• Issues at supranational level
  • European Monetary Union
  • Year 2000 problem
  • Advances in technology
  
  
• Issues at the macro-environmental level
  • Regulation
  • Cross-border entry
  • Substitutes for cards
  
  
• Issues at industry level
  • Market consolidation
  • Joint ventures
  
  
• Issues at company level
  • New product opportunities
  • Private-label cards
  • Purchasing cards
  • Distribution channels
  • Direct issuing
  • Affinity groups
  • Marketing strategies
  • Co-branding
  • Loyalty schemes
  • Summary

CHAPTER 1 INTRODUCTION

• Structure of the report

CHAPTER 2 THE OUTLOOK FOR EUROPEAN CARDS

• Increasing competitive pressures mean issuers must carve out new niches and utilise innovative strategies
• Investment and effective marketing are required to ensure the adoption of new technologies
• Companies should ensure that their mergers are as strategically dynamic as their joint ventures
• Card companies should avoid short-term savings at the expense of long-term competitiveness

SUPRANATIONAL LEVEL

• Summary

CHAPTER 3 EUROPEAN MONETARY UNION

• 3.1 Introduction
• 3.2 Preparations for emu
  • By the 'in' countries
  • By the 'out' countries
  • By the international card schemes
  • Europay International
  • American Express
  • Diners Club International
  • JCB
  
  
• 3.3 The Emu - payment card dynamic
  • Methodology
  • The effects of Emu
  
  
• 3.4 Downward drivers of profitability
  • The impact of Emu will be minimal for cross-border payment systems
  • Emu enforces changes in card payment and information systems
  • For the international card schemes
  • For banks
  • For acquirers
  • EFTPoS and ATM terminals will require upgrades
  • Compensating for lost conversion charges
  • Terminal conversion costs in Spain will be high
  • Other issues
  • How to bill conversion charges?
  • Direct or indirect currency conversion?
  • 'Big bang' or gradual transition?
  • Increased competition:
  • In the retail sector
  • Emu will increase price transparency in the retail market
  • Increased retail power will prompt foreign growth
  • In merchant acquiring
  • Emu will encourage cross-border merchant acquiring
  • The issue of pan-European regulation
  • Advantages in merchant acquiring
  • In the competitive environment
  • Increased market entry:
  • From within Europe
  • European banks will invade each others' territory
  • The UK: Gateway to Europe?
  • Currency is not the only factor
  • From outside Europe
  • Do foreign competitors have the capacity to exploit Emu?
  • US banks look set to invade
  
  
• 3.5 Upward drivers of profitability
  • Increased card use
  
  
• 3.6 Product opportunities
  • Cross-border retail activity will be increased
  • Cross-border consumer movement will rise
  • Opportunity focus: Electronic purses
  • The change to ePurses
  • Common standards for ePurses?
  • 3.2m vending machines to be upgraded
  • An incentive to subsidise conversion?
  • Spain will lead the way in smart card conversion
  
  
• 3.7 Market consolidation
  • Consolidation and shake-out
  • Resources and size advantages will prompt M&A activity
  • Case example: Belgium
  • Oligopoly in the European market?
  • Restructuring in theSpanish market
  • The implications of M&A activity
  • Consumers will gain
  • Banks' corporate strength will rise
  
  
• 3.8 Strategic issues and Profitability
  • Emu offers potential long-term gains
  • Short-term costs vs long-term gains
  • Break-even in the Spanish market
  • Identifying opportunity
  
  
• 3.9 Outlook
  • Consumer demand will drive change, But the wider view must be considered...

CHAPTER 4 YEAR 2000 PROBLEM

• The year 2000 is potentially more problematic than Emu
• Preparations for the year 2000 have been underway for some time
• Card companies are well prepared
• The costs of conversion could be substantial
• Opportunities arising as a result of Y2K
• Outlook

CHAPTER 5 NEW TECHNOLOGY

• The impact of new technology on card acceptance


• 5.1 Smart cards
  • Smart cards have been trialed in Europe for some time
  • Smart Cards in Digital Television
  • Prospects for ePurse look good
  • MasterCard, Visa, Proton and the e-purse
  • But a killer application is needed to fully establish the product
  • Multiapplication cards will benefit banks
  • There are unique synergies for many banks, which provide a low-cost medium for additional services
  • Banks can drive the smart card industry
  • Smart cards will also keep fraud to a minimum
  
  
• 5.2 Online banking
  • Banks are flooding onto the Internet
  • eBanking facilities are an important component for marketing and image However, the Internet will not supplant branches in the near future
  
