Igor Popovych, Director General of ZNAK Ltd.: “Regardless of financial crisis the demand for plastic cards is growing in Ukraine”

01.07.2009

Igor Popovych, Director General of ZNAK Ltd.:

“Regardless of financial crisis the demand for plastic cards is growing in Ukraine”

The card market of Ukraine is in its infancy. The manufacture of plastic cards here began 7-8 years ago. However, during this time Ukrainian technologies have managed to win recognition in the international market. One of the leading high tech enterprises in this area is ZNAK Ltd., a member of the EDAPS Consortium. This enterprise, which began its manufacturing activity in 2005, has won a large percentage of the Ukrainian payment card market and also supplies its product to other countries of the world. Blank plastic documents manufactured at ZNAK have been highly rated by such renowned organizations of the world as ICAO, OSCE, the European Commission and INTERPOL.

Mr. Igor Popovych, Director General of ZNAK Ltd., began his work at the dawn of the Ukrainian card industry. Together with the enterprise staff he implemented a number of technological advances which still impress foreign experts. Our Product decided to ask Mr. Popovych about his life journey and the secrets of ZNAK’s success.

Our Product: How did you as an engineer end up manufacturing plastic cards?

Igor Popovych: I earned my degree as an engineer-electrician in the field of electric systems from Kyiv Polytechnic Institute in 1991. At that time I had no idea that I would take up the plastic card business. In the 1990s I was involved in many things. My engineering position at the Department of Experimental Research Automation in the Institute brought little income. Therefore, I had to readjust to new economic demands.

I worked as a broker at the Ukrainian Universal Commodity Exchange and headed a number of private enterprises in the area of trade. In 1997 a friend of mine offered me a position to create and head the manufacture of plastic cards. At that time this segment was completely unoccupied in Ukraine. In 1997 we set up the manufacture of plastic cards based on the existing enterprise and in 1999 we created a new company. In 2001 we built a plant for the manufacture of plastic cards.

Personal profile Igor Popovych, Director General of ZNAK Ltd. (Kyiv) Date of birth: October 2, 1964. Education: in 1991 Mr. Popovych graduated from Kyiv Polytechnic Institute (Kyiv, Ukraine) majoring in electric systems. Career: in 1981-1992 he worked as an engineer of the department of Experimental Research Automation at Kyiv Polytechnic Institute; In 1992 he was a broker at the Ukrainian Universal Commodity Exchange; In 1993-2004 he headed a number of Ukrainian enterprises; Since April 2004 he is the Technical Director of ZNAK Ltd.; Since 2008 he is the Director General of ZNAK Ltd. Mr. Popovych is also member of the board of the EDAPS Consortium. Family: Mr. Popovych is married and has a son Hobby: diving

OP: Why did you leave trade and step into the practically unknown field of the card business?

IP: Before I took up the card business I headed a company which successfully sold foodstuffs. That business brought good money but it wasn’t my field of interest. When I heard about the offer to create a new production, a new branch, in other words, to return to science and technology, my interest began to grow. You are right. I was totally unfamiliar with this new line. That’s why before I gave a final answer I took a break to learn what this was all about and why plastic cards were so important.

Company Profile ZNAK Ltd. (Kyiv) Established: March 18, 2004; member of the EDAPS Consortium Launch of manufacture: July 21, 2005 Field of activity: high tech manufacture of plastic cards for various purposes (including payment cards) and blank elements of identification documents Manufacturing capacity: 100 million plastic cards and 3 million polycarbonate pages for passports annually Authorized and certified manufacturer of: • VISA International payment system; • MasterCard Worldwide International payment system; • National System of Mass Electronic Payments of Ukraine Staff: 156 employees Production volumes as of July 01, 2009: around 47,9 million plastic cards for various purposes; about 28,8 million of them are bank payment cards. Under the Government Program to provide Ukrainians with identification documents of world level, ZNAK Ltd. successfully produces polycarbonate data pages for the new Ukrainian travel passports put into effect by the Resolution of the Cabinet of Ministers of Ukraine №858 of June 26, 2007. From June 27, 2007 to July 1, 2009 more than 2,29 million travel passports with a polycarbonate data page were issued.

