The economic crisis has placed a strain on many industry sectors, not least of all the banking and finance industry. Despite these challenging times, the global cards market has been witnessing continuous growth, especially in the area of card innovation. It seems that Turkey in particular is one of the pioneers in this area. According to a Datamonitor report, Payment Cards in Turkey to 2012, the total number of payment cards in Turkey increased at an average annual growth rate (AAGR) of over 18% between 2003 and 2007 and the turnover per card is expected to grow at a compound average growth rate of 8% over the 2008-12 period. Today, Turkey is already one of the major and most innovative players in the card market.

Smart card technology is deployed in a number of areas and across the globe, such as in public transport to drive efficiencies and in the area of personal identification and entitlement schemes at regional, national, and international levels to enhance security. According to the Smart Card Market Forecast to 2012 the global market of contactless smart cards is expected to grow 33% by 2012.

Smart card technology has been driven by a desire from consumers to pay for low-value items with their contactless debit cards. In the aftermath of the recession, Turkey is now in a strong position, as a continually emerging economy, to offer one the of the most dynamic card markets across the globe. The outlook for the next few months is set to be more optimistic as exports and private consumption and spending is expected to go back to pre-credit crunch levels.

Card payments in Turkey

A distinct difference of the Turkish card market compared to other European markets is its holistic view of issuing and acquiring. Banks that combine both the issuing and acquiring business avoid losing transactions. A transaction only takes place if the merchant and cardholder come together but by gelling issuing and acquiring together, banks can provide CRM services to smaller merchants that cannot afford to invest in their own CRM systems. This also means that banks have only one customer file, giving the sales team a more comprehensive view of the clients' activity.

More recently, the number of credit cards in Turkey has increased drastically. While the growth in volume is good, it has also created new issues such as the high levels of interest charged on the cards. To control this trend and in line with the growing numbers of cards circulating, new regulation was introduced. Turkey's Central Bank implemented new guidelines on the limit of how much interest can be charged (such as maximum APR Cap). Despite its objective of protecting consumer interests, it has been challenging for banks to produce financial forecasts and budget accordingly.

What's more, as a result of the high unemployment rates in Turkey, which peaked at 16% in February 2009, banks have had to develop systems to control and collect debt with specific payment plans for their customers. While banks have made substantial efforts to support their customers, the Turkish government also passed a law to standardise the banks' repayments plans.

Innovative thinking

Turkey has also witnessed a steady rise in the demand for contactless cards. Typical of an emerging economy, however, the number of people without a bank account is still higher than in many Western European countries, and as a result contactless cards are an attractive alternative to cash for many consumers in Turkey.

In the move towards contactless, merging credit card benefits with a shopping card, offering cash-back rewards "bonuses" instead of points, with free purchasing from the merchant partners of the programme, offers attractive options to various consumer segments in Turkey. As a result, Turkey's first chip-based EMV-compatible, multi-brand card programme, Bonus Card, was introduced in 2000. Between 2000 and 2010, the number of Bonus Cards in circulation climbed to 10 million. Users of the card have the opportunity to shop with a variety of choices, ensuring savings to credit card holders through accrued bonuses when shopping, and creating extra revenue for merchants.

Further functionality was added in 2006 by facilitating small ticket purchases for the first time in Europe through the introduction of the Bonus Trink card and contactless PayPass cards from MasterCard were extended to Bonus Trink cardholders, a loyalty scheme that soon established itself as the basis for loyalty card schemes not just for banks but also retailers in Turkey following its introduction in 2006.

Since then, we have seen the launch of Europe's first watch equipped with MasterCard PayPass contactless technology, introducing the next level of contactless payments in the region to make paying for small-value items quicker and more convenient. Using this technology, consumers use their new watches, mobile phones, stickers and key fobs on the PayPass reader to make the equivalent of a credit card purchase in major fast food restaurants and supermarkets all across Turkey, as well as movie theatres and entertainment centres. In addition, cardholders are able to use their banking card as an e-ticket for public transportation in major Turkish cities or on shuttle boats and sea taxis across the Bosphorus.

With credit cards already deeply penetrating daily life, younger generations have happily adopted contactless cards to pay for low value items. What's more, in a world where personalisation and customer loyalty has become crucial, Turkey spearheaded the Customer Managed Relations era for credit cards with the launch of GPS' Flexi card, a credit card with highly adaptable features that allows cardholders to personalise their offering including the interest rate, reward system, card fee and own card design. In addition, loyalty points are awarded based on the frequency of use of the card, rather than income, and there is no expiration date for the extra points. Flexi is the first credit card that involves the customer in the process of the creation of the card, thereby establishing greater customer loyalty. With the introduction of the loyalty schemes in Turkey, local banks have realised that loyalty programmes are key in maintaining a strong banking market and play an important role in the penetration of card usage.

Looking ahead, the  market will see the emergence of bank cards that combine debit, prepaid and contactless functionalities in one card.

Turkey undoubtedly has emerged as a major player in the card market, but the country is still feeling the after-effects of the economic crisis. This coupled with fierce competition between Turkish banks emphasises the constant need for innovation. The uptake of contactless technology and the introduction of a new flexible offerings such as combined debit, contactless and prepaid and loyalty schemes will be critical in allowing banks to maintain and increase their market share. Those banks that place the customer at the centre of all their decisions and offer loyalty programmes along with ease of purchase will stand a greater chance of succeeding and enhancing consumer spending, especially important when times are hard.