Credit cards are a key tool for financial institutions battling for market share in the UAE’s crowded banking sector. In Abu Dhabi the appetite for plastic remains strong despite the recent opening of a federal credit bureau, which has made it harder for customers to obtain cards from multiple issuers.
“Credit card spend is way up on last year,” Philip King, head of retail at Abu Dhabi Islamic Bank, told OBG in the third quarter of 2015. “There was a small impact from the opening of the credit bureau – some people had eight or nine cards – but even with that, growth has been strong.”
No Lack Of Choice
From a consumer’s perspective there has never been so much choice in the local market, with National Bank of Abu Dhabi (NBAD), Abu Dhabi Commercial Bank (ADCB), First Gulf Bank (FGB), Union National Bank (UNB) and Abu Dhabi Islamic Bank (ADIB) all offering a variety of card types to residents, utilising both the Visa and MasterCard networks.
Like their peers in the rest of the country, the range of options available in Abu Dhabi runs from classic cards to premium offerings, the entry-level requirements for which have fallen steadily thanks to the intense competition for business in the segment. Minimum salary requirements range from Dh5000 ($1361) for entry-level classic products to between Dh10,000 ($2722) and Dh15,000 ($4083) for Platinum cards, and Dh50,000 ($13,610) for some elite offerings. Annual fees are generally low, with ADIB charging nothing for its entry-level product, ADCB offering many of its cards tariff-free (including its Gold option) and NBAD not charging for most of its range. Where fees are applied, they start from between Dh250 ($68.05) and Dh500 ($136) for basic and mid-range offerings, but can climb as high as Dh2000 ($544) for a small number of specialised cards. For conventional (non-Islamic) cards, a relatively narrow band of interest rates is offered by Abu Dhabi’s banks, ranging from the 2.25% levied on the NBAD Internet card to the 3.25% charged by FGB for its Gold and Platinum products.
The charges and rates established by Abu Dhabi’s biggest lenders are in line with those offered by the large multinationals that also vie for market space in the UAE: the entry-level product from Barclays, for example, is priced at Dh750 ($204) per year, with an interest rate of 2.99%, while HSBC’s equivalent offers the same rate with no annual fee.
While competition in the credit card arena is intense, the ability of Abu Dhabi’s banks to differentiate their products by adjusting salary requirements, annual fees and interest rates is circumscribed by a prudent regulatory framework. The Central Bank of the UAE (CBU) has established clear guidelines as to the eligibility criteria for credit card applicants and the marketing of card products, and lenders therefore must design their products within carefully monitored guidelines. As a result, card issuers in Abu Dhabi have introduced a number of product innovations in a bid to secure market share and, similarly to other regional markets, co-branding has emerged as the favoured means by which to add value to products.
One of the recent developments in this area is the strategic alliance established in June 2015 between market leader NBAD, MasterCard and the privately owned Al Futtaim conglomerate. The result of the deal is the Al Futtaim NBAD World Elite Credit Card, which offers consumers a 4% reward value on all Al Futtaim purchases, as well as a 24/7 travel and lifestyle concierge service. NBAD’s move came less than a year after it became the first bank outside Spain to ink a co-branding agreement with football giant Real Madrid, granting customers all of the advantages offered to premium card holders, such as access to airport lounges across the GCC and global concierge services, as well as opportunities to win trips to see matches, attend training sessions and meet Real Madrid players.
In 2013 another of Abu Dhabi’s big five banks, FGB, launched the first Ferrari-branded credit card in the MENA region, using the Visa network. Its “Signature” and “Infinite” cards offer customers the chance to win exclusive Ferrari experiences in the UAE, trips to Ferrari Challenge races in Europe, factory visits and exclusive deals on Ferrari merchandise. At the close of 2014, the bank announced plans to deliver another industry first, this time by issuing the first co-branded credit card with a leading insurance company – India’s LIC International.
ADCB, meanwhile, has a long history of co-branding, having partnered with retailer LuLu in 2008 to issue the ADCB LuLu MasterCard, by which customers earn LuLuPoints on every purchase using the card. In 2010 the bank aimed for a different customer segment by striking a deal with Etihad Airways to launch the “Above” range, which includes Gold, Platinum and Infinite options, offering various miles multiplier programmes, class upgrades and ancillary benefits such as golf course access and airport chauffeur services. ADIB also signed an agreement with Etihad in 2010, adding a sharia-compliant component to the arrangement. The tie-in with the Abu Dhabi-based carrier and two of the emirate’s leading financial institutions is similar to that of “Skywards”, established by Dubai’s Emirates Airlines, Emirates NBD and Citibank. In 2012 ADIB expanded its co-branded range by joining with Etisalat, the UAE-based telecommunications provider, to offer Classic, Gold and Platinum cards by which reward points may be reclaimed against UAE talk time.
Finally, UNB has issued cards in partnership with Abu Dhabi Cooperative Society since 2009, as part of a loyalty programme with the retailer, while the UNB-Egypt Air co-branded card it has offered since 2009 was the first bank-airline tie-in in the region.
Key Growth Drivers
The UAE’s wealth and high level of disposable income – per capita gross national income was $45,200 in 2014, according to the World Bank – are the main factors pushing credit card growth in the country.
The nation’s 9m residents, many of whom are cash-rich and financially savvy, make for a receptive market in terms of card business and mobile payments, and the growth rate of the credit card segment has indeed been significant.
According to a recent report by information and technology solutions provider Trimetric, the UAE card payments industry has consistently grown in both value and volume since 2009, the year in which the nation began its recovery from the external shock of the global credit crunch. Between 2009 and 2013, the number of cards in circulation increased from 10.3m to 18.2m, showing a compound annual growth rate (CAGR) of 15.3%. Over the same period the transaction value of the credit card channel increased at a CAGR of 21.13%.
With much of the UAE’s bankable population in possession of more than one credit card, expansion is likely to be more modest over the coming years. However, a number of growth drivers combine to ensure that the credit card channel will remain of interest to banks seeking to bolster revenue. For some years the UAE government has been promoting a shift away from cash transactions by opening up government services to online payment. The process is ongoing, but the government’s early successes have already prompted MasterCard to include the nation among the faster-changing payments ecosystems that display a high level of readiness for a greater uptake of cashless transactions.
The growing demand for sharia-compliant credit cards represents another route to growth for issuers. These interest-free cards allow banks to make purchases on behalf of the customer that are simultaneously sold on to the customer under the sharia principle of deferred payment sale, and in Abu Dhabi NBAD, ADCB, FGB and ADIB have all rolled out Islamic card offerings in a bid to tap into this potentially rewarding segment.
The nation’s buoyant retail sector is yet another important growth driver. According to built asset consultancy Arcadis, the UAE is the eighth-most-attractive market globally for retailers, and first in the Middle East. The firm’s 2015 report, which ranked 50 international markets according to a range of key indicators, foresees strong growth for the retail sector, with a rise in both spending and employment in the market, making it attractive to most retailers.
Adding to this trend is the advent of new technologies which are making credit card usage easier for consumers, the current highlight of which is the installation of contactless payment systems across the nation’s stores. The credit card businesses of Abu Dhabi’s banks, therefore, are likely to remain one of the more visible elements of the industry as institutions continue to battle for market share.