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.
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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.
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By GlobalData
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.
Future trends
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.