OP: Generally speaking, you didn’t really need to know all the details of the manufacture and printing of plastic cards. With good engineering skills and a professional staff you could easily start the production…

IP: It is a big mistake. No university in the world gives instruction in the manufacture of plastic cards. Such a degree simply doesn’t exist.

When we hire our people they learn everything on site. For instance, you have printing machines and printers. ZNAK has a different type of printing machines and of course it needs a different category of printers. Paper and polymer are absolutely different things, to say nothing of the other technologies. It is easy to talk about it now. But remember that in 1997 practically no one used plastic cards.

That’s why during several weeks I studied foreign magazines dealing with the card business. When I understood the basics I changed my field of activity.

Igor Popovych can deservedly take pride in the e-passport prototype developed by EDAPS for INTERPOL officers. ZNAK has made the world’s thinnest and most durable polycarbonate data page for this passport

OP: But you have just said that you cannot go to school to learn anything about making cards. So where did you get your knowledge?

IP: I had to search for this knowledge myself. In 1999 I went to Germany to visit a company which was to install a machine at our company to manufacture plastic cards. It was an equipment manufacturing company but its specialists knew how to run those machines. As we had decided to conserve our funds, I went there for only one day. From 7:30 a.m. until practically midnight, stopping only for lunch, I covered a two-week program within one day. Now even with my eyes closed I can assemble, dissemble and adjust the device.

It may sound like I am bragging about it, but I was one of the originators of Ukrainian plastic cards manufacturing and I was the first to test all the technological processes.

It is hard to express it in words. There were sleepless nights, failures, grave mistakes, disappointments and fighting with myself, crowned by a long-awaited victory. Now you know why these technologies are so highly valued throughout the world.

Let me say a few words about the development of the manufacturing process. Choosing specialists is a very important and complicated task. We found printers who were competent in the technological processes of printing on paper and operators who were to supervise other technical processes. We taught them and studied together with them. I realized then and I still think that it is a lot easier to work with people having higher education. If a person has some knowledge base it is a great advantage. No matter how unusual it might sound, today 90 % of the workplaces at ZNAK are staffed by professionals having higher education.

OP: In 2004 you decided to create the new plastic card manufacturing enterprise ZNAK from scratch.

IP: I saw the true value of the approach made by “Commercial Industrial Bank” as an investor into the project. At that time the Bank was successfully accomplishing an investment program which was a highly technological project in the area of manufacturing holographic security elements (HSE). This was the Specialized Enterprise HOLOGRAPHY, which partners with our enterprise and with which we entered into the EDAPS Consortium. HOLOGRAPHY is a highly regarded manufacturing facility producing holograms for protecting goods and blank documents. I felt very positive about the investor’s approach. From the very initial stage the investors were capable of making adequate decisions; they focused on applying the best technologies while using their knowledge as well. The goal was to create an enterprise which would outstrip all foreign competitors, as there are already enough enterprises in the world for the manufacture of plastic cards.

A complex approach also benefited the whole project. At the time a Consortium of enterprises was being established that was capable of ensuring the full production cycle of the manufacture of a turnkey product of any degree of complexity in the area of security printing. They time tested the project and proved the benefit of a complex approach. Today the international market recognizes the EDAPS Consortium in general and its members separately.

Of course, creating a new enterprise was rather risky, but there is honor in taking risks. I don’t regret anything now. ZNAK is an enterprise that any state would take pride in.

Igor Popovych is experienced in giving presentations of the advanced technologies invented by ZNAK. Even a notable expert of the card market, Philippe Delanoue, the Chairman of the Board of Directors of ABnote Group, Europe, is surprised (see interview on pp. 6-13)

OP: Our magazine wrote earlier that the plant was built in the shortest possible time (see No1/2007, pp. 18-25). What was the reason for that?

IP: It is true that the plant was built in 2004 in only 6 months. This sounds practically impossible. Such enterprises usually face very sharp demands regarding security and confidentiality because the plant manufactures blanks for IDs and international payment cards. A number of foreign experts concluded at some stage that this type of an enterprise could not be built in less than 2 years.

