Across Europe, payment regulations that aim to curb the use of cash, smooth the transition to SEPA and encourage competition in the payments industry have been brought into effect. Trends like ecommerce are also beginning to make a difference in the way Europeans pay. Ellie Chambers tracks trends and regulatory impact
Over the last few years, the European payments market has been deluged with regulation, from the European Commission’s Payments Service Directive to the European Payment Council’s SEPA initiative.
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With the SEPA deadline coming up in February, many financial players are scrambling to get SEPA-ready, as well as reviewing what impact further changes may have on the markets they operate in.
Regulatory impact
It is hoped that the Payments Services Directive will improve participation and competition among banks and other players in the European payments industry.
There is also an expectation that proposed interchange fee will reduce card issuers’ and acquirers’ revenues, spurring them to attempt to grow their volumes instead.
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By GlobalDataThe proposed regulation on card interchange fees is unlikely to pose a significant threat to Germany due to the dominance of domestic electronic cash, the Girocard brand and a small credit card market.
Additionally, German consumers still have an aversion to credit cards, with credit cards used in less than 15% of POS transactions and 9% of e-commerce transactions and accepted at less than 40% of merchant outlets in 2012.
In contrast Turkey’s card regulations, restrictive compared to the rest of Europe, have so far failed to curb the growth in credit card usage, which is estimated to account for 95% of non-cash payments overall.
However, the government and central bank have announced stricter regulations, limiting cardholder’s credit limits to two times their monthly income for the first year.
According to official data there were 56m credit cards and 95m debit cards registered in Turkey in May this year, and debt now totals TRY82.3bn ($4.1bn), up 88% from 2010 figures, spurring the government and financial regulator to action.
As well as credit being limited, cardholders will also be compelled to pay off a greater portion of the balance each month.
The legislation stipulates that cardholders whose credit card limits are up to TRY15,000 must pay 30% of their debt as a minimum payment rather than the 25% they had to pay previously.
Cardholders whose limit is between TRY15,000 and TRY20,000 must pay 35% of their debt rather than 30%.
Similarly, in Poland, card regulations have been tightened since 2010 and card providers have now become very cautious in issuing new cards and have begun to close inactive accounts.
The ‘T-Recommendation’, issued by the Financial Supervisory Commission in Poland, took effect in August 2010, restricting consumer access to bank loans and credit.
In Italy, regulation has been introduced to curb the use of cash and encourage growth in alternative payments.
In December 2011, the government banned all cash transcriptions over 1,000 and capped merchant service charges at 1.5%.
Influence of ecommerce
Across Europe, the growth of ecommerce, driven itself by increased levels of internet penetration, is driving up levels of credit and debit card payment.
Notable increases in ecommerce include Finland, where growth has been around 10% per year for the last few years and more than 90% of people use the internet.
In France, ecommerce doubled between 2008 and 2012 to reach 45bn ($61.5bn), driving use of cards. Another factor driving card use is the complementary travel insurance often offered to holidaymakers with their cards.
Poland has grown to be the fifth largest ecommerce market in Europe, and is predicted to reach 5.9bn in 2015 from a start point of 1.7bn in 2011.
Meanwhile nearly 51% of online payments are made through credit cards in Italy, and nearly 10% through debit cards.
In Turkey, where cards account for the majority of online payments, an increase in internet users from 34.4% in 2008 to 45.7% in 2012 is driving use of cards in online payments, growing in value from TRY8bn in 2008 to TRY.29.9bn in 2012.
Although shopping online is taking off across Europe, a significant proportion of Europeans in smaller markets prefer to use cash to pay for e-commerce.
Cash on delivery was the most popular method of payment for online purchases in Bulgaria, Finland, Slovakia, Hungary, Poland, the Czech Republic and Romania.
It was also the third most popular method in Malta. Notable statistics include the fact that 95% of online purchases in Hungary were paid for in cash and in 44% of these cases the buyers preferred to collect the purchases themselves.
83% of online purchases in Romania, 52% in Slovakia and 42.9% in Poland were paid for using cash on delivery.
Mobile payments
Mobile payments are emerging as a potential trend in Europe, with many countries having a large potential for growth in mobile payments.
Smartphone penetration is increasing across Europe, with the greatest penetration of smartphones is in Spain, where smartphones accounted for 63% of mobile phones as of 2012.
Despite Spain’s leading position in terms of penetration the Europeans most likely to whip out their smartphone for an in-store payment are Swedes, according to the most recent data.
There is a large potential for mobile payments in both Sweden and Finland, where there are high rates of smartphone ownership.
60% of Swedes between 16 and 74 who use internet have smartphone, 46% own a laptop, 14% a tablet, while as of 2013 60% Finns own a smartphone, 76% a laptop, 18% a tablet.
If NFC emerges as the dominant mobile payment technology in Europe, then the UK could be in a strong position.
Contactless card payments in the 12 months from June 2012 to June 2013 numbered 51m and the market is thought to be nearly at tipping point.
34.5m contactless cards have been issued and over 158,000 terminals had been installed by the end of June 2013.
In other markets, such as Canada, players in mobile payments have developed mobile payment solutions that mean existing contactless terminals are unable to distinguish between the NFC smartphone and a contactless card.
This has massive implications for the UK’s potential as a market for NFC mobile payments, as it means that when the capability takes off in the UK, there could already be a network of mobile payment-ready terminals across the country.
New entrants
New entrants across Europe are threatening the dominance of the banks and traditional players in the payments market.
iZettle, the Swedish mobile acquirer, is quickly becoming a force to be reckoned with, as are similar companies Payleven and SumUp.
All three start-ups offer merchants the opportunity to take card payments using their smartphone.
iZettle was first launched in Sweden in 2011 and after just two years now operates its payment service for individuals and small businesses in Sweden, Norway, Denmark, Finland, the UK, Germany, Spain, Mexico and Brazil.
iZettle has also grabbed headlines by providing cashless payment acceptance for homeless magazine sellers, in a trial with Sweden’s equivalent of the Big Issue, Situation Sthlm.
In addition, it has been adopted by at least one seller of the Big Issue in the UK.
SumUp, by comparison, operates in Belgium, Brazil, Germany, Spain, France, Ireland, Italy, the Netherlands, Portugal, Russia, Austria and the UK.
It has also received investment from Groupon, AmEx and BBVA among others and has partnered with Revel Systems to provide iPad based POS in Europe.
Revel provides iPad-based tills to over 1,000 chain stores and restaurants throughout the US, Canada, Australia and Saudi Arabia.
Other trends
Multiple device ownership is also contributing uptake in card payments, as consumers shop on laptops, smartphones and tablets.
Another trend is that many card and payment providers are turning to products for the youth population to grow their market share.
Norway, with a youth population that comprises 26% of the whole population, has new youth-targeted cards from SpareBank and Sparebanken, while France has cards from BNP Paribas and Crédit Agricole.
Prepaid cards are also proving popular in several countries, as an alternative to credit or debit cards.
Prepaid cards are hugely popular in Italy – there were around 35.2m prepaid cards at the end of 2012, more than the 28.5bn pay later cards and forecast to grow at 50% a year on average for the next few years.
Prepaid volumes are also predicted to overtake credit cards in Poland by 2015.
This is in part due to a raft of government initiatives, which include prepaid cards being introduced for social security payments, public transport, parking, museums and city cards.
There were around 3.5m prepaid cards in circulation in Poland at the end of 2012 and this is predicted to double to around 7m by 2016.
