The United Arab Emirates is defined by a
large number of high net worth expatriate workers. Because of this,
payment card offerings are notable for their generous array of
rewards and luxury services. However, the global economic slump is
expected to hit growth this year, as Victoria Conroy reports.
The United Arab Emirates (UAE) was
established in 1971 and is composed of seven emirates: Abu Dhabi,
Dubai, Sharjah, Ajman, Umm Al-Qiwain, Ras Al-Khaima and Fujeirah.
Although the UAE is considered an oil-rich gulf state, it is
actually Abu Dhabi that has the lion’s share of oil resources. The
emirate of Dubai has used the wealth generated by oil to build an
economy dependant on tourism and construction, fed by an inflow of
expatriate workers who have flocked to the UAE over the last 15
In July 2008 the population of the UAE was estimated to be
4.6 million, but the local population of 1.4 million is dwarfed by
the 3.2 million expatriate migrant workers, attracted to the region
by high tax-free salaries and sumptuous shopping and leisure
facilities where migrant workers can go to flash their plastic in
luxury retailers and in restaurants. Not only are locals
outnumbered by expats, but men far outnumber women, constituting
68.7 percent of the population in 2007. According to the UAE
central bank, around 74 percent of the population in the 15-64 age
group is non-national.
These demographic quirks have had a major
impact on the range of banking and payment services on offer in the
UAE. Because of the high per capita GDP (estimated to be $43,000 in
2008), local banks have had to get up to speed quickly on the
features and benefits that expat cardholders have come to expect as
standard on their payment cards, with a rich array of lifestyle
benefits and services attached. Also, because of the UAE’s
reputation as a tourist destination, international travel to and
from the UAE is frequent, resulting in many credit cards offering
including travel benefits as a standard feature.
Although cash is the dominant payment method,
representing 80 percent of personal consumption expenditure, the
penetration rate for payment cards is 1.8 cards per person. As of
December 2008, there were around 3.6 million credit cards in issue,
compared to 2 million in 2005, while debit cards in issue have
grown from 1.5 million in 2005 to nearly 4.5 million by the end of
2008, helped by the migration from proprietary ATM cards to
internationally scheme-branded debit cards.
However, growth in debit card numbers has not
yet turned into higher spending per card.
Vimal Kumar, head of cards at Mashreq Bank,
told CI: “The UAE market has one of the lowest usage rates
of debit cards at point of sale in the gulf region. As of the end
of 2008 annual usage at the point of sale was $2,250 per card which
is approximately 9 percent of the total volume on debit cards.”
Nevertheless, such rapid growth in card
numbers brings with it a unique set of challenges, particularly in
the credit card sector.
“The payment card industry is growing at a
rampant pace,” Kumar told CI. “In the last decade the card
numbers and billed volumes have grown by a compound annual growth
rate [CAGR] of 40 percent, and this growth has been driven by a
rapidly expanding customer base and high inflation. The
demographics, behaviours, connectivity infrastructure and fierce
and mature competitors are all augurs of a maturing and more
profitable card business.
“The UAE credit card market is estimated to be
one of the most profitable in the Middle East and North Africa
region, driven largely by high levels of spend and roll-over
balances. The estimated profit pool at the end of 2008 was in the
region of $350 million,” Kumar added.
However, even this rich gulf state is not
immune to the global economic slowdown. Property prices have
tumbled in recent months, unemployment is rising and many expats
are heading home, with much slower economic growth predicted for
the next two years. GDP growth is expected to fall to low
single-digit levels in 2009 and 2010, as the economic boom off the
back of high oil prices winds down.
Card growth levels are expected to slow down
considerably over the next two years, with borrowing levels
impacted by the economic environment and job losses.
As a result, credit card issuers in the UAE
are now bracing themselves for credit losses to escalate in the
Kumar told CI: “Given the scale of
the meltdown in the financial and real estate markets it is natural
to expect an escalation in the level of impaired assets in the
“The UAE has been witnessing rampant job
losses, especially in the real estate, construction and financial
services sectors and we believe this is just the beginning of a
long painful journey for organisations to restructure their
operating models to survive this difficult environment.
“Therefore we do anticipate higher level of
losses in our cards business and have been proactively preparing to
anticipate and deal with it.”
Mashreq Bank has responded by regularly
reviewing customer limits and exposure to over-leveraging.
