CZECH REPUBLIC

The Czech Republic according to its surface area of 78,866 km2 and the number of inhabitants of 10.467 mil. (2011-07) belongs to small countries, with inhabitant density of 130 inhabitants/km2 (compare with UK - 250, France - 111 inhab/km 2  The lowest point is the river Elbe outflow (115 m), the highest point is Sněžka Mountain (1.602 m), and the medium above sea level in the Czech Republic is 430 m. State holiday commemorating the origin of the republic is on 28th October (1918, Formation day of Czechoslovakia).

Historic overview: At the close of World War I, the Czechs and Slovaks of the former Austro-Hungarian Empire merged to form a new common state, Czechoslovakia. During the interwar years, having rejected a federal system, the new country's leaders were frequently preoccupied with meeting the demands of other ethnic minorities within the republic, most notably the Sudeten Germans and the Ruthenians (Ukrainians). On the eve of World War II, the Czech part of the country was forcibly annexed to the Third Reich, and the Slovaks declared independence as an ally of Nazi Germany. After the war, a reunited but truncated Czechoslovakia (less Ruthenia) fell within the Soviet sphere of influence. In 1968, an invasion by Warsaw Pact troops ended the efforts of the country's leaders to liberalize Communist Party rule and create "socialism with a human face." The following year ushered in a period of harsh repression known as "normalization." With the collapse of Soviet-backed authority in 1989, Czechoslovakia regained its democracy through a peaceful "Velvet Revolution." On 1 January 1993, the country underwent a "velvet divorce" into its two national components, the Czech Republic and Slovakia. The Czech Republic joined NATO in 1999 and the European Union in 2004.

Nationally the population is very homogeneous: Czechs 90.4%, Moravians 3.7%, Slovaks 1.9%, others 4%. From language point of view the society is also equable: Czech language 94.9%, Slovak language 2%, other 2.3%, not established 0.8%. Religions: Roman-Catholic 26.8%, Protestants 2.1%, other 3.3%, not specified 8.8%, no faith 59% (Census 2001). 
 

Population rate of growth is -0.134% (estimate 2011), i.e. decrease by 13 637 inhab/year. Rate of migration (2011 estim.) is 0.97 migrants/1000 inhab., i.e. increase by 9 885 inhab. Portion of inhabitants living in cities: 74% (7.53 mil. inhab).
 

The Czech Republic is a stable and prosperous market economy, which harmonized its laws and regulations with those of the EU prior to its EU accession in 2004. While the conservative, inward-looking Czech financial system has remained relatively healthy, the small, open, export-driven Czech economy remains sensitive to changes in the economic performance of its main export markets, especially Germany. When Western Europe and Germany fell into recession in late 2008, demand for Czech goods plunged, leading to double digit drops in industrial production and exports. As a result, real GDP fell 4.7% in 2009, with most of the decline occurring during the first quarter. Real GDP, however, has slowly recovered with positive quarter-on-quarter growth starting in the second half of 2009 and continuing throughout 2011. The auto industry remains the largest single industry, and, together with its upstream suppliers, accounts for nearly 24% of Czech manufacturing. The Czech Republic produced more than a million cars for the first time in 2010, over 80% of which were exported. Foreign and domestic businesses alike voice concerns about corruption especially in public procurement. Other long term challenges include dealing with a rapidly aging population, funding an unsustainable pension and health care system, and diversifying away from manufacturing and toward a more high-tech, services-based, knowledge economy.
 

Labour force amounts to 5.41 mil. (53.1% inhabitants, 2011), population share in age 15-64 years is 70.2% of the total number of inhabitants, i.e. 7.144 mil. Composition of labour force by sector: agriculture 3.1%, industry 38.6% and services 58.3% inhabitants (2008). Education expenditures were in the amount of 4.4% of GDP (2007). Unemployment was 8.5% (865 070 inhab.) Public debt in 2011 increased to 40.7%. Inflation rate reached 1.9% (2011)
 

Among main agriculture products belong wheat, potatoes, sugar beets, hops, fruit; pigs and poultry. Industry sectors cover motor vehicles, metallurgy, machinery and equipment, glass and armaments.
 

