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Saturday 26 April 2014

Credit Cards - Belgium


Credit Cards - Belgium


HEADLINES
  • 7% growth in card volume from 2009 to reach 1.2 million cards in 2010
  • 2% transaction volume and 5% current value growth from 2009 to reach 25 million transactions and €2.8 billion in 2010
  • Reduced and more cautious spending and consumers’ reduction of debts hinder credit cards in 2010
  • Average transaction spend grows by 3% from 2009 to reach €169 in 2010
  • Citigroup Inc leads card volume with 26% value share in 2009, while BNP Paribas Fortis leads transaction value with 22% share
  • 8% card volume and transaction volume CAGR and 7% constant value CAGR expected for forecast period
TRENDS
  • With around 1.2 million cards in 2010, the volume of credit cards remains much smaller in comparison with that of charge cards. Credit cards took longer to develop in Belgium in comparison to debit cards, due to a strong consumer preference for lower-risk charge cards. Credit cards were also more affected than debit cards by the recession, which led to the tightening of credit criteria and also to consumer reluctance to take on more debt. Thanks to earlier highly dynamic growth, credit cards’ performance over the review period as a whole was however strong with card volume increasing by 140%, transaction volume by 112% and current value payments by 87%.
  • Personal credit cards were particularly badly affected by the decline in consumer economic confidence caused by the recession. Transaction volume rose by only 1% in 2010 over the previous year while current value sales saw a modest 5% growth. This represents an improvement on 2009, however, when current value declined by 7%. Low growth in 2010 was due to a general reduction in spending and partly due to the increased use of charge cards. Average spend per transaction increased to €95 in 2010 from €91 in 2009, however, while remaining below the levels seen earlier in the review period. This was partly due to spending by higher-income groups accounting for a larger share of total transaction volume due to the greater impact of the recession on low- and mid-income consumers.
  • The issuing of credit cards was affected by more stringent criteria due to amendments to the Belgian Consumer Credit Law in 2009 and the new European Consumer Credit Directive, which will be fully enforced in January 2011. Whilst imposing more control on credit, the government however also reduced APR rates in 2009, making the use of credit cards cheaper. APR rates were reduced to 15% on amounts below €1,250, 13% on sums of €1,250-5,000 and 12% on sums above €5,000. Lower APR rates in particular benefited people with credit cards issued by retail chains, forcing the latter to reduce their charges as they tended to be above average rates.
  • E-commerce remains a strong driver for credit cards, which are often used to pay for clothes and other personal products and electronics online. Other growth areas for credit cards include transport and leisure and recreation, loan consolidation and household goods and services. Home renovation emerged as one of the most dynamic areas towards the end of the review period, with many Belgian households opting to renovate their homes while waiting for property sales and prices to improve.
  • Commercial credit cards remains fairly small but grew rapidly for most of the decade, driven to a large extent by widening penetration among small and mid-sized companies. Commercial credit cards accounted for 35% of card volume but only 21% of transaction volume and 32% of transaction value in 2010. Commercial credit cards however proved more resilient to the recession in 2010, posting 6% transaction volume and current value growth over the previous year. Growing usage among small and mid-sized companies meanwhile reduced average transaction value for commercial credit cards from €199 in 2005 to €169 in 2010.
  • Commercial credit cards attract businesses and cardholders by offering detailed card reporting and insurance and merchant discounts. Travel- or accommodation-focused cards became a major point of competition, with all leading brands offering centralised reporting by the end of the review period. Private cards linked to corporate credit card accounts are also increasingly offered as an extra bonus for existing users and used to attract new clients.
  • The usage of personal cards is higher in fashion outlets and in particular for clothes retail than in retail as a whole. According to Atos Worldline, credit card payments in fashion stores increased by 30% in transaction volume and 43% in current value terms from 2005 to 2009. People paying with credit cards for clothes, footwear and leather goods also spent on average more than on retail purchases in general at €158 in 2009.
COMPETITIVE LANDSCAPE
  • Since 2009, credit card issuers had to follow new regulations that aim to protect consumers against the unethical marketing of credit cards. The new Law on Consumer Credit requires banks to issue credit cards only to bona fide customers. During the review period, the credit industry was criticised as contributing to the growing indebtedness of Belgian households through irresponsible lending. By the end of the review period, Belgian banks thus promoted credit cards more discretely via branch offices and merchants. Only Citigroup and ING openly promoted revolving credit cards on their websites towards the end of the review period.
  • Citigroup Inc and BNP Paribas Personal Finance, via its subsidiary Cetelem, were the most dynamic and leading issuers of personal credit cards in 2009, increasing their card volume share by about a percentage point each over the previous year. Citigroup Inc made a determined drive towards the end of the review period to position itself as the main issuer of personal credit cards among the banks, which pushed its transaction value share to 25% in 2009, up from 22% in 2008. However, the bank’s transaction value share of commercial credit cards declined due to its sale of Diners Club to Discover Financial Services in 2008.