“In recent months we have recognised the risks
associated with recession and job losses and have tightened our
belts by correcting exposure on cardholders in order to make sure
that they do not over extend their borrowing and manage their
finances sensibly,” Kumar said.
“It is also about how we work the margins in
making certain that returns on equity and return on capital are not
The importance of
In such a nascent cards market with
a seeming abundance of wealth, both local and foreign card issuers
have understandably become ferociously competitive in terms of the
features and benefits they offer on credit cards, and are also
becoming increasingly creative and innovative when it comes to
marketing and promotional campaigns.
It is not uncommon in the UAE for card issuers
to run competitions giving cardholders the chance to become instant
millionaires through prize draws, while those issuers with
travel-orientated propositions regularly give away air miles in
addition to the air miles accumulated through everyday credit card
Given that credit cards are typically held by
high net worth individuals, features such as round-the-clock
concierge services, complimentary access to first-class airport
lounges and dedicated customer service relationship managers are
also offered as standard benefits.
But at the same time, issuers are also
fine-tuning their pricing structures and value propositions to
appeal to targeted consumer segments. Segmentation among such a
wealthy cardholder base is a crucial element of acquisition and
retention strategies for UAE issuers, and what might work in
developed Western markets won’t cut it in the UAE. It is often the
case that standard credit cards in the UAE have many of the
features and benefits more commonly found on gold or even platinum
cards in Europe and the US.
When it comes to gold, silver, platinum and
premium cards on offer in the UAE, issuers there have definitely
raised the bar in terms of what they are prepared to give to
cardholders. Such cards are often only available to ultra high net
worth individuals and for annual fees running into hundreds of UAE
dirhams per annum. However, in many cases issuers will waive annual
fees provided the customer signs up for some additional financial
Loyalty programmes and co-branding are also
another way of standing out from the crowd, and several UAE banks
have partnered with major retailers or airlines to enhance their
card offerings and distribution potential.
But as UAE cardholders are now spoilt for
choice, issuers are looking to expand the range of partners outside
traditional industry sectors, and several issuers have now teamed
up with partners in the telecom and health sector of late.
The ubiquity of loyalty programmes has forced
issuers to rethink the way they reward cardholders too. A growing
trend of instantly redeemable rewards, such as cashback at the
point of sale, is becoming noticeable, with cardholders
increasingly wanting instant gratification instead of having to
wait to accumulate rewards such as air miles to be used at a later
Mashreq Bank’s Kumar told CI: “Aside
from the airline loyalty programmes, most loyalty programmes in the
UAE are not transparent and cardholders do not fully understand the
nuances of the rewards programmes whether it is related to ‘earning
“Many key banks offer cashback in the UAE but
cardholders realise very late that most of these schemes are tiered
and tied to certain minimum amounts of spend before it starts to
accrue. We have been witnessing a shift towards cashback loyalty on
credit cards, but these are mired in rules and regulations and are
not very clearly understood by the cardholder.
“To take advantage of shifting customer
preference, we recently launched the Etisalat Mashreq credit card
that includes a very powerful loyalty programme, giving customers
instant cashback in terms of free air time with no strings
attached. There are no minimum spend levels to be attained to get
cashback, no black-out periods and no delays in redemption.”
Kumar told CI that Mashreq is also
planning on rolling out a new integrated loyalty programme in the
near future that will reward customer behaviour across several
different product lines – not just their card account.
“This new customer loyalty programme will
create a new loyalty currency and will replace all stand-alone
loyalty programmes that are in existence at this point in time. Our
intention is to first create a good distance between us and our
competitors and continue to invest in this platform before we start
seeing tangible return on investment,” Kumar added.
The rise of Sharia-compliant credit
One area of segmentation that has
really taken off over the last couple of years is the
Sharia-compliant credit card. These products must adhere to the
tenets of Islam and charge no interest.
Sharia principles dictate that Muslims are
forbidden to participate in any financial practices or do business
with any money-lending entity that charges interest, known as riba;
invokes gharar, or uncertainty (most commonly in the form of
variable interest rates); or uses funds for maysir, or gambling.
The principal means for financial institutions to make money is
through a fee-based process, where variable fees are charged to
guarantee purchase payments to merchants or as a fee for the
provision of a credit facility.
