Debt, credit cards obsolete within five years, says expert

Debt and credit cards could be obsolete in the Gulf within the next five years as banks offer mobile phone and e-commerce payment methods to increase security.

High per capita income in the Gulf makes the region particularly vulnerable to online banking fraud, which could be reduced with the introduction of mobile banking.

“By 2016, we should expect to see plastic being replaced by the mobile phone. It is already there; it is just a question of getting rid of plastic and putting the payment application on your phone,” said Sriram Natarajan, chief operating officer of global services firm Quatrro.

“When it comes to getting into e-commerce, which is really boundary-less, that’s when this region is at a higher risk for the simple reason that your credit limits and the sheer power of the cards is much higher here than in Asia, for example. In the online space this region is a lot more vulnerable.”

A more sophisticated banking system in the UAE means it could be the first Gulf state to make the switch from plastic to mobile payments.

“The UAE has always been ahead of the game. The infrastructure has been set up so it should not be very difficult for the UAE to at least lay the Middle East foundation for a mobile payment sector.”

A five-year property boom in the Gulf state sparked a credit boom in 2007 and 2008, pushing the country’s compound annual growth rate up to an average 30 percent.

MasterCard in January reported an 11.5 percent increase in year on year growth in the number of credit cards issued in the UAE in the third quarter of 2010. Credit card issuance in the Gulf state is slightly higher than the national average of 10.2 percent, according to the real-time payment processing firm.

In spite of the high rate of credit card issuance, mobile payments could be quickly adopted in the UAE, which has one of the highest mobile phone penetration rates in the world at around 200 percent.

“Everyone has a mobile phone, the applications are getting cheaper by the day and the phones are getting more sophisticated so it’s just a question of uploading a payment application on the phone,” said Natarajan.

Lenders in the region will need to look at investing up to 60 percent of their mobile banking budgets on security for mobile payments, he added.

“Most of the investment in this technology is not going to be so much about getting the basic transactional convenience, it’s going to be more on the security side. Perhaps 50-60 percent or even more should be on security and safety.”