Paying at a merchant with just the help of a facial scan at the cash register is no science fiction. According to Mastercard’s general manager for the Czech Republic and Slovakia, Michal Čarný, this payment method will soon arrive in the Czech Republic. “I think we will see the first projects this year, next year at the latest,” he says.
A few years ago, Mastercard’s share of the number of issued payment cards was around 60 percent, and Visa had the rest. It was the opposite in the world. How does it look now?
Similarly. Mastercard significantly strengthened its position in Europe, where it was historically a weaker player. I think it was around the turn of the year that it first broke 50 percent. In the Czech Republic, the situation is more or less stable. Our share is somewhere around 52 percent of cards issued, and even 55 percent of the volume of transactions implemented.
General Manager of Mastercard for the Czech Republic and Slovakia Michal Čarný. | Photo: Honza Mudra
Česká spořitelna has announced that it will replace Mastercard cards with Visa. It will be about half a million cards. What does the loss of the largest retail bank on the market mean to you?
About 14 million cards are issued in the Czech Republic, so we are of course sorry for the loss, even if it is not essential. I hope we can find some new cooperation opportunities in the future. For us, the most important thing at the moment is that the change does not have a negative impact on cardholders.
Aren’t you afraid of losing other banks?
No, because that’s really just one bank’s move. We have no signals from the market that it should come to our other banking clients.
Do retail clients even care which issuer they have a card from? In the past, various benefits were associated with them, now you have an offer of airport lounges. Are the banks listening?
Today, the choice of a payment card brand is significantly influenced by the bank’s strategy. Some prefer to give their clients a choice between card schemes. Others choose simplicity, one scheme. Both models are successful on the Czech market. The end client from the card wants the payment to be fast, simple and secure. There really isn’t much of a difference between the card companies. It depends on what the given card offers in addition.
We have always tried to profile ourselves as a company whose cards can be used to do more than just pay. Typically, these are, for example, discounts and benefits at merchants – we are, for example, partners of the Marianne Days. Or there are various cash backs, i.e. returning part of the money from the purchase to the card. The second type of benefits are service packages, for example you can use our airport lounges, assistance services or the online health advice center ULékaře.cz. Today, we try to reward users based on how they pay with their card, not based on whether they have gold or platinum.
During covid, people learned to pay by card more. Did they last, or is cash still king?
Some portion of the cash will still be there. I am convinced that cashless payments are king today. It doesn’t matter if we are looking at transaction volumes, transaction numbers, or the acceptance network. Everything grows.
How much has the number of payment terminals increased?
It grows by 10,000 to 20,000 annually. Looking back 10 years ago, there were just over 87,000 terminals in the Czech Republic. Today it is about 307 thousand. That’s a huge shift. If we managed to increase the number of terminals everywhere people want them, according to estimates, the share of payments on them would increase to 77 percent. But there will always be some group of people who want cash. They used to keep it in their wallets to pay with. Today, most Czechs perceive it as an iron reserve.
There were attempts to accept only non-cash payments in businesses. But that ran afoul of the authorities. How does it look now?
Such businesses exist, there is a huge demand for this solution among merchants. They understood that working with cash is complicated and expensive for them. At the same time, he can see from the response of clients that switching to cashless is not a problem. What you are asking but the law does not allow so there must always be a solution to pay in cash. For example, such that you buy a card pre-loaded with cash from a merchant and then pay with this card.
Shouldn’t the client be able to choose what they prefer?
In principle, both the user and the merchant should have the right, it concerns both. I know that over 70 percent of clients decide to visit an establishment based on whether it is possible to pay cashless there. So it should be up to the traders.
The emergence of digital currencies, specifically the euro, is current. What would that mean for the card companies? Couldn’t it screw them up?
It is early for evaluation. It will depend on how the digital currency, be it the euro, koruna, or another, is introduced. Of course, digital currencies have the potential to fundamentally change the entire payment market and not only that. When the central bank is the issuer, the currency is deposited with it and it also conducts transactions. In principle, the central bank would take over a huge part of the business of a traditional retail bank, but also of payment schemes, i.e. us. We discuss the issues of digital currencies with a number of central banks in the world, so we can also be a strong partner that will help the digital currency to be successfully implemented.
Michal Čarny
Since 2019, he has been the CEO of Mastercard for the Czech Republic and Slovakia. Before that, he was responsible for the preparation and implementation of the strategy for consumer and corporate products in the Czech Republic, Slovakia and Austria for three years. He studied economics and strategy at the University of Chicago and the London School of Economics and Political Science.
