Poland Key Highlights - While the Polish credit cards market is fairly well developed in terms of card products and penetration, there is a substantial opportunity to increase card usage and activation rates – a large proportion of credit cards are deemed to be inactive. Issuers and networks are addressing the problem of inactivity by educating cardholders, developing reward schemes, running frequent promotional campaigns and introducing cash-back services.
- Soaring credit card default rates in 2009 forced issuers and networks to focus on educating customers about credit card functionality. A significant proportion of Polish credit cardholders do not distinguish between credit cards and instalment credit. Also, they are not familiar with the grace period, and they often use their credit cards for cash withdrawals.
- The Polish credit cards market has experienced pressure on profitability from a number of sources, including inactive cards, a high level of bad debts and downward pressure on merchant service charges.
Kuwait Key Highlights
- The Kuwaiti credit cards industry has stagnated during 2008 and 2009 due to the adverse economic climate and the enforcement of stringent regulations by the central bank. However, the industry is expected to grow during 2010 as the burgeoning customer base and increasing income levels lead to a rise in the number of credit cards and billed volumes.
- Due to stringent regulations, as well as more conservative credit policies, the structure of Kuwait’s credit card business is undergoing a transformation, with non-interest revenue streams contributing towards a growing proportion of credit card revenues. Even though profitability per credit card in Kuwait has come under pressure, it remains one of the highest in the region.
- Despite the fact that more players have entered the credit cards business in Kuwait during the last few years, the three largest credit card issuers still hold an overwhelming majority of the market in terms of number of credit cards, billed volume and outstandings.
Belgium Key Highlights- Credit cards in Belgium are principally in the form of deferred debit cards, which represent approximately 70 to 80 percent of cards with a credit function. Credit card penetration in Belgium is fairly low, at 42 cards per 100 adults on average. Debit cards and prepaid (Proton) cards are well represented at 179 and 130 cards, respectively, per 100 adults on average. Overall, at the end of 2009, there were almost 3.5 cards per adult in Belgium. It should be noted, however, that Proton prepaid cards feature as a function available on most debit cards in Belgium and do not constitute a separate physical card.
- Debit cards in Belgium operate on a domestic debit scheme, Bancontact/MisterCash (BC/MC). In 1999, Belgian banks agreed to add the Maestro logo to domestic debit cards, enabling international debit functionality. By the end of 2009, almost all domestic debit cards in Belgium carried the Maestro logo. Under this system, all domestic transactions on the card are conducted through Bancontact/MisterCash, while international transactions are handled through Maestro.
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Czech Republic Key Highlights - Since 2001, the consumer credit market in the Czech Republic has been driven by strong economic growth and the restructuring of the banking sector, including the privatisation of banks. Consumer debt has grown by 431 percent since 2002, and was estimated to be worth $51.9 billion at the end of 2009. Although Czech consumers have shown an increasing willingness to borrow, they remain cautious in acquiring debt. Aggressive advertising campaigns emphasise the easy accessibility of bank loans and there is a wide choice of loans on offer.
- Combined debit credit and charge card penetration stood at around 127 cards per 100 adults in the Czech Republic, at the end of 2009. Credit and charge card penetration levels are low, with almost 45 credit and charge cards (combined) per 100 adults. The rate is expected to increase marginally, nearing 50 cards per 100 adults by the end of 2011.
- Czech Republic credit card issuers need to improve consumer understanding of credit cards in order to drive greater activity at the point of sale, thereby increasing profit potential. Issuers have recently begun to improve their card offerings, by providing additional extras, such as insurance, and expanding their loyalty and discount programmes, with a greater variety of partners in the retail and travel industries. Additionally, the premium card segment is under-developed in this market, with few Platinum or Premium card offerings available, as this segment has typically been dominated by Diners Club and American Express.
- The Australian credit card market is one of the most developed and competitive in the world. While the economic crisis has impacted the market, it is one of the few major economies not to enter recession and the banking sector has remained in relatively good shape.
- Australia’s cards market is subject to a hands-on approach by regulators, which has resulted in significant changes to the operating environment in recent years. In particular, the regulation of interchange fees in 2003, and subsequent tweaking, has had a profound effect on market dynamics. One of the key shifts among issuers was the move away from rewards-based cards to no-frills, low fee and low interest rates cards. The lower interchange means it is more difficult to fund rewards schemes.
- Credit card profitability increased in 2009 as dramatic drops in funding rates were not passed on to consumers, and APRs actually increased during the year. While operating costs and net credit losses have also increased during the same period, these have, for the most part, been absorbed by gains in margins.
