Credit card penetration remains underdeveloped in the Middle East’s wealthiest cluster of countries but there are signs that high net worth individuals are beginning to swap cash for diamond-encrusted cards in the six-nation Gulf Cooperation Council. Maryrose Fison investigates.
Bordered by the Red Sea the Arabian Gulf, the oil-rich cluster of lands which form the Gulf Cooperation Council (GCC) represents one of the largest concentrations of high net worth individuals in the world.
With a combined population of 39 million, the six-state bloc comprising Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates (UAE) boasts some of the highest national output levels and economic growth in the Middle East.
According to CapGemini and RBC Wealth Management’s latest global survey of high net worth individuals, published in June this year, the size of the high net worth individual population in Middle Eastern countries including some GCC countries rose 2.7 per cent between 2010 and 2011 to 450,000 individuals.
Wealth rose 0.7 per cent year-on-year to USD1.7 trillion in contrast to contractions in high net worth individual wealth levels in the five other regions surveyed. On a country by country basis, the per capita GDP in the GCC ranges from USD16,996 in Saudi Arabia to USD76,168 in Qatar.
Yet credit card use in this part of the world remains deeply underdeveloped with residents tending towards more traditional modes of payment. According to a recent survey conducted by MasterCard, only 10 per cent of payments are made electronically in the GCC states, while 90 per cent of purchases are conducted using cash or cheques.
Credit card penetration
Key obstacles to an increase to credit card penetration in this region include long engrained habits and until recently, strict laws on credit card eligibility and borrowing limits in certain GCC countries.
According to Tariq Atiq Kahn, assistant general manager for cards and eBanking at bank muscat in Oman, cash and cheques remain the preferred payment option in Oman followed by debit cards. “In Oman, the whole concept of electronic payments is still relatively new. Retail banks only started to issue credit cards to their customers around 1995,” he told Cards International.
“As a nation, the growth in the number of credit cards has been slow. By contrast, the speed of uptake in debit cards has been extremely fast. It is for this reason that Oman is considered more of a debit market than a credit market,” he says, adding: “The majority of people feel that when paying for their groceries or internet bills they should pay them off directly from their account, rather than through using the credit card. This is just in case they miss out on payments or get charged for them later”.
According to Raghu Malhotra, division president for the Middle East and North Africa, MENA, region of MasterCard Worldwide, deep-seated behavioural patterns also have a role to play in the slow uptake of electronic payments.
“Consumers tend to take out cash for very small, low-cost purchases out of habit. This leads to 90 per cent of transactions in this part of the world taking place via cash or cheque,” he says, adding that a growing body of evidence showed cash transactions could actually swallow up a sizeable portion of economic growth in individual countries.
“Multiple studies estimate the cost of cash to be 0.6% to 1.5% of a country’s GDP. This obstacle is being overcome as more consumers take advantage of electronic payments solutions,” Malhotra adds.
There are, however, signs that this trend may be changing. The number of credit cards issued in the Middle East and North Africa rose by 9 per cent in 2011 compared to a year earlier, according to MasterCard and online shopping, which heavily relies on credit as well as debit cards is on the rise.
Some 42 per cent of shoppers based in the UAE accessed the internet for online shopping in 2011, compared to 33 per cent in 2010, according to the most recent survey on card use published by MasterCard. The research further revealed that shopping online from mobile phones was increasing too, with 15 per cent of consumers surveyed saying they planned to do this in the coming months.
The greatest proportion of card-driven online shopping occurred on airline sites, with 78 per cent of UAE survey respondents preferring to purchase tickets on the web rather than physically visiting an airline’s branch outlet or a travel agent. In addition, 33 per cent of respondents says they used the internet to visit luxury or high-end goods sites.
Underpinning the surge of interest in this channel of payment was convenience, cited as an important factor by 82 per cent of respondents, followed by secure payment facilities, garnering 85 per cent of respondents.
Segmenting high net worth clients
But while credit card penetration remains relatively low compared to other parts of the world, banks and card providers have been fast to spy the potential of the high net worth segment of the GCC population.
Tariq Atiq Khan estimates that five-to-ten per cent of the credit cards issued by bank muscat in Oman are held by high net worth individuals. The total number of credit cards issued by the bank is 100,000, approximately one fifteenth of the number of debit cards issued. Over the coming two years, Atiq Khan aims to double the number of high net worth individuals holding bank muscat-issued credit cards.
At Doha Bank, Dr Seetharaman, group chief executive officer, calculates that between 15 and 17 per cent of the bank’s credit card holders are high net worth individuals. He says 12,000 credit cards were issued by the bank in 2011 and average expenditure on these cards was approximately QR 2,500 (£439.42 or €558.04) per month or QR 30,000+ (£5,274.18 or €6,698.61) per annum.
To this end, the bank has invested in its service offering to high net worth clients who hold bank muscat credit cards. Luxury travel arrangements and invitations to exclusive aspirational events and venues represent a key element of the bank’s credit card strategy for high net worths.
