Healthy spend is a sign of a maturing financial culture

When we talk about resilient economies that are able to withstand international upheaval in an increasingly globalised world, robust domestic spending comes up as a key factor. Instead of viewing spending as a threat to future well-being, a confident, secure consumer remains calm in an environment of continued prosperity, and inches up discretionary spend to match growing aspirations.

With this in mind, a look at spending trends by UAE-issued cards over the past two years give us cause for confidence in the economy.

The numbers collated by Network International’s data scientists show that UAE card spend has not only remained the highest by far in the country, but it has also been the most stable. The swing factor between the lowest and highest monthly spend in 2014 and 2015 for UAE cards was 1.35x, compared to Russian cards’ 18.19x at the other end of the scale.

To put that into the perspective of volumes, the lowest monthly spend by UAE cards in two years was Dh3.88 billion and the highest was Dh5.24 billion. The respective numbers for Russian card spends were Dh12.55 million and Dh228.37 million, a massive swing.

We know for a fact that lower oil prices have wrought havoc on Russia’s economy and currency, leading to a plunge in spending. Conversely, in spite of similarly being an oil producer, the UAE has withstood crude’s weakness, and this is evident from the unwavering rate of consumer spending.

The swing in other countries’ spending in the UAE has ranged over the past two years from a factor of 1.87x for Oman, 1.95x for the United States and 2.12x for Bahrain, all the way to Nigeria’s 10.84x and Angola’s 16.47x. Clearly, the more stable the national economy, the more steady remains the consumer spend.

Positive expectations

Spending trends are not just indicators of confident households with positive expectations about the future, but can also in themselves lead to economic growth, thus reinforcing the positive expectations. Talk about a virtuous cycle.

Analysts who examine China’s economy in its own context rather than its impact on the world are not worried about the country’s future, based on the fact that both size and complexity of domestic spend are increasing. Growth in annual spending on discretionary categories in China is forecast to exceed 7 per cent between 2010 and 2020, while spending on necessities is expected to grow at the same rate as the GDP, or 5 per cent, according to McKinsey.

The picture is the same in India and in the US. Data released in February 2016 show that, contrary to fears of another looming recession, consumer spending in the US in January remained consistent. Retail sales excluding automobiles, gasoline, building materials and food services increased 0.6 per cent in January after an unrevised 0.3 per cent decline in December 2015.

In contrast, during the economically tough period between 2007 and 2010, real consumer spending in the US declined by 8 per cent, as approximately 9 million jobs were lost during that period.

Clearly, consistent spend by domestic consumers is vital to keeping the economy ticking. And with the UAE’s spending swing factor at a low 1.35x, the current strength and the future confidence in the country’s economy are manifest.

Tracking economic strength

As a payments processor, we also see that debit cards are growing at a much higher rate than credit cards, indicating that more consumers are spending what they have rather than getting into debt. As an acquirer, it bodes well for us too, since they command the same pricing in our geography unlike in other places where debit is cheaper than credit.

Patterns revealed by credit, debit and prepaid card data are not merely tools that allow us to measure and track economic strength or consumers’ spending habits. This data also provides merchants with valuable information and pointers that help decide marketing approaches, inventory mix and other business strategies.

Proactive merchants and financial institutions in turn become part of the consumer success story by providing incentives that underpin healthy financial habits. The consumer is doing her bit by indicating confidence in the UAE’s economy and boosting business. It is up to us to ensure that this confidence is rewarded.

Bhairav Trivedi is Chief Executive Officer, Network International.