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Hong Kong Key Highlights
- Hong Kong is a vibrant and advanced credit cards market, boasting some of the most lucrative benefits and rewards programmes offered anywhere in the world, which in turn helps encourage healthy spend levels. At the same time, a financially savvy consumer environment means issuers have to perpetually innovate their product offerings in order to maintain competitiveness.
- Lessons learned during the 2001/2002 economic downturn have put the industry in a strong position to manage the current financial landscape. A combination of regulatory and self-regulatory measures has been introduced to improve credit management, including the introduction of positive and negative credit bureaus. As a result, while net credit losses are expected to peak in 2009 at a ratio of 5.2 percent (up from 2.7 percent in 2008), this is considerably behind the 2003 peak of 13.5 percent.
- The principal focus for issuers in recent years has been to develop various innovative mechanisms to drive spending, including year-round discounts at specific merchants, free gifts for meeting spending requirements, advanced rewards programmes, prize draws, interest-free installment purchases, and flexible bonus point redemption schemes (including bonus point advances).
Brazil Key Highlights
- As the largest and most densely populated country in Latin America, Brazil should be a key market for any internationally ambitious credit card issuer, although competition is fierce and the market is dominated by five players. The combined share of the top-five bank issuers has grown consistently to 85 percent of all bank credit cards in issue. For international players to succeed in the market, they need a highly-focused strategy via joint ventures with a high-profile partner, or to conduct large-scale acquisitions.
- The Brazilian credit cards market continues to grow at a very healthy rate, with significant growth potential from the remaining unbanked population. In 2009, the private-label cards sector will exceed the equivalent of total penetration of the adult population (1 card per adult). Lafferty Group forecasts that it will not be until 2011 that there will be the equivalent of one bank-issued credit card per adult. Even then, cards penetration will be skewed by multiple card ownership among a more concentrated population.
- The Brazilian credit card profit pool is significant and – with the impact of the economic crisis in the US market – has become one of the largest markets globally, according to Lafferty Group research on 65 markets worldwide. Brazil is characterised by very high interest rates, large interest spreads, and relatively high merchant fees.
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Argentina Key Highlights
- The Argentinean economy has experienced solid growth since its recovery in 2002, supported by strong growth in the price of commodities. Paradoxically, several conflicts that emerged since 2008 indicate that the country is in need of some major structural changes in its economic model. In the past year, the government has faced strong opposition from rural sectors over a decree that divides tax generated from lucrative soy exports among the provinces.
- Almost all players in the consumer finance market have been marketing diverse benefits and promotions to credit card customers for the past five years, but this marketing has intensified since 2007. These campaigns typically offer large discounts of 15 to 35 percent at the POS at affiliated merchants, covering supermarkets, department and house-ware stores, and electronics stores. This strategy has clear benefits to all incumbents but also creates additional expense pressure both to merchants and banks.
- Until December 2007, credit card transactions were subject to a 3-percent VAT rebate as a way of promoting increased consumer spending, but it was eliminated in 2008. The 5-percent tax rebate on debit cards was extended until December 2009 and it is anticipated that it will be renewed for another year. This rebate policy plays an important role in accelerating the inclusion of the unbanked into the financial system, and increasing the efficiency of the payment system to reduce overall costs.
Saudi Arabia Key Highlights
- The Saudi credit cards industry, which experienced rapid growth in the number of cards and outstandings in the last few years, has been suffering from rising credit losses as some of the more aggressive issuers discover the true cost of offer credit to lower-income customer segments.
- In the broader consumer finance market, personal lending is contracting due to stricter regulation regarding debt-service-to-income ratios, and mortgage lending has failed to take off as a result of delays to a draft mortgage finance law. Credit card outstandings contracted by 5 percent during 2009 due to deteriorating credit quality related to the poor economic climate, as well as mounting losses on credit lines granted by aggressive issuers in previous years. Credit card outstandings grew by 6 percent during 2008. More stringent regulations, along with more conservative bank credit policies, have conspired to engender an adverse climate for credit cards. Customer behaviour is also affecting credit card outstandings, with many clients choosing to consolidate their debt through personal loans with lower interest rates.
- While profitability per credit card has dropped, the industry pre-tax profit pool has grown due to the expansion of the market. All local banks participate in the credit cards market, but the top three issuers control more than 60 percent of cards in issue and credit card outstandings. After experiencing stagnation during 2009, the credit card industry is expected to experience growth during 2010 and 2011. However, the rate of growth in cards and credit card billed volume will be lower than what was experienced during the last few years.
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For further information, please contact:
Sadeek Varacchia T:     +44 (0)203 008 8420 E: sadeek.varacchia@lafferty.com
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