Issuers have taken the opportunity to roll out
classic, gold, platinum and premium versions of Sharia-compliant
cards, and in 2007 the market saw the launch of the first Visa
Infinite Sharia-compliant credit card. Other offerings include the
‘Makkah’ card from First Gulf Bank, the region’s first unsecured
Sharia-compliant card, which enables the cardholder to earn
‘points’ towards a trip to Mecca, a religious obligation that all
Muslims are required to undertake.
Kumar told CI: “We are noticing
changes in customer preference towards Sharia-compliant card
products and have recently set up an Islamic banking division
called Al Badr which will enable us to give greater attention
towards introducing new Sharia-compliant products in this
EMV, contactless and
The first EMV-enabled card in the
UAE was launched in 2004 by Abu Dhabi Commercial Bank, an
unembossed MasterCard debit product.
The recent central bank request for all UAE
banks to migrate towards EMV-enabled cards is being driven by the
need to cut down on fraud, but some banks are utilising that
opportunity and chip technology to roll out more sophisticated
However, most magnetic stripe cards in the UAE
already allow the accumulation and redemption of loyalty points and
until now banks have not seen a clear compelling reason to fully
migrate to EMV, saying that EMV cards will only really take off
when customers see value in them.
Contactless is also making its mark in the
emirates – in 2006, Fransabank launched the first MasterCard
product with PayPass functionality in the region. And issuers have
wasted no time in implementing online authorisation services
Verified By Visa and MasterCard SecureCode.
When it comes to prepaid, initiatives such as
payroll and transit cards have been launched over the last few
years but the prepaid market is yet to take off.
Kumar explained: “The UAE is a very nascent
market for prepaid cards and the legal and regulatory environment
is not well defined yet. However, there is potential for growth in
prepaid card penetration in the unskilled workers segment where
salaries are paid out in cash because they do not hold a bank
account primarily because they are considered uneconomical by most
“The growth of prepaid cards in the UAE in the
coming years will be driven by the transport sector, especially the
metro rail and surface transport.
“As a bank we are evaluating prepaid salary
cards and some exploratory work is already in progress. We also
believe the metro rail and surface transport opportunity will
revolutionise the prepaid card and we are taking steps to
capitalise the opportunity as and when it presents itself.
“We believe that for a prepaid card to work it
is important to have a clear-cut business case that addresses the
problem we want to solve. The question left unanswered really is
that given the current economic environment, will banks have spare
capital to invest in developing prepaid card programmes?”
Bank and ATM operations
As of the end of 2008, there were 24
national banks operating in the country, with 611 bank branches in
total across the emirates. The number of foreign banks operating in
the UAE reached 82 in 2008, compared to 25 in 2006.
The Central Bank of the UAE operates the UAE
Switch service, which links the ATM networks of all banks in the
emirates, enabling customers of any bank to use any ATM. UAE Switch
is also connected to the ATM switch services in other gulf region
countries. The central bank recently decided to adopt global
Payment Card Industry (PCI) standards for UAE Switch, meaning that
all banks in the UAE will be required to migrate to EMV
In the first half of 2008, there was a sharp
increase in the number and value of financial transactions via UAE
Switch, with the total number of transactions rising to 17 million,
compared to 12.3 million in the first half of 2007, or an increase
of 37.2 percent. The total value of transactions rose to AED18.3
billion ($4.98 billion) in the first half of 2008, compared to
AED11.6 billion in the year-ago period, an increase of 57.1
Abu Dhabi Commercial Bank
ADCB’s debit card range incorporates EMV technology and a loyalty
programme on the Smart Debit product called TouchPoints, where
points are rewarded to cardholders for every retail purchase above
Double TouchPoints are given for retail
purchases made overseas. ADCB also offers premium debit cards, such
as the Privilege Club offering, which includes access to exclusive
luxury benefits and a dedicated relationship officer. There is also
the Excellency Premium lifestyle club, available on debit and
credit cards, offered to extremely high net worth individuals.
Its ‘Just Dip The Chip’ campaign offers
special discounts and benefits to customers who sign up for an
EMV-enabled credit card offering, on standard, gold and platinum
formats, with discounts available of between 15 and 25 percent on
selected merchandise, provided customers spend at least AED200.
