Economic slowdown, concerns over card fraud, and a decline in popularity led to a fall in card payments in Lithuania between 2008-2012. Despite the slow, however, forecasts remain positive for the 2013-2017 period, CI reports
Lithuania’s card payments channel declined during the review period (2008?2012) for three primary reasons. Firstly, the economic slowdown that adversely affected the financial services sector. Secondly, payment cards are less popular in smaller towns and are seldom accepted in traditional marketplaces, and thirdly, many Lithuanians prefer to make payments with cash due to a fear of card fraud. Growing e-commerce, rising disposable income, changes in consumer spending habits and the recovery of outbound tourism will help in the growth of the card payments channel over the forecast period (2013?2017).
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Positive growth potential in the card payments channel
In terms of the volume of cards in circulation, the card payments channel is expected to grow from 3.6m in 2013 to 3.8m in 2017, at a forecast-period CAGR of 1.17%. In terms of transaction value, the card payments channel is projected to grow at a forecast-period CAGR of 7.39%, from LTL39.3bn (US$14.2bn) in 2013 to LTL52.5bn in 2017. In terms of transaction volume, the channel is projected to grow at a forecast-period CAGR of 6.27%, rising from 207.4m transactions in 2013 to 264.5m in 2017. Anticipated growth in e-commerce and a recovery in outbound tourism are expected to drive card use over the forecast period.
Growth in the young and economically active population to drive the demand for cards
Banks are targeting customised products at young demographics. According to the US Census Bureau, there were 756,104 people aged between 15-29 years in 2012, representing 21.4% of the country’s total population. Similarly, the percentage of the economically active population in terms of the overall population stood at 69.7% in 2012.
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By GlobalDataConsumer shift towards card payments
The most popular payment channel in Lithuania in 2008 was credit transfer, accounting for 96.2% of the industry share, while card payments had an industry share of 1.6%. However, due to growing consumer awareness, the increasing acceptance of cards at retail outlets, benefits under card-based reward programs and changes in consumer spending patterns, the industry share of card payments increased to 4.6% in 2012, while credit transfer decreased to 90.0%.
Adoption of secure payment technology to drive card-based transactions
To offer more security to card users and enable them to conduct a greater number of on and offline transactions, several banks have taken steps to offer enhanced security features in cards. Many are offering cards with chip-and-PIN technology for in-store transactions. To conduct secure online payments, banks have implemented MasterCard SecureCode and Verified by Visa programs. With the adoption of advanced security features, the use of debit and credit cards is projected to rise over the forecast period.
Cards targeting niche customer segments to increase customer base
All major banks in Lithuania are adopting new strategies to increase card penetration, and are also focusing particularly on niche segments such as young consumers, HNWIs, and small and medium-sized enterprises (SMEs). Banks are also increasingly making use of social networking sites such as Facebook and Twitter to reach their target audience. With regards to serving HNWIs, banks are focusing on private banking services and are in a position to cross-sell card products. For young individuals, banks are offering discounts on the purchase of movie tickets, music, concerts, hotels and restaurants. Cardholders are also offered reward program bonus points to encourage card use.
Rising demand for cards with enhanced security measures
The value of card fraud in Lithuania increased during the review period at a CAGR of 5.30%, from LTL1.1m in 2008 to LTL1.4m in 2012. Banks are implementing EMV chip-based technology, biometric ATMs and near field communication (NFC) technologies to reduce fraud. To conduct secure transactions online, banks are offering international security programs such as MasterCard SecureCode and Verified by Visa.
Acceptance of social media to benefit the cards and payments industry
Banks are using social media to promote brand image, products and services and to reach out to potential customers. In April 2011, Swedbank launched its official Facebook, LinkedIn and Twitter accounts. Encouraged by Swedbank’s success, many banks have started using social media as a medium to reach out to their target audiences. According to a survey conducted by ISM University of Management and Economics in 2012, the most active users of social media in the banking sector were Swedbank, SEB Bank and BIGBANK.
New payment technologies to benefit card payments channel
According to the Bank of Lithuania, the implementation of new technologies such as payments via mobile phones and iPay are still in early stages of development and offer growth potential for commercial banks.
According to the Central Bank, the niche is being exploited by payment companies and electronic companies. In this regard, 29 payment companies and one electronic money company have issued licenses since 2010, with a number of companies still waiting to receive a license. The introduction of new technologies to make transactions safer and more convenient are expected to drive the card payments channel over the forecast period.
EMV migration enabling secure payments
The European Payments Council (EPC) has initiated the Single Euro Payments Area (SEPA) program in 27 EU member states. The program aims to implement single payment infrastructure. As part of the SEPA implementation, nations such as Lithuania have been instructed to issue EMV chip payment cards to enhance security measures. In response to this initiative, banks in Lithuania migrated from magnetic stripe cards to EMV cards with an EMV adoption rate of 80.7% by the end of 2012.
Growing e-commerce will drive the card payments
The growing popularity of online shopping can be attributed to several reasons. Firstly, the growth had been augmented by economic recovery. Secondly, active competition between e-retailers and traditional retailers is driving service quality, a larger variety of goods and better customer service. Thirdly, competition has driven down prices.
According to Europa.eu, the percentage of Lithuanian enterprises engaged in e-commerce was slightly higher than the EU average, while the proportion of individuals was below the EU average.
In 2012, only 20% of individuals purchased online, a four percentage point increase since 2011 but still well below the EU average of 45%. In the same year, only 6% of the population made online purchases from other EU countries, below the EU average of 11%.
Finally, 18% of the population bought online goods from a domestic seller, compared to the EU average of 41%.
A growth in internet penetration rates, a change in consumer spending habits and increasing levels of disposable income are expected to foster growth in e-commerce which will positively impact Lithuania’s cards and payments industry.