  • BCC Corporate and the leading banks are the main issuers of commercial credit cards. BCC Corporate issues Visa and MasterCard credit cards, while American Express is issued by Alpha Card and Diners Club directly. BNP Paribas Fortis issues the American Express Blue credit card which targets individuals and small companies.
  • MasterCard posted more dynamic growth than Visa over the review period due to its close collaboration with retail chains. American Express and Diners Club also saw their shares reduced towards the end of the review period as a result of the rise of Visa and MasterCard but retain a strong base among high-income groups and larger companies.
  • Merchant support programmes increased during the recession at the end of the review period, aiming to better promote the benefits of credit cards at POS locations. According to Atos Worldline, customers tend to spend €17 more on average in stores where credit card signage and literature are prominently displayed. Issuers also used lower APR rates and zero card charges to attract new clients. Annual charges range widely, from €170 for Dexia MasterCard Platinum and €185 for Fintro American Express Gold to less than €20 for KBC Pinto Visa.
  • Co-branded cards are more frequent among credit cards than among charge cards. These cards’ main attraction is special retailer discounts and bonus points, which can be transformed into money, air miles and other incentives. Cetelem’s Aurora MasterCard is the most widely used co-branded credit card and is issued by a number of leading retail chains. Other examples include MasterCard Touring with the Automobile Association and MasterCard Base for mobile operators, with both being issued by ICS. According to card companies, co-branded credit cards are used more often than standard credit cards and are therefore more profitable for both issuers and card companies.
  • Around 63% of commercial credit cards were business or corporate cards in 2009, 26% were fleet cards and the rest are purchasing cards. Business cards grew faster towards the end of the review period, driven by widening penetration among small and mid-sized companies. These companies use business cards for small business purchases, the payment of invoices and entertainment. Corporate cards are meanwhile designed for companies with bigger travel requirements. Fleet cards are typically used by medium-large companies for petrol and related purchases. Among new products in commercial credit cards towards the end of the review period was the ING Car Lease Fuel Pass. This is a chip and pin card offering access to all leading petrol station networks in Belgium.
  • 2009 and 2010 were challenging years for Belgian banks, which came under pressure to cut costs, reduce risks and to improve profitability. These pressures slowed down banks’ new product development and innovation, with issuers instead focusing primarily on promoting credit cards at POS locations and offering attractive terms to new clients.
PROSPECTS
  • Growth in personal credit cards is expected to be driven by low interest rates, with these likely to remain unchanged during 2010 and into 2011. Personal credit card volume is expected to increase by 40% to around 1.1 million cards by 2015. These cards will continue to be primarily used to finance more expensive personal and household purchases, holidays and leisure/entertainment.
  • The low penetration of credit cards among small and mid-sized companies will meanwhile offer the opportunity for stronger growth in commercial credit cards. The card volume of commercial credit cards is thus expected to increase by 52% to 628,000 cards by 2015. Growth will also be driven by the leading banks focusing marketing on this area as they seek to broaden the use of such cards.
  • E-commerce is expected to emerge as a key driver of usage in both personal and commercial credit cards during the forecast period. Belgian e-commerce is underdeveloped and is expected to see dynamic growth during the forecast period, growing faster than retailing as a whole. E-commerce is expected to become increasingly significant because it represents a cheaper source of goods and services for consumers than conventional stores along with offering a wider range of products.
  • The forecast period may see the emergence of multifunctional debit/credit cards in line with trends in other EU countries. The leading operators such as Visa and MasterCard will continue to develop this area through co-branding partnerships with retail partners. Card development will focus on detailed target consumer segmentation and on innovation in terms of benefit or reward packages.
  • There will continue to be strong competition between the leading operators during the forecast period. As players fight for share, premium reward programmes are expected to be extended to mass-market cards targeting medium-spending customers. Consequently, by the end of the forecast period the majority of cards are likely to offer full insurance packages and other benefits previously reserved for premium cards.
  • The new law on Consumer Lending will oblige card issuers to follow strict vetting and administrative procedures during the forecast period, with these aimed at protecting consumer rights and providing clear and unambiguous information to card applicants. These measures will be further strengthened through the new EU Directive on Consumer Credit, with this due to be implemented in 2011.
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