THE CARD AS A WINDOW OF THE RETAIL CARD BUSINESS. THE INTERVIEW WITH VLADIMIR KRUPNOV, THE CEO OF NOVACARD (Cards’ World, №11, 2010)

We talk with the Head of NovaCard, Vladimir Krupnov, about the Russian market of the bank cards, card production in Russia and design and technologies capacities in the promotion of the retail bank products.

How do you appreciate baseline condition of the Russian market of the bank cards? Has 2010 brought any qualitative changes?

Vladimir Krupnov: We as the manufacturers of the bank cards are glad to high indicators of

the emission growth which in 2010 the Russian banks have demonstrated. In comparison with crisis 2009 the volume of orders, we get from the banks, increased in times, and it allows us to say that the market is being assuredly reinstated. The qualitative changes are also seen though not so evidently as the qualitative ones.

First of all, EMV-cards share grows up. Though, the situation considerably differs from that, which was predicted for two years ago. Then it seemed to many specialists, working on the market and watching its dynamics, that the banks will see in EMV specifications, first of all, multi-functionality, new opportunities, the basis for new businesses built on the bank cards. However, until now there is no functional EMV-revolution. It seems to me another unreserved stimulus work there that is the liability shift introduced by the international payment systems. It presently defines the growth of EMV compatible cards quantity, launched by the Russian banks. Here it should be noted that the banks using the functional capabilities of EMV are present in Russia but this phenomenon has not the mass character.

Secondly, and this tendency is fairly seen, the banks appraised the marketing capabilities of the card as an object, as the material embodiment of those services which the banks renders for the client. It is a very important qualitative shift which will get, I am sure, very soon and the quantitative representation in the form of growth of non-cash transaction quality share in the structure of our market. If you give a payroll card out to the client, you clearly understand that he will use it in a certain way – once or two times in a month he will come up to the ATM and withdraw encash. In this case it is all the same for the bank, as well as for the client, how the card looks and what was pictured there and what was written in it and so on. It is just an identifier for salary receipt and it should be as cheaper as possible.

C.W.: Do you want to say that the Russian banks save on the design of their cards?

V.K.: Yes, exactly. There is a notion «first in the wallet» in marketing of the card products, this notion conditionally means an upper card in the wallet, in other words the card, which the client takes the first and uses it at payment for goods and services. To win this status for your card it is necessary to care that it would be a pleasure for the client to take the card in his hands.

C.W.: Is it reasonable to talk about «first in the wallet» if on average only one card falls at each client in our country?

V.K.: Not long ago it seemed that one day the Russian market managed to overcome one-card-line at a citizen and became similar to some European markets. The line was overcome much earlier than it seemed. The emission will overcome two-cards-line at a person already in two years at saving of the existing growth rate. Our company is the only one which has produced more than 100 mln cards of Visa and MasterCard during recent three years.

Besides, the drastic stratification of customer base is a characteristic of our country – somebody still hasn’t had even one card, but the residents of megalopolises have already had several. What is going on the market today? «Rush in breadth» - the adaptation of payroll segment as the quickest way of emission growth has still been lasting but not so fast as earlier. The next stage has started – the competition of services. There are a lot of discount programs for the bank cardholders, for example, initiated either on the bank level or the payment systems level. It will be infinitely more to your advantage to pay by the card in many cases than pay cash. Such motivated programs as cash black are common abroad, a certain percent of the purchase amount is paid back on the client’s account. We haven’t such programs but they will appear and it will be the next stage the market development. From the point of view of service evolution we are not different from the other markets and the role of a card’s design will be appreciated by all our banks as well as it has been appreciated by their foreign collaborators.

C.W.: How does appearance of the card define the frequency of its usage? Very often one or another card is used just for the reason that it is more profitable to pay with the help of it, as you can see.

V.K.: The spectrum of goods and prices of all market players become nearly identical in a certain market development stage, it is the main feature of the banking business. The difference is in usability, marketing aggression and «service packaging», it is a bank card which acts as it. The card’s appearance demonstrates your status as a client, some peculiarities of your life style, your belonging to whatever communities and so on. The frequency if the card’ usage really depends from as far as you like the card. If you just choose a card its design is a crucial issue for you. That’s why all cards all over the world are different, otherwise everybody would use one standard variant of design and except of logo nothing would differ one card from another one. Until recently in Russia there were a lot of featureless cards which were alike, today the satiation starts changing. Banks, including major, would like to offer something unique to their clients and start using those marketing opportunities which give form-factor of plastic card and modern technologies of its production.

As we can see the share of «status» cards Classic and Gold in total emission volume in 2010 has grown strongly which indicates that the majority of clients have already had several cards in their wallet.

C.W.: What is modern today? What are the cards ordered?

