Timothy Sifert pulls out his elastic plastic
While many of the country's financial institutions are optimistic - albeit to varying degrees - about the prospects for the nascent credit card market, there's still a catalogue of factors that could encumber progress in this clearly growing industry.
Some market participants claim that the issuance of revolving credit cards, which offer debtors grace periods to make minimum payments, should double this year. However, this growth could be buffeted by local banks' aversion to risk, as well as unemployment and even consumers' cultural tendencies.
The country counts more than 15.5 million plastic payment cards, split between debit cards, such as Maestro and Visa Electron, which immediately extract cash from current accounts; charge cards, which mandate that purchases be paid for within 30 days; and credit cards, which offer users 50-day grace periods, before which no repayment is necessary and no interest is accrued. In total, there are about 1.9 million charge and credit cards in the country, including Visa, MasterCard, Diner's Club and American Express.
Credit cards, which number about 700,000, have been the slowest to catch on, while debit cards have established themselves as the standard for bank customers.
For payment companies and banks, the disparity between the number of credit cards and other forms of plastic payment cards is reason enough to be optimistic about the market. There's much room to grow, they say, especially when the local market is compared to countries like the US and the UK, where about half of banking customers use credit cards.
"Poland has great potential," said Wiesław Federowicz, associate vice president and general manager for Poland at MasterCard International, echoing much of the industry. "But it's still not consumed for several reasons. The restructuring of the banking ownership, which started at the beginning of the 1990s, has been still unfulfilled."
That's the first of the hurdles - the banks need to be fully integrated.
In addition, these banks are still coming to terms with IT and credit risk. "Polish banks are at the stage of development for IT infrastructure," Federowicz added. "They are fighting with credit risk. So these are the reasons why credit cards develop slowly on the market. They practically started last year on a much larger scale."
Some 13 banks offer credit cards, including market leader Citibank Handlowy, Bank Zachodni, ING Bank, Millennium BIG Bank Gdański, Lukas Bank, GE Capital, Raiffeisen Bank Polska, Bank Pekao, Kredyt Bank and BRE Bank. And, most recently, state-owned PKO BP entered the market at the beginning of the year.
Federowicz explained that the pace of credit card adoption will be greatly quickened as banks fully integrate their IT systems. And, he said, most banks among his clients are still in the process of evaluating their credit portfolios in terms of corporate and retail customers.
The first market entrant and largest credit card provider in the country, Visa International, expects some impediments in the market - even as the global company fully recognises the huge potential of the country.
"There are many questions to be asked," said Małgorzata O'Shaughnessy, head of Visa International in Poland. "The first question is about the general economic condition and the spending power of the average Pole."
The country's struggling economy could steer the market up or down. But also the natural tendencies of Poles could play their part.
Market participants said that at present nationals prefer to use their debit cards in conjunction with overdrafts to borrow money, rather than credit cards. And while the banks and the likes of Visa and MasterCard profit from ATM and other transactions involving debit cards, the money is in the credit cards.
"There's not a very Anglo-Saxon pattern here," O'Shaughnessy pointed out. "It's a reverse type of development." She explained that in the US and UK the banking public procured credit cards first, then debit cards. On the other hand Germans, who maintain the largest debit card industry in Europe, adopted debit cards and overdrafts first - and are only recently warming up to credit cards.
Another sensitive question O'Shaughnessy asks is: "How are banks going to position credit cards against overdrafts?"
Banks in Germany have recently ventured to push credit cards over debt cards, but they have not been as successful as they hoped. "It has a lot to do with habit," she said, pointing to Germans' tendencies. "But banks have tried to break the habit." Still, the results in Germany have been mixed.
Fortunately, she said that Visa expects the local market to be easier to crack than in Germany.
"The consumer credit market has been developing quite well here," she explained. "But people still need to decide, what is a safe and more economical way of borrowing."
She admitted that the overdraft-debt card facility is very popular, but from the point of view of banks, it pays in terms of credit risk and lending fees to slide towards credit cards. "The credit card has lower risk," she said. The problem with overdrafts is that often customers withdraw cash from overdrawn current accounts via ATMs. In this scenario she said, "You cannot monitor what he is doing with it - with credit cards every transaction is monitored in real time."
Risk-averse banks can thus watch where their złoty is going.
"So this to me is the biggest question to answer - credit card or overdraft," O'Shaughnessy added, explaining that she believes that banks, especially those that suffer bad debts, will opt for credit cards in the interest of shoring up their consumer credit portfolios and reaping more fees.
MasterCard, which controls most of the debit card market through its Maestro brand, also thinks that culture as well as banking strategy holds great sway over the market. "This is a big challenge for us; we understand," MasterCard's Federowicz said. "Poles were always very afraid to go into debt. There was a cultural or behavioural position that for centuries Poles avoided borrowing money because this would push you to bankruptcy."
