Plastic Money
Constructing Markets for Credit Cards in Eight Postcommunist Countries
Akos Rona-Tas and Alya Guseva


Plastic Money: Constructing Markets for Credit Cards in Eight Postcommunist Countries

Author(s): Akos Rona-Tas and Alya Guseva

This book draws on original fieldwork to provide a comparative analysis of emerging credit card markets in eight countries—the Czech Republic, Hungary, Poland, Bulgaria, Russia, Ukraine, China and Vietnam. The problem of market emergence is posed as analytically distinct from market functioning. Card markets are viewed as being actively constructed, rather than emerging spontaneously and following the US blueprint. The process of market construction involves solving a set of puzzles related to the credit card as a product that is both a means of payment and an instrument of credit. These puzzles are: standardization, information asymmetry, information sharing, market origination and expansion. They were solved differently in each of the countries, and the resulting markets are neither identical to the "Western" blueprint, nor to each other. The book focuses on the trajectories of market development in the eight countries from the moment the first cards were issued to the present time, underscoring both similarities and differences between countries.

Chapter 1: Paying with Cards

Chapter abstract:

This chapter establishes market emergence as a problem analytically distinct from market functioning and introduces two sets of rules: generative and functional. Credit cards are conceived of as global products that are both a means of payment and an instrument of credit. Frequent references to the US credit card market are justified by its role as a performative ideal type—a model that not only helps to explicitly describe postcommunist credit card markets but also attempts to shape them by imposing a set of implicit instructions. The chapter provides the basic statistics of payment card markets in the eight postcommunist countries and concludes with an overview of the remaining chapters.

Chapter 2: The Transition from a Communist to a Market Economy

Chapter abstract:

This chapter lays out the historical background for the development of postcommunist card markets. It revisits theories of the transition, focusing on the three distinct development paths the economies of the eight countries took: the path taken by the Central European countries, which started with an economic recession but soon integrated into the European Union and the developed world; the path navigated by the economies of East Europe, which experienced more tumultuous and protracted transition and a slower European and global integration; and the path traveled by China and Vietnam, two fast-growing East Asian economies that started from an overall much lower level of economic development keeping a strong role of the Communist state in the economy. The chapter discusses the creation of commercial banks and emphasizes the similarities among the countries' developmental paths. It also criticizes the market transition theories for ignoring the demand side of market building.

Chapter 3: Payment Puzzles

Chapter abstract:

This chapter presents how card markets work. It lays out the puzzles encountered by the architects of credit card markets and explains why they pose challenges to standard understandings of market economics. In line with the argument that credit cards combine the features of two products, payment cards and consumer loans, here the focus is on two payment puzzles: two-sided markets and standardization. It is argued that these puzzles are such that they cannot be effectively solved by a self-regulating competitive market driven by the forces of supply and demand in the pursuit of ever-increasing profits. Instead, the solutions to these puzzles require some sort of nonmarket intervention. The chapter concludes with a short account of how each of the two puzzles was solved in the American payment card market, as well as gives a brief preview of solutions used in the postcommunist countries.

Chapter 4: Credit Puzzles

Chapter abstract:

This chapter continues the discussion in the previous chapter focusing on the puzzles related to the consumer loan side of the credit card—information asymmetry, information sharing and market origination and expansion. It concludes with a short account of how each was solved in the American payment card market and presents a brief preview of solutions used in the postcommunist countries.

Chapter 5: The Construction of Card Markets in Hungary, Poland and the Czech Republic

Chapter abstract:

This chapter focuses on the three Central European countries—Hungary, the Czech Republic and Poland. It details the role of multinational card networks, such as Visa and MasterCard, as well as the involvement of state and large employers in solving the market puzzles. On the credit side, market development in Central Europe was influenced by concerns about data privacy. The mechanization of credit assessment, a key technology in making credit card markets profitable, was seen as a threat to borrowers. On the payment side, all three Central European markets are already dominated almost exclusively by Visa and MasterCard. In order to further standardize, the European Union recently began to push for initiatives enabling any European citizen to get their payment card in any European country.

Chapter 6: Russia, Ukraine and Bulgaria

Chapter abstract:

The chapter focuses on how card markets were constructed in Russia, Ukraine and Bulgaria. The unique features of these markets are: a substantially large "gray" (cash) economy, which gave merchants a strong preference for cash over cards; complicated income verification of credit applicants; and dialogue about creating national payment systems based on domestic cards. The spread of coercive cards via salary projects is now accompanied by pressures to legally mandate card acceptance by merchants. Card issuers appear to be powerless in the face of several puzzles—they are either defeated by the resistance of salary cardholders to use cards for payment and by the refusal of merchants to accept cards, or they are paralyzed by the inability of the banking community to control competitive tendencies in favor of greater cooperation over standards and information. This emphasizes the key role of the state in constructing markets.

Chapter 7: Vietnam and China

Chapter abstract:

This chapter focuses on China and Vietnam—two countries whose political context and transition trajectory differ from those of the other six. The case of China deserves special attention due to the country's sheer size: it is particularly challenging to create a credit card market in a country of more than one billion people, only a small number of whom have bank accounts. Establishing cooperation between banking institutions thousands of miles apart is equally challenging. The Chinese government views cards not as a market, but as part of China's payment system. It has been successful in developing its domestic card system that poses challenges to multinationals not only domestically, but also internationally. The Vietnamese market is the least developed of all eight countries. Its retail banking covers an even smaller percentage of the population than the banking system in China, and its IT infrastructure is even more inadequate.

Chapter 8: Conclusion

Chapter abstract:

The conclusion highlights the common problems that market makers in all of the countries faced, but it also emphasizes the differential successes and sometimes different paths and sequences of events that accompanied the development of card markets in the eight countries. It also notes that in several of the countries, most unambiguously in China, the central purpose of the card market shifted from providing a tool of convenience to customers to offering an instrument of economic control for the state. The discussion then turns to theoretical issues of social order and market emergence, and emphasized the implications of this analysis for the study of globalization, postcommunist transitions and markets