V.K.: It is necessary to tell apart two notions, they are the card’s design and special production technologies providing with certain visual effects. We can’t speak about the season of design, it is a highly individual thing and by means of convenient graphic solutions and graphic row the bank, in my opinion, can create unique and visually attractive products. As for the technologies, there are certain tendencies. Not long ago the banks took a great interest in transparent plastics, color or holographic magnetic strip. Today, for example, metal foil is often used in the lamination process, which looks very effective and produces the effect of a three-dimensional image. Recently, we started using special paints creating the three-dimensionality effect tactile; areas of the image, covered by these paints, project over card’s surface and the image becomes literally lively, volumetric by touch. It is interesting that a certain three-dimensional effect can be reached placing different images in different transparent card’s layers. We have very interesting examples of products implemented in such technique.

It is necessary to understand that not all new technologies, expanding opportunities in cards’ design, settle down on the market and not all of them can be used at producing of bank cards. The transparent plastics and holographic magnetic strip haven’t widely settled down because of the problems of usage of such cards in ATMs. The case is not that the manufacturers didn’t follow the requirements for transparency factor, but the readers of ATMs in different models from different manufacturers, as it appeared, accept the cards in different ways even if they comply with all the requirements. As a result, such the cards worked perfectly in some projects in some banks, but somewhere the clients faced the problems. The card of American Express is another case. It is almost not used in ATM, that’s why AmEx has been producing transparent cards Blue and cards with holographic strip for many years. It’s quite another matter the cards Visa Electron which are often used in ATMs, but in transparent performance they works only sometimes. Finally, the transparent cards are still on the market, but the majority of banks have refused risks connected with their issuance.

Something like that is going on with cards today at producing of which the foil is used. The matter is that the layers of foil create surface tension distinct from PVC during lamination process that can cause flexure of the card in using, it is a serious fault. Somebody is ready to carry such the risks for the opportunity of the issuance of the cards with effects, somebody is not. There is no any official sanction on foil usage that is why each client settles this question himself. We produce such the cards warning the banks about possible risks.

C.W.: How can the card’s design affect its price?

V.K.: It can affect rather considerably. Especially when we speak about usage of different special techniques and materials about which we have just been talking. To my mind, and from my experience accumulated for a long period of the bank cards production, the best result can not be reached by means of usage of expensive material and complicated technologies but by means of professional survey to the card’s design as it is. The problem is that the banks, as a rule, order the card’s design form those agencies which produce for them all other polygraphic products. Their designers, as though talented they are, very often haven’t specific knowledge related to the card production, interpretation of technologies, materials, the ways of three-dimensional images construction in transparent environment. They are incapable to use our capabilities in full.

C.W.: Are there any specialist in cards’ design in NovaCard? Are you ready to offer development of the card’s design as an independent service on the market?

V.K.: Certainly, there are. We are ready to offer the service but I doubt it has not sufficient demand on the market. However, we recommend organization of communication of their designers with our specialists to our clients. If it takes the result will be a perfect.

It is the most difficult to deal with agencies operating as «let’s develop anything» - they are rare ready to collaborate and don’t hear us as the future performers of their «great» ideas. If the banks are ready to collaborate as they are interested in the result, the outside large design-bureaus, unfortunately, are rare interested in the final result, moreover it is possible to throw all mistakes on the manufacturer.

Professional design is a serious potential that is still unprized and very often our designers have to work to correct the mistakes made by the designers of our clients keeping the picture perfect.

C.W.: How do you appreciate the perspective of the cards with individual design? Recently, it’s quite the fashion to talk about it, but how often are such the cards issued in operation?

V.K.: Output of «the cards of interests» - with symbolic of different kinds of sport or sport clubs, colleges, universities and so on – is the practice very popular abroad. In the U.S.A., for example, the share of such «club» cards make up tens of percent of total emission volume. Recently, such the cards appeared in Russia.

The card with individual design is the maximum realization of the personalized banking service and perfect bait (in good sense of this word) for a wide range of clients. Image on the card, calling your pleasant emotions and associations for whatever reason, is a perfect argument for making this card the first in wallet.

C.W.: The international payment systems regularly hold re-branding of their card products, changing card’s appearance, requirements and restrictions on the placement of separate elements and so on. In what way does it affect the bank cards’ design?

V.K.: The international payment systems look to the interests of their members first of all, so all changes in this question have nothing to do with the opportunity for the manufacturers to earn money. As a rule, changes of the requirements for the cards’ design emerge out of individual demands of the banks, which, after their positive examination, become opportunities available for each member of international payment system. The main essence of these opportunities is that for individual creativity there is more place on the face of a card.