Other credit card offerings include a card for self-employed
business people, and the Lulu MasterCard-branded proposition,
offering points redeemable at any Lulu store in the UAE. The Lulu
card is also free for life from annual fees.
For the quarter ended September 2008, ADCB
reported credit card loans and advances of AED1 million, up from
AED685,182 at December 2007 and AED459,405 at December 2006. In its
2007 annual report, ADCB reported that its credit card portfolio
grew by almost 50 percent faster than its peers in the market. ADCB
also reported 80 percent growth in customer acquisition and credit
card portfolio growth of 72 percent over the year.
It also launched one of the first contactless
cards in the region, with the ADCB Flash credit card on the
Real GDP growth forecasts (%)
Source: central banks, Emirates NBD
National Bank of Abu
NBAD offers free-for-life Visa and
MasterCard-branded credit cards for NBAD salary transfer customers
with a minimum salary of AED5,000. Non-NBAD salary transfer
customers need a salary of AED10,000 subject to one year of service
with the same employer. The NBAD Elite Visa Platinum card offers
luxury benefits such as complimentary use of airport lounges, free
travel accident insurance of $500,000, and dining discounts.
Its gold card offering comes with a credit
limit of up to three times monthly salary and has no annual fee,
and a selection of billing and repayment dates. Cardholders also
have the option to have a photo version of the card.
There are also regular promotions offering
merchandise discounts. NBAD’s loyalty programme, the
imaginatively-titled ‘Points’, is available on all NBAD credit
cards, offering one point for every AED1 spent using the card.
Points members do not have to pay annual fees on their credit
cards, and points can also be redeemed for gift vouchers for use in
selected retail outlets.
On the debit side, from February 2009, NBAD is
replacing its proprietary ATM card and the Cash Plus Global Visa
Electron-branded card with a MasterCard-branded debit card, and a
premium debit card available to Elite customers, both of which can
be used for internet shopping.
On the prepaid side, NBAD offers consumer and
corporate prepaid offerings, such as the Dubai eGovernment prepaid
card for government department online transactions and for everyday
retail transactions. It also offers the Visa-branded Cash Passport
prepaid card aimed at the foreign traveller segment. The
nabd@surfer is an internet-only offering that comes in either
prepaid or credit card format. It has an annual fee of AED25 for
customers and AED50 for non-customers of the bank.
Emirates NBD, the Middle East’s
biggest bank by assets, was formed in October 2007 following the
merger of Emirates Bank and National Bank of Dubai. Emirates NBD
posted a 35 percent increase in its credit card business in the
first nine months of 2008. Emirates NBD also has the largest ATM
network in the UAE, numbering 650 as of December 2008.
The entities comprising the Emirates NBD group
are Emirates Bank and Emirates Islamic Bank, Al Shaheen Club,
Network International, and Diners Club, along with asset
management, securities and other operations. Emirates Bank offers
meBank Visa and MasterCard-branded credit cards available to
consumers earning over AED3,000 per month.
The meLady segmented product offering has been
designed exclusively for women, encompassing current, savings
accounts, personal loans and a range of credit cards under the
meLady brand. Alongside special promotional discounts and travel
benefits, meLady credit cards come with zero percent interest for
the first three months and on balance transfers for the first three
months, plus membership of the meMiles loyalty programme, where
points have no expiry date. The cards come in silver and gold
format, with annual fees of AED150 and AED400 respectively.
The long-running ‘Discounts & Privileges’
loyalty programme was recently discontinued to be replaced by a
chip-based programme due to be rolled out in the coming months.
Al Shaheen, the banking unit aimed at high net
worth individuals, offers a platinum Visa credit card incorporating
concierge and golf experiences. Al Shaheen also offers Visa
Electron-branded ATM/debit cards on its current accounts.
Emirates Islamic Bank (EIB) offers a range of
Sharia-compliant card products – all cards are classed as charge
cards on the Visa platform, with a maximum of 55 days’ free of
credit. The cards are free of what are known as riba and gharar,
and come with a security photo feature. EIB is one of the few banks
in the Middle East to offer a Visa Infinite credit card, a
Sharia-compliant ultra-premium offering that doesn’t charge
interest. Cardholders instead pay a fixed fee per month allowing
them to use the card up to their approved limit. Cardholders
require a minimum salary of AED25,000 per month.
