Classifieds powered by Gulf News

Debt culture creeps back as residents swipe away

While the economy has improved, banks have been innovative in boosting credit card spending

Gulf News

Dubai: Many consumers might still be wary of racking up high credit card balances, but some UAE residents are easing their way back to debt and swiping away.

Credit card purchases rose 16 per cent to $8.6 billion for the 12 months ended September 30, according to statistics released by Visa, one of the world's largest retail electronic payments networks.

That increase might be attributed in part to consumers, particularly the high-income segment, using their credit cards a bit more. Banks have also succeeded in luring cardholders to swipe now and pay later, thanks to the various products flaunting rewards and incentives.

Key interventions

"Spend growth in credit cards can be attributed towards three key factors: value, rewards and security. While clearly there has been buoyancy from an economic perspective, there are also key interventions and innovations done [by the banks] to drive overall spend on credit cards," R. Sivaram, senior vice-president and head of cards business at Emirates NBD, told Gulf News.

Credit card spending hit an all-time low during the global recession, when consumers fled credit cards for fear of getting into financial trouble. Credit card use in the UAE registered a 7-10 per cent decline between the second quarter of 2009 and the second quarter of 2010. Debit cards, on the other hand, climbed 12 and 15 per cent.

However, recent statistics show that debit cards remain more popular, with payment volumes rising by 31 per cent and total volume growing by 12 per cent for the 12 months ended September 30, according to Visa.

Total debit card transactions reached more than 123 million, while credit card transactions stood at a little over 47 million, during the same period. "Visa has continued to see growth in its debit business in UAE after introducing measures to improve the payment experience for cardholders by providing increased debit card capabilities and convenience, as well as continuing to offer exclusive rewards and privileges to Visa debit cardholders," Marcello Baricordi, general manager for Visa in the UAE told Gulf News.

Baricordi attributed the positive growth in their credit business to their affluent cardholders. Visa's premium credit card, Infinite, saw a 100 per cent increase in payment volume in the same period.

The launch of products that can be customised to meet the needs of different cardholders, such as the "Go4it" card which Visa launched with Emirates NBD and RTA, played a key part as well.

Also encouraging credit card spend are programmes that offer huge discounts on food spending and interest-free instalments on high-value purchases.

Regulatory price changes on debit cards drive growth

 While debit cards remain the most popular mode of payment in the UAE, credit card use is clearly growing faster in other markets.

In the United States, Visa credit card purchases for the three months ended September 30 climbed 10 per cent to $288 billion (Dh1 trillion), while debit card spending advanced 8.1 per cent to $288 billion, slower than what was predicted, according to a Bloomberg report published earlier.

R. Sivaram, senior vice-president and head of cards business at Emirates NBD, said the United States is a very different market. He said the positive growth in credit card use may not entirely be due to people becoming more confident to spend on credit.

"The reasons for credit card spend growth could be related to certain regulatory pricing changes made on debit cards, and banks now consciously driving credit card spend and influencing consumer payment behaviour," he said.

Sivaram said the UAE has predominantly been dominated by cash, but the continuous drive to use electronic payments has displaced paper money.

"In the recent past, there have been efforts to drive debit card awareness and this is leading to a displacement of cash."