Estonia’s cards and payments channel went through a difficult time between 2008-2012. This looks set to turn around in 2013, with the country expecting to see some growth in the market. CI explores how the market is set to shift over the coming years
Estonia’s card payments channel exhibited negative growth during the review period (2008-2012), declining at a CAGR of -0.73% from 1.84m cards in 2008 to 1.79m cards in 2012. This can be attributed to the economic slowdown in the country during 2008-2011. Over the forecast period (2013-2017), the channel is expected to register a marginal growth at a CAGR of 0.25%, rising from 1.80m cards in 2013 to 1.81m cards in 2017.
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Consumers shifting from cash-based payments to cashless payments
Estonia’s consumers are shifting from cash-based to cashless payments, although the pace of the shift was low during the review period due to impact of the economic slowdown, but is expected gain momentum over the forecast period. The number of POS terminals increased from 24,133 in 2008 to 27,651 in 2012, at a CAGR of 3.46%. In contrast, the number of ATM machines declined from 1,018 in 2008 to 934 in 2012. This indicates a decline in the use of cards for cash withdrawals, and higher use of cards for retail purchases.
Foreign banks dominance in banking sector including card payments channel
Estonia’s card payments channel is dominated by the foreign banks. The combined market shares of foreign operators such as Swedbank, SEB Pank, Sampo (wholly owned by Danske) and Nordea accounted for 90% of the banking industry in 2012. In terms of number of cards in circulation, Swedbank accounted for 63.2% of the debit cards category in 2011 with 889,663 cards, followed by SEB Pank with 25.8%. The credit cards category was also dominated by Swedbank and SEB Pank in terms of number of cards in circulation, with channel shares of 67.3% and 21.8% respectively in 2011.
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By GlobalDataIncreasing internet adoption and online services will drive card payments
By the end of December 2012, the number of internet users in Estonia reached 1.1m users, representing an internet penetration of 83.2%. The Estonian government offers a range of public online services such as electronic voting, online healthcare and online banking through state owned banks. Additionally, consumers are offered a range of e-government services such as legal aid, education services and company registration. Increasing cards adoption along with growth in e-banking is expected to drive the growth of the card payments channel over the forecast period.
Enhanced product and marketing strategies to gain market share
To increase the channel share of card payments, banks and issuers are adopting new product and pricing strategies with the aim of attracting larger customer bases. Incentives offered by banks include discounts at participant retail outlets, rewards points and increased daily limits for cash withdrawals. Banks are also segmenting their customer bases target specific customer groups. For instance, Swedbank offers a range of cards for Estonian senior citizens aged above 60 years, children aged from six to 12 years, and young people aged 13-25 years.
Integration of payment card functionality into mobile SIM cards
To accelerate card payments, banks and other card issuers are adopting new payment solutions. In 2012, banks and card issuers initiated a pilot project which aimed to integrate payment-card chip functionality onto a mobile phone’s SIM card using near field communication (NFC) technology.
The contactless technology enables cardholders to pay for goods and services at retail merchants by mobile phone, instead of physical plastic cards. This reduces the risks of losing a card, and card fraud through contactless technology while avoiding the chances of skimming. Commercial banks such as Sampo, Nordea, SEB Pank and Swedbank agreed to carry out a pilot for the project, which is expected to go live by the end of December 2013. This technology is expected to increase card payments volume over the forecast period.
Cards targeting specific consumer groups to register growth
Banks in Estonia have focused on customer segments by offering customized products. Swedbank and SEB, for example, offer specific cards for retail and corporate customers. There is substantial evidence that the financial market is becoming populated with younger people and high net worth individuals (HNWIs), but many banks have still not actively targeted these sectors, although Swedbank has a presence in this market by offering youth debit cards for people aged 13-25 years. In other countries, banks are attempting to capitalize on these demographics by offering a range of retail banking services, and a similar trend is expected to be implemented in Estonia over the forecast period.
EMV migration for secure card payments
The European Payments Council (EPC) has initiated the Single Euro Payments Area (SEPA) program in 27 European Union (EU) member states, as well as in Estonia, Iceland, Monaco, Switzerland, Norway and Liechtenstein. The program aims to implement a single payment infrastructure across these nations. As part of SEPA implementation, these nations, including Estonia, are required to issue EMV chip payment cards to enhance the security measures on card products. By the end of 2012, Estonia registered an EMV adoption rate of 80.7%, contributing significantly to a decline in card fraud in the country.
Retail sales encouraged by consumer confidence
In May 2013, retail sales recorded nearly 7.2% growth compared to the same period in the previous year, and 4.9% growth over the previous month. Notably, retail sales of manufactured goods through stores expanded by 11% in comparison with May 2012. Also in the same period, automotive fuel sales increased by 10% due to falling prices. Rising retail sales and widespread acceptance of card payments are expected to drive the growth of card payments in Estonia.
Higher proportion of urban population
A high level of urbanisation is a key driving factor for the card payments channel throughout the world, and is also the case in Estonia. In 2012, around 69.7% of the Estonian population lived in well-developed urban areas. This population group is the prime customer base for card payments, as it generally has access to more modern payment infrastructure and newer payment solutions. This is expected to increase card payments over the forecast period.
