Consumers are cutting down on credit card use

It was not long ago when consumers were dining and shopping with their multiple credit cards without a care. When the economy was more buoyant in 2008, credit and debit card spending posted a windfall, growing by about 30 per cent.

However, with the global econ-omic downturn, cash-strapped residents have cut down on life's little luxuries. Talk about bounced cheques and jailed credit card holders have, in one way or another, put a dampener on people's spending habits.

According to R. Sivaram, credit card spends in 2009 "were flat" compared to the previous year. There has been a consistent increase in debit card use both at ATM machines to withdraw cash and at retail stores. This goes to show that consumers are now taking a more cautious route.

"Two things have happened in the last two years globally — the economic situation has caused a lot of customers to default on payments, thereby making them credit unworthy. Simultaneously, other customers cut down on discretionary spending which led them to using more personal funds rather than credit cards," Sivaram told Gulf News.

Sandi Saksena, a financial planner and member of the Million Dollar Round Table organisation, said people have learned to straighten up their finances, and as a result, plastic card usage has incurred a decline.

"Banks are becoming stringent with their lending policies and people are being more careful. They're cutting down on credit card usage. There has been a change because people realise that indiscriminate spending, which has been going on for the last couple of years, has landed people in so much trouble," Saksena pointed out.

Confidence

However, Sanjoy Sen, Citibank's consumer bank head for the Middle East, argued that the overall drop in consumer spending should not be taken fully as a decline in credit card usage.

"Customers are smart and they modify their spending in response to the environment. There is an overall cut down on customers' lifestyle spending due to the recessionary cycle. In my view, it would not be right to attribute this drop fully on credit cards usage," added Sen.

Mustafa Ramzi, HSBC's head of cards for UAE, agreed that the cards industry this year had indeed experienced "increased turbulence" due to the global financial crisis. However, the banking and cards payment sectors are constantly making strides towards broadening their market reach.

"Despite these difficult times, the industry has continued to innovate and a number of new products being launched [are] oriented towards travel, entertainment, lifestyle and convenience benefits. Advances have also been made in the chip and contactless avenues.

"This illustrates the industry's confidence in the markets and the capacity to grow further," he added.