The Middle East is regarded as
one of the world’s most promising regions for prepaid, with a high
migrant population and a shift towards card-based payroll payments
for casual workers. Distribution and the availability of reload
networks remain the main prepaid challenges.
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Distribution, education and revenue
models should be the main focus of the Middle Eastern prepaid
industry in the next year, according to industry practitioners.
A VRL/Cards International
roundtable held in Dubai, sponsored by Visa, brought together some
of the UAE’s leading banking executives to debate how the industry
can position itself for future growth.
Prepaid cards are considered to
have exceptional potential in the Middle East. Around 8 million-10
million prepaid phone cards are registered in the UAE and 9 in
every 10 people understand the concept of prepaid.
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By GlobalDataThere have already been numerous
successful product launches.
They include Sharjah Islamic Bank’s
‘Jeans’ youth card; Union National Bank’s gift card tie-up with
Dubai’s Ibn Battuta Mall; and Emirates NBD’s iVESTOR cards for
receiving dividend payments, an attempt to engage the affluent in
prepaid.
These have been the highlights of
the early stages of developments in Middle Eastern prepaid. The
roundtable in Dubai provided an opportunity to discuss what
measures can be taken to help the industry grow further and foster
the growth of a new range of innovative products.
Issues concerning distribution,
education and business models proved the main focus.
Distribution and
infrastructure
Distribution and infrastructure
were identified as one of the key areas needed to promote growth in
the prepaid market. Prepaid customers need to be able to transact
and reload their products in order for banks to benefit from
increased transaction volumes and fees.
One area where this looks set to
improve is at the point of sale (POS). Network International, which
has around 65 percent of the merchant acquiring market in the UAE,
is adding top-up capabilities to its POS network, enabling
customers to reload cards more easily.
Network International’s scale will
mean acceptance problems should become less of an issue when the
software is made available across all of the merchants under the
Network International umbrella.
Another way to improve distribution
is by investing in training staff. UAE banks have in the past
invested heavily in technology and marketing, but were then let
down by failing to educate those handing out or selling the
cards.
Clearly, staff training is
important an important element of successful prepaid programmes –
unless they understand the benefits of the products themselves, it
has hard to convince prospective consumers of their merits.
Gift cards are also being issued
profitably at Union National Bank thanks to a tie-up with Dubai’s
Ibn Battuta Mall. One of the benefits of prepaid is that non-banks
can distribute the products on behalf of financial institutions,
potentially giving them far greater reach.
Education
As well as educating banks and
staff, consumers need to be educated more about the benefits of
prepaid. That is whether they are everyday consumers or corporates
which could be interested in payroll products.
Consumers may be aware of the
concept of prepaid, but are they familiar with the idea of prepaid
cards?
Research from TNS Global suggests
that many consumers recognise prepaid in a telco or mobile phone
context, but fewer associate prepaid with financial services
companies or with card-based products. In particular, it is
important to differentiate prepaid from credit and debit products
so that consumers can see the benefits from taking the cards.
The UAE typically has a big
appetite for credit-based products, so highlighting the different
options prepaid can provide is important. And focusing on the types
of customer that have credit and debit products already may be a
mistake.
Prepaid is a product which is
largely aimed at the cash-using underbanked segments, so rather
than trying to educate current customers about prepaid card
products, a different approach – trying to engage with new market
segments, appears the best approach.
As potential investors in payroll
products, corporates also need to be educated in the potential
benefits of prepaid. There have been many successful prepaid
applications for multinational companies in areas like incentive
and bonus payments via prepaid products and also payroll cards.
The majority of successful pitches
to these companies have come from making prepaid appear as a
differentiated and valuable alternative to voucher-based schemes or
cash payments, rather than simply highlighting the cost saving
potential.
Revenue
Revenue drivers and business models
attached to prepaid also proved an important talking point in the
roundtable.
Revenue models from other parts of
the world, notably the US, do not apply rigidly in the UAE and
there is a need to build a region-specific business proposition.
The main difference between the UAE and US markets are consumer
sensitivity to fees.
This is a particular problem in the
region because of high levels of competition in the prepaid market.
Remittance houses have launched a large number of relatively
undifferentiated, low-margin products which has made it hard for
banks to launch rival products.
Prepaid cards with special features
necessitate a higher price point, but the evidence so far from the
banks on the panel was that it is hard to persuade consumers to pay
for these.
Opinion was divided on the revenue
potential for prepaid. Some banks said they had struggled to
generate significant profit from the product. Others said, notably
in gift cards, that their products were “significantly
profitable”.
When considering revenue and
profitability, it is important to note that there are varying ways
of measuring these metrics. Some prepaid schemes are clearly
profitable in their own right. Others, though they may operate at
break even or even loss levels, can still generate synergies
through the rest of bank businesses.
For example, in consumer banking,
prepaid provides the opportunity to acquire new customers quickly
and relatively cheaply with very little risk.
If the cards are properly
segmented, marketed and distributed, banks can build out their
retail banking franchises into new segments.
One of the best examples of this is Sharjah Islamic Bank, which
offered a university-based card called the Jeans card. It helped
the bank gain access to a younger demographic but also
significantly increased the number of female customers on the
bank’s books. These are customers the bank can up-sell to, offering
higher margin products like loans and insurance, generating greater
profitability in the future.
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