In cooperation with the building company “CIB-Engineering,” which also partners with the EDAPS Consortium, the plant was being designed while construction was taking place. We completed all the construction within 6 months because we did not have a choice. In 6 months the first machinery we had ordered was ready to be installed.

OP: How did you manage to achieve high quality and efficiency at ZNAK? What was the key factor that guided you?

IP: It is that complex approach which I mentioned earlier. Initially in constructing the plant it was decided that ZNAK, as part of the EDAPS Consortium, was to issue ID blanks. Therefore, the equipment we selected is considered to be absolutely state-of-the-art. According to my estimations it will not become obsolete for at least 15 years.Why?

First, the card market is filled and little new equipment is being produced. We purchased equipment from the leading machine builders in this area.

Second, all manufacturing processes are designed for issuing document blanks. Such products have to comply with the tough quality demands of the card market. ZNAK manufactures payment or discount cards and document blanks with equal efficiency.

Initially a step-by-step control together with a quality testing laboratory was introduced at the enterprise. The final inspection is not selective, as 100% of any order is checked, regardless of its size. We purchased an efficient high-speed machine that checks the quality of cards in 5 major areas at 27,000 cards per hour.

OP: Did you order any exclusive equipment while creating the enterprise?

IP: There are many such machines at ZNAK. Practically any manufacturing division has machines that are different from the standard devices offered on the market.

At the beginning of the interview I said that I personally had to study many machines. That’s why manufacturers could not sell us low quality equipment. In addition, we decided to introduce a number of alterations and improvements. Since card manufacturing equipment is very expensive we had to take the risk and order extra sets, as purchasing the missing parts later is considerably more expensive.

Virtually all the equipment was initially supplied with extra parts and devices which have only now passed installation and begun to be used.

Here is just one example. Five years ago no one would have even thought of dual interface. So we ordered an implanter with a dual interface function (contact-contactless cards).Now such cards are in demand. ZNAK has already received an order from one of the major Ukrainian banks.

OP: To the best of my knowledge, in the statutory fund of ZNAK Ltd. the state’s share is 50%, which is equally divided between the Ministry of Finance of Ukraine represented by the Polygraph Combine UKRAINA and the Ministry of Internal Affairs of Ukraine. It is that rare case when private business agrees to share its property with the state…

IP: We manufacture document blanks on a polymeric base, which in some ways is a step towards mutual trust. Isn’t it good that the state has a good, highly technological enterprise?

OP: In 2007 ZNAK launched the manufacture of a polycarbonate data page for the new Ukrainian travel passport. I know that Ukraine and ZNAK in particular take pride in the exceptional quality of the page. It is the thinnest and most durable of all existing data pages in the world used in passport documents. What does it give to consumers?

IP: The page where passport holder’s information is entered is a surprise to many Europeans. Foreigners usually view former USSR states as lagging behind and not being serious. That’s why the leading technologies and the polycarbonate page surprised Europeans. Russia was a little ahead of Ukraine in this project, not in the quality but rather in the speed of project realization.

The truth is that the Consortium was ready to implement the new passport in 2004. At that time the new Russian passport had not even been developed. However, the project was put off for almost three years, which was not our fault. Russia began to work on the project earlier. But the polycarbonate page in the Russian document is 0.9 mm as it also contains a contactless chip with the holder’s biometric data. Our technologies allow us to manufacture a page which is 0.38-0.4 mm thick. 

Igor Popovych and Fernando Dal Zotto, the Chief Executive Officer of the Swiss company Trüb AG (ZNAK partner), during the visit of the Switzerland government delegation to ZNAK (October 2007)

OP: Why is the difference so important? People will hardly notice it…

IP: Well, the difference is quite clear. You cannot but feel that the page in the Russian document is thicker than the cover.

Our polycarbonate page is no different than any other passport page. Moreover, such a passport is more comfortable in use.