  
• 5.3 eCommerce
  • eCommerce offers potentially huge opportunities to card issuers
  • eCommerce will be facilitated by developments in data transfer
  • But certain issues must be resolved for eCommerce to take off
  • The SET standard offers only limited security to certain parties
  
  
• 5.4 Online security
  • The issue of security for online payments
  • The issue of card security in Internet purchases
  • Security standards
  • S-HTTP
  • Secure Socket Layers (SSL)
  • Electronic signatures
  • SET
  • Charges
  • Outlook

MACRO-ENVIRONMENTAL LEVEL

• Summary

CHAPTER 6 REGULATION

• 6.1 Supervision
  • EU Legislation
  • Emu will mean the adoption of the TARGET clearing system
  • A directive governing the issuance of eMoney is expected in the next six months
  • The current supervisory framework looks set to change
  • Trends towards consolidation will decrease the influence of national supervisory bodies
  • Summary of payment system regulation across Europe
  • Austria
  • Belgium
  • Denmark
  • Finland
  • France
  • Germany
  • Greece
  • Ireland
  • Italy
  • Netherlands
  • Norway
  • Portugal
  • Spain
  • Sweden
  • Switzerland
  • UK
  
  
• 6.2 Changes in legislation
  • Action programme on payment fraud announced
  • The EC initiative is designed to standardise payment card legislation
  • Member states will submit proposals for legislative changes by year-end 1999
  • The creation of a European Bank in Frankfurt will have a limited impact on the card industry
  • Comparisons can be drawn with Brussels
  • However, the effects of a European Bank will be minimal
  
  
• 6.3 Deregulation
  • Liberalisation of card markets
  • Trend towards deregulation looks set to continue
  • Removal of the Rabbatgesetz in Germany would benefit foreign banks
  • The extent of deregulation will depend upon existing restrictions
  • The most regulated countries will experience the most rapid deregulation
  • Pan-European deregulation could create instability over the next 3-4 years

CHAPTER 7 CROSS-BORDER OPERATIONS

• 7.1 Cross-border entry
  • Cross-border entry for cards follows general economic models
  • Globalisation is prompting companies to enter new markets
  • International representation is another factor
  • Emu will drive entry by foreign banks
  • Liberalisation of rules means that cross-border acquisition will become easier
  • New entrants will use a range of strategies
  • New entrants will become more diverse in character
  • Including international telecommunications companies
  • Offering new and enhanced product features
  • New market segments will be sought and exploited
  • The result inevitably is increased competition
  • The increase in card issuance will drive down prices
  • Cross-border entry can lead to price wars for merchant acquirers
  • And increase the range of product offerings
  • Outlook
  • Such factors pave the way for further entry from US and European banks
  • Entry from other industry sectors will become a major threat

CHAPTER 8 CARD SUBSTITUTES

• 8.1 Debit vs credit
  • Credit cards are still losing out in many countries to debit cards
  • Alternative products are stronger across Europe
  
  
• 8.2 Smart cards
  • Chip technology could supplant magnetic strip for use on the Internet
  
  
• 8.3 eCash
  • Small payments
  • eCash does not pose an immediate threat to payment cards
  • Payment for online shopping will be dominated by credit and debit cards
  • The remaining value will be divided between smart cards and eCash
  • eCash products will lose market share to plastic card payments
  • Micropayments
  • The introduction of micropayments could finally generate web revenues
  • However, doubts remain

INDUSTRY LEVEL

• Summary

CHAPTER 9 MARKET DYNAMICS

• 9.1 Market consolidation
  • A European market means there are advantages in size
  • Synergy effects are one of the main reasons for consolidation
  • Another is protection from take-over bids
  • However, differentiation and rounding product portfolios are not the incentives
  • For acceptance, the degree of consolidation depends upon existing market concentration
  • Currently concentrated markets will become more fragmented
  • Whilst those presently fragmented will remain so
  • Consolidation will increase competition and speed change in the industry
  • Consolidation will lead to increased price competition
  • The result could be centralisation and product homogenisation
  • International agreements will increase
  • The pace of M&A activity will almost certainly increase in the future
  • The potential exists for many more mergers and acquisitions
  • The character of mergers will become more diverse
  
  
• 9.2 Joint ventures
  • Joint ventures and new types of company are emerging
  • The convergence of commerce has lead to new types of company
  • These joint ventures will expand to other sectors of the market

CHAPTER 10 BUYER POWER

• Card usage looks set to boom in the UK and France
• The UK will lead Europe in card expenditure over the next 5 years

