Latvian government and regulators push for card adoption

Cash remains king in Latvia but the government and regulators are pushing hard for card adoption. EPI takes a look at the state of the Latvian card market and where it will expected to be by 2017

Cash remains king in Latvia but the government and regulators are pushing hard for card adoption. EPI takes a look at the state of the Latvian card market and where it will expected to be by 2017

The Republic of Latvia is an open economy where exports contribute for almost one-third of the GDP. Latvia is a member of the United Nations (UN), European Union (EU) and International Monetary Fund (IMF). Latvia’s economy was adversely affected by the eurozone crisis in 2009.

While cash remains the dominant method of payment in Latvia, there have been concerted efforts from card issuers, the government and regulatory bodies to support card use. The nation’s debit, prepaid and charge card categories have expanded rapidly. A large part of this growth has been driven by infrastructure improvements such as contactless technology and increased adoption of smartphones.

All these factors have made payment cards far more accessible, resulting in moderate growth for the card payments channel. The channel registered a CAGR of 0.21% during the review period (2008-2012), and grew from 2.65m cards in 2008 to 2.67m in 2012.

Over the forecast period (2013-2017), the channel is forecast to grow from 2.79m cards in 2013 to 3.6m in 2017, at a CAGR of 6.73%.The key drivers for this growth include a stable inflationary forecast, positive employment opportunities and an increasing volume of corporate and leisure travelers. Latvia is also expected to register high growth in terms of online and traditional retail revenues.

Infrastructural improvements have supported industry growth
Commercial banks and retail organizations have been promoting contactless payment technology to increase speed and convenience of payments for consumers. The technology also offers improved security to control fraudulent transactions. Contactless, EMV and mobile payments are being rolled out extensively across Latvia. The implementation of Single Euro Payments Area (SEPA) cards in Latvia was made by issuing cards complying with EMV standards at POS terminals and ATMs in 2010. As of 2012, 99.3% of credit cards in Latvia were EMV-compliant.

Moreover, 99.5% of debit cards, 99.3% of POS terminals and 100% of ATMs had migrated to EMV standards. These infrastructural improvements have resulted in increased customer confidence in online payment methods, which is expected to support future industry growth.

Companies are adopting aggressive marketing and competitive pricing strategies

With competitive pressures in the Latvian cards and payments industry, banks and issuers are developing marketing and pricing strategies to attract larger customer bases. Offers such as buy-one-get-one-free promotions, reward points, increased daily limits for cash withdrawals, and insurance cover are common strategies used by banks.

Banks are segmenting their customer bases to expand their market shares in each card category. Banks such as Swedbank and Citadele offer bank cards for students and the younger population aged between 7 and 24 years in Latvia. Credit and debit cards are also being specifically designed to meet the needs of corporate customers.

High potential of m-commerce

Mobile commerce in Latvia is at a nascent stage, offering substantial opportunities for banks and service providers to offer m-commerce solutions with NFC technology. The increasing capabilities of smartphones, a significant rise in mobile device applications and falling prices are the driving factors for m-commerce. Improved search engines and price comparison sites have also been key factors benefiting the cards and payments industry in Latvia.