For very wealthy customers, the selection of a credit card is as much about the perceived image the card will bring them when they use it as it is about the perks and promotions offered with it, according to Atiq Khan.
“People appreciate being differentiated or being recognised. High net worth customers like to feel that they are carrying a credit card which differentiates them from the masses. They want to feel that when the card comes out of their pocket people will respect them or the merchant serving them anywhere in the world will immediately notice that a bank considers them as credit-worthy or worthy of a platinum or infinite credit card,” he says.
“Our marketing strategy tends towards identifying these clients from our existing credit card holders, and then upgrading them from the normal category to the higher level upon invitation. We don’t market our credit cards in news publications, except in a select few high-end magazines,” he adds.
Perks and Service
At Bank Muscat, Atiq Khan says high net worth customers receive their credit cards in designer packaging which is crafted to look exclusive. Gifts, such as a pen or wallet, are often included alongside the card as a welcome gift, and perks range from luxury travel to specialist booking services.
“We offer benefits such as complementary limousine pick-up and drop off at airports, tickets to movie premieres such as the latest James Bond film, concierge services where the credit card holder can ring a hotline at any time of the day or night and request anything from a medical referral to a table at the Paris Ritz. This year we have offered our credit card holders special offers related to the Olympics and the UEFA World Cup,” he says.
Such promotions and adds services are not isolated to banks in Oman. Doha Bank offers its own range of instant discounts and loyalty programmes to its credit card customers and MasterCard and has gone as far as building a range of precious-gem embedded credit cards for its high net worth customer base.
MasterCard’s Malhotra says credit card segmentation was a popular way to reach out to a variety of customers in the GCC region and tailor services to individual needs.
“In terms of high net worth and the ultra-high net worth consumers in the region, MasterCard has been working with its customer financial institutions and stakeholders to develop innovative products and solutions to cater to their unique lifestyle needs,” he says.
“For example, the Dubai First Royale MasterCard credit card is the first diamond-embedded MasterCard credit card in the region. It is issued by invitation only to ultra-high net worth individuals including members of the Royal families across the UAE, Ministers, senior government members, private sector employees and prominent businessmen. ”
He adds: “In the Middle East, MasterCard premium cardholders receive a number of benefits and rewards like airport lounge access, golf, fining and health and spa offers. A recent deal with the Jumeirah Group for instance offers premium cardholders signature dining experiences within the Jumeirah Group, where they can book 24 hours in advance and get confirmed reservation, a personal visit by the master chef and complimentary limousine pick-up and drop-off in Dubai.”
At Doha Bank, Dr Seetharaman believes quality experiences are what differentiate one credit card offering from another for high net worth clients. “The high net worth customers are driven mainly by service rather than price; hence it is the customized and personalized service which understands their needs and requirements that they look after before anything else,” he explained. “Visa and MasterCard are providing exclusive programs that can meet such needs to a certain degree; nonetheless, it is the personal experience that makes the difference at the end for this segment of customers.”
He adds that for credit card penetration to grow in the GCC region, the way they were perceived by wealthy individuals would have to evolve.
“Credit cards will need to be seen as more than just payment modes to grow within the high net worth customer base. Bundling credit cards with other services to enhance their utility, using cards to provide access to aspirational experiences will serve as catalysts for a faster growth in this category,” he says.
Over the coming year, GCC-based credit card providers are looking to develop their offerings through a range of channels. Co-branded cards, enhanced security offerings and promotions that harness the power of social media have all been cited as important drivers of change in the coming 12 months.
Dr Seetharaman at Doha Bank says he wants to expand his bank’s payment options and capitalise on its most lucrative customers. “The goal is to build on the existing strengths and introduce more successful card products and promotions such as co-brand, pre-paid cards. We are focussing on high net worth customers to derive higher profitability,” he says.
Increasing penetration of credit cards in the GCC is also closely related to the general public’s perception of security. Malhotra says enhancing the information storing capacities of MasterCard’s credit cards will be increasingly important in the promotion of cards in the region.
“The migration to EMV chip-enabled cards will continue to play a significant role in the establishment of the payments market in the Middle East,” he says. “The difference lies in the fact that in addition to having a magnetic stripe on the back, the EMV chip cards also feature a microchip that can store much more information than a magnetic stripe. Chip cards also hold more information in an encrypted form, significantly enhancing security by making information extraction less likely,” he adds.
Going forward, he anticipates social media will play a role in credit card promotions. “We anticipate that more rewards, deals and discounts will have social media elements in the future. For instance, as part of the Priceless Cities Initiative, MasterCard engaged heavily with consumers through social media channels such as Facebook and Twitter”.
While credit card penetration has some way to come in the GCC, the signs are there that more and more residents may begin using them as awareness campaigns, enhanced security and attractive perks make plastic payments more appealing for those looking for convenience.