credit requirements to a greater extent than foreign credit card issuers, which thus attracted more consumers.

• In terms of card operators, Visa dominates card volume with a share of 59% in 2009, followed by MasterCard with 30% share. Visa benefits from its presence in commercial credit cards, within which MasterCard lacked a significant presence in 2009. Visa also benefits from offering longstanding products with the leading Austrian banks.

• There was little promotion for credit cards from Austria’s leading banks towards the end of the review period. These banks offer credit cards in order to offer a full portfolio of banking services. However, there was little interest in aggressively attracting new credit card customers, as banks are concerned about accruing potentially risky borrowers following the economic downturn. Consequently, the issuing of new cards was controlled by tighter credit requirements towards the end of the review period.

• October 2010 saw the merger of Raiffeisen Zentralbank and its international subsidiary Raiffeisen International Bank-Holding, with this creating Raiffeisen Bank International. The merger had little immediate impact on credit cards, with Austrian customers seeing little change in the bank’s operations. However, following the introduction of full SEPA compliance in Austria during the forecast period, Raiffeisen is expected to benefit from its more international scope.

PROSPECTS

• Commercial credit cards is expected to see strong growth during the forecast period. Growth will be driven by the leading banks seeking to attract a wider range of commercial customers, particularly small and medium-sized enterprises. Erste Bank notably announced plans to target this group in January 2011. Commercial credit cards is thus likely to be promoted as a strong budgeting and expenses tool for small businesses, with new launches likely to seek to meet users’ needs. New launches are thus likely to focus on offering travellers benefits, such as fuel discounts and travel-related rewards points. In addition, as Austria’s economy improves companies are expected to relax their restrictions on employees’ expenses, with this set to fuel good growth in commercial credit cards. During the forecast period, commercial credit cards is thus expected to see 37% growth in card volume, 99% growth in transaction volume and 50% growth in constant value.

• Consumers are also expected to become increasingly comfortable in using credit cards during the forecast period. In the aftermath of the economic downturn, there will continue to be widespread resistance to these cards, particularly among older and more traditional consumers. However, younger Austrians are expected to increasingly embrace credit cards, with many shifting from the use of overdrafts to credit cards as a source of short-term credit. Credit cards is also expected to prove increasingly popular among Austrians for online purchases, with growth in internet retailing thus also driving growth.

• There is likely to be widening merchant acceptance for credit cards during the forecast period, with levels remaining low at the end of the review period at 29% for MasterCard and Visa and 21% for American Express and Diners Club. During the forecast period, MasterCard and Visa are particularly likely to push for wider merchant acceptance, particularly focusing on smaller retailers and those in rural areas. This widening merchant acceptance will encourage the more frequent use of credit cards.

• With younger consumers adopting a more casual attitude to credit cards, more frequent everyday usage by commercial customers and widening merchant acceptance, there is expected to be a decline in average transaction price during the forecast period. Overall, average transaction price is expected to decline by 4% in constant value terms. Decline in personal credit cards will be constrained by many consumers limiting their everyday usage due to fears of accruing debt, with these cards continuing to be used mainly to fund higher-priced purchases. Commercial credit cards is however expected to see a marked 25% decline in average transaction price, as commercial cardholders increasingly use their cards to buy food, train tickets and fuel.

• From 2013, card issuers from across the SEPA area will be able to offer credit cards in Austria. This is expected to create considerably stronger competition within credit cards in the second half of the forecast period. With the leading Austrian banks doing little to promote personal credit cards, there is an opportunity for a foreign player to successfully attract many Austrians by offering strong marketing support, relaxed credit criteria and attractive interest rates. The leading players are thus likely to face a growing challenge during the forecast period and could well lose share.

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