Credit cards have long been a key tool for financial institutions vying for market share in Bahrain’s competitive banking sector, and from a consumer’s perspective there has never been so much choice in the local market, with conventional and Islamic banks alike offering credit options. The major local and foreign institutions operating in the country, such as American Express and Credimax, offer credit cards to Bahrain residents. Most issuers offer more than one credit card option, with Arab Bank, Citibank and National Bank of Bahrain (NBB) providing the widest range with three card types each, ranging from entry-level classic cards to premium offerings.
The intense competition for business in the credit card segment has seen entry-level requirements for credit fall considerably in recent years, and has been at the root of the proliferation of a wide range of interest conditions. Minimum salary requirements, for example, start at nothing for entry-level products and go up to BD3000 ($7903) for platinum cards from Ahli United Bank (AUB) and NBB. Annual fees are generally low; indeed, NBB does not charge a fee for any of its offerings, and BD35 ($92) is a typical fee for an entry- or mid-level card issued by other providers. For conventional cards, a wide range of interest rates exists in the market, starting with 0.88% levied on Standard Chartered’s Visa Classic card to the 3% charged by AUB’s Classic card. Sharia-compliant cards, however, frequently claim higher fees to offset the zero-interest rates they offer.
Sweetening The Deal
As well as competing on salary requirements, annual fees and interest rates, card issuers in Bahrain have introduced other product innovations in a bid to secure market share. The first co-branded card in Bahrain came in late 2012, when Gulf Air, the national carrier, teamed up with Standard Chartered to produce the Standard Chartered Frequent Flyer Credit Cards. The new cards came in three variants (blue, silver and gold) and allowed customers to convert their everyday banking transactions, including account deposits, into flight rewards at a rate of between two and six Falconflyer miles for every BD3 ($7.90) spent. Customers were also rewarded with between 1200 and 2400 miles upon signing up for or renewing the card. The product has proved something of a regional success, claiming the Asian Banker’s “Best Credit Card in the Middle East” award in 2014, as well as the 2015 “Most Improved Payment Card” at the Smart Card and Payments Awards ceremony in Dubai.
Other card issuers in Bahrain have subsequently taken the co-branding route. The most notable of these is Citibank Bahrain, which has its regional head-quaters in Bahrain and has partnered with Emirates Airlines to offer two distinct products: the Ultimate Visa, which gives all cardholders lounge access in more than 70 airports worldwide, regardless of class of ticket or airline choice; and a standard co-branded offering that rewards users with Skywards Miles every time they use the card.
However, despite what appears to be a plastic revolution taking place within Bahrain’s banking sector, card usage remains at relatively low levels by regional standards, suggesting that there is plenty of room for issuers to expand their credit card divisions over coming years. Information solutions company Timetric reports healthy growth in Bahrain’s card and payments industry between 2009 and 2013, with the number of payment cards (including debit and credit cards) in circulation rising from 830,360 to 1m over the period, representing a compound annual growth rate (CAGR) of 5.49%. The value of transactions carried out using Bahrain-issued credit cards also grew impressively over that time, expanding by a CAGR of 17.37% to reach BD1.1bn ($2.9bn) in 2013.
However, within the wider landscape of payment instruments, credit cards play a relatively small role, despite growing in popularity: between 2009 and 2013 the share of payment cards in the total payment system grew from 0.4% to 0.6%, with credit transfers and cheque transfers continuing to dominate the market, accounting for 99.4% between them. Certainly, much of this payment traffic will remain beyond the reach of the retail-focused credit card industry, but Bahrain’s relatively low card penetration rate compared to its peers highlights the potential for a considerable expansion of payment card usage in the kingdom: in 2013 Bahrain recorded 0.80 cards per inhabitant, compared to 1.96 in the UAE, 1.32 in Kuwait, and 1.03 in Oman. In terms of frequency of use, Bahrain recorded 15.6 transactions per card in 2013, while Kuwait recorded 47.7, the UAE saw 43.1, and Oman’s rate stood at 13.4.
A number of factors combine to underpin the growth prospects of Bahrain’s credit card market. Increasing trust in credit cards as a secure payment method is an important driver of growth, as the local market has responded to the elevated levels of credit card fraud in the early 2000s that began to threaten their viability. In a move to combat this, the Central Bank of Bahrain (CBB) enforced the adoption of the all-in-one Europay, MasterCard and Visa (EMV) protocols, which established enhanced security standards and compliance criteria. As a result, banks in Bahrain have completed the migration of their credit card offerings from the traditional magnetic strip type to the significantly more secure EMV chip technology, as the regulation demands. This gradually implemented transition has been mirrored by a reduction of card fraud in the country and proved a useful marketing tool.
The central bank’s role in credit card take-up has also extended to awareness-building initiatives, which were particularly important in the early stages of card marketing. Among the information disseminated by the regulator were the benefits of credit card use, how to compare credit card costs and the most effective safeguards against credit card fraud.
Increased internet spending is another salient driver of credit card usage in Bahrain. Thanks to the nation’s internet penetration rate of around 96%, Bahrain is playing a part in a regional boom in e-commerce which, according to consulting and market research firm Frost & Sullivan, will by 2020 see 40% growth over 2015 numbers in the amount of goods and services GCC nationals by online. Increasing smartphone usage, a young and tech-savvy population and an expanding range of local, regional and global online retail options are the key factors underwriting this trend (see Telecoms & IT chapter).
Bringing Governing Online
While business-to-consumer e-commerce will be a key driver in the growth of credit card usage, government-to-business or -consumer will also play a significant role in the anticipated expansion. In Bahrain, this growth is being driven by the nation’s eGovernment development, a project which has become a source of pride for the Bahraini authorities in recent years. The genesis of the present eGovernment Portal was in the 2007 establishment of the eGovernment Authority and the creation of the first eGovernment strategy of 2007-10. Over the following years, the project focused on its principal mission to coordinate the state’s efforts to provide better and faster online services to its citizens. The result of this is the eGovernment Portal, through which Bahraini individuals, businesses and visitors can obtain information on a wide range of government-related activities. As a result of this concerted effort, Bahrain has become an eGovernment pioneer in the region, ranking first in the GCC in the 2010 UN Global eGovernment Survey, and third place in the Asia classification. Paying government fees and bills online using a credit card has now become standard for many Bahrainis, and continued investment in the eGovernment project suggests that it will remain an important driver of future card usage growth.