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January 31, 2010

What is driving Middle Eastern prepaid?

VRL recently hosted a round table in London to discuss possible business opportunities for cards and payments in the Middle East

By Verdict Staff

VRL recently hosted a round table in London to discuss possible business opportunities for cards and payments in the Middle East. Representatives from some of the leading global payments institutions met to discuss and debate what is possible in one of the most promising regions for payments in the world.


The Middle East is starting to be seen as the ideal location for expansion by those in the payments sphere.

A multitude of market factors, including the particularly high ratio of cash transactions as compared to cards that occur in the area, as well as a recent mandate that means immigrant workers have to have access to a bank account of sorts, could mean the market for new payments systems, with prepaid cards a major focus, is now wide open.

In order to address the opportunities and challenges that new and current industry players will be facing in the Middle East, VRL, publisher of Cards International, recently hosted a round table in London at which representatives from several leading payments institutions – including Visa, Salans, Ukash (now Smart Payments), Payment Card Technologies, Travelex, Zippcard and regional representative Waseela – came together to break down the key issues both from a specific UK perspective and a wider, global view.

Middle East prepaid round table: Participants (in alphabetical order):

David Armstrong, regional director, Middle East, Travelex Currency Services

Nabil Bader, CEO, Waseela Equity

David Carr, European sales director, Payment Card Technologies

Robert Courtneidge, international head of cards and payments, Salans

Sarah Francis, programme manager for cards, Ukash

Kirsty Haugh, prepaid product manager, Oberthur Technologies UK

Siobhan Moore, associate, Salans

Jonathan Reynolds, prepaid market development, Visa CEMEA

David Smith, head of marketing, Zippcard

The following is an edited version of the discussion that took place, centred around the challenges and opportunities in the Middle East.

Jonathan Reynolds, Visa CEMEA: Some of the challenges for prepaid are very similar to many of the challenges for electronic cards and electronic commerce.

It is getting the cards into people’s hands and getting people to use the cards in a way that benefits the consumer, the card issuer and obviously us as a payment company.

Taking those challenges aside, as well as things like acceptance and understanding of card products, specifically for prepaid, some of the challenges that we come up with include the banks working through their business case and their business model, and really encouraging banks to think a little differently to their traditional thought process of retail banking, credit and debit.

I think the key challenge that I have when speaking to a fair number of banks is getting them to understand the differences of prepaid as a product and the number of diverse areas where prepaid can fit, and shift their thinking from their traditional mindset.

Another challenge in some of the markets in the Middle East is the landscape of the regulatory environment.

In the United Arab Emirates (UAE), the ministry of labour’s recent mandate regarding salaries being paid into bank accounts is an important aspect in generating some certainty with issuers and stakeholders so that they can do things and know they are doing them in a correct way, and making sure that they are actually going to be achieving something while they do it.

Uncertainty is also an issue. When there are laws that restrict prepaid you can try to work through them, but the problem comes when people don’t know what is and isn’t allowed in prepaid.

I think there are opportunities with the payroll-type product, with the already-burgeoning remittance market that moves money from the Middle East to various different countries.

Banks are looking at working out how they can leverage their existing database of customers and how they can potentially cross-sell services with their existing credit and debit businesses.

I think that’s another opportunity for prepaid issuers in the market. It’s a matter of tapping into the customers they have and adding incremental revenue through prepaid products.


Robert Courtneidge, SalansRobert Courtneidge, Salans: The main opportunities are arising from the new ruling that all the workers need an account into which they can pay money.

This is a key place to start because of the sheer number of these workers in the country, perhaps even a few million, many from Pakistan or India.

There are also opportunities at the other end of the scale, looking at the very rich and the way in which this isn’t credit in the normal way and so can be adapted to comply with Sharia lending.

This is then where you can create prestigious products at the top end of the market. There is a real need to be able to move large amounts of money around, and the kudos given to you in the Middle East for providing different types of cards offering a wide selection of premium products will be great.

Siobhan Moore, SalansSiobhan Moore, Salans: From a legal point of view, the key requirement for new entrants is just understanding the regulatory environment. I think a point Jonathan touched on is key for a number of reasons.

It is the question of whether you can put a prepaid card into the same situations in the Middle East as you do in various countries in Europe and beyond.

For this you have to understand regulatory and banking environments as well as the cost of banking.

In terms of opportunities, it is also interesting to examine the traditional cheque or cash market models which are going on in the Middle East and finding out whether they could potentially be replaced with a prepaid card because that’s again a key part of the business model.

The cards have to be of value, they have to replace something that is more costly or involves more administration, so there needs to be an incentive for people to move onto a prepaid card.

David Carr, Payment Card TechnologiesDave Carr, Payment Card Technologies: In terms of problems, a real one is that with the large transient or multicultural workforce in the Middle East, a lot of them have never had cards, so you have to market and educate them in how to use a card.

For opportunities, the idea of a premium or concierge card that could offer all the advantages of a concierge product while complying with local religious credit laws could be a real opportunity. Also, an internal travel or expenses product for the local business owners could work very well.



David Armstrong, Travelex: One of the current challenges facing foreign businesses in the Middle Eastern region is the issue of exactly where to focus their efforts in the short-term.

It can be difficult to precisely gauge how big the potential markets are and exactly what kind of regulatory framework exists within them.

