Ishkhan Mkhitaryan: Armenian Card ready for technological leap in credit card market

ArmInfo interview with Ishkhan Mkhitaryan, Chief Executive Officer, "ARMENIAN CARD" ("ARCA") National Payment System.

Mr. Mkhitaryan, could you explain the current tendency in the Armenian credit card market with the slackening growth rates of the number of the local cards ArCa amid growing number of Visa and MasterCard holders Is it a sustainable tendency Will Armenian cards give way to international ones one day Russia's example showed that there are also certain hidden risks in the field. It is no mere chance that Russia has launched a large-scale project of own payment system. In addition, ArCa cards can co-brand Visa and MasterCard, but banks do not use it in practice. Why

So far, I can speak of parity. However, as you have noticed, there is downwards trend in the market of local cards. Maybe, we are also responsible for the situation we have now. We must be more attentive to our local card products. I mean, banks often issue international cards to the customers that do not need such cards. For instance, an average pensioner uses his bankcard once in a month to dispense his pension. He makes no other transactions in the country, let alone the transaction abroad. Unfortunately, pensions in our country are insufficient for other non-cash transactions. However, some banks offer international cards in their pension projects. The situation with salary cards at big industrial enterprises is similar. Employees there receive relatively low salaries. Anyway, it is the internal policy of banks and, of course, banks are independent in their policy. Nevertheless, the segment of the local cards remains in the niche where it is necessary to promote prompt co-branding projects that require no big funds or long time. These are such popular co-branding cards as Inecobank's "Aparik," Ameriabank's projects with Ucom telecommunications company, and Yerevan City retailer. I cannot remember all at the moment. Such projects with the local cards ArCa do not require big investments. Many banks - members of our united payment system - approach the issue quite rationally and issue a special product ArCa-pension and widely use the local cards in their salary projects segmenting the customer base. As for the co-badging projects with international payment systems, we have a letter of intent, for instance, with MasterCard. That is, banks can issue co-badging card ArCa- MasterCard. Banks are well aware of that opportunity, but a segment for such product has not been found yet. As for the situation in Russia when two international card processors stopped providing services to some Russian banks, such scenario is senseless in Armenia. The cards issued by the ArCa member-banks will be served at all the terminal inside the system. This is one of the key advantages of our united payment system - a high level of independence. The sanctions of international payment system became a solid impetus for Russia to launch the national payment system (the idea of it has been circulated since 90s). The first step to it is that all the transactions between Russian banks will be processed through the national processing center, with mutual settlements to be carried out with participation of the RF Central Bank. The second step will be creation of the Russian local, and in future, maybe international, alternative system of bankcards.

As you know, China has such a system that has become international - China UnionPay. It helps the Chinese business penetrate into many countries and develop export. In Armenia it is not available yet.

Not, at the moment. However, when there is real need to accept payments through CUP cards in Armenia, we can do it. I'd like to speak about the efficiency of the card business. The analysis of the field reveals that some economic problems in the country have affected the growth rate of the card infrastructure. Meanwhile, the commission fees or the so-called non-interest incomes of banks have increased significantly. We think, it can have two reasons: first, infrastructure of the credit card market is oversaturated; second, banks lack development vision and are unwilling to increase expenses. Apparently, active development of the market over the last years is now being generously repaid. So, it is time to reap the harvest. I think there is a potential for growth, but the growth will be virtual rather than physical, i.e. the growth will concern the self-service systems, via which one can receive banking services without the human factor's interference. So, here the infrastructure has a growth potential. Certainly, amid the shrinkage of the credit market the whole banking system of the country is experiencing an increase in the non-interest income, and the matter also concerns most of the services related to the card products. We are seriously working in that dimension and we provide the banks with newer technological opportunities. For instance, we have completed the work on certification of internet payments with the use of 3-D Secure, which ensures high-level security for e-payments and protects our cardholders and internet merchants against internet fraud. Actually, we have already completed the technological part and the banks are currently working to offer their products based on that technology. In addition, we have completed the certification of acceptance and issue of noncontact Visa PayWave cards and the card product based on that technology will shortly be introduced in the market.