The material with which our page is stitched into the passport is very durable. In our laboratories by means of a special tester we examined the new national travel passport. The document was opened and closed for 24 hours at 6120 cycles per hour which caused no damage to the physical properties of the data page.

OP: Comparing the expert statistics including those of the National Bank on the issuance of bank cards for the Ukrainian market with the performance measures of ZNAK we see that your company occupied 60-70 % of the market in 2007-2008…

IP: I think it is even more – around 85-90%. The truth is that according to my estimations the data provided by various experts are for some reason overstated.

OP: Your manufacturing activity only began in the middle of 2005. How did you manage to achieve such good results in 2-3 years?

IP: First, we offer a high quality product. Second, we have the most acceptable production terms, which we guarantee. Third, we have a number of different loyalty programs for clients. For example, we deliver completed cards using the Consortium’s armored car. This results in a higher product cost, but we are prepared to lose immediate profit for the sake of business development.

OP: Where you affected by the financial recession? For instance, according to the National Bank statistics, the number of active cards in Ukraine is shrinking. In the beginning of 2008 it totaled around 41.2 million cards and by April 2009 only 30.7 million.

IP: During the first 2.5 months of the new year there were practically no orders from banks. The crisis affected banks first. No one wanted to place any orders without being sure how many clients the bank had. The banks reduced their activity.

This is partially connected with seasonal fluctuations in the demand. Within the first month banks confirm their annual budgets. However, because of the crisis this period was longer.

OP: Can you estimate how low the demand for payment cards?

IP: Generally, the demand for payment cards went down 30 %. Now the volume of orders has stabilized. However, it is hard to say when the market volume may return to last year’s rates.

Rates are not important, though. The market will be restored eventually. The crisis did show, however, what banks were real players.

OP: The market volume has shrunk. With this you receive orders for the manufacture of more expensive cards. However, only 3-4 % of chip cards are manufactured in Ukraine. How is it possible?

IP: Ukrainian banks are maturing rapidly. VISA and MasterCard do not compensate for losses connected with forging cards with a magnetic strip. Both international payment systems encourage the implementation of more protected EMV cards (contact chip cards – Editor).

Bankers sooner or later will have to readjust to the demands of payment systems and time.I believe that in the future there will be no magnetic cards. And I don’t just mean payment cards.

OP: Last year one more Consortium member, POLLY-SERVICE Company, created the Interbank Personalization Bureau (see Our Product No3/2008, pp. 18-22). How does it contribute to work of ZNAK together with the complex service offered by the Consortium enterprises?

IP: This complex service plays a very big role, especially in ordering chip cards. If banks personalize magnetic cards themselves, the personalization of chip cards is a real burden for them. In the case of EMV products, banks prefer outsourcing. Therefore it is important to develop the area of personalizing EMV-cards.

OP: By the way, ZNAK started manufacturing chip cards for the National System of Mass Electronic Payments (NSMEP) of the National Bank of Ukraine before the Personalization Bureau was opened. Your enterprise carries out a greater number of orders involving NSMEP cards. How was the question of complex service resolved here, including personalization?

IP: For this activity ZNAK holds a corresponding license from the National Bank and personalization equipment. We ventured to get it because it is a national project. For the personalization of international payment system cards such as VISA and MasterCard, a new manufacture had to be set up. POLLY-SERVICE took on this project, as it had been and still is a leader of the Ukrainian market in supplying personalization equipment for many years.

ZNAK’s role in this case is the manufacture of blanks of the international card with the EMV-chip.

OP: How do you estimate the positions of ZNAK on the international market? Lately ZNAK has started to execute a lot of orders for foreign banks.

IP: I am proud of how the EDAPS Consortium is viewed on the international market. It is hard to offer a worthy product for the world community and win recognition.

Now the Consortium is known to all players of the market. It is recognized. ZNAK is an inseparable part of the Consortium. This is how I estimate ZNAK’s position. With current production volumes we are not behind similar global manufacturers. We make cards for banks of Belarus, Russia, Tajikistan, Uzbekistan, Armenia, Georgia, Moldova and Israel.

Interview: Oleg Rudenko

Photo: Dmitry Korablyov

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