Fulfilling your lifestyle needs

A rectangular piece of plastic has slowly turned into the banking industry's most lucrative business segment.

Yes, we're talking about the credit card market, which has morphed into a trillion-dollar industry with 641 million of them currently in circulation in the US alone.

The UAE has about 1.6 million cards, and a growth rate of 10-15 per cent per annum. Compared to other Middle Eastern markets, in terms of card penetration and state-of-the-art infrastructure, the UAE is a mature market. However, there is room for further development.

"Consumers and businesses across the Middle East are seeking faster, more secure and smarter methods of payment for an increasing array of transactions. While the Middle East market has shown strong growth, its potential is still relatively untapped with many countries in the region having low card penetration of the banked customer base. Our goal is to expand the acceptance and usage of cards," says Denzil Lawson, General Manager, Middle East and Levant, MasterCard Worldwide.

The UAE is one of the fastest growing economies globally, and continues to evolve from a predominantly cash-based society. "Competition between local and international banks has intensified with banks fighting to increase and retain market share. Nowhere is this more evident than within the credit cards sector, where consumer thirst for credit continues to grow to support lifestyle needs. This has resulted in credit cards gaining increased popularity as they become a more widely accepted payment mechanism at both customer and merchant levels," says Louis Scotto, Emirates Bank General Manager, Retail Banking.

EMV compliance

Network International is a card solutions provider in the UAE that deals with both Visa and MasterCard for card payments in the Middle East. It is the only third-party processing vendor in the region that is capable of providing banks, retail industry and financial institutions with complete EMV certified solutions as they migrate to Europay, MasterCard and Visa (EMV) International SmartCard technology.

These companies created a new standard, which ensures that all EMV branded smart cards and all smart card reading terminals work together to deliver global interoperability and enhanced security.

"With the EMV mandate in place, the inexorable smart card rollout is gathering speed at an astonishing rate in the region. Even banks that may have been holding off temporarily from issuing smart cards before the EMV deadline are now setting off on the long journey towards EMV compliance," says Ram Chari, General Manager, Network International.

With the pace of the EMV smart card rollout quickening, card-issuing banks have three options to choose from — prepare and personalise the cards in-house, outsource the whole process to a card bureau or keep the data preparation in-house and outsource the personalisation.

"The first option is often not feasible in terms of the huge investment required in upgrading infrastructure. Also EMVco, the body responsible for the EMV specifications has now set common standards for all card issuing banks that will further intensify competition. This makes the banks concentrate more on product development and marketing rather than data preparation and back office activities," says Chari.

In light of the above scenario, Chari says that outsourcing to an established third party processor offering secure, comprehensive and state-of-the-art card management solutions is the best way to meet dynamic customer demands, huge volumes and operational efficiency challenges while achieving speed-to-market and cost reduction.

The UAE credit card market is witnessing substantial growth. With competition intensifying between local and international banks, incentive packages range from free movie tickets and restaurant discounts to bonus points and more attractive cards. "Nevertheless, there is considerable room for development in the UAE, and across the MENA region.
Along the road towards EMV migration, card-issuing banks in the Middle East should now start considering other developments that are already being enjoyed by our counterparts in Europe and Far East, such as the contact-less cards that allows for low value transactions to be made by a radio frequency authentication using the chip.

"Another advancement is the smart card based e-commerce and internet banking transactions, which help the user avoid the security dangers posed by computer hacks,"
says Chari.

Luring customers

To keep up with the competition, banks are offering incentives to lure customers. "RAKBANK is growing at a much faster rate than the industry growth rate owing to several innovations such as the introduction of the first free-for-life credit card, first all-round the year usage programme where cardholders get a chance to win Dh1,000,000 every three months. Our Titanium credit card also offers cardholders up to two per cent cash back on money spent," says Anil Chander, Head of the Credit Cards Division, RAKBANK.

The bank's latest promotion offers cardholders 12 chances to win their annual rent back-up to Dh50,000 just by using their RAK credit card for a minimum of Dh500.

HSBC recently launched a co-branded MasterCard card with Etihad Airways. "The card targets the affluent travel segment and offers a wide range of travel-related benefits such as free priority pass membership with unlimited access to more than 450 airport lounges worldwide and eGate functionality allowing fast track immigration at airports in the UAE," says Thimal Perera, Senior Cards Manager, Middle East, HSBC Bank Middle East Limited.

Banks previously dormant are becoming retail-focused and increasingly aggressive, particularly within the cards sector, due to the high yield and demand for instant credit in the market. The marketing strategies of banks revolve around their core theme of customer acquisition and retention. While some banks reel in customers through low rates, others push value-added services.

"Due to fierce competition, banks are moving towards free cards for life or for the first year, building balances on their cards portfolios through aggressive balance transfer and loan on card programmes, including giveaways and lower interest rates. Interestingly, while some banks are lowering their interest rates, most major players have increased their rates indicating a huge split in customer preference and habits. Banks are also moving towards pre-paid cards and other products to activate other channels of revenue," says a spokesperson at ADCB.

Debt control

William Keliehor, Citibank's Cards Cluster Business Head, for Pakistan, the Middle East and Africa, says that banks have a responsibility not to over -extend credit to customers, as this can lead to debt spiralling out of control.

Experts say there's no single magic number when it comes to the number of credit cards a person should carry. Rather, scrutinising how much you spend and how much you can pay off can answer the question. But there is an upper limit, the more cards you have, the bigger risk you carry for racking up debt.

According to Steve Bucci, Bankrate.com's Debt Adviser, Columnist and President of Money Management International Financial Education Foundation, the average person carries 11 credit vehicles. Typically, seven are different types of cards and four are instalment loans for cars, furniture, student loans or mortgages. "A good rule of thumb is to keep two to six credit cards. Make sure the credit cards you have are Visa, MasterCard and American Express because merchants will take almost any of them," he says.