He added that locals think taking out a loan means losing your independence. "So to be a debtor it was always a little bit of shame," he said.
But now banks and credit card companies note that at least initially younger locals have softened the financial stoicism of earlier generations, he said.
"Now young people are focused mentally much more on the western model," Federowicz said. "The new generation is much more impassioned, unwilling to wait until they will accumulate their own money."
And there's nothing like the search for instant gratification to fatten the coffers of lenders.
"They want to get their things now," Federowicz said. "And they are ready to take a risk and to improve their life conditions. So we are aware of this. We know how much the young generation is growing in Poland, and there is a very important segment of youngsters up to 35 years old. They are the main segment which will demand credit cards."
But wherever culture fits into the future of credit cards, one thing's a certain boon for the industry: banks are pushing retail products ahead of corporate ones.
BRE Bank, a relatively new player on the retail market, operates online bank mBank and retail-oriented Multi-Bank.
"We see credit cards as one of the important strategic projects in retail banking," said Sławomir Lachowski, deputy president and head of retail banking at BRE Bank. "We think that consumer lending in terms of credit cards is the best way to satisfy our consumer banking clients."
For banks like BRE, he said, cards have been lagging because of the lack of technology and ways to police borrowers. "The situation will change in favour of credit cards," he said, because clients value the service. As such, he expects more than 50% growth in the credit card market. BRE Bank's subsidiaries have 400,000 retail customers. Though he did not reveal how many credit cards the bank has issued, he said he would like to have 100,000 credit card customers by year's end.
As a result of banks being burned by corporate lending, Marcin Materna, analyst at Millennium BIG Bank Gdański, said: "Banks are trying to discover this credit card market. They want to offer some value-added products. And they are heavily advertising credit cards."
Following last year's earnings reports, banks realised just how bad corporate business tugged at profits. One analyst said many banks lost over a billion złotys in profits because of corporate dealings.
Materna said that the best performing banks, such as Lukas Bank, stuck to retail business. "A lot of banks performed well because they neglected the corporate side," he said. Should the economy improve and banks push credit cards even more aggressively, Materna entertained that in the future "banks will earn huge profits."
On credit card debt, banks charge about 25%, whereas on corporate lending it's about WIBOR plus two basis points, an analyst said, highlighting the difference in proceeds.
So betting on improvements in the economy, employment, banking technology and credit-risk management - the deepest potholes in the path to a healthy credit card market - players are still sanguine.
Some market participants claim that the issuance of revolving credit cards, which offer debtors grace periods to make minimum payments, should double this year. However, this growth could be buffeted by local banks' aversion to risk, as well as unemployment and even consumers' cultural tendencies.
The country counts more than 15.5 million plastic payment cards, split between debit cards, such as Maestro and Visa Electron, which immediately extract cash from current accounts; charge cards, which mandate that purchases be paid for within 30 days; and credit cards, which offer users 50-day grace periods, before which no repayment is necessary and no interest is accrued. In total, there are about 1.9 million charge and credit cards in the country, including Visa, MasterCard, Diner's Club and American Express.
Credit cards, which number about 700,000, have been the slowest to catch on, while debit cards have established themselves as the standard for bank customers.
For payment companies and banks, the disparity between the number of credit cards and other forms of plastic payment cards is reason enough to be optimistic about the market. There's much room to grow, they say, especially when the local market is compared to countries like the US and the UK, where about half of banking customers use credit cards.
"Poland has great potential," said Wiesław Federowicz, associate vice president and general manager for Poland at MasterCard International, echoing much of the industry. "But it's still not consumed for several reasons. The restructuring of the banking ownership, which started at the beginning of the 1990s, has been still unfulfilled."
That's the first of the hurdles - the banks need to be fully integrated.
In addition, these banks are still coming to terms with IT and credit risk. "Polish banks are at the stage of development for IT infrastructure," Federowicz added. "They are fighting with credit risk. So these are the reasons why credit cards develop slowly on the market. They practically started last year on a much larger scale."
Some 13 banks offer credit cards, including market leader Citibank Handlowy, Bank Zachodni, ING Bank, Millennium BIG Bank Gdański, Lukas Bank, GE Capital, Raiffeisen Bank Polska, Bank Pekao, Kredyt Bank and BRE Bank. And, most recently, state-owned PKO BP entered the market at the beginning of the year.
Federowicz explained that the pace of credit card adoption will be greatly quickened as banks fully integrate their IT systems. And, he said, most banks among his clients are still in the process of evaluating their credit portfolios in terms of corporate and retail customers.
The first market entrant and largest credit card provider in the country, Visa International, expects some impediments in the market - even as the global company fully recognises the huge potential of the country.