From the payment card sector view the advancement of communication infrastructure is important: number of fixed lines declined to: 2 198 000 (2009), number of mobile numbers has risen to: 14 331 000 (2009). Privatization of the telecommunication system took place rather late (2005), but the network is still modernized. All exchanges are now digital, existing copper subscriber systems were enhanced with Asymmetric Digital Subscriber Line (ADSL) equipment to accommodate Internet and other digital signals (lately also VDSL); number of trunk fibre-optic cables and microwave radio relay is increasing.
 

Number of internet servers (.cz) reached to 4.14 mil. (2010) and number of internet users to 6.681 millions. Another communication infrastructure is no so much interesting from financial services point of view but for citizens life style comfort: railway network declined from 9 620 km to 9 469 km, roads length is 127 797 km (including city streets, down from 128 512 km in 2009, including 730 km of motorways, 2008). Water corridors cover 664 km.

The following table describes the economic data for the Czech Republic.
 

Czech economics, 2011 estimates

Czechia

GDP (purchasing power parity):

288.6 bil. USD
5774 bil. CZK
223 bil. EUR

Number of inhabitants

10 177 300

GDP per person
(purchasing power parity, 2009)

27 400 USD
546 356 CZK
21 177 EUR

Labor force

5.41 mil.

Unimployment

8.5%

Inflation rate

1.9%


Payment cards - History


Detailed history year by year of card developments in ČR can be found in articles "Historie SBK" (History of Bank Card Association) in CardMag, however let's recall few important dates.

1968 The very first cards accepted in the Czechoslovak socialist republic were Diners Club cards, intermediate by the travel agency CEDOK.
 

1988 The very first plastic card issued in the Czechoslovak Socialist Federative Republic. Živnostenská banka, n.p. (n.p. = national enterprise), issued so called "dispositional cards" to Tuzex accounts enabling Tuzex voucher withdrawals at bank branches. (Tuzex accounts were accounts into which foreign "western" currencies were converted as Tuzex crown, paper money called "Tuzex vouchers".)

1989 Česká státní spořitelna (Czech state saving bank) in Prague and Slovak státní spořitelna (Slovak state saving bank) in Bratislava issue domestic cards enabling cash withdrawals from off-line cash dispensers.

1990 The first international card in the Czech Republic bearing VISA logo was issued by Živnostenská banka, n.p.

1991 The first international card in CR bearing Eurocard/Mastercard logo was issued by Komerční banka, a.s.

1991 On 2nd February the "Interbank association for payment cards" (Mezibankovní asociace pro platební karty), predecessor of "Bank Card Association" (Sdružení pro bankovní karty), was established and contributed to overcome over competition between banks, at least in field of cooperation in combating card fraud and creating working groups connecting to police investigation. Founding members were 7 banks - Agrobanka, Investiční banka, I.S.C. Muzo, Komerční banka, Poštovní banka, Tatra banka, a Všeobecná úverova banka).

1991 Establishing of company American Express, s. r.o., (28. února), and representative office of Diners Club Austria

1991 The first VISA Business cards issued in the middle Europe by Živnostenská banka, a.s.

1992 The first ATMs connected to international network Eurocard/MasterCard (19.2.1992) and VISA/Plus.

1992 The first authorization terminal (Živnostenská banka) installed to prevent frauds in a restaurant.

1992 In 2nd half: Česká státní spořitelna opened network of 7 ATMs.

1992 Summer: designation change of Interbank association for payment cards to "Bank Card Association" (SBK).

1993 The first payment terminals (Komerční banka)

1994 Česká spořitelna joins SBK; ČSOB a Komerční banka enter to association VISA Int. and become the first "dual" banks.