Its non-Sharia range of cards includes the
Skywards EIB credit card, available in gold and platinum formats,
in conjunction with Skywards, the frequent flyer loyalty programme
from Emirates Airline. Cardholders receive 1 Skywards Mile for
every AED1 spent on the card and the card also comes with a range
of travel-related benefits such as travel insurance and
complimentary airport lounge access. Cardholders are also entitled
to discounts at participating retail outlets.
Revenues for Network International, Emirates
NBD’s card acquiring business, continued its upward trend in 2008
by showing growth in operating revenues of 33 percent over 2007 to
AED348 million. The primary drivers of this growth were significant
increases in transaction volumes, comprising a 29 percent increase
in acquiring income and a 54 percent increase in processing income.
Network International now provides merchant acquiring services to
over 9,700 merchants and processes cards for 42 financial
institutions in the region.
Number of ATMs
Source: Central Bank of UAE, CI
Mashreq Bank’s Kumar told CI that as of December 2008, the
bank had over 450,000 credit cards in force in the UAE, giving it a
13 percent market share in comparison to its competitors. Mashreq
also has a large merchant acquiring business where it holds close
to 30 percent market share and leverages its acquiring business to
drive up spending on its credit cards.
Mashreq current accountholders automatically
receive an EMV-enabled Visa debit card as part of their current
account package. Premium current account customers also receive a
free Visa or MasterCard gold credit card. All Mashreq credit
cardholders are automatically enrolled into the MashreqPoints
loyalty programme, and earn 1 MashreqPoint for every AED1 spent on
Mashreq’s Millionaire credit card comes with
no annual fee and the option for cardholders to set their own
credit limits based on the level of their MashreqMillionaire
investment, along with rewards points redeemable at participating
The VIP credit card is a co-branded offering
with Virgin Megastore, offering roadside assistance, accident care,
and online and mobile services such as transaction checking and
bill payments. The card also offers free cinema tickets, discounts
on Virgin Megastore merchandise and travel benefits.
Mashreq also offers a range of Visa-branded
co-branded cards in conjunction with Etisalat, the UAE-based
telecom provider. Launched in June 2008, the Etislat credit card
provides customers with free talk time based on reward points every
time they shop using the card. The card is free for life for all
UAE residents irrespective of their nationalities and no income
documents are required and there is no minimum spend on the cards.
Customers will earn Etisalat ‘More’ points for every AED1
In its 2007 annual report, Mashreq stated that
the introduction of no annual fees for classic and gold credit
cards had helped to accelerate its penetration in the sector,
helping it to rank as the largest issuer in the UAE. Mashreq, as an
acquirer, also launched an integrated electronic cash register POS
solution which is EMV-enabled, along with a GPRS POS device, the
first of its kind in the UAE.
First Gulf Bank
First Gulf Bank offers a range of
standard, gold, platinum and credit cards aimed solely at women.
Cardholders are also offered the First Rewards loyalty programme
along with monthly promotions for shopping, dining and travel.
Once Platinum cardholders pay their first
credit card bill, they are offered shopping gift vouchers worth
AED550, redeemable at a range of luxury apparel retailers. They can
also avail themselves of points redeemable against utility bill
payments, and special golfing promotions with the Golf Fee card,
and free valet parking at shopping malls and Dubai International
First Gulf’s Ladies credit card offers a range
of value-added benefits and discounts at a range of
women-orientated retailers, and is aimed at ‘financially
independent’ women. Other benefits include increased spending
limits, auto breakdown assistance, insurance and access to the
First Rewards loyalty programme.
Over the course of 2007 and 2008, First Gulf
has become one of the fastest players in customer acquisitions and
customer spending. First Gulf has also launched a full range of
retail Sharia-compliant products and services under the ‘Siraj’
range, including the Makkah credit card.
RakBank offers a range of high
end-orientated credit cards, such as the recently-launched Geant La
Carte product, the Titanium MasterCard-branded range, and the
prepaid nmC MasterCard offering.
In February 2009, RakBank launched the first
debit card in the UAE to offer cashback on purchases, offering
between 1 percent and 2 percent of the value of the purchase made
with the card. RakBank was also the first bank in the UAE to
introduce the concept of cashback on credit card purchases a few
years previously. The RakBank debit card comes with premium
MasterCard privileges, dining pr