"There are many questions to be asked," said Małgorzata O'Shaughnessy, head of Visa International in Poland. "The first question is about the general economic condition and the spending power of the average Pole."
The country's struggling economy could steer the market up or down. But also the natural tendencies of Poles could play their part.
Market participants said that at present nationals prefer to use their debit cards in conjunction with overdrafts to borrow money, rather than credit cards. And while the banks and the likes of Visa and MasterCard profit from ATM and other transactions involving debit cards, the money is in the credit cards.
"There's not a very Anglo-Saxon pattern here," O'Shaughnessy pointed out. "It's a reverse type of development." She explained that in the US and UK the banking public procured credit cards first, then debit cards. On the other hand Germans, who maintain the largest debit card industry in Europe, adopted debit cards and overdrafts first - and are only recently warming up to credit cards.
Another sensitive question O'Shaughnessy asks is: "How are banks going to position credit cards against overdrafts?"
Banks in Germany have recently ventured to push credit cards over debt cards, but they have not been as successful as they hoped. "It has a lot to do with habit," she said, pointing to Germans' tendencies. "But banks have tried to break the habit." Still, the results in Germany have been mixed.
Fortunately, she said that Visa expects the local market to be easier to crack than in Germany.
"The consumer credit market has been developing quite well here," she explained. "But people still need to decide, what is a safe and more economical way of borrowing."
She admitted that the overdraft-debt card facility is very popular, but from the point of view of banks, it pays in terms of credit risk and lending fees to slide towards credit cards. "The credit card has lower risk," she said. The problem with overdrafts is that often customers withdraw cash from overdrawn current accounts via ATMs. In this scenario she said, "You cannot monitor what he is doing with it - with credit cards every transaction is monitored in real time."
Risk-averse banks can thus watch where their złoty is going.
"So this to me is the biggest question to answer - credit card or overdraft," O'Shaughnessy added, explaining that she believes that banks, especially those that suffer bad debts, will opt for credit cards in the interest of shoring up their consumer credit portfolios and reaping more fees.
MasterCard, which controls most of the debit card market through its Maestro brand, also thinks that culture as well as banking strategy holds great sway over the market. "This is a big challenge for us; we understand," MasterCard's Federowicz said. "Poles were always very afraid to go into debt. There was a cultural or behavioural position that for centuries Poles avoided borrowing money because this would push you to bankruptcy."
He added that locals think taking out a loan means losing your independence. "So to be a debtor it was always a little bit of shame," he said.
But now banks and credit card companies note that at least initially younger locals have softened the financial stoicism of earlier generations, he said.
"Now young people are focused mentally much more on the western model," Federowicz said. "The new generation is much more impassioned, unwilling to wait until they will accumulate their own money."
And there's nothing like the search for instant gratification to fatten the coffers of lenders.
"They want to get their things now," Federowicz said. "And they are ready to take a risk and to improve their life conditions. So we are aware of this. We know how much the young generation is growing in Poland, and there is a very important segment of youngsters up to 35 years old. They are the main segment which will demand credit cards."
But wherever culture fits into the future of credit cards, one thing's a certain boon for the industry: banks are pushing retail products ahead of corporate ones.
BRE Bank, a relatively new player on the retail market, operates online bank mBank and retail-oriented Multi-Bank.
"We see credit cards as one of the important strategic projects in retail banking," said Sławomir Lachowski, deputy president and head of retail banking at BRE Bank. "We think that consumer lending in terms of credit cards is the best way to satisfy our consumer banking clients."
For banks like BRE, he said, cards have been lagging because of the lack of technology and ways to police borrowers. "The situation will change in favour of credit cards," he said, because clients value the service. As such, he expects more than 50% growth in the credit card market. BRE Bank's subsidiaries have 400,000 retail customers. Though he did not reveal how many credit cards the bank has issued, he said he would like to have 100,000 credit card customers by year's end.
As a result of banks being burned by corporate lending, Marcin Materna, analyst at Millennium BIG Bank Gdański, said: "Banks are trying to discover this credit card market. They want to offer some value-added products. And they are heavily advertising credit cards."
Following last year's earnings reports, banks realised just how bad corporate business tugged at profits. One analyst said many banks lost over a billion złotys in profits because of corporate dealings.
Materna said that the best performing banks, such as Lukas Bank, stuck to retail business. "A lot of banks performed well because they neglected the corporate side," he said. Should the economy improve and banks push credit cards even more aggressively, Materna entertained that in the future "banks will earn huge profits."
On credit card debt, banks charge about 25%, whereas on corporate lending it's about WIBOR plus two basis points, an analyst said, highlighting the difference in proceeds.
So betting on improvements in the economy, employment, banking technology and credit-risk management - the deepest potholes in the path to a healthy credit card market - players are still sanguine.
