Mobile telephone penetration has been more than 200 per cent in recent times

More and more people are switching from cash to card payment culture while mobile payment is also catching up, thanks to collaboration among telecom operators and banks Image Credit: Gulf News

Dubai: The credit card system is the lifeblood of a developed economy, said Trevor Stokes, Executive Director of the Bahrain Economic Development Board, while addressing the World Cards and Payments Summit 2010 in Dubai this week. While it has been weakened by the economic crisis, it encourages economic activity, he said.

About 78 per cent of American households, or about 91.1 million, had one or more credit cards at the end of 2008. A year earlier, there were 90.4 million households with cards, according to Nilson Report issued in April 2009.

According to data from the US Census Bureau, there were 159 million credit cardholders in the United States in 2000, 173 million in 2006, and that number was projected to grow to 181 million Americans by this year.

However, credit cards could be a solution or a problem to consumers as they could push consumers into a debt trap.

Those who have been burdened by credit have possibly learned the lesson, he said.

One of the key highlights discussed at the Summit was the shift towards electronic and mobile payments.

Stokes said this shift to electronic payments, as well as the increase in internet transactions, will continue to grow. With more than 10 million mobile phone subscription in the UAE, “it’s a tremendous opportunity waiting to happen,” Stokes said.

Mobile telephone penetration has been more than 200 per cent in recent times.

However, mobile payments and remittances have not picked up in the country due to lack of services and a proper system in place.

Real hope

Kathleen Tyson Quah, chief executive officer of Real-time Automated Payments (RAPID) at the Dubai International Financial Centre, said her real hope for moving forward is in innovation.

“I think there’s a huge amount of technical innovations coming out that give a lot of growth potential for this region,” she said during the panel discussion.

However, the challenges would be on the regulatory side, she said.

One example of a mobile payment service is GCASH in the Philippines. GCASH gives subscribers access to a cash-free and card-free method of transactions such as remittances, donations, loan settlement, disbursements of salaries or commissions, bill payments, etc. via just a text message.

The World Bank earlier said it expected remittances to decline to $317 billion (Dh1.16 trillion) in 2009, down from a higher-than-originally-predicted $338 billion in 2008. A significant portion of this is channelled through electronic and mobile gateways.

One of the key elements highlighted in moving forward is the need to regain customer trust and confidence.

The consumer has become far more aware and demanding for better protection and transparency, Stokes explained. “The customer has to be recrowned.”

Not wisely operated

Kumar said that cards have not been wisely operated in this part of the world and that banks need to invest into customer loyalty.

“Customer loyalty is not a given,” he said. “The ability to fund expensive loyalty programmes may not be financially viable especially when these programmes need two or three years to show results.”

Rising numbers

  • 71% share of US householdshaving at least one credit card
  • 181m estimated US cardholders by the end ofthis year
  • 10m number of mobilesubscriptions in the UAE

Industry history

The first widely accepted plastic charge card was issued in 1958 by American Express.

The first general-use credit card that allowed balances to be paid over time was the BankAmericard, issued in 1959. In 1977 it changed its name to Visa.

In 1966, a number of banks formed the Interbank Card Association. In 1969, the Interbank Card Association bought the rights to use “Master Charge” from the California Bank Association. It was renamed MasterCard in 1979.

Card ownership

In the fourth quarter of 2008, consumers over 60 had an average of 5.6 open bankcard and retail accounts. Overall, consumers had an average of 5.4 cards. A year before, those over 60 had 6.1 open cards and consumers overall had 5.5. In 2006, those over 60 had 6.2 open cards and consumers overall had 5.5.

In 2006, the United States Census Bureau determined that there were nearly 1.5 billion credit cards in use in the US A stack of all those credit cards would reach more than 70 miles into space almost as tall as 13 Mount Everests.

(Source: Experian marketing insight snapshot, 2009)