1995 The first VISA GOLD cards in the Czech Republic issued by Živnostenská banka, a.s.

1998 July: Maestro cards issued. Česká spořitelna incorporated its ATMs into Europay/MasterCard network, and commenced to issue Maestro cards and began to exchange proprietary cards Variant for domestic Eurocard/MasterCard cards.

1998 Company Diners Club Czech, s.r.o., established (26. October).

1998 Number of issuing banks reached 7 active banks and number of issued cards reached 1 693 500 cards.

 

Bank

Number of cards

Česká spořitelna

1 200 000

Komerční banka

300 000

IPB

130 000

ČSOB

30 000

Agrobanka

20 000

Živnostenská banka

7 500

Union banka

6 000

 

2000 The first VISA PLATINUM card issued in the Czech Republic (Živnostenská banka).

2003 SBK associates 18 regular banks a 9 other non-banking observers.

2007 SBK associates 18 banks a 10 other companies contributing to card payments developments with observers’ status.

2009 SBK initiates implementation of PCI DSS (Payment Card Industry Data Security Standards) for increase of security processing of data transferred from merchants.

2010 After recession period SBK associates 16 banks and 23 affiliated companies.

2011 SBK associates 21 banks and 23 affiliated companies (2012), intensified cooperation with Slovak ZBK.


Card issuance in Czech Republic


The total of 14 banks entered the market of payment cards (2006), in 2007 a new bank occurred, Polish BRE Bank S.A., org. unit, in 2011 entered ZUNO bank, AXA banka and AirBank. In 2012, all together 20 banking subjects and 4 non-banking subjects (CCS, Cetelem, Diners Club a Euronet) contribute to SBK statistics supplying information on number of issued cards and transactions. Besides, other cards are issued by banks which are neither members nor associates of SBK and not even supply data on their issued cards (e.g. ABN AMRO banka, mBanka - BRE Banka). Many non-banking subjects issue especially credit cards. A complete overview supplies the following tables.
 

SBK members - banks,

Founded

Deposited capital

issuing cards and contributing to statistics

Air Bank, a.s. (PPF Group N.V.)

2010

500 004 000

AXA Bank Europe (AXA Banka Europe, Belgium)

2009

n/a

Citibank Europe plc, organizační složka

2008

n/a

COMMERZBANK Aktiengesellschaft, pobočka Praha

1992

n/a

Česká spořitelna, a.s.

1991

15 200 000 000 Kč

Českomoravská stavební spořitelna, a.s.

1993

1 500 000 000 Kč

ČSOB

1964

5 855 000 000 Kč

Deutsche Bank AG, Filiale Prag, organizační složka

1993

n/a

Equa Bank, a.s. (Equa Group Limited, Maltská republika)

1993

2 260 000 000

FIO banka

1994

560 000 000

GE Money Bank a.s.

1998

510 000 000 Kč

ING Commercial Banking

1993

n/a

J&T Banka

1992

3 358 127 000

Komerční Banka a.s.

1992

19 004 926 000 Kč

LBBW Banka CZ

1991

1 708 700 000 Kč

PPF banka

1992

769 004 327 Kč

Raiffeisenbank a.s.

1993

9 357 000 000

Raiffeisenbank im Stiftland eG

1993

n/a

Unicredit Bank a.s., Czech Republic

1996

5 124 716 000 Kč

Volksbank CZ, a. s.

1996

2 005 380 000

 

SBK members and associates - non banks,

Founded

Deposited capital

issuing cards and contributing to statistics

CCS - Česká společnost pro  platební karty, a.s.

2007

52 920 000 Kč

CETELEM ČR, a.s.

1996

180 000 000 Kč

CITFIN - Finanční trhy, a.s.

1996

22 000 000

Diners Club CS, s.r.o., organizační složka

2010

n/a

EURONET Services, spol. s r.o.

1997

169 990 000 Kč

ESSOX s.r.o.

2003

2 288 086 000

Home Credit a.s.

