Business | Banking
How to spend it: Preferably with plastic
Credit card use is not saturated, says Kamran Siddiqi, General Manager, Visa, GCC, Levant, Pakistan and Iraq. But debit and prepaid cards represent more of the future in a market where cash is the competitor
- Interview by Gaurav Ghose, Financial Features Editor
- Published: 00:00 August 17, 2009
- Image Credit: Andrew Caballero-Reynolds, Photographer, Gulf News
- Kamran Siddiqi, General Manager, Visa, GCC, Levant, Pakistan and Iraq
What impact has the financial downturn had on Visa's volume of business in the region?
I think the first thing that tends to happen in an economic slowdown of any kind is that people manage their discretionary expenses more closely. You know from just being in the market, and from what retailers are saying, that people are still spending, but a little less than before. I guess the top end of the market is feeling the greatest impact.
Visa's whole reason to exist is for everyday payments — any kind, anywhere, with the convenience and security of electronic payments.
Yes, there has been an effect, but, on the other hand, fundamental use for everyday purchases continues. From our perspective, the growth rate of electronic payments on the whole is what we look at. In the region we had a high growth rate (in the range of 30 per cent) that's not there any more. Where it stabilises, it's too soon to tell.
What's the breakdown of credit card and debit card volumes in the GCC region?
Visa traditionally was known as a credit card company. The reality [however] is if you look at our numbers, globally and in the GCC, three-quarters of our cards are debit cards or prepaid. Credit cards actually form a small percentage. The total spend at point of sale and otherwise on debit cards in aggregate is greater than that on credit cards. And that has been and is the growth area. As electronic payments become popular, debit cards and ‘prepaid' do naturally grow a lot faster. For Visa the objective is not to have a particular product, but to provide a variety of products for all segments.
In fact, there is the view that cards had grown exponentiallyin the past few years leading to considerable maturity in theregion's market. How much more room for growth is there,actually for both debit and credit cards in the UAE and Gulf?
The measure we look at is personal consumption expenditure (PCE). We look to see how much of consumption is on cards, ‘electronic worth' of cash. Those numbers are still low compared to in more developed markets. That would indicate that there is huge future potential for electronic payment as a whole.
Now, debit cards have grown faster than credit historically, and there is probably not much reason for that to change. In the more developed economies, more than half of PCE is through electronic payments. We are nowhere near that — so the growth will continue.
When it comes to credit cards, saturation is a relative term and it changes over time. There are developed economies where credit card penetration is three or four cards per individual customer. If you look at more nascent markets, the number will be a fraction of the eligible population; it might be 0.1 cards per person.
I think the point is not whether or not our market is saturated, but to see where is it on the evolutionary path — you compare it to a range of markets around the world and see where it fits. You could say it is more saturated than a new market, but a lot less saturated than a very developed one. The real test is [to] get beyond one card per eligible customer, which is probably the case now in the UAE.
So is that a problem or do you see it as an opportunity?
It could be viewed as both. Once you get beyond one card per customer, banks or issuers of credit cards have to find greater relevance, because the cardholder has a choice in which one to use. That, hopefully, provides the impetus to product development, better customer care, better customer knowledge and just greater relevance.
As you see in the UAE, for example, [there are] so many product launches; many of them are in line with some of the developed markets in the world. It has reached the point — where there is more than one card in a wallet — that the customer will benefit from innovation.
If you look at an airline co-branded card, you see greater competition, you see banks competing to provide greater value, and that benefits customers, who have more choices. In that sense, I think where we are now is an exciting time. In a nutshell, we have crossed that point where innovation will now drive greater customer benefit.
How severe is the competition in the region? Could you share some figures on market share?
We think our position in the GCC, for example, will be no different from our global overall picture.
Our biggest competitor is not a corporation, but an inert substance called cash, who we can't talk to, they don't not have an organisation, and they don't publish anything. That's because, as I was saying earlier, we are still in the low level of PCE penetration.
So the issue here is not about Visa or its competitors trying to compete for a small part of the pie. It's to look for the pie where nobody exists today. That's really our focus. Our mission is not to get somebody else's business. The market share grows by getting to areas where it is still untapped.