How has card payment developed over the years?
I don’t have exact statistics, but generally it’s a lower double-digit increase. Last year, for example, the number of transactions on the Czech market increased by 24 percent. Two things happen. The number of transactions is increasing, while the average transaction amount is decreasing. Our latest survey shows that already about 41 percent of Czechs are willing to pay cashless amounts from ten crowns. If we look at payments from 20 crowns, we are already over half. At fifty crowns, that’s three quarters of Czechs. This is a huge shift compared to 2013, when people used the card to pay mainly for large purchases. Contactless payments changed it, and payments with mobile phones or smart watches accelerated the change even more.
Will the range of payment options continue to expand?
I don’t see anything revolutionary. More like an evolution. About 20 percent of Czechs used phones and watches to pay in 2019. Today it is almost 40 percent. You basically pay with what you have on hand. In the future, maybe with a ring and one day maybe with a hat. In short, whatever is most convenient. And the second step will be that payment as a physical act will disappear.
What do you mean?
It’s not science fiction, you see it now. When you order a ride through Uber and get out of the car, the payment takes place in the background, the physical action is absent. An alternative we have tested with merchants in Latin America is biometric payments. It will be done so that the terminal securely recognizes the face at the checkout. It is not a new technology, just a clever combination of already used ones. Today, more than 80 percent of Czechs use biometric recognition, such as a fingerprint or face, for online payments.
When will such an option appear in stores?
The dynamism with which Czechs accept payment innovations is breathtaking. In a number of things, the Czech Republic belongs to the world’s top. He is one of the pioneers of the click to pay service, online payments with one click. We are negotiating with merchants and terminal providers, and I think we will see the first projects where you pay using a face scan this year, next year at the latest.
Although the number of terminals is growing here, in terms of per capita, it is slower than in Western Europe. How do you explain that?
Without a doubt, we are catching up with Western Europe. Its advantage stems from the fact that terminals are more widespread there, even in the segment of smaller entrepreneurs and sole proprietors. Consider that in our country 19 out of 20 companies are made up of these small traders and small businesses. This is a segment that needs to be worked with in education and training as well. We know from experience that cashless payments help precisely these businesses. After acquiring the terminal, their sales can increase by up to 20 percent. But sometimes it is difficult for them to accept such an effect.
Really? Isn’t it rather the fact that companies often hand over more than a percentage of the transaction volume to the fees from these payments?
Fees decline frequently. These payments are completely transparent and easy to calculate, while the costs of cash payments, such as transferring money to a bank, are very difficult to calculate. At the end of the day, they are significantly higher than the cost of cashless payments. In addition, thanks to competition, today’s fees are not as high as in the past, they range somewhere between one and two percent.
In 2020, card companies in cooperation with banks and the Ministry of Industry and Trade offered self-employed people free terminals for a year. How does the project look today?
Very well, the interest is not waning. Around 10,000 traders show it annually. As of August 2022, 23,000 terminals have been provided and 2,000 payment gateways have been established. After the program expires, small entrepreneurs can try card acceptance for free, again for up to a year. No fees, no obligations. So far, most have decided to continue on a commercial basis after a year.
Historically, the willingness of craftsmen to use these terminals has been less because many prefer not to pay VAT and have cheaper labor. Can it be said what is the share of the shadow economy in the Czech Republic today?
Looking at publicly available sources, an earlier study by a reputable consulting firm indicated that it was slightly more than 11 percent. According to a more recent study by the Center for Economic Analysis from 2019, which monitored the shadow economy, i.e. the legitimate sale of goods and services, but often without documentation, it was just over nine percent. Its share is therefore slowly decreasing. According to three-quarters of Czechs, the gray economy is undesirable and they see cashless payments as a way to fight it.
The current government abolished the EET. Sometimes it seemed that people suddenly couldn’t pay by card in some pubs. Didn’t it support the shadow economy?
In general, I think it’s a shame and also from a technological point of view. All entities that were somehow involved in it invested in infrastructure and modernized their operations in connection with EET. Suddenly they could accept cards, they had a new tool for warehouse management and the like. Before the start of covid, there were about 200,000 subjects in EET. When it then switched to voluntary mode, a quarter of the companies remained there.
You are right that sometimes we now encounter the “non-functional terminal” phenomenon and it may be related to the end of EET. Fortunately, this does not affect the dynamics of the market in terms of the number or volume of transactions, and the number of terminals continues to grow. But my opinion is that the cancellation of the EET logically increased the space for the gray economy.
