Interview: Credit card usage in Middle East to grow rapidly

Worldwide, consumers are increasingly choosing the convenience and security of payments by card rather than cash or cheques. With new and innovative products and services from banks, the use of cards is projected to grow further.

Visa International is the world's leading payment brand generating $3 trillion in annual card sales volume and accepted in more than 150 countries. Kamran Siddiqi, Visa's general manager for the Middle East, predicts rapid growth in regional card usage.

He spoke to Gulf News on card usage, card spend, the risks and security and related issues.

Gulf News: How has the payments business been for Visa in the last few years?
Kamran Siddiqi: We have seen strong growth in card usage over the last few years with the region's member banks introducing innovative card products and consumers beginning to take increasing advantage of the convenience and security of electronic payments.

For the 12-month period ending September 2003, over 200 million transactions were made by Middle East cardholders, registering a 50 per cent growth compared to the period ending September 2001. This growth has been repeated in terms of card numbers with double digit growth owing to the wider awareness created by our membership of over 70 banks that issue Visa debit and credit cards in the Middle East.

Considering the increasing number of credit card holders, there must be rapid growth in card usage as a percentage of overall consumer expenditure?
In the Middle East, in line with other emerging markets, the share of card payments as a percentage of total consumer expenditure is increasing and thus credit cards are gradually serving to replace cash. Figures show that there is a direct correlation between the growth in consumer expenditure in the region and the growth of card usage and the level of individual customer spending over a period of time.

Statistics published by the US-based Global Insight have shown that Visa Card expenditure has had an important role to play in the growth of total Personal Consumer Expenditure (PCE) in the Middle East. The multiplier effect of rising PCE has positively impacted the pockets of consumers who, in turn, have demonstrated a preference to pay increasingly by cards. The expenditure using Visa cards has outstripped the incremental growth rate of PCE in the region indicating that Visa's share of total PCE is rising faster than the growth of PCE itself.

Moving away from cash to automated electronic payments not only boosts bank deposits, thereby increasing the money available for commercial loans in the region but also creates greater transparency and accountability which in turn leads to stronger efficiencies and economic performance.

How do you see the business in the next three to five years?
Consumers are becoming increasingly more aware of the convenience and security that card payments bring them. As the region becomes more technologically and financially advanced, consumers are becoming more sophisticated and using cards as everyday payment tools. We believe this trend will continue and that the consumer spend through cards will continue to replace cash in future.

What is your assessment of card spend in the UAE and other GCC countries in terms of average card spend, number of cardholders and bigger markets in the GCC?
Cash continues to comprise the largest method of payment, but as cardholders are increasingly choosing to pay with cards and as member banks continue to launch new and innovative card products, the cumulative card spend is growing rapidly year on year. This can largely be attributed to the continuing shift in cardholder spending patterns to increased daily use of cards.

While expenditure using Visa cards has witnessed an encouraging rise over the years, there has also been an important trend of lower value retail transactions. Unlike in the past, when cards were primarily used for high-value purchases and ATM withdrawals, increasingly they are used for smaller payments such as groceries, clothing, petrol and furniture.

The average value per transaction in the Middle East has declined by 3 per cent in 2003 compared to 2002, clearly demonstrating the growing importance of Visa cards as a daily financial tool.

As the most populated country, Saudi Arabia is a key growth market with the highest number of cards and the largest potential for card penetration. But in a smaller country such as the UAE, an average of one in every two people has a Visa card and the frequency of card transactions is high. But all markets are fast developing and increasingly receptive to new technologies.

Non-payment on time and credit card fraud have been matters of concern among banks. Comment.
Visa does not want cardholders to fall into unmanageable debt. Visa cards provide easy and secure payment options. By making the optimum use of funds by balancing expenses between various card products, cardholders can manage their finances more effectively. Additionally, by using cards, there is a clear record of all transactions which when checked and monitored regularly can help cardholders control their spending effectively.

On fraud, Visa worldwide fraud levels are falling and Visa is doing everything to support this trend. Together with our member banks, Visa combats card fraud with sophisticated technology and with the aid of local law enforcement to keep the cardholders' risk as low as possible.

Two years ago, Visa CEMEA introduced an on-the-ground fraud team with the appointment of dedicated fraud managers based in South Africa, Russia, Poland and the Middle East. Since then, Visa Middle East has appointed another risk manager to further support the market. In these markets, Visa has worked closely with member banks, both individually and at market level, to encourage cooperation, information sharing and the creation of common frameworks to combat fraud.

Any other steps?
Alongside ongoing collaboration between Visa, its member banks and local enforcement agencies to fight fraud and develop effective risk management strategies, a combination of global and region specific standards and measures have helped and continue to help us thwart card criminals in the Visa CEMEA region. Among the most positive methods to combat fraud has been in the implementation of chip technology and smart cards. Smart cards are already available in some markets and fast spreading across the Middle East through the efforts of our member banks.

Your views on credit bureaus in the GCC countries and any such bureaus being set up with Visa's cooperation?
There is already a credit bureau in Kuwait and some other countries are also considering introducing them. Visa International greatly supports these initiatives. Visa has been very active in supporting the establishment of a credit bureau in Egypt where, based on a request from our member banks in the country, we commissioned independent consultants to assist on the project.

The newly developed Visa Project Plan is an important resource tool that helps undertake a feasibility study for the establishment of credit bureaux anywhere in the region. It explains how to research the availability and ownership of existing