There's a long list of new products that banks have launched to-gether — debit cards, prepaid cards, co-branded cards, airline cards, commercial cards — all of which are essentially looking to displace more of cash.
But don't you think too many products for a small market with a small and transient population leads to fragmentation, and thereby affect the bottom line? Or is it that the personal spend being high in the region allows you to launch such a variety of products?
The market may be small, but the diversity of the market implies a diversity of needs. It may be a small market in terms of individuals, but not necessarily in terms of the volume of debit cards. You have other countries in the world with hundreds of millions of people, but a large percentage of that total will not have a significant spend on their electronic payment product, even enough to justify the product. So there's the flipside — because there is higher spend, you can with a well-targeted product actually make a very profitable business.
Can you describe the evolution in terms of innovation intechnology in this part of the world?
I think the appetite for innovation in electronic payments is not out of line with general appetite for innovation in the market.
If there is innovation in electronic payment of some kind in South Korea, it's also because perhaps 80 per cent of the entire population spends two hours a day on the internet. So there is a linkage. So it's not so much that electronic payments are taking off in a different tangent to innovation and technology and usage of internet and so on.
If you were to plot the GCC or the UAE against other markets — as to where they stand on a variety of measures, including internet penetration and so on — you will conclude that they are perhaps halfway between the most penetrated markets and the emerging markets. And when you come to electronic payments, the answer would exactly be the same. Yes, they don't have the most advanced electronic payments yet, but they certainly have a lot more than many other markets.
The interesting aspect about innovation in payments is twofold. One is where you can describe the innovation in technological terms, that is, something is faster, different, whatever. I think what we are seeing a lot here right now is the level before that, which is innovation in products to meet whatever are the hitherto unmet needs of various segments. Look at number of ‘firsts' the banks and Visa have done in the market: the first Islamic commercial card, [then] the first Skywards (Emirates) business card for businesses.
That too is an innovation. And in many ways that is the foundation, and not the technological novelty, of what's happening. Other industries are doing a lot in the area of innovation, like telecom and so on. Over a period of time we will see what that means for innovation in payment.
How, meanwhile, has the relationship with banks evolved?
There is a very large silver lining to the [economic] cloud. Innovation happens more in economic slowdown. It naturally causes a set of thoughts like, "what else can we do, where else is the opportunity, how can we deliver our products better in the new economic environment to grow our business, and so on". Out of that come opportunities for Visa and banks.
Now, Visa has a complete range of products for consumers, for corporations, for businesses, for individuals, and we have products that we call ‘prepaid', ‘pay now' (which is debit card), and ‘pay later' (credit card). In that matrix, the playing field becomes very interesting.
If a bank is more focused on credit cards, and is saying "what else can we do?", they are taking a greater and deeper look at all the other products. We have seen several new launches of non-credit cards. And so, we think, it's a great time for all participants to take two steps back and look at the entirety of the opportunities and see where we can tap.
Prepaid is a huge opportunity for us. It's a product whose time will come, like debit cards, whose time finally came. So, in a roundabout way I guess what I am saying is it's a great time to build ubiquity of electronic payment, not just one product.
How much are you both — Visa and the banks — currentlypreoccupied in dealing with security-related issues?
Fraud and data compromises in the Middle East are lower than the global average. However, data security is vital to business. Visa has always been a very strong proponent and investor in Security-L and is a key player in what we call Payment Card Industry Data Security Standards (PCIDSS).
We are very active in that. We work with every single bank on data security standards. We act in a consulting capacity to banks, and guide them and work with them.
Visa has been of the view that banks should go for [micro]chips. Banks that have not yet opted for chips are more vulnerable.
In the UK, there was a high level of fraud at one time. And then through a concerted effort of the industry and government, they switched to chip cards. Fraud virtually disappeared. But it didn't go totally out of the system. It went somewhere else. So that then became a reason for other countries and banks to say "we had better get [to] there". That momentum is up and running.
In the UAE the terminals are entirely chip-capable. The issuers are going ahead full-speed. Many banks have already issued chip cards. Over a period of time they will all get chip-enabled and fraud will be reduced further.
[But], because there are people out there looking to see where they can break in and make money, as you tighten up the fraud, you have to get very focused on data compromise. That's where PCIDSS also becomes really important.
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