Visa, one of the world's largest retail electronic payments network, reported on Thursday that transactions made through credit cards in the Gulf Cooperation Council registered a paltry increase of 0.6 per cent. Image Credit: Bloomberg

Dubai: More shoppers in the UAE are shifting to debit cards from credit cards, as consumers go slow on discretionary spending and banks continue to tighten lending standards.

Visa, one of the world's largest retail electronic payments network, reported on Thursday that transactions made through debit cards in the Gulf Cooperation Council (GCC) increased by 19.4 per cent in the first quarter of 2010, while credit card transactions registered a paltry increase of 0.6 per cent.

The company attributes the debit transaction growth to an increase in demand from banks wishing to extend their debit portfolio. Kamran Siddiqi, Visa general manager for Middle East, also said people are now paying closer attention to their spending habits, and debit cards offer a convenient way for them to ensure they don't overspend.

"There has also been increased education among consumers on the benefits of using debit cards as more than just an ATM card. Debit cards are more convenient than carrying cash or cheques, and as a buy-now, pay-now tool where transactions are automatically deducted from the cardholder's account, debit cards enable you to easily track your spending," Siddiqi told Gulf News.

Bank officials confirm that credit card usage is indeed slowing. R. Sivaram, cards business head for Emirates NBD said they have seen a consistent increase in debit card usage, both at ATMs for withdrawing cash and at retail stores.

"This is in line with recent studies which suggest that in the current economic climate, customers tend to use debit cards more frequently as it helps them control building up debt," he said.

Navneet Dave, head of cards at the National Bank of Abu Dhabi, earlier confirmed this trend, saying that a lot of people have ditched their cards in an attempt to manage multiple debts.

"A lot of people have closed their credit cards and we see more and more usage of debit card. That's the general shift happening now," he said.

Last year, Visa extended its debit business in the region by signing debit deals with various banks across the Gulf: ADIB, Emirates NBD, HSBC, Dubai Islamic Bank, Doha Bank Qatar, Bahrain Islamic Bank Bahrain, NBK Kuwait and KFH Kuwait.

Through these partnerships, Visa will support the banks to develop their debit portfolios and "enhance customer experiences by increasing usage capabilities".

"The signing of all eight debit deals in 2009 is a reflection of the growing popularity of debit in the region. We have seen increased demand for products such as debit which allows cardholders to keep their spending within budget while still providing them with access to their funds," said Siddiqi.

Financial difficulties have forced a lot of bank customers to default on payments. At the same time, customers cut down on discretionary spending which led them to use more personal funds rather than credit cards.

Wiser consumers

Experts said it will take some time before the situation in the banking sector returns to the "good old days", as both banks and consumers have become wiser.

"People don't forget hard times easily, so I don't think we'll go back to the old days," Dave said.

Louis Scotto, Doha Bank's head of retail banking said that while things look better these days, banks are not going to relax their rules anytime soon, and consumers will continue to play it safe.

"The banks lost a lot of money when the crisis occurred because never before have there been mass numbers — thousands of expatriates losing their jobs in a short period of time," Scotto said.

"Once the banks started seeing this increase in delinquencies, their collection efforts got far more aggressive and people that didn't have a job and didn't have any prospects of a job, panicked and left without paying.

"Now, banks have said we're not going to run into this trap again and they've gotten tighter in terms of who they give cards to," Scotto added.