Paying with plastic is on the rise

Credit and debit card use is on the rise in the Czech Republic, but consumers still use them much less than in other markets. There are 9 million bank cards in circulation out of just over 10 million people, a growth of 1.37 percent over the previous year. Transactions using plastic were up 15 percent in 2009 over the previous year to more than 200 billion Kč. These numbers, however, continue to trail usage statistics in Western Europe and the United States.

Along with growth on the market, credit card companies are seeking to expand options for consumers in the form of new payment systems, fraud protection and personalized products that make paying by card even more readily accessible. The Prague Post sat down with Walt M. Macnee, president of international markets for MasterCard, and Brian Lang, general manager of MasterCard Czech Republic, to talk about the evolution of credit in the region.

The Prague Post: What do you think are the most important trends in credit card payment systems?

Walt M. Macnee: The biggest trends that affect our business are huge social and macroeconomic trends. The biggest would be the shift around the world from paper and currency - cash, check and coin - to electronic payments. And it doesn't matter where you are in the world; that shift is just extraordinary.

Others are trends like urbanization and the expansion of the middle class. The expansion of the middle class is a huge trend for us because, around the world, societies are gaining new entrants into their middle class, whether in Brazil or Mexico or parts of Central and Eastern Europe and Asia. And when people enter the middle class for the first time, they often get a [decent salary] for the first time, and when they are on a payroll for the first time, they often then get a card, a payroll card or a bank account, and that's when we start to participate. There are those the sorts of trends at work.

Along with all the macroeconomic trends are all the trends in innovation, so a basic credit card then moves to our PayPass product, which is our tap-and-go product. Electronic payments migrate on to mobile phones; they migrate on to all sorts of different form factors. The rise in things like the Internet demands electronic commerce. You can't pay cash on the Internet, so there's another of these trends that just have a very meaningful impact on our business.

TPP: How is the payment system here in Central and Eastern Europe evolving with the gradual acceptance of credit?

WM: It's essentially a timeline, so each country develops in a different way. But, if you go back 45 years in Western Europe and the United States, there was very low issuance of cards and very low acceptance, but it started to build. It really started getting traction in the late 1960s and then into the early 1970s.

In the United States, Canada, Australia and the UK, credit cards were very exotic. When you go back to the late 1960s, you would have to go to your bank and you would have to humble yourself. Not everyone got a credit card; it was a very rare and precious thing. And then it developed to the point now where in those countries there is just ubiquity.

In the United States, there are about four or five cards per person, and I think in Canada it's three or four. So, it's a timeline. When I look at the Czech Republic, I can guess what's going to happen because I think people want high utility and simplicity. They don't want to carry around a lot of cash; it is cumbersome. I think the Czech Republic is a very conservative population. People are conservative and a little bit wary of security, so we are going to meet those needs, and we will make sure that they are very comfortable and that they understand how secure the cards are.

TPP: What are the biggest challenges in payment systems at the moment?

WM: There's the ongoing fight that we have with criminals who try to figure out a way to get into our systems. And, around the world, the issue is intelligent criminals. Criminals that are idiots are easy to deal with because they don't get very far. But, when they get sophisticated and they bring some intelligence to bear on any technology, then we have to match them. I think it is a fair fight. I think we have kept up with their innovations with our own, so there's constant fraud innovation that matches these folks who are so creative on the bad side. [The first credit card transactions were] essentially just the paper swipe method with an embossed card and a printed slip. It was a paper transaction. Fraud attacked that, so cards moved to different form factors - to the magnetic stripe, then to chip - and we will continue to migrate our technologies to meet the advance on the other side. So that's an ongoing challenge. The Czech Republic I think has a very low fraud rate, so I think this is a country that is going to keep that in good balance.

TPP: How long has MasterCard been present in Central and Eastern Europe, and what do you think have been the biggest milestones in this region?

WM: Our brand in Europe [as a whole] really started in the UK. And again, it is that same kind of timeline I spoke about earlier. But it was pretty hard to see, so it was sort of an academic presence for many years, and it is different in each country. It's a long history.

Brian Lang: Eurocard was a big platform for us [in Central and Eastern Europe].

