Plastic is growing in the Middle East with the two leading global brands—Visa (12 million card holders) and MasterCard (undisclosed)—dominating the regional market.
During the 12 months to September 2006, Visa subscribers increased 23%; card sales value rose 22%, while retail sales volume went up 32%. In its results for 2006, MasterCard reported a growth of 46% in issued cards and a 34% increase in value of purchases, to $18 billion, across the South Asia, Middle East and Africa (SAMEA) region.
Denzil Lawson, MasterCard’s general manager for Middle East and Levant, told Executive that as of December 31, 2006, the company’s partner banks had issued 817 million cards for the brand worldwide, an increase of 12.3% over the same period in 2005.
“There is a huge potential for the growth of the payments industry in the region, and we expect that the usage of credit cards will further accelerate as consumers have a greater comfort level about making payments by using their credit cards,” Lawson said.
The United Arab Emirates is a particularly good market for growth in electronic payments. Although it is still a predominantly cash-based society—as are most Middle Eastern countries—it is more mature than others in the GCC in terms of card penetration, acceptance and infrastructure.
But Lawson noted that while the 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.
Among recent developments, local governmental bodies in the UAE have shown enthusiasm for automating payments through Visa acceptance—such as the Traffic & Licensing Department, and the Dubai Naturalization and Residency Department E-company.
Dubai eGovernment has teamed up with National Bank of Abu Dhabi (NBAD) to launch a co-branded Visa card that can be used for both eGovernment and day-to-day transactions. The promoters of the service say the new card provides a secure way for both individuals and corporations to conduct e-payment transactions with government departments.
According to MasterCard, the market in the Middle East is receptive to segmentation and this has enabled it to work on some innovative collaborations offering the cardholders card choices and benefits which are meaningful to them.
Ranks of Spending
According to Visa, Saudi Arabia ranks first in Visa card spending in the Middle East followed by the UAE and Kuwait. “GCC cardholders are increasingly taking advantage of the convenience and security of cards for daily shopping,” said Kamran Siddiqi, general manager for Visa International Central and Eastern Europe, Middle East and Africa (CEMEA) in the Middle East.
However, there is a downside. Credit cards can be just too convenient, with many customers forgetting just how punitive card companies can be with late payments. More than one emerging credit market has shown that a rapid rise in credit card market penetration often is followed by serious increases in consumer debt levels and, all too often, defaults.
Credit vs. Debit
The volume of credit card sales in the region is still a drop in the bucket, as MasterCard’s SAMEA turnover of $18 billion demonstrates when compared with the brand’s worldwide transactions, which totaled almost $2 trillion in 2006, generating Gross Dollar Volume (GDV) of $1.9 trillion, an increase of 14.9% over 2005.
“There are is debit card opportunities in Lebanon and Egypt, as well as the opportunity to increase the banked population,” MasterCard’s Lawson said. “Debit cards in the Middle East are predominantly used for ATM transactions. Mature markets see (point-of-sale) growth rates outstripping ATM rates.”
According to statistics provided by Visa International, the ratio of Visa debit card users to credit card users in the GCC is 4 to 1. Statistics also showed that the volume of retail purchase transactions with usage of Visa debit cards is 50% higher than the volume of transactions using credit cards.
That is good news for the card issuers, since credit cards harbor more earnings options and generate better profits to issuers than the debit cards with their remote risk opportunities.
The Visa card business in the UAE has been growing by more than 25% year on year over the last few years, and Visa’s Siddiqi said that by moving away from cash to automated electronic payments, bank deposits are deepened, thereby increasing funds available for commercial loans in the region—a driver of overall economic activity.
“The process also allows for greater transparency and accountability leading to stronger efficiencies and better economic performance,” he said, claiming that Visa’s role is beneficial not only to the financial services sector but also to the economy as a whole. “Recent studies have shown that card payment is a catalyst for economic growth and can help grow a nation’s GDP by 0.5% to 1%,” he added.
Fraud prevention
Although credit card companies are doing all they can to combat illegal activity by introducing chip-and-pin and security numbers, some credit card owners still appear to lose all sense of logic when it comes to giving people confidential information about their cards.
Commenting on fraud, Siddiqi said that Visa takes pride in the fact that the level of fraud associated with Visa card transactions from cards issued in the Middle East is currently one of the lowest in the world.
“This stems from a variety of reasons including the ongoing collective efforts of the industry as a whole. From Visa’s end, we support our member banks with product and technology development and risk management of online payments,” he said, adding that Visa is also actively involved in fraud forums and seminars with both member banks and local enforcement authorities.
“Constant innovation in new technologies such as chip cards also helps to mitigate the level of card fraud risk,” Siddiqi said.
In Lebanon
Economic growth and disposable incomes in the Gulf region are larger than the respective figures in the Levant and North Africa. Between heavily underserved credit card markets such as Egypt or Algeria and the frontrunners in plastic payments in the GCC, Lebanon occupies a position in the middle.
Figures released by Lebanon’s central bank show that the number of credit and debit cards issued at the end of September 2006 reached 1.257 million cards, down 1.9% from the second quarter of 2006, but up 10% on the year.
Banks—especially the retail-focused banks in the top segment of the market such as Audi, Byblos, Fransabank, and Credit Libanais, as well as foreign banks HSBC and Standard Chartered—have ridden the local credit card train in Lebanon for a good while now, building their card programs around the standard parameters of staggered spending limits and special feel-good factors for the wealthiest and most profitable customer groups. But the Lebanese banks have also developed lifestyle cards and co-branded cards that appeal emotionally to air travellers, fashion fans, cigar smokers, compulsive mall goers, or simply central bank employees.
Payment card usage by the resident card holders in Lebanon increased 24.2% to an average monthly amount of $44.4 million in the first nine months of 2006 when compared with the same period in 2005. With an increase of 4.01% to about $850,000 in monthly average, card usage by visitors and non-residents in Lebanon showed much lesser growth last year, hardly surprising in light of the tourism malaise caused by the war last summer.
