Consumer spending in the UAE and Gulf are still holding up well, even against the backdrop of constant rate spikes. And payments are going nearly all contactless. Image Credit: Shutterstock

Dubai: By now, interest rate hikes represent a fact of life for consumers, here and everywhere. However much of factoring in they do after each hike, for the majority of consumers, those additional costs do represent a burden. And potentially lead to a marked slowdown in spending.

But is that how the UAE shopper is reacting? No one is better placed to get a sense of this than Visa, the payments giant, and when it comes to UAE and Gulf spending patterns, the company’s regional chief, Dr. Saeeda Jaffar, senior VP and Group Country Manager – GCC.

Given the rate hikes, are you constrained how you can mitigate the cost for cardholders? Or would you have merchants offer incentives to offset the cost increase?

The scenario of an interest rate increase introduces additional uncertainty and requires a revision of existing business models. But Visa’s solutions are designed to adapt to a changing market environment. To mitigate the cost for cardholders, we have solutions that spread the increased cost factor evenly across all participants, maintain ecosystem balance, and provide an attractive customer proposition.

Visa’s suite of Buy Now Pay Later/instalment provides a range of tools for different business models, ensuring an economic balance between all stakeholders and players.

How true is it that customers are turning all cautious about spends?

We do not believe that this is the case. On the contrary, consumer spending in the GCC remains robust.

"For the UAE, there are few high-frequency indicators that specifically track consumer spending, but our own Visa data show continued strong spending momentum among consumers." Image Credit: Supplied

In Saudi Arabia, consumer spending increased 13.2 per cent year-on-year and 4 per cent month-on-month in August, with transactions on PoS (Point of Sale) increasing 21 per cent year-on-year, while cash withdrawals declined 1.4 per cent year-on-year, reflecting the continued shift from cash to cards.

In Kuwait, consumer spending (sum of the value of transactions on POS and ATM cash withdrawals) increased by a whopping 28.5 per cent year-on-year in Q2-22.

Aren’t BNPL platforms in direct competition with Visa and other payment providers? Because BNPL allows customers to pay instalments at 0 per cent?

BNPL platforms have been instrumental in changing consumer buying behaviour by making small to mid- ticket purchases more affordable, easier, and more transparent. We see this behaviour change as an opportunity rather than a threat.

While non-traditional players meet the credit needs of consumers who are new to banking or credit - by allowing them to purchase desired items immediately - financial institutions continue to play a central role in the lifecycle of BNPL transactions. By facilitating the repayment, which in the UAE, for example, is done exclusively through debit or credit cards.

Therefore, payments and card companies should find a way to draw the right synergies from this growing trend.

Our Stay Secure data shows that in the UAE, more than three quarters of consumers are familiar with BNPL, of which over a third have used it in the past. An average of 65 per cent said they would be likely to switch stores or online shopping sites or apps that offered a BNPL option, demonstrating the need for more retailers to consider offering new financing options.

BNPL Lenders’ typical target customers include new-to-credit or new to banking. Most of them are Millennials and Gen Z, already the largest demographic among BNPL users, many with limited or no banking experience. Most of these consumers, who have no experience with traditional credit products (or do not qualify for credit/loans), are showing interest in instalment loans for a specific transaction.

"Millennials and Gen Z value affordability (no-fee rates like Pay-in-X, budget management) and convenience (instant virtual issuance, a card that can be used anywhere), as offered by our new BNPL product - Visa Flexible Credential offers."

While switch from cash to card and digital has helped, has growth seen during 2020 and H1-21 subsided?

The GCC is still one of the fastest growing regions in the world when it comes to cash-to-card conversion, outperforming developed markets by more than double. We expect this trend to continue.

Today, more than 96 per cent of what used to be F2F (face-to-face) transactions in GCC are contactless. Saudi Arabia rose from just 4 per cent in 2017 to 97 per cent of transactions today. In UAE, 8 in 10 transactions are contactless.

Do you see cashbacks from retailers as a major incentive in the current market environment?

In today's world, consumer behavior is driven by the need for instant gratification and clear value. Cashback offers both.

It is also the simplest form of reward for the end consumer. Simplicity is important to consumers when they evaluate offers and CVPs today. There are no complex point conversions, no categories to sign up for - you insert your card and get cashback at a stated value.

And it's becoming more universal in the payments ecosystem. Issuers are using it for leading payment products with cashback CVP and merchants are using it for their loyalty programs.

Most cashback programs are successful because they have high customer appeal and this contributes to strong acquisition and product usage. Flexibility of cashback programs to increase appeal for any segment or spend category is also an important factor in influencing buying behavior.

More consumer awareness for crypto payments
Has Visa’s regional operations decided a timeline for the launch of any crypto related payment options?

Crypto is a trend we cannot ignore. The use of cryptocurrencies as digital payments is increasing worldwide, and certainly the trend is well on its way to reach the Middle East after the relevant regulations are put in place.

The number of people using credit cards linked to cryptocurrencies is increasing. Visa reports crypto transactions worth around $3.5 billion in 2021.

Around 400 million people have bought cryptocurrencies worldwide. At Visa, we see ourselves as a network of networks, and crypto-networks are definitely one of the networks where we want to facilitate the exchange of money. That's why Visa has partnered with over 75 crypto exchanges.

What we have done with a lot of exchanges is we have enabled users to issue Visa cards that contain cryptocurrency and enable them to go through the 80 million merchants around the world that accept Visa and use their cryptocard to buy any product.

Our Stay Secure study shows that in the UAE, less than a quarter of respondents said they were comfortable using newer forms of payment such as cryptocurrencies to pay for goods or services, while 17 per cent did not know about cryptocurrencies. (This is) an indication that consumers need more education and awareness before cryptocurrencies can evolve as a common and trusted form of payment in the UAE.

However, in the UAE a few retailers like Day To Day Hypermarket and grocery delivery service YallaMarket has now started to accept cryptocurrencies as a form of payment.

But consumer education and clear regulations are critical to greater adoption of cryptocurrencies as a means of payment in the UAE.