Photographer: Konstantinos Tsakalidis/Bloomberg

In Cash-Starved Greece, Plastic Casts Light Into Shadow Economy

Greece’s banking crisis is having at least one positive outcome, and it’s made of plastic.

In a country where cash is king and undeclared transactions still make up about a quarter of the economy, about 1 million debit cards have been issued by banks since the government closed lenders for three weeks and imposed controls on euro bills. Emergency measures that some officials warned might spur the black market are showing signs of doing the opposite.

Alpha Bank SA issued about 220,000 cards in July, more than all of last year, as mainly pensioners realized that they had to access their money at cash machines and elsewhere, said Leonidas Kasoumis, general manager for household lending. Supermarket and gasoline sales paid by debit cards doubled in the wake of controls; usage in the countryside tripled, he said.

“Capital controls were a big trigger,” Kasoumis said. “It’s good for merchants, because cash is limited; it’s good for banks because it reduces operational costs. But the best news is for the economy.”

The restrictions on cash were introduced in late June as banks hemorrhaged money and were kept alive by a drip-feed from the European Central Bank. Greeks can withdraw 420 euros ($460) a week, though there’s no limit on spending with debit cards provided the transaction is within the country.

Collecting Taxes

What’s occurred is a shift that’s unprecedented for a country with the smallest number of electronic payments per head in the European Union, according to ECB figures.

The cash culture contributed to the country’s poor record in curbing the shadow economy and collecting taxes, one of the reasons that led Greece to seek its first bailout from its euro area partners and the International Monetary Fund in 2010.

The increase in cards coming into circulation will help combat that, as more buying and selling of goods and services goes through the books, according to Theodore Kalantonis, deputy chief executive officer for retail banking at Eurobank Ergasias SA. Until now, payments on plastic accounted for 6 percent of the total, one of the lowest rates in Europe, he said.

Demand from businesses for card payment systems has surged, even from non-traditional customers such as dentists and doctors, according to Kalantonis.

Visa Cards

The largest bank, National Bank of Greece SA, issued more than 400,000 debit cards during the last four weeks.

The number of active Visa debit cards in Greece more than doubled in July from previous months, said Nikos Kabanopoulos, the country manager for Visa Europe.

The company, which processes almost 60 percent of Greek point-of-sale card payments, saw a 135 percent increase in card transactions in the two weeks immediately after the capital controls were imposed, Kabanopoulos said. In 2014, spending on Visa cards was 1 euro for every 37 euros compared to 1 euro for 6 euros in Europe as a whole, he said.

Until last month, the vast majority of Greek pensioners didn’t even have a cash card, which led to the scenes in July of elderly Greeks lining up in despair outside banks to get their pensions when the banks were shut down.

Now, the scenes are more likely to be that of family members helping the new cardholders.

More people have been asking to pay by card at the café where Alexandros Papadakis works at in central Athens since the controls were imposed. The establishment is looking into getting a system installed, the 31-year-old said.

“I hope it becomes a habit among all Greeks,” he said.

Opening up Greece's Envelope Economy

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