The banks offer new technological products, including ones based on mobile technologies. Can we say that the crisis has stirred some of the banks into a technological breakthrough

Well, it is a bit pompous to speak of a breakthrough, however, you are right, the technological breakthrough is obvious. I would be modest - we are overtaking the arrears. As you know, in 2013 we launched new software that enables the member banks of the Armenian Card to develop their card products and e-commerce. The former system installed as early as in 2000 had no such capacities naturally. As I have already mentioned, last year we completed two major projects. So, in terms of technologies, we will be offering new products and consequently the banks will offer their customers new interesting products and services. I believe that in terms of e- commerce Armenia's accession to the EEU will provide our residents with access to the immense customs-free Russian internet market of goods and services. You know that goods are cheaper on e-platforms. So, the new opportunities emerge where no one expected them to emerge. Moreover, payments are developing in close cooperation with other technologies, mostly mobile ones. That is, mobile phones are actively being involved in the purchase and sale process. How can you explain the reduction in overdraft interest rates And how can you comment on the fact that small banks, for instance, set a zero fee for cash withdrawal, while the big ones do not Do the banks compete this way Probably, they do. I am not going to comment on the banks' business tactics on the card market. I think the zero fee withdrawal is the side effect of the wrong start. It is hard to quit the policy launched 15 years ago, though some banks have started changing their terms.

Do you think the consolidation of the banks will affect the card business Some experts think that the market may dictate monopoly prices and tariffs in case of consolidation and enlargement of the players.

The situation is that we, as a processing center, have already consolidated the banks by uniting them into a single network. So, we have unique opportunities for complementarity of card services and products among the banks. For instance, the non-member banks of a particular payment system conclude agreements with the member banks of that system and get an opportunity to service the system's cards in their own ATMs. The situation is quite good in this part of joint use of the physical infrastructure. VTB Bank (Armenia) and ACBA-Credit Agricole Bank have recently joined their networks. The joint work of these two major banks will no doubt enhance the general efficiency on the market. The same ideology is true for joint servicing of POS terminals.

How do you assess the year 2014 for the Armenian Card, especially following the technologically hard year 2013, when the system was actually re-launched on a new platform

After switching to a new system, we started working to introduce new technologies of card business. In 2014 we implemented two difficult large-scale projects, particularly, completion of certifications in the issue component of 3-D Secure for Visa and MasterCard payment systems (the acquiring one was completed in 2013) and certification for servicing and issuing Visa noncontact cards (VISA PayWave). We also worked a lot to enhance the quality of interaction with the system member banks. In the long run, the cardholders also feel the results of our work. An important and significant event for us was to move into a new and more convenient office, which meets all standards for operation of advanced server rooms, issue of cards and their storage, etc. The event was also symbolic, because Armenian Card is becoming 15 years old in 2015.

Over the past 15 years the banks perfectly coped with creation of a card infrastructure, but I regret to say that the banks have still many problems with personnel training.

I would not share you opinion. A "guard" of excellent card business specialists has been formed over the past years and we have efficient cooperation thanks to them. The problem is different. We experience a problem at the level of employees having direct contacts with the customers at the service offices (both in the banks and at the trade outlets). I would like to ask our banks to pay more attention to the professional training of the employees, as well as the merchants and acquiring partners, who work directly with the population. I have repeatedly come across the situation when the employees of the banks' front offices and especially the so-called "managers" of stores stubbornly re-educated me in what I have been engaged for many years in order to conceal their own mistakes, flaws or just their professional incompetence and at the same time to blame the Armenian Card for mistakes. But a front office representative is the image of a company, a bank or a supermarket. They should think about it.

By Emmanuil Mkrtchyan, ArmInfo