New printing technologies, before they find wide application on the market, always have been approved by the international payment systems. I have already mentioned the technology providing with the three-dimensional effect, which we are familiar from «three-dimensional» postcards and small calendars – at changing of visual angle image seems to be three-dimensional and concluded into the plastics. How to achieve this effect was learned long ago, its technology didn’t allow producing of payment cards – they did not stand the requirements for strength, it was impossible to emboss them. The new technology though do not provide with so evident three-dimensional effect but allows producing the cards which are compliant with ISO standard and all the requirements of the payment system in the questions of reliability, terms of exploitation and so on.

So the payment systems aim not only at decreasing the banks in the cards’ design opportunities as little as possible, but they adopt innovative solutions themselves.

C.W.: What do the requirements for quality limit in the card’s design? How are the card’s quality managed and guaranteed in principle?

V.K.: Speaking about quality it is necessary to understand that it has certain borders either from the bottom or from above. The quality of manufacturing affects the price as it must comply with certain standards but must not override these standards so that the production turns out to be too expensive. It regards not only to the cards but to any thing. If you, for example, order half-meter-long cylinder its cost will depend on the size accuracy – if it is kept up to millimeter, the price is one, if it is kept up to micron – the price will be another. A certain «range of parameters» is contained in ISO norms, inside of which the quality of payment card should be contained, there is no essence to produce cards better.

For example, it is possible to produce cards from polycarbonate which is more expensive than traditional PVC, but much more strong. Such the cards are produced exclusively for the tasks related to identification. ID-cards are issued for 10-20 years in many cases, but the bank cards – never. Does it worth to overpay for material?

Unfortunately, we often see the cards on the market the quality of which is below the line. Why? Because the majority of the banks have not their own test laboratories and rare use the services of the outside laboratories which are able to examine the cards’ quality and even if they use in the conflict situations when the problems with quality are evident. The payment system MasterCard, for example, has the program Card Quality Management – quality management at cards production. The program offers methodologies of quality assessment to the manufacturer and oblige him to follow this methodology. NovaCard was the first company in Russia that was certified in accordance with this program and we always hold preproduction tests of our products. In accordance with the requirements of card quality must stand one thousand tests on bend but our products stand two-three thousands. We hand it calmly to the bank and we are sure that there will be no problem on the process of exploitation. Double resource of strength during the tests guarantees that the quality will stay at «range of parameters», defined by the standards, at any quality fluctuation arising at the production of a banch.

The most advancing defect of the production is the card’s delamination during with it just segregates in the process of use. We try to recover this parameter in 3-4 times to guarantee to our clients lack of problems irrespective of life duration of his cards and terms of their intended use.

The card’s design itself puts certain demands to the quality. We use, for example, much more chemically stable and therefore more expensive dyes than the polygraphic workers. But at the same time either we or the client can be absolutely sure that his card will keep its color spectrum even in three years.

Another words, we produce qualitative cards and that is important we can measure the quality that is why we are able to give our client corresponding guarantees not raising the price. Are there any claims on quality? Yes, certainly, and I believe that there is one manufacturer of something who has never got any claims. Capacity to show quality in the quantitative parameters provides us with a firm base for examination of conflict situations and allows reacting adequately as on the valid claims and also on the unreasonable ones.

C.W.: How much popular today are the bank cards of non-standard form-factor?

V.K.: The card-keychains, cards of non-standard form, card of diminished size – all of them as well as non-standard design are the way to attract the client’s attention. The problem with this cards is that they are not universal they can’t be use in ATMs, for example, it is inconvenient to store them in wallet. Sizes and form of the bank card is elaborated and learned standard for a long time already, it have become a standard de facto and something like nominal. All infrastructure of the bank cards circulation including our wallets, is built under this standard. For example, they say that «the telephone of the size of the credit card», it means that it is a compact, ergonomic and usual.

To my mind, the form-factor of a standard credit card is so traditional thing that there is no essence to break it.

In the course of time thanks to new contactless interfaces and the development of chip technologies the card as it is can disappear at all, but it is still a long way off, and there are no signs of revolution on this way.

C.W.: What do you think about so-called ecological cards? Is there any demand for them and will it grow in the nearest future?

V.K.: In my opinion, they won’t if somebody, to whom it can be favorable, have made new standard from the ecological compatibility of a card.

When they say that one product is more ecological than another they have in mind that its exploitation and utilization bring to the nature less harm. However, especially when we discuss so small market in the scope of ecology as plastic cards it is more important, to my mind, how harmful is this product production. If at the production of ecologically harmless product the nature is affected than at the production its harmful analogue can we speak about ecology?

The share of plastic cards in this mass of products which is manufactured from polyvinylchlorid (for example, it is enough to look at building industry) is insignificant a little. If the damage affected the nature at chemically harmful production of PVC managed to be reduced at least on units of percent it would make more profit than complete ban of payment cards form this material.