Cash accounts for around 90 percent of most transactions in the Middle Eastern region, while cards as a payment method are generally distrusted by the local populations. Brian Quarrie, managing director of First Data in the Middle East, speaks to John Hill about the region’s card market development.
Despite a particularly tough year in the payments sphere, many industry figures have been touting prepaid as a product with great potential to produce revenue. Nowhere is this more prevalent than developing countries such as the Gulf Cooperation Council (GCC) states, where a combination of a largely unbanked immigrant workforce and government mandates specifying all wages must be paid into an account has lead to a massive market for prepaid products.
Brian Quarrie is managing director of global payment processor First Data’s Middle East operations and explains that, while there is certainly scope for development of the card market in the region, there are several issues that need to be addressed beforehand.
“Government mandates in the United Arab Emirates to end cash-based salary payments in favour of electronic payments have created exponential demand for prepaid products,” Quarrie told CI.
“An electronic system for wage payment brings transparency into the system and allows authorities to monitor salaries and wage payments, thereby reducing disputes pertaining to non-payment or under-payment of wages.”
Global networks for local populations
There are similar challenges in countries like Pakistan, where the majority of the population is unbanked, but there is a need to distribute funds securely, quickly and transparently, which means there are certainly opportunities for building networks that can deliver locally to their population.
“There is a potential for some consolidation across the retail banking space and some rationalisation in terms of those institutions looking at their costs, and what they want to be in three-to-five years’ time,” Quarrie added. “I think there’s going to be some dramatic changes in terms of how banks position themselves in the market, the products they offer and also their demographic focus.”
“Financial institutions in countries such as Saudi Arabia and Kuwait took action prior to the economic downturn to try and limit their exposure to consumer credit risk. Part of this was due to central bank regulation of the debt burden ratio for both cardholders and card issuers during the past three years. While these countries are currently experiencing small and steady growth, they should be in a strong position in 18 months time.”
Quarrie adds that aside from prepaid, there is potential for loyalty applications to grow across all sectors of the financial services industry, in order to maintain the ‘stickiness’ of clients, and also there is potential for growth in risk management.
More work needed in acceptance
Many of the local and international payment players in the GCC and surrounding areas are trying as best they can to both promote and educate the mass market about card usage and electronic payments. Despite these attempts, Quarrie thinks there is still work to be done in terms of acceptance.
“The region is fairly diverse, but, in general, ATM coverage is still growing and developing,” he told CI. “Card acceptance and demand is becoming greater, especially in countries such as Saudi Arabia and Pakistan, which have bigger populations. Payments infrastructure in the region has surged in the last five years with the UAE leading the region, because of the high numbers of tourists who require a standard payment method. In contrast, the situation hasn’t changed substantially across many other Middle Eastern countries and Pakistan.“Cash still remains king here. Around 90 percent of transactions are cash-based, so while there is room for growth, we have to take into consideration these are highly regulated markets, and we don’t have the ability as we do in western Europe to build out businesses on the POS and ATM side as easily.”
Outsourcing a major opportunity
Having recently signed a deal with both the International Bank of Qatar and the National Bank of Kuwait for global issuing and consumer finance processing under the First Vision platform banner, Quarrie believes there is a burgeoning market for outsourcing in the region.
“The opportunity for outsourcing has definitely opened up,” he told CI. “Very few financial institutions considered outsourcing in the past, and when they did it tended to be mainly around credit card and electronic processing fees, which is partly a result of the complexity of local regulation. Now, with the economic downturn and growing compliance costs, many more institutions are looking to outsource a range of their non-core activities to control costs and improve efficiencies and performance.”
Various regulations in the Middle East area have meant some international card issuers and processors looking to move in have been left out in the cold, unable to follow their traditional business models. Quarrie thinks this could mean a much more egalitarian approach could be required.