Credit Cards - Czech Republic
HEADLINES
- Value grows by 6% and the
number of transactions by 9%, giving credit cards a value of CZK49.9
billion
- Strong growth of non-performing
loans to over 8%
- Average transaction down by -3%
reaching CZK933, as the transaction value per card grows strongly
- Non-banking institutions lead
in terms of cards in circulation, with Cetelem accounting for over 41% of
credit cards
- Value growth to slow down
during the forecast period, growing at a CAGR of only 3% in constant terms
TRENDS
- Due to the economic downturn
and issues with loan repayments, the industry faced strong growth of
non-performing loans. This reached 8% in 2009. The main reason underlying
this is the extreme expansion of non-banking institutions which serve
lower income groups than major banks. Credit card loans were the first to
be defaulted on as consumers did not seen the direct consequences, unlike
other loans, such as mortgages. The ratio will decline throughout 2010 as
the economy stabilises.
- The share of non-banking
institutions on all issued credit cards is high compared to other
financial cards. These institutions issued credit cards at a very high
pace, substituting different types of consumer loans, or loan cards with
credit cards. They achieved a share of around 60% in 2009. The situation
is stabilising slowly as the market is becoming more saturated and growth
will come from other sectors of the market. For this reason, many credit
cards were issued to finance some bigger long term investments, which are
then repaid in instalments.
- Since credit cards is not fully
developed in Czech Republic, the sector continued to grow both in terms of
transactions and value, after some -3% decline in the number of new cards
issued during 2009. Issuing has started to pick up again and the value of
credit cards rose too. This is due to the fact that consumers are still
learning how to use financial cards for smaller everyday purchases, and
not only bigger ones. The downturn in the economy had little impact on the
split between debit and credit cards, but may do so during the forecast
period.
- Credit cards’ average
transaction has dropped to half since the beginning of the review period;
standing at CZK933in 2009. The average number of transactions per year increased
from 6.3 in 2001 to 15.3 during 2010. This increase will continue over the
forecast period. The reasons are similar to debit cards’ growth: improved
POS infrastructure and consumers learning to use credit cards for lower
value purchases.
- The penetration of commercial
credit cards is growing, and all big companies are using some sort of
credit card programme for their employees who need to make corporate
purchases. Smaller companies have not all adopted credit cards yet and
this creates potential for banking institutions to capitalise upon. In
small companies with fewer than 10 employees, the sole card holder is
typically the business owner or credit cards are not used at all unless
employees are required to travel a lot.
COMPETITIVE
LANDSCAPE
- The absolute leader in terms of
the number of credit cards issued is Cetelem, which accounts for over 41%.
This position has been won by aggressive positioning of credit cards and
replacing other card lending products and other consumer products. Cetelem
is active in the personal credit cards field. In corporate cards, the
clear leader is Ceskoslovenska obchodni banka with a 34% share. CSOB is
historically a strong bank in the corporate segment and is strengthening
its domination through a wide variety of products offered.
- All non-banking operators
experienced at least modest share increases: Cetelem, GE Money Multiservis
and HomeCredit. HomeCredit is clearly the fastest growing due to the
replacement of its store card, YES, with a credit card, which is a recent
development so growth rates are relatively high. This has been a one off
impulse and will not be repeated again.
- Banking institutions
experienced stagnation and some even declined towards the end of the
review period. The fastest declining was Ceska sporitelna losing almost 4%
of its share as other institutions maintained stable positions. Ceska
sporitelna lost share amid competitive activities from non-banking
institutions which threatened the players in the personal credit card
segment and also, because it was not focusing on issuing more cards.
- The situation is more stable
among credit card issuers. MasterCard issues 83% of the cards on the
market and its share grows every year, while Visa lags further and further
behind. This is due to the fact that all cards issued by non-banking
lenders are MasterCard branded. For bank cards the situation is more
equal, with both operators holding equal share. The share of other lenders
is minor.
- Companies across the board have
tightening their card issuing criteria and pay more attention to an
applicant’s lending history. Another distinguishing factor is the APR,
which rose despite the national bank reducing interest. Due to strong
competition, the APR increased on average by2% depending on the operator
and customer segment.
- Almost all companies charge a
fee for card ownership, which can range from CZK290 to CZK5,000 a year.
However many customer qualify for free administration of the cards, if several
other conditions – such as minimum amount of transactions, or current
account balance are met. Issuers ought to think about how to promote card
usage and give consumers a free option. For example, mBank’s mKreditka
customers can choose either a free credit card with a higher interest rate
or lower interest for higher costs.
- There was little advertising
through traditional media towards the end of the review period. Issuers
are focusing on direct sales, e.g. via call centres, or at the point of
sale. Non-banking institutions have stands in retailers’ premises (e.g.
car or electronics retailers) from which they issue credit cards, or sell
other products. Banks employ personal advisors who advise suitable clients
to use credit cards.
- Co-branded cards are a strong
segment on the market, with several retailers using them for promotional
purposes. Examples are Czech Airlines and Metro which are both offering
their customers credit cards. Premium cards are more the domain of banking
institutions and private banks, and their share of total credit cards is
around 3%. Banks are selective in terms of which customers they offer such
products to.
- Commercial credit cards by
purpose are almost all used by businesses for employee expenses and other
things required to run the business. A small share is held by fleet cards,
but charge cards are more commonly used.
- All key players, both banking
and non-banking, are currently multinational. Some private banks are still
operated as domestic, but their share on the market is minor. No M&A
activity occurred during 2009, and none has been announced for 2010.
PROSPECTS
- The market for non-banking
institutions may be reaching saturation point, offering little room for
expansion. Most of the new credit cards issued will be in the commercial
sphere and bank-issued credit cards will also rise. As the economy
recovers, more consumers will qualify for credit cards again and banks
will use this opportunity to expand their credit portfolios. The number of
new credit cards will increase at a CAGR of 4% over the forecast period,
in comparison to the CAGR of almost 20% that was recorded over the review
period.
- Credit cards will see positive
development throughout the forecast period, growing at a constant value
CAGR of 3%. Transactions will see the most significant increase, rising at
a CAGR of 7% over the forecast period. Both personal and commercial cards
will support this trend. Consumers will continue to use their cards for
more purchases and the average value per transaction will decrease to
CZK773 in 2010. This trend will impact cash transactions negatively as
people use their cards instead of cash.
- Bank institutions will be
working more actively to attract new customers to credit cards – both
personal and commercial. Special features, such as added value services,
lower administration fees and prolonged guarantees will be packaged
together with the card and expanded beyond the offer of 2009. Non-banking
institutions will fight back to retain their share, especially through
co-branded and reward credit cards, and will focus on the reliable
consumers in their databases.
- Banks will need to segment
their markets to decide which consumers are offered a credit card whilst
not cannibalising other product types and debit cards. Non-banking
institutions will rather focus on retaining their existing consumer bases
and try to cross-sell other forms of credit to them.
- Among the issuers, MasterCard
will retain its strong leading position as the level of active credit
cards from non-banking lenders remains high. Visa may catch up via its
strong portfolio of banking operators which will be the drivers of growth
over the forecast period.
- Price and added benefits will
remain important factors in the consumer decision making process,
especially in the low- and mid-segments of the market. Operators will need
to review their products regularly and try to attract consumers to the
market with additional benefits in order to succeed in the highly
competitive market environment.