2005

300 000 000 Kč

 

SBK associates,

Founded

Deposited capital

issuing cards but not contributing to statistics

American Express s r.o.

1991

150 100 000 Kč

Credium, a.s.

1997

785 000 000

ZUNO BANK AG, organizační složka (Rakousko)

2010

n/a

 

Subjects outside SBK,

Founded

Deposited capital

issuing cards and not contributing to statistics

mBank (BRE Bank)

2007

n/a

Oberbank AG, pobočka Česká republika

2004

n/a


Diners Club and American Express Companies belong among non-banking subjects who issue charge cards under their own trademarks and provide authorization and payment settlements. Credit cards are issued by other credit companies as well.

Growth of card popularity in Czechia is documented by the graph of card number growth during the last 11 years (2001 - 2011). Concurrently domestic, international, debit and charge cards are being issued. Since 1998 banks started to issue credit cards generating higher yields then debit cards; benefiting in reducing costs and increasing client's comfort in cash retrieval. The card were issued firstly with magnetic stripe technology and then from 1999 also as chip cards (IPB bank issued the "MAX card" as the first domestic chip card as well as the first international chip card Maestro under MasterCard association). Moreover, at first an instrument for cash withdrawals gradually became an effective mean for cashless payments. Speed of development and different aspects of cards in Czechia are outlined in the following tables and graphs describing compounded information for all issuers of bank cards (including American Express and Diners Club).

Development of number of payment cards issued in CR during the last 11 years (2001 - 2011) 
 

Issued cards

2001

2002

2003

2004

2005

2006

Cards total

4 658 890

5 296 067

6 373 591

6 867 733

7 390 357

7 865 453

Debit

n/a

n/a

5 829 857

5 873 728

6 418 446

6 602 775

Credit

n/a

n/a

203 274

372 933

614 542

885 266

Charge

n/a

n/a

335 269

327 115

357 369

377 412

 

Issued cards

2007

2008

2009

2010

2011

Year to year%
 

Cards total

8 623 124

8 931 872

9 054 308

9 268 914

10 030 193

8.21

Debit

6 974 147

7 220 667

7 372 327

7 400 919

7 454 543

0.72

Credit

1 212 401

1 276 714

1 224 814

1 564 430

2 288 981

46.31

Charge

436 576

434 491

457 167

303 565

286 669

-5.56

Recalculated annual card increase according to parameter CAGR (see cardmag#3.2005) for years 2001 - 2011 corresponds to the value of 5.61%. Increase in number of cards in this period reached 50.15%. In Graph "Trend of payment cards issued in CR 2001 - 2011" a permanent increase of inhabitants which succumbed to wonder of payment colourful card is apparent; the number of cards from 2001 has increased by 215%. The reason for this strong increase can be seen in the increase of number of banks issuing cards (from 13 in 2000 to 20 in 2012) and concurrently all major banks become dual, i.e. are issuing cards under trademarks of both VISA and MasterCard associations. The year 2003 was a breaking year in charge and credit cards issuance, when number of chare cards rapidly increased, and immediately from the next year, 2004, the number of credit cards permanently exceeded number of charge cards.
 

Structure of issued cards

The statistics of issued cards documents that share of debit cards (74.3% in 2011) persistently decrease (drop from 81% in 2009 and from 84% in 2006), but still dominates credit cards (22.8%) and charge (2.85%) cards (in 2006: 11% a 5%). It is worth noting that the share of credit cards is ever increasing at the expense of debit cards (year-to-year approx. by 3%), and share of charge cards ever decreases to 2.85% (in 2009 it was 5%). See details in Graph "Total number of issued cards by brands".

Number of cards per inhabitant

One parameter, enabling comparison of development of card market and card popul
arity with consumers, is the number of payment cards per inhabitant esp. per inhabitant in the age group of 15 - 64 years. The table "Number of cards per inhabitant" documents an increase of cards per inhabitant in both categories to double during the pat 11 years; at the same time a relation is given to the most developed market in Europe.
 

