A contradiction? Not really. In card payments, the Czech Republic is a country of contrasts. On the one hand, we set an example in innovation and, in many respects, show others the way (especially in the use of contactless technologies and mobile payments).
On the other hand, there is still great room for improvement in the expansion of the total acceptance network, the frequency of card use at existing retailers and the share of electronic transactions in total household spending.
By way of comparison, the average number of electronic transactions per household annually in Scandinavia is over 300 but only 70 in the Czech Republic. Let’s have a look at the situation in a little more detail.
A Contactless Nation
The Czechs love new technologies. Especially in contactless payments, we are unrivalled in Europe. With 3.12 million contactless payment cards issued so far, we are in the lead in terms of the number of transactions per month, in the average amount spent and in the total share of in-store contactless payments. Statistical data for 2015 indicate that contactless payments accounted for nearly 60% of all in-store payments, which is even more remarkable when contrasted with other countries. A significant part of this success was due to the well-developed acceptance infrastructure: last year, there were 75,000 contactless payment terminals in use in the Czech Republic, which is the third highest number in Europe.
At this point, however, it is also important to mention an area where the Czech market has huge room for improvement:
While we stand out amongst European countries in the contactless payment department, our total payment card acceptance network is far behind the European standard. Compared to Western Europe, we have only half the number of payment terminals per number of inhabitants. This is why ATM withdrawals still win over contactless payments with many cardholders. Nevertheless, the acceptance network is continuously developing and the number of payment terminals keeps rising.
As a result of Interchange Fee Regulation, we expect to see retail acceptance grow, as well as explicit preference for electronic payments. Retailers are likely to gain most from lower interchange fees, with the expectation that this will be passed on to consumers. We are already seeing innovative retailers driving growth by investing in faster, more convenient and differentiating shopping and checkout experiences. We believe these developments will gradually lead to an exponential growth in the share of contactless payments and that the Czech Republic will achieve figures comparable to Western European countries.
We estimate that the Czech market could currently accommodate some 80,000 more payment terminals. Deficiencies in the acceptance network aside, contactless payments are making their way into brand new areas such as transportation, public services and post offices. We are collaborating on a number of joint projects with banks and retailers at the moment.
A Beep Instead of a Ticket
With their ease and speed, contactless payment technologies have huge potential in transportation – both in local and intercity public transport. In January 2015, in cooperation with Arriva, Česká spořitelna and Telmax, we launched the very first fully commercial contactless payment project on selected suburban and intercity bus lines (from Prague to Kutna Hora).
From mid-2016, it will be possible to pay with a contactless bank card in public transport in Ostrava. Moreover, we are negotiating with representatives from Prague, Brno and other cities where the so called open payment system could be applied to public transport. Pilot contactless fare projects are also being launched in railway transport.
Czech Post Takes a Leap Forward
Czech Post, potentially one of the biggest businesses on the market, has recently made a breakthrough. Following a long preparatory phase, the state-owned postal company began accepting payment cards in the last quarter of 2015. This is major progress for the public sector, where contactless payments have been very slow to penetrate. By the end of 2016, one fifth of all post offices should be equipped with payment terminals. Hopefully, this will motivate other institutions to follow suit.
Online and Mobile Shopping
Besides the increase in traditional in-store card payments, we have also seen rapid growth in both E-commerce and M-commerce. Consumers are increasingly opting for card payments in online stores. So far, these transactions do not match offline payment values in either their number or volume, but we expect the gap to narrow in the near future. This development should be aided, for example, by our cooperation with key banks operating on the market. Together with three banking institutions, we plan a joint launch of host-card emulation contactless mobile payments in the upcoming months – the first of which is with Komercni banka. In 2016, innovation will thus once again be the key word to define the Czech market.
In addition to all of the above, future developments will also be affected by the activities of the public sector aimed at introducing electronic records of sales. The implementation of this new system would constitute a crucial spur to the development of the acceptance network.