CHAPTER 11 SUPPLIER POWER

• Case study: Another year of growth for Gemplus
• Overview of Gemplus, its history and strengths
• Consolidation and expansion
• Can it maintain momentum?
• Where to watch for moves from Gemplus

CHAPTER 12 SECURITY & FRAUD

• 12.1 Security measures
• 12.2 Card fraud
• 12.3 Biometrics
  • Background
  • Changes in banking will require innovations in security
  • Biometrics have the potential to offer a wide-range of solutions
  • The potential adoption of biometrics could be considerable
  • The use of biometrics
  • Biometric technologies vs non-biological technologies
  • The concept of biometrics and their use for identification and verification
  • The advantages of biometrics
  • Biometric scanning utilises a person's unique physical attributes
  • Biometrics offer added security and speed for mass authentication
  • The potential applications of biometrics
  • Biometrics are well suited to use in ATM and EFTPoS terminals
  • Examples of recent market up-take of biometrics
  • An evaluation of biometric methods
  • The ideal biometric system
  • Retina scanning, iris scanning and fingerprint recognition offer the greatest precision
  • Signature verification is the least expensive biometric
  • The biometrics market
  • The biometrics market is dominated by fingerprint recognition products
  • Future scenarios
  • Up to 40% of ATMs could be fitted with biometrics by 2002
  • Outlook

• Summary

CHAPTER 13 PRODUCT STRATEGIES

• 13.1 Private-label cards
  • More non-traditional issuers enter the market
  • Country focus: Private-label cards
  • Belgium
  • Denmark
  • Finland
  • Germany
  • Netherlands
  • Norway
  • Sweden
  • Switzerland
  • United Kingdom
  
  
• 13.2 Purchasing cards
  • The advent of purchasing cards
  • Growth so far has been driven by larger companies
  • The UK market is expected to grow exponentially
  • Future growth in the UK purchasing card market
  • Implementation of purchasing cards systems
  • Purchasing card use predominantly in industry rather than services
  • It is generally up to forward-looking individuals to implement purchasing card programmes
  • Increased competition will drive purchasing card uptake
  • The benefits of purchasing cards are numerous
  • Purchasing cards could reduce the crippling effects of late payments
  • The cards come with inherent spending checks and management information
  • Limits can be set on spending
  • Breakdowns of spending can be used for analysis purposes
  • Management information can be stored for future analysis purposes
  • Detailed management information is useful for negotiating discounts
  • The savings through purchasing cards can be substantial
  • Using purchasing cards will save the UK tax-payer £73m a year
  • BAe eliminates 54,000 invoices a year using the cards
  • Issues to be resolved:
  • Assigning control of spending
  • Uncertainty remains over who gains control of spending
  • However, the control issue is more a perceived problem
  • Adequate provision of management information
  • Some managers feel that the management information supplied is insufficient
  • Managers face a trade-off between simplifying purchasing and retaining control of spending
  • Restricting purchases
  • Purchases can be restricted to certain supply groups
  • However, classification codes can be too general
  • Restricting purchases by codes may even prevent valid purchases
  • Merchant category codes may introduce inflexibility
  • Combating invoice fraud
  • The potential for fraud is small
  • Costs are borne by purchasers
  • Summary of benefits
  • Factors affecting the uptake of purchasing cards:
  • VAT reclamations in the UK possible using purchasing card printouts
  • Visa Purchasing has recently gained approval
  • Whilst the American Express card has had approval longer
  • Gaining approval in other European markets could be a key driver for success
  • Security will decide usage of purchasing cards
  • Visa and MasterCard are promoting SET as a solution
  • However, the SET standard offers only limited security to certain parties
  • Development of the European purchasing card market:
  • Future trends in usage
  • Smaller companies will begin to implement schemes
  • Increased confidence will alter spending limits
  • The trend will tend towards higher-value purchases
  • Further European expansion expected
  • The card schemes plan to launch programmes in the major EU countries
  • Visa pushing for a European standard
  • Electronic commerce will drive purchasing card take-up
  • The card schemes see large opportunities in eCommerce
  • eCommerce will widen the purchasing card market
  
  
• Outlook
  • Purchasing cards could reverse the trend towards less suppliers
  • Competition will intensify in the market in the future
  • Purchasing cards are not just a product, but a change process

CHAPTER 14 DISTRIBUTION CHANNELS

• European overview
• Branches and affinity groups remain the most important distribution channels in less-developed markets
• Branches remain the main means of distribution in Germany