Number of cards per inhabitant

 

ČR

UK

 

2000

2008

2011

2011

number of cards per inhabitant

0.43

0.85

0.98

2.32

number of cards per inhabitant in age 15 - 64 years

0.60

1.20

1.40

3.37


The mentioned trend in number of cards and the comparison of the number of cards per inhabitant document in essence the market saturation by standard debit and charge cards and ever increasing attention of issuers and its customers to credit cards. By number of cards the Czech Republic belongs among foremost countries in the Central and East Europe.

Should the Czech Republic come closer to the developed card countries then the issuers must concentrate more on chip cards offering to clients a promise of higher payment security and other added value services, and also more on credit cards, combining advantage of cashless payment with better managing family financial flow using easily available loans. Further expansion can be reached by card issuing in cooperation with other partners as co-branded, partner, cards bearing logos of both the issuer and the partner organization. Examples of co-branded cards can are the following products on the Czech market (some banks did not make data available).
 

Issuer (2009)

Partner

Brand

Citibank

ČSA

Mastercard

Eurotel

Mastercard

Shell

Mastercard

ČSOB

Club Metro

VISA

Českomoravská stavební spořitelna

Mastercard

Diners Club

Diners Club

FIO

Maestro

Hypoteční banka

Mastercard

UEFA-EURO2008

Mastercard

BAWAG

CCS

MasterCard

Česká spořitelna 

Karlova Universita Praha

Mastercard
Maestro

Diners Club

ČSA

Diners Club

ČSOB

Golf

KB

Mercury

Volksbank

Oberbank

Komeční banka

Benzina

VISA

GE Money Bank

ING

Mastercard

Makro

Electroworld

Avon

Raiffeisen Bank

National Geographic

Mastercard

UniCredit Bank

AXA

VISA

Renome (Baťa, Blažek, Klenoty Aurum, FOKUS optik, Reserved)

HYPO stavební spořitelna

SCHLECKER

Generali

ČSA

Škoda Auto

Volksbank

Holiday Card

VISA, Maestro


Card payments in ČR


During times the "card" became a usual payment mean, firstly for cash withdrawals in ATMs, currently it serves not only for purchasing of luxury goods but also at supermarkets and for purchases of everyday goods, and in bookstores and pharmacies.


ATMs


ATMs are inevitably connected to payments cards, first cards enabled only withdrawals of money deposited at accounts. After first ATMs of the Czech Saving Bank were introduced other institutions developed their networks of ATMs, too. Nowadays the ATMs are controlled by several providers, either big banks or independent providers of specialized services (operating ATMs for individual banks) or specialized companies.


ATMs providers
(2006)
 

Company

Founded

Number of ATMs

Česká spořitelna

1825

1081

Global Payments Europe
(dř. MUZO, zal.1990)

2004

> 2000

Euronet Worldwide

1997

140

Pharro

2004

35


Trend in overall number of bankomats is very positive, with year to year increase of 5.53% to total 4 082 pieces of bankomats. Number of bankomats during 2001 - 2011 has increased by 213 (coefficient CAGR = 13.5%). Apart of withdrawals, bankomats offer also information on balances, enable to enter payment orders and serves as a marketing channel for propagation of banking (esp. credit and insurance) products - on a standard level noticeable in „developed“ countries.


Trend in number of cash dispensers
 
 

ATM

2001

2002

2003

2004

2005

2006

Number

1909

2 350

2 669

2 850

2 892

3 096

No. of trns (mil.)

21.886

108.249

116.825

126.816

133.508

146.005

Volume of trns (mil. Kč)

32 896

292 493

352 253

401 818

447 277

510 310

 

ATM

2007

2008

2009

2010

2011

year to year%
 

Number

3 599

3 534

3 679

3 868

4 082

5.53

No. of trns (mil.)