Bank identification number sponsorship is another issue. It is important to understand who is looking to initiate a prepaid card programme. It is very interesting when you look at current prepaid card programmes in the Middle East to see who is successful and who is looking to expand on the functionality of their current products, perhaps looking at other methods of delivering new income.

An example that perhaps we might look at is dynamic currency, which would expand a prepaid card programme to become truly international while generating new revenue from foreign exchange income.

Sarah Francis, Ukash: There are two areas to this. A lot has been mentioned in terms of the money moving out of the country and what are the opportunities there, and I think the sectors that represent great opportunities for us are the ones such as airlines and so on.

But I think that is very much a case of money moving out of the country, and it is also what the requirements are within the localised environment.

It is all very well giving workers localised cards but if they are just taking the money out of ATMs to spend in a largely a cash environment, where does that leave a prepaid card with a negative interchange?

So it is understanding where cards fit into a local environment and where they could be used by so many of the workers that are in that country, outside of taking out cash from ATMs.

Kirsty Haugh, Oberthur: I think it is also about the availability of the cards.

If you are going to get people signed up and showing interest in the card you can’t wait for however long it might be to issue the cards.

It is important to actually place the cards in people’s hands so they can then start to use them as well as the services we’re trying to promote in terms of the prepaid space.

Nabil Bader, Waseela: The opportunity for prepaid is tremendous, even if the fee structure may be a bit different from how it currently stands in the US and Europe.

In my opinion, putting prepaid onto a remittance platform is the true solution. I have heard a lot from the major banks in the UAE, Kuwait and Saudi Arabia and they are all driving to put payroll prepaid remittance onto a platform that fits one for all, including usage at the point of sale (POS).

Another major opportunity is in the millions of cards that need to be produced, and the more awareness you create, the better.

It i not that the banks are unaware of prepaid. A lot of the bankers in the Middle East see the opportunity present but don’t want to take a chance on the technology due to the politics of the bank.

Awareness among the population of how to use a card has actually rapidly increased from around 3 percent in 2003 to around 80 percent or 90 percent today, and a lot of this is due to various Indian television stations over here, as they have probably been the biggest marketers.

In terms of acceptance, while many of the petrol stations and smaller retailers in suburban areas don’t accept credit cards, they do accept prepaid cards.

For example, in the UAE, since they stopped accepting credit cards at petrol stations they have put in a prepaid platform that companies can use.

The largest segment in the Middle East is the unbanked, at almost 77 percent of the market.

The others are people who understand how you get a credit card and how to get a prepaid card and how those are both properly used.

So the largest group of users are not those that can spend AED40 ($11) at a mall, but those that spend it at smaller shops, so the acceptance is here if you’re willing to put the infrastructure in.

David Smith, Zippcard: The initial problem was that the finance ministers and the central banks of developing countries recognised that 80 percent to 90 percent of their people don’t have bank accounts, so the cash sitting in that part of the economy is not formal.

Furthermore, there is a huge amount of the remittance business which is also informal and unaccounted for.

There are two major issues in some of the places where we currently operate. One is the location of the banks.

In Uganda, for example, there are 30 million people and two years ago there were 200 bank branches – now there are around 378. This means a bank branch for every 75,000 people, and you can be 60 or 70 miles from your nearest branch.

So far in the Middle East, we have seen problems with primary acceptance, in terms of who knows about us and where we would fit into their existing product portfolio.

I see our primary targets as being the banks that don’t currently have a suitable programme for those who are outside their existing sphere of influence.

Another big problem we’ve encountered is how to make something affordable for someone earning less than $10 a day, perhaps even down to $1. A lot of the work we’ve done so far is working out what is suitable for this range of earners. Right now we have a product that can be bought for $5 and operates at around $0.50 a month as a management fee.

Although it is currently closed-loop, we see no reason why it could not be open-loop. This leads onto the other major issue in the area, which is why people should choose cards over cash.

We’ve found that the delivery of the infrastructure is an overhead we have to accommodate with our partners.

The card owner has to be incentivised to use the card and the merchant should not be restricted or held back, so what we ask is that instead of charging a merchant discount fee, we ask the merchant to give the customer a discount of at least one percent.

That way the merchant gets an incentive for accepting cards and he gets commission from selling the cards in the first place. The user gets a discount when using the card and the bank and technology provider all get a share of the management fee.

Jonathan Reynolds, Visa CEMEAJonathan Reynolds: We will see more gift and prepaid programmes in the market going forward. I think at the moment banks are focused on the payroll product because the law has told them to and there is such a large volume travelling through them.

I think once banks have bedded that in and got that moving they will start to widen their prepaid base and add more categories and other segments like gift.

As the market grows and develops in prepaid, more programme managers and stakeholders will enter the market, which is probably likely to open up some of these other channels and other distribution networks.


Sarah Francis: I think you have two main areas of study for prepaid in the area: where it affects the local population and the internal need for a cash replacement with cards and then also the external need to move money out the country.

Even within the remittance market you have two distinct areas. How widely does the card work in the country itself? What happens when the cardholder leaves the country?

It essentially boils down to an internal and external area usage discussion.

David Carr: Contactless is also an important subject, as cashless today costs more to process in a transaction than I’m going to make on the interchange.

So let’s be realistic about how that infrastructure is going to work. Is it polling transactions, is it taken of the chip, how is that technology actually working?

Because I’m not going to go out and sell a payWave or PayPass cashless prepaid product if I’m not going to make any money.

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