UAE shoppers continue to shift to debit cards

Recession-wary UAE shoppers are continuing to shift to debit cards from credit cards, but the overall credit card spend is still much higher, making it the preferred payment vehicle when it comes to plastic money.

However, cash is still the king in the country and nearly 70-80 per cent of transactions are done though cash, keeping a huge population of the country away from cards.

"For Q2 2009 vs Q2 2008, the growth of UAE debit cards was double that of credit cards suggesting a higher demand for debit products over credit. However, the retail spend of credit cards grew by 23 per cent vs only 12 per cent growth in debit card spends during the same period indicating that customers still need the flexibility and convenience credit card products offer," Zeeshan Saleem, Consumer Banking Director, Barclays UAE and GCC, said while quoting the figures from Visa Q2-09, quarterly statistics.

Suvo Sarkar, General Manager, Retail Banking at Emirates NBD, agrees that there has been an increase in usage as far as debit cards are concerned. "In 2009, credit card spends have been flat vs the previous year. On debit cards, we have seen a consistent increase in usage [both at ATM and retail]. However, the predominant growth has been from ATM withdrawals. This is in line with recent studies which suggest that in the current economic back drop customers tend to use debit cards more frequently as it helps them control building up debt," he told this paper.

Commenting on cards spends, he said: "Debit cards spends across ATM and retail have increased by 20 per cent this year whereas credit card spends have been flat. In 2008, when the economy was more buoyant, both credit and debit card spending grew by 30 per cent."

Moreover, it is difficult to get credit cards in times of tight liquidity, and so debit cards have become a much easier option, registering growth. "It is generally easier for a consumer to be approved for a debit card than a credit card. This is because a debit card uses a consumer's own money, not borrowed funds," said another banker on the condition of anonymity. He also declined to comment on whether his bank has cut limits on credit cards or not.

However, there are some experts, who claim there has been no significant shift and credit card usage is far ahead than that of debit card.

"We have not seen any noticeable shift from credit cards to debit cards in the country. However, there has been some shift in the usage of debit cards, from ATM withdrawals to point-of-sales," said William Keliehor, Head of Credit Cards – Middle East, Africa and Pakistan at Citi Bank. "The usage of credit cards is a lot more than debit cards in the country and that remains unchanged despite a subdued economy. Our numbers show credit cards are used 10-15 times more than debit cards. Customers use the former more often because of rewards, security and the flexibility that credit cards offer," he said.

As per Keliehor, there are various reasons that limit the usage of debit cards over credit cards, the main reason being a debit card is "your bank account in your pocket". "There are growing instances of fraud while using cards for payment. In the case of credit cards, I can get the card blocked if there is any suspicious transaction. However, in the case of debit card, I can possibly give people access to my life saving, if it's stolen.

"Many people say with payment vehicles such as credit cards we tend to over-spend. I don't agree with that. On the contrary, with credit cards, we get a monthly statement, which keeps a track of all that we spend. This does not