152.098

162.688

156.490

158. 676

167.872

9.82

Volume of trns (mil. Kč)

554 990

609 466

579 401

585 279

626 967

10,11


One of the indicators showing the maturity of ATMs infrastructure is number of ATMs per million inhabitants; in 2011 it has reached 401 ATMs/mil. inhabitants (in 2008 only 338, most ATMs in this category are deployed in Spain - around 1350). From the point of view of geographical region, CR has density of 52 ATMs /1 000 km2.

Usage of ATMs

From the deployment of Czech bankomats is apparent, that in no single year their number did not fall (in the year 2008 it could be a statistical error). Volume of cash withdrawals from ATMs grew more rapidly then the increase of number of transaction, therefore the value of the average withdrawal increased from 2 105 CZK (in 2000) to 3 735 CZK (2011). The increase was definitely influenced by introduction of higher cash advance fee from ATMs operated by other providers then the issuing bank).


Merchant location, including POS terminals


Merchants were contractually acquired by 5 main banks:
 

Banks signing contracts with merchants

Česká spořitelna, a.s.

ČSOB

Komerční banka, a.s.

Raiffeisenbank, a.s.

UniCredit Bank CR, a.s.


Number of merchant locations gradually increased up to 69 878 locations by end of 2011, with ever increasing share of electronic payment terminals, which enables faster transactions. (According to statistics, 86% is equipped with POS terminals, but practically it is 100% as the mechanical imprinters are not used any more, except at airport lounges). In 2006-7 the number of terminal fell down due to consolidation of merchant locations (merchant closures or mergers), termination of contracts with risky merchants and cancellation of non-productive merchant locations. During the following years the growth locations accepting payment cards has re-established and the number of installed terminals in such locations reached
77 651 pieces (more terminal in one location, i.e. in supermarkets). Number of e-commerce merchants has risen to 3 444.
 

Merchants

2001

2002

2003

2004

2005

2006

No. of outlets

38 956

40 224

48 723

51 393

54 667

53 265

No. of outlets with POS terminals

18 998

25 439

31 678

37 394

42 909

41 875

No. of e-comm merchants

-

-

-

-

-

-

 

Merchants

2007

2008

2009

2010

2011

Year to year%

No. of outlets

54 340

58 007

62 614

65 293

69 878

7.02%

No. of outlets with POS terminals

45 539

55 783

53 375

57 637

59 836

3.82%

No. of e-comm merchants

1 310

1 841

2 295

2 900

3 444

18.76%

Number and volume of transactions at merchants

Regular increase of number of locations, where a card can be used, corresponds with a regular increase of number and volume of payment transactions. In 2011, a significant (even enormous) year-to-year increase can be noted; the number increased by 20.3%  and volume of payments by 32.1%. One year earlier, the number increased only by 15% and their volume only by 1.32%, as if the consumers wanted to made up for falloff in consumption during financial crises years 2008-9.  
 

Merchants

2001

2002

2003

2004

2005

2006

No. of payments (mil.)

21.886

35.815

67.652

83.493

120.342

132.082

Volume of payments (mil. CZK)

32 896

42 484

77 588

91 727

142 735

157 066

 

Merchants

2007

2008

2009

2010

2011

Year to year%

No. of payments (mil.)

159.110

181.228

194.231

224.409

270.008

20.32%

Volume of payments (mil. CZK)

190 019

210 374

200 924

203 591

269 077

32.17%

The trend of average payment amount shows a decrease from 1 877 CZK (2000) to 997 Kč (2011), (in 2007: 1 194 CZK), which corresponds to cardholders willingness to use their cards for usual, non-exclusive shopping; and willingness of banks to conclude contracts with wide palette of merchants including internet merchants (internet shops realized with 3 057 104 payments the average payment amount of the amount of 1 254 Kč; in 2008 it was 2 003 CZK; from 2011 e-commerce merchant volumes are not observed).
 