WM: We merged with Eurocard in 2004, but it has been a long history. But it is the same timeline, so presence doesn't mean any kind of serious penetration, so that's a much more recent phenomenon. But, if you take Russia as an example, there's a huge number of cards in the market, and most people in Russia are paid through their salary cards. So there are countries in Central and Eastern Europe that have skipped a whole stage. They are not replacing any checks in Russia; there aren't any checks in Russia. They skipped a whole generation. They skipped 100 years of checks and went right to the card. And those are some of the variations that are so interesting.

[As for the milestones,] I think they are attached to the development of financial systems in the countries. With the changes in the political landscape, there were changes in the banking landscape. So, with a modernization of the banking system and the payment systems in these countries, that's the key milestone. When the systems change, you can have a more modern payment system that would be a key inflection point.

TPP: Where are you investing at the moment? Where are the key areas of growth for you?

WM: We are really proud that we are a true global company. My mandate is the non-U.S. market. About 55 percent of our revenue comes from outside the United States, and because of the differential in growth, the United States is growing slower than some parts of the world. I think our contribution from the international markets outside of the United States will be higher for a long time. So we are being opportunistic. We are looking at the parts of the world that have this great natural growth, and we are investing in those markets.

That's one place we are placing our bets. And, to be honest, the Czech Republic is an example of that. We think there will be growth in this market, so we are going to invest in places like this. We have some other investments on the plate which are [in] innovation. So we are buying companies, we are joint venturing with companies. For example, we bought a company called Orbiscom in Ireland about a year and a half ago. And they have a product that we love called inControl, and it allows cardholders to set limits and parameters on their own activity. It's very cool. You can say, "I don't want to spend more than $200 dollars at restaurants per month."

And then, rather than just being cut off [when you reach the $200 limit], you can say, "Just send me a text message when I reach $200 so I know and I don't get cut off in the middle of a restaurant."

You can also set limits on where a card can be used, so a parent who is worried about where their son or daughter might be spending their money can restrict certain categories by e-mail or SMS. We thought that was a really powerful proposition so we bought the company.

TPP: One of your new products is the money transfer product MoneySend. What is that?

WM: It is essentially a P2P [person-to-person] application. Right now, we are doing it in different ways in different parts of the world. There are some huge remittance corridors, such as the links between India and Singapore, the United States and Mexico, and the UK and Poland [where] people essentially send money home in a regular way, and MoneySend is one application [for that]. I won't name names, but there are some very expensive ways to send money around [the world]. We think we can really help by making it easier, more secure and cheaper. MoneySend is a product aimed in that direction.

TPP: Given Czech consumers' reticence about credit, what are you trying to do here?

WM: The Czech people are not alone; there are different people in the world who have that same kind of reticence - I point to the Japanese. And there are education programs that I think are very well executed. We have spent a lot of time and a lot of our resources, in particular, on education for people who are just entering the middle class, people who, for the first time, have savings.

We have got programs all around the world, and it is not really about credit cards and debit cards. It is just about basic financial planning. In Colombia two weeks ago, we launched a program by way of example. The program was aimed at women, and it is because the women in Colombia were really managing the household finances, but they needed help with some basic concepts like savings and planning ahead. [For example,] a certain amount of money comes in each month and, if you can manage your expenses and create savings, can lead to your ability to buy something you need or want in the future. That sounds like a very basic proposition, but if you are brand new to that situation, I think it is very valuable work. We are doing a lot of that kind of work. We think an educated consumer, especially in that situation, is the best kind of consumer.

BL: In the credit card space, though, because we knew education was important, we have a Web site that is fairly unbranded called Creditcard.cz. And on that is a lot of the education Walt is talking about. So things like interest rates - which for some of us are simple stuff - need to be well explained to Czechs who are just coming into the middle class and getting access to funding. So it is a fairly robust site with lots of questions that can be asked. And some of our issuers now use that as a site to learn more about credit. The other area is an organization here that we have done some work with called Junior Achievement. It is an organization focused more or less on business basics and financial literacy for young people. We think it is important.

WM: Again there is a timeline. When you get to the countries that have a very ubiquitous card structure, you will find that very sophisticated financial folks - accountants and actuaries and analysts - all use credit cards because it is actually the cheapest way to buy things because you defer payment. And, as long as you pay your bill on time every month, it is an extraordinary way to use money. So there are degrees of this.

Gabriella Hold can be reached at
ghold@praguepost.com