Whether it’s paying for a cab ride in Dubai with your debit or Nol card, or locking in currency rates in your prepaid card, travel continues to be a significant driver for card majors in the UAE and around the world. Financial majors are responding to this opportunity by introducing targeted products. Whether in the form of nixed transaction fees on foreign spend or as partnerships that promise dual benefits, consumers are finding it lucrative and convenient to use their card while travelling.
Citing statistics by Euromonitor, which say the incoming tourist expenditure in Middle East and Africa (MEA), currently pegged at $97 billion (about Dh356 billion), will continue to grow at 16.9 per cent, to reach $126 billion by 2016, Eyad Al Kourdi, UAE Country Manager, MasterCard, tells GN Focus,“These are very healthy growth trends that offer a huge opportunity for the travel cards segment in the region.” The outgoing tourist expenditure in MEA region is currently estimated at $56 billion and it is forecast to grow at 5 per cent to reach $67 billion in 2016.
Worldwide growth
Not just in the UAE, travel cards and other financial products that focus on various facets for a journey are seeing growth across the world. The 2013 Corporate Travel Card Benchmark Survey by RPMG Research Corporation states that after experiencing a significant decrease in spending in 2009 (from $152 billion in 2008 to $138 billion in 2009), North American travel card spending has returned to a growth trajectory and climbed to $168 billion in 2012.
The total North American travel card spending is expected to reach $184 billion by 2015 and $198 billion by 2017. Last year’s Global Travel Intentions Study by Visa assesses that fewer first-time travellers own credit cards and are more reliant on cash. Also, while cards are still the main mode of payment when booking a trip, most new travellers use cash when making purchases at the destination. Just 30 per cent of their spending is done with cards, even when 73 per cent of all travellers owned credit cards.
“Despite the climate of continued economic uncertainty and a relatively weak global economy, leisure travel was forecast to register continued growth throughout 2013,” says Marcello Baricordi, General Manager UAE and Global Accounts Lead at Visa Inc. Mena.
“The emerging economies were expected to fuel this growth, including Saudi Arabia, China, Brazil and Egypt,” Baricordi adds.
Cross-border travel and the need for electronic multi-currency payments are the direct result of the number of travellers going up. Chinese spending on overseas travel increased 28 per cent in the first nine months of 2013. From ten million in 2000, China became the largest outbound tourism market in 2012, with 83 million overseas trips. Last year, this number grew to 97 million. It is expected that this year, the number will top the 100-million mark.
Multi-currency travel prepaid card products are on the rise, since they remove the risk of carrying a lot of cash and enable cardholders to lock in exchange rate at the time of loading to avoid fluctuations. UAE Exchange’s Gocash multi-currency prepaid card allows cardholders to load up to six different currencies from a bouquet of 15. MasterCard and Majid Al Futtaim Finance have signed a three-year exclusive agreement to expand prepaid solutions across the Middle East and North Africa (Egypt, Qatar, Lebanon and Oman).
“Credit card is still the most preferred product for travel cards, with this segment registering a growth of 25 per cent. However, other products are also competing in this space. Prepaid is smallest in size, but it is growing at a rate of more than 100 per cent Y-o-Y [year-on-year] in cross-border volumes,” says Al Kourdi.
Card majors have obviously seen the writing on the wall. More and more credit cards are getting rid of foreign transaction fees, which add about 3 per cent or more on purchases made overseas. In the US, Barclays has removed foreign transaction fees from some of its cards, while Delta Air Lines and Amex are removing foreign transaction fees from its cards, starting next month. Many hotel-branded credit cards have also removed those fees. In the UAE, Emirates NBD Dnata World MasterCard Credit Card offers zero per cent foreign currency transaction fee.
MasterCard reported a year on year growth of 40 per cent in gross dollar volume, for its prepaid card business across Asia-Pacific, Middle East and Africa for 2013. Much of this growth is attributed to significant partnerships announced over the past couple of years. The growth is attributed in part to significant partnerships announced over the past couple of years in the region. These include the OneSmart dual-faced loyalty and prepaid card with Air New Zealand, the Qantas Frequent Flyer MasterCard prepaid card, featuring a combination of loyalty and prepaid card in Australia.
Destination ME
The most significant announcement in the travel cards space this year has been Dubai taxis accepting credit, debit and Nol cards for payment in phases, starting February. “The taxi service sector is witnessing remarkable growth in Dubai, thanks to the increasing demand from the public, representing all social cross sections including residents, tourists and visitors,” Yousef Al Ali, CEO, RTA’s Public Transport Agency, said in a statement. “The demand is especially high during peak seasons when Dubai hosts a range of events such as conventions, exhibitions, fairs and other landmark events.”
The live system put in place by Network International charges the card immediately rather than the offline system, which is the norm in many other countries.
“This trend is only expected to grow in the region and there are various factors that are contributing to its success. Increasing popularity of local cities as international travel destinations, steady economic growth and evolving travel habits of residents in the region are some of the key drivers for the growth in demand for travel cards,” says Al Kourdi.
According to the MasterCard Global Destination Cities Index, Dubai continues to climb the ranks as an international travel destination. Dubai was ranked seventh-most popular city globally in terms of inbound international visitors in 2013, outranking cities such as Hong Kong, Barcelona, Milan and Rome.
At 10.9 per cent, Dubai shows the strongest growth in arrival numbers among the top ten global markets, with 9.89 million overnight visitors expected this year.
Among the Middle East and Africa’s top ten, Abu Dhabi (ranked seventh with 1.7 million visitors) showing the strongest growth rate, with an anticipated 16.1 per cent increase in arrivals.
“This incredible surge in visitor numbers has also been supported by the significant developments in the electronic payments industry,” says Al Kourdi.
Already in the UAE, the EMV chip-and-PIN technology offers dynamic authentication values for each transaction.
Baricordi says, “Mobility and cloud are other factors that will impact growth in the segment,” emphasising the use of mobile payments globally.
A new feature in the Android mobile operating system called Host Card Emulation is already in use. This allows any NFC application on an Android device to emulate a smart card, letting users wave to pay with their smartphones, while permitting financial institutions to host payment accounts in a secure, virtual cloud.