Comparison of cashless payments to cash withdrawals

The share of cashless payments to the total transactions increased from 12%
 (2000) to 62% (it is worse noting that in 2007 the number of payments for the first time exceeded the number of cash withdrawals). It corresponds with the ratio of volume of cashless payments to volume of withdrawals - only 30% in 2011 (increase by 4% against 2010). This proportion during the last 11 years has increased from 11%  in 2000 to current 30%, as share of cash withdrawal’s volume grew faster - which demonstrates continuous popularity of cash with population.  When recalculating to the number of transactions/per year/per one card, we reach the required and satisfactory ratio 15.1 to 15.8 - number of cash withdrawals per year was (marginally) lower than number of payments per year. The number of payments per year was for the first time higher than number of cash withdrawals per year in 2006, when the ratio was 17.6 : 18.4).
 

 Payments provided at internet merchants in so called e-commerce industry are increasing. The number of online transactions increased from 653 743 (2007) to 3 057 104 (2010), which represented 1.34% of all payments (an increase from 0.41% in 2007); in volume it represents a share of 1.84% (an increase from 1% in 2007). Thus the share is not significant, but for cardholders it represents an increased comfort in providing payments from home. Moreover, while the average payment amount was 997 CZK then the average internet payment reached 1 134 CZK (an decrease from 2 003 CZK in 2008). Also the average withdrawal increased to 3 735 CZK (from 3500 CZK in 2007).

The following table shows overall Czech card market characteristics.
 

2011

CR

%

No. of bank cards

10 030 193

 

No. of payments/card/year

26,9

62%

No. of withdrawals/card/year

16,7

38%

No. of transactions

 

 

No. of payments

270 008 563

62%

No. of withdrawals

167 872 970

38%

Volume of transactions

 

 

Volume of payments (CZK)

269 077 694 106

30%

Volume of withdrawals (CZK)

626 967 068 130

70%

Average withdrawal (CZK)

3 735 CZK
(187 USD)
144 EUR)

 

Average payment (CZK)

997 CZK
 (50 USD)
(38 EUR)

 

 

PAYMENTS

CR

No. of outlets

69 878

POS terminals

59 836

WITHDRAWALS

 

No. of ATMs

4 082

Card usage manner

The manners in which the VISA and MasterCard bank cards are utilized in CR in comparison to worldwide trends are shown in the table "Card usage". It is apparent that in spite of the positive growth the consumers in the Czech Republic are getting used to payments for goods and services rather slowly and relation of the volume of payments to the volume of withdrawals = 0.3 : 1 (volume of payments is 3 times smaller then the volume of cash withdrawals).
 

Card usage

Volume of payments

Volume of withdrawals

World

65%

35%

Czechia (2008)

25%

75%


The change of contemporary trend with predominate cash withdrawals (i.e. in ATMs, at bank counters, by cheques or electronic inter bank cards) will be possibly induced by growth in the number of credit card, which involve for clients higher costs of cash withdrawals (in interest and fees) then do cashless payments. According to MasterCard association more then 70% of inhabitants are not aware of credit card advantages or the concept of a credit card.


Chip cards and migration to EMV cards


In the area of chip technology, the ever increasing share of chip and hybrid payment cards as compared to cards relying only on its magnetic stripe offer higher security, faster service at terminals through lesser number of on-line authorizations and wider range of added services. Chip cards are also called EMV cards according to the standard providing communication with other equipment (the standard was created by the consortium Europay/MasterCard/VISA).
 

The chip cards were introduced in the Czech Republic in 1998. Contrary to France, where chip cards received a strong government support, all investments and processing costs connected with chip cards deployment in CR are born by the domestic banks.
 

1998 -   The first chip card issued by IPB bank.
 

2006 -   A considerable number of chip cards and equipments for their acceptance were migrated to EMV standard in the Czech Republic by end of 2006:

97.5% of ATMs,

84.3% of POS terminals and

44.2% of debit and 32.6% of credit cards in circulation.
 