• 14.1 Direct issuing
  • Whilst direct issuing is accepted as a means of credit card distribution
  • Its use for debit cards is limited
  • Very few cards are ordered online
  
  
• 14.2 Affinity cards
  • Successful marriage between group and product can be lucrative
  • Strong marketing for affinity cards
  • Country focus: Affinity cards
  • Affinity market is underdeveloped in Belgium
  • Affinity card marketing is not widespread in Italy
  • Affinity marketing in the Netherlands works when combined with co-branding or loyalty schemes
  • Affinity marketing is very successful in Spain
  • Affinity cards are popular in the UK

CHAPTER 15 MARKETING STRATEGIES

• 15.1 Co-branding
  • Co-branding products have variable success rates
  • A good image and clever marketing are essential for co-branded products
  • Luxury car co-branding schemes are particularly successful
  • Country focus: Co-branding
  • Co-branding will become increasingly important in Belgium
  • Co-branding of Cartes Bancaires cards is prohibited in France
  • Co-branding is becoming increasingly popular in Italy
  • Co-branding offers numerous advantages to issuers in the UK
  
  
• 15.2 Loyalty schemes
  • Opportunities are waiting for the banks
  • Banks can increase revenue from existing customers
  • Multifunction smart cards will help
  • Banks will drive the industry forwards
  • Increase revenue from existing card holders
  • Customer switching is forecast to increase
  • The traditional card issuers spurned loyalty schemes
  • Country focus: Loyalty schemes
  • Limited scope for loyalty schemes in Belgium
  • The French are not accustomed to rewards but this might change
  • Loyalty schemes are not widely used in Italy, but are becoming more popular
  • Loyalty schemes are highly successful in the Netherlands
  • Loyalty programmes boost card use in Spain
  • Most British issuers implement loyalty schemes
  
  
• 15.3 Case study: Threat from US entrants
  • Background
  • History shows that ultimately price is the decisive factor
  • The rise of specialist issuers
  • New entrants buying customers
  • New entrants are entering credit card markets with exceptionally low interest rates and no annual fee.
  • These same issuers are successfully growing the number of card holders at high rates.
  • Internal competition is also high
  • Existing card issuers are also cutting rates and eliminating fees, advertising expenditure is level
  • Specialist issuers now dominate in the US
  • The US market saw an explosion of specialist issuers which now dominate

APPENDIX

• Glossary
• Sources
• Organisations interviewed
• Index

List of figures

• Figure 1.1: European Card Industry Dynamic, 1998
• Figure 1.2: Timetable to conversion
• Figure 1.3: Profitability in the card industry, 1997-2003
• Figure 1.4: Estimated costs of Euro conversion to the European card industry, 1998
• Figure 1.5: Payment card upgrade markets in 2000 and 2002
• Figure 1.6: Global financial services split by geography, 1997
• Figure 1.7: Mondex, Visa Cash and Proton schemes in Europe, 1998
• Figure 1.8: Bank groupings across Europe, 1998
• Figure 1.9: Payment cards are less developed across Europe, 1998
• Figure 1.10: The European online market, 1997-2001
• Figure 1.11: Future growth in card usage in Europe, 1991-2002
• Figure 1.12: Future growth in card expenditure in Europe, 1991-2002
• Figure 1.13: Gemplus expands its product range, 1997
• Figure 1.14: How Gemplus may see its future
• Figure 1.15: Gemplus' view of the future
• Figure 1.16: Summary of security measures across Europe, 1998
• Figure 1.17: Summary of security measures across Europe, 1998 cont.
• Figure 1.18: Summary of card fraud across Europe, 1998
• Figure 1.19: Summary of card fraud across Europe, 1998 cont.
• Figure 1.20: Comparison of biometrics by cost per unit, 1998
• Figure 1.21: The biometrics market by the number of companies involved in each type of biometric, 1998
• Figure 1.22: Adoption of biometrics for card authentication by type of card terminal, 1998-2002
• Figure 1.23: UK purchasing card market set to boom, 1996-2003
• Figure 1.24: The benefits of purchasing cards to purchasers and suppliers
• Figure 1.25: Examples of loyalty schemes, 1998
• Figure 1.26: Credit card companies did not back loyalty
• Figure 1.27: Profitability of individual credit cards
• Figure 1.28: Increase in new card launched without a fee, 1993-6
• Figure 1.29: New issuers are helping to drive growth, 1990-6
• Figure 1.30: Evidence of the escalating price war, 1993-7
• Figure 1.31: Average annual fees continue to fall, 1993-7
• Figure 1.32: No boom in advertising, 1993-6