Time to shuffle cards

01.07.2009

Time to shuffle cards

Because of the financial crisis, the distribution of payment cards in Ukraine went down in the first quarter of 2009. The analysts’ forecasts are rather disappointing: last year’s market volumes are unlikely to be regained

The estimates of Our Product (see No4/2008, pp. 48-54) concerning the growth of the volume of payment cards distributed in 2009 proved completely true – there is currently a decline in their manufacture. This decline was caused by the financial crisis in the country. The reasons for the crisis will not be discussed here, but the fact is that 15 Ukrainian financial institutions, including major ones, became institutions of concern where temporary administration has been introduced. Many banks have cut consumer credit sharply and reduced issuance of credit cards. 

Number of active cards with breakdown into payment systems issued from January 2008 to April 2009 (on a cumulative total), million pieces

It has also become very difficult to analyze card market volumes. For example, in 2009 Ukrainian Interbank Payment Systems Member Association EMA, which collects statistics on card issuance by Ukrainian banks on a centralized basis, has not published any information this year. It is quite probable that this was caused by a number of banks ceasing to submit data because of the above-mentioned problems.

Tricky statistics

Our Product wrote that in the second half of 2008, despite the financial crisis which started in November, a positive trend of payment card issuance was observed on the Ukrainian market. According to information from the EMA, from July to December 2008 the number of VISA and MasterCards issued grew from 57.1 million to 67.6 million (see diagram “Dynamics of payment card emission by Ukrainian banks in 2008 according to EMA”). According to official statistics, by the end of 2008 almost 2.4 million National System of Mass Electronic Payments (NSMEP) cards were issued (cumulative total). If this information is true, by the beginning of 2009 around 70 million bank cards total were issued in Ukraine. Therefore, in view of the fact that by January 1, 2008 the total number of cards issued was 52.5 million (see Our Product No1/2008, pp. 62-70), the market volume in 2008 was 17.5 million pieces, whereas in 2007 only 15 million payment cards were issued.

It seemed like the market kept on growing despite all financial problems. However, Our Product doubted these statistics (see Our Product No 4/2008, pp. 48-54). In fact, according to data from the National Bank of Ukraine, in the fall of last year the number of active cards in Ukraine (cards through which at least one operation was carried out in the preceding 12 months) went down during the second half of 2008 from 44.7 million to 38.8 million (see “Types of payment cards emitted by Ukrainian banks”). In other words, the demand for payment cards shrank. That’s why bankers either cheated when they showed positive dynamics or stocked up on cards.

Moreover, at the end of the summer and in the fall of 2008 banks began to reduce card limits on credit cards from 3-5 thousand to 1 thousand UAH. In addition to that, while trying to level the imbalance between the volume of issued loans and deposits, some financial institutions began to demand real estate as a security for issuing card loans.

The burden of crisis

The results of work in 2009 fully proved the concerns of Our Product. The 2008 statistics were probably invalid. EMA stopped publishing data concerning the total number of payment cards issued. Along with that, the National Bank of Ukraine introduced a new figure in their statistical data – the number of payment cards in circulation (which are not yet expired). It appeared that in Ukraine (as of 01/04/09) there were 44.07 million cards in circulation. The number of active cards dropped drastically. Their number went down from 38.6 million to 30.7 million during the first three months of 2009 (according to the National Bank of Ukraine). As Mr. Igor Popovych, General Director of ZNAK Ltd., foresees, the demand for the manufacture of bank cards has gone down almost 30 % this year. 

The Ukrainian enterprise ZNAK still holds the leading position in the manufacture of payment card in Ukraine

Financiers believe that the distribution of payment cards went down because card salary projects were closed down (these projects represent the majority of cards issued), far-sighted depositors closed their accounts, and many banks discontinued their card credit programs.

Market positions: Article: payment cards Number of cards in circulation: 44.07 million (as of 01/04/09; according to the National Bank of Ukraine) Number of active cards: 30.7 million (as of 01/04/09; according to the National Bank of Ukraine) Structure of active cards according to their type: with magnetic stripe - 93.1%; with chip - 4.7%; hybrid - 1.9%; for Internet transactions - 0.3% (as of 01.04.09) Number of terminals: POS-terminals – 107.6 thousand, ATM – 28.3 thousand (as of 01/04/09) Total sum of transactions using payment cards in Ukraine in 2008: 372 billion UAH.

At the conference “Payment Card – 2009”, which took place in Kyiv on June 10-12 (more about it on pp. 43-47), the participants of the round table pointed out that many enterprises that paid salaries using cards are beginning to pay their employees in cash. Moreover, many clients of banks lost their jobs as a result of numerous job cuts. As a result, there were fewer people to pay salaries to.

Many Ukrainians also closed their deposit accounts connected with card programs. This can be seen in the fact that with the shrinking number of active cards the total of operations with funds through payment cards went up. It is quite possible that people are actively withdrawing their funds from bank accounts (see “Total operations carried out through payment cards…” ).

As far as credit programs are concerned, experts now say no more than 7 banks continue issuing credit cards. The number of credit cards during the first three months of 2009 went down almost by one third – from 9.9 million to 6 million (see “Types of payment cards…”). Nevertheless, bankers claim that financial institutions are not going to give up credit card programs but they would rather carefully select and appraise potential borrowers, using automated systems for evaluating client loan repayment histories (also see pp. 43-47).

Mr. Alexander Karpov, President of the Ukrainian Interbank Payment Systems Member Association EMA, gave a very short comment on this, “In 2009 the number of payment cards in Ukraine will not be growing”.

Some financiers think that the number of active cards or cards in circulation will keep on “melting” 2-3 million cards per quarter. However, according to Igor Popovych, in May-June the card market stabilized as the volumes of card distribution by banks stopped going down.

The optimization of networks

It is quite cynical, but the number of cash machines in Ukraine kept on growing: during the first quarter of 2009 it went up 1.2% (see “Number of cash machines in Ukraine…” on p. 52). On the other hand, it looks like payment terminals are slowly disappearing from Ukrainian shops: from January to March 2009 their number went down 9,182 pieces – 7.9% (see “Number of payment terminals…”). Financiers think that the main reason for a shrinking number of POS-terminals is the optimization of banking expenditures which often leads to the dismantlement of terminal equipment in non-profitable outlets.

Mr. Alexander Karpov in his interview to Our Product said, “The number of cash machines has grown lately but this is connected with the fact that supplies made last year moved from storage to the “open field” and began to be used. Suppliers are literally fighting to have cash machines and payment terminals, something they would not have even considered previously. Hence, we deal with far less numbers. There is no growth as for terminals because of the optimization of networks which is in progress: terminals are dismantled or moved to new, more profitable outlets. It is worth mentioning that terminals have not been completely retired. They were simply moved to storerooms and are soon to    reappear in the networks”.

Financiers point out one more reason for disappearing terminal equipment from trading networks. Traders do not wish to partner with bankrupt or insolvent financial institutions. Many realtors in this case chose a different “acquirer” (a bank which services cashless payments at outlets) or refuse to accept plastic cards.

Alexander Karpov, President of EMA, believes that the total number of payment terminals will soon reach its previous levels.“Following the results of 2009, in comparison with January 1, 2009 the number of payment terminals will be almost the same, and the number of cash machines will grow 5-7%”.

Text: Anna Levkovskaya

Photo: Dmitry Korablyov

Source: Magazine "Our Product" No 2(2009)