2011 - In Czechia by end of 2010 the significant number of cards and equipments for their acceptance were  migrated under the EMV standard:

9 464 549 EMV cards (96,94%)

4 082 ATMs (100%)

77 597 POS terminals (99,93%).
 

Since 2011 new chip cards are being issued enabling contactless payments (under standards for NFC - Near Field Communication), as the card contains an antenna for radio communication on short distance with a payment terminal. It enables e.g. fast payments for fare in underground turnstiles and we can soon expect further applications.

Beside contactless card payments initiated by cards, so called mobile payments started to take place; i.e. mobile phones contains an application for NFC payments. An application is stored in the "secured area" of the SIM card and thus direct competition arises for payment cards in the form as they are known since the 60’s.

Card security

There is no such a payment instrument to which a counterfeit would not exist nor fraudulent transactions would be made. Luckily, due to infrastructure and slowly and considerably evolving market and interbank cooperation, the situation in the Czech Republic is better then in other countries. As early as in 1992 we succeeded in incorporating new provisions into the Criminal code concerning punishability of counterfeiting payment cards, their unlawful possession and fraud.

In autumn 1997, the Security Committee under the Bank Card Association (BV SBK) was established which brings together experts from banks and other institutions and organizations acting for prevention of fraudulent transactions. Their cooperation with law enforcing agencies is vital in fighting organized attacks of fraudsters and brings positive results in lowering fraud losses. Decreasing is apparent in the table "Suspicious transactions" describing "affected criminal activities", not the actual losses to Czech issuers. Basis points express ratio of the total volume of fraud cases reported by the banks to the total volume generated at merchant network (not at ATMs) on the territory of the Czech Republic by MasterCard and VISA cards made. The real amount of financial loss suffered by banks or merchants in CR was in numerous cases considerably lowered by described and timely cooperation.

Suspicious transactions - percent points (%) and basis points (BP) 
 

Year

2001

2002

2003

2004

2005

2006

2007

2008
(1.Q)

ČR -%
 

0.073

0.057

0.064

0.040

0.013

0.027

0.025

0.019

ČR - BP

7.3

5.7

6.4

4

1.3

2.7

2.5

1.9

Europe - BP

 

 

 

 

 

8.6

8.4

8.2


We can compare the Czech data with U.S.A. data: U.S. fraud on transactions made with PIN (i.e. transactions authenticated through PIN instead by cardholder signature) reached 1 basis point (0.010%), U.S. fraud on transactions with signature reached 6 basis points (0.060%).


Conclusions


Above description of the world of cards in the Czech Republic focused on bank cards, in numbers and volumes were also incorporated cards issued by Diners Club (but not American Express cards). When considering cards issued by credit companies (who do not intentionally publish the statistical data) we can estimate that the total number of cards issued in the Czech Republic is exceeding 11 millions cards. Further development of payment cards will depend on mass deployment of chip cards and introduction of additional services in the chip. Behind the door there are awaiting prepaid cards for those consumers which for various reasons do not prefer banking via a current account. Number of card transactions will be further increased by introduction of cards utilizing new technology of contactless communication with payment terminals. To increase the attraction of payment cards to more and younger people the technology of individual design of card surface can be utilized. Concurrently, the payment functions of mobile phones shall soon compete with payment cards.

Czech banks, through their membership in the Bank Card Association (ČBA) and Bank Card Association (SBK), are taking active part in payment system development and advancement of payment cards in the European Union within the project of Single Euro Payments Area (SEPA). ČBA is a member of European Banking Association and is represented in the European Payments Council and its working groups focused on preparation and implementation of payment products SEPA, i.e. Credit Transfer, Direct Debit, Cards and Cash. Owing to the co-operation between ČBA, SBK, ČNB a MF ČR the Czech financial industry is well prepared for implementation of these products.

cardmag | ft research |  update 2012/08 (sources in SBK, ČNB, CIA Fact Book)