Business | Opinion
Credit card policies in the Middle East need to be reviewed
Last December, the European Commission accused MasterCard of violating European competition rules by imposing unnecessary fees on card transactions carried outside their country of issuance.
- Special to Gulf News
- Published: 01:15 February 21, 2008
Last December, the European Commission accused MasterCard of violating European competition rules by imposing unnecessary fees on card transactions carried outside their country of issuance.
The commission - the executive arm of the European Union (EU) - said the fee added to each bill paid by using a MasterCard increased the cost for buyers without improving efficiency, as claimed by the company.
MasterCard was given a grace period of six months to scrap the fees, which range between 0.4 per cent and 1.2 per cent of the value of transactions, or face daily fines estimated at 3.5 per cent of MasterCard's daily operations value in 2007.
Some credit card companies are currently following the same policy in the Middle East, including GCC countries, without being questioned by central banks or other financial regulatory authorities in the region.
This means a credit card company deducts two per cent from the seller if sale takes place at the same country where the credit card was issued, and two per cent from seller plus another two per cent from the buyer if transaction takes place outside the country of issuance.
Another point is the company's non-commitment to official exchange rates, which accumulates huge profits.
Credit card users in the Middle East bear unreasonable costs, and in many cases without even their knowledge, when they carry out such transactions.
The figures speak for themselves. In the last quarter of 2007, there were more than 809 million MasterCard transactions in Asia and the Middle East, with a growth of 15 per cent over the same period of 2006.
Meanwhile, more than 23 billion credit card transactions take place yearly in Europe, with a value in excess of 1,350 billion euros ($1,946 billion).
The EC took this step and managed to put an end to the customers' money being drained after carefully monitoring the activities of credit card companies, especially MasterCard.
What about credit card users in the Middle East? The two per cent fee imposed on purchases made outside the country of credit card issuance has been going on for many years, resulting in huge profits for credit card companies with no financial or logical bases.
Bearing in mind the increasing life expenses in the GCC, most people deal with credit cards, which calls for central banks and financial institutions to look into these extra fees.
This is especially necessary as inflation rates in the region reach unprecedented levels, while GCC countries try to cope by increasing salaries and monitoring prices to maintain their high living standards.
Taking the cue
One way for dealing with this issue is following the European example, which allowed the company a grace period to stop the extra fee and avoid the fines imposed for violating the regulations of the EU.
The other way would be using the heated competition between credit card companies, and dealing with the companies that are competitive and committed to the laws and regulations of local authorities.
It is worth mentioning that solving this problem in the Middle East is more important than it is in Europe, since the additional profits made through the extra fees are not invested in Middle Eastern countries, which calls for strict measure to cut these fees and support domestic investment in the region instead.
The writer is a UAE economic expert.
It is worth mentioning that solving this problem in the Middle East is more important than it is in Europe, since the additional profits made through the extra fees are not invested in the Middle East.
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