Play your cards right

In a region where shopping is practically a national pastime and some of the world's biggest malls can be found, you would expect credit card usage to be sky high.

The latest figures from Visa, however, reveal that the GCC very much remains a cash-based culture with below 10% of consumer payments being conducted electronically.

A regional breakdown shows Kuwait in the lead with 13% of payments being made electronically, the UAE at 7%, and Saudi Arabia at just 5%.

These figures contrast sharply when compared with the figures for more developed economies such as the US, where between 40 to 50% of payments are carried out electronically - a gap Visa Card International's general manager for the Middle East, Kamran Siddiqi, is confident will soon close.

He attributes the relatively late arrival of electronic payments in the GCC to timing. While credit and debit cards have been an integral part of the payment landscape in the US for the past 50 years, they have only really taken off within the GCC in the past decade.

"In the GCC let's say we started in the last 10 or 15 years, so therefore we're still at a certain part of the trajectory," says Siddiqi. "It's bit like an aircraft taking off. If the aircraft has been long enough in the air after take off it has managed to reach 30,000 feet. But if it's five minutes within take off it's still only at around 10,000 feet."

He admits the cash spending habits of GCC consumers will be "hard to break" but believes the region is on the right evolutionary path, and that as the economy develops and consumer spending habits and needs grow in sophistication, credit and debit cards will rapidly catch up with cash.

According to Siddiqi the top five spending areas using credit cards among consumers in the GCC are travel, retail, dining, groceries and petrol stations.

Debit cards are used in a similar way, though less so for travel and dining expenses and more for smaller everyday expenses such as grocery shopping. "By global standards it is still a young industry and electronic payments usage for both debit and credit cards is still quite low," he says. "This has been a cash-based society for hundreds of years, and historically cash has been comfortable and convenient for people. The time or the point where the habits start to change is when lifestyles begin to evolve and the convenience of electronic payments becomes more apparent. For instance, if people start to travel more, or if their business and social lives become more active, their understanding of the convenience of electronic payments will start to kick in."
Siddiqi explains how in the initial phases of electronic payment in the GCC, credit card items were used mostly to pay for "high ticket items", such as travel, entertainment and luxury items.

"That's the way that it tends to grow because you start at the top of the economic pyramid where it's easier to issue electronic payment products, where customers are more familiar with these methods because they travel a lot and so have more of a need for it.

"And over a period of time, and certainly over 10 years - which is how long we've had an office here - it gets down to what we call everyday use."

The GCC is, he claims, now in this latter phase which means the numbers of consumers using credit cards for everyday payment - such as buying food in the supermarket - is growing rapidly. This in turn has prompted Visa to launch a major marketing campaign in the region to push the benefits of credit card payment.

"For credit cards, because it starts at the top of the economic pyramid, it's easier to have conversations with fewer people," Siddiqi explains.

"Once it gets further down the economic pyramid where vast numbers of people are, that's when we feel we need to get out there through TV, newspapers and radio to get the message across to people about the product benefits. We are running a major campaign to promote debit cards and visa electron on the radio and other places."

As well as advertising campaigns Visa International has launched some new technological innovations in the region, which it hopes will make electronic payments even more attractive to its customers across the Gulf.

One of those that has just been introduced in the GCC is the GPRS (Global Packet Radio Service) terminal - a wireless and mobile card reader which can be used to make payments anywhere, anytime.

"What that will do is allow for things like home delivery and mobile exchange of values. So if you are at home and you order a pizza, someone will arrive with a GPRS terminal and you can pay by debit or credit card at your own home instantly just as though you were paying at a pizza outlet anywhere.

"In the GCC home deliveries are quite a significant item of expenditure and this will enable Visa to show people the convenience and security of using electronic card payments."

Another technological innovation Visa International will be introducing in the GCC is the ability to make money transfers via credit cards.

This it believes will be particularly popular with the Gulf region's ever-expanding expatriate population.

"Money transfer is an important area for Visa. In the GCC and particularly the UAE, there's a large non-national population and for them their area of payment is much greater than the city or the country they are living in. So we're working with banks to launch money transfers so you can send money from your card to another beneficiary, say a friend or relative."

Banks in the GCC are keen to push electronic payment cards across the region and are new offering more and more attractive packages to customers in a bid to get them to sign up, says Siddiqi. He describes the offerings of local banks as "harder and harder to distinguish from any other developed markets in the world right now in terms of the variety and types of credit cards offered to consumers".

Siddiqi believes GCC banks are increasingly realising that one size will not fit all when it comes to credit and debit cards, and that in order to increase their popularity cards must be designed that tailor to a variety of different customer needs.

"Increasingly there is a recognition by banks that there is not only one type of customer. There are several types of customers and banks now are offering products to suit all their needs.

"At one end of the spectrum there are airline co-branded cards. That might be more suitable for someone who is really looking forward to a free holiday and would be willing to pay a higher fee to accumulate the points. At the other end of the continuum would be a product with a lower fee and the lowest benefits."

The fact that banks are so keen to market credit and debit cards is also a reflection of the fact that in the GCC customers have a "very good record" of paying off their credit card bills.

This he claims, has resulted in banks competing more and more to attract customers and the increased choice has resulted in a situation where customers in the GCC can be far more selective of which credit or debit product they sign up for, and can shop around for the best possible deal.

Siddiqi advises customers to think carefully about their requirements before signing up for a debit or credit card, and to address their primary needs first.

Customers should, he advises, consider whether they would rather have a card that gives them greater protection, or one with the lowest charges attached to it.

"People really need to make a decision on what is more appropriate to their needs. Somebody who is more risk averse should go for a product that includes purchase protection and insurance and they will probably be prepared to pay a higher fee for this. Somebody else might be less concerned about that, and may just want to minimise the fees they pay, and go for the card with the least benefits and the least fees. People have to make their own trade-offs as to what they want, and what they are willing to give up," he insists.

The GCC, with its highly mobile, affluent population and thriving retail environment, is fertile ground for Visa International products.

Siddiqi is hopeful that it's just a matter of time before the UAE will catch up with the US, and that electronic payments will eventually take over in what has traditionally been a cash-based society.

Banks too are keen to push electronic payment cards - as in the case of credit cards, they stand to gain substantial profits from interest accrued. Ultimately, though, only the customers themselves can decide how successful electronic payment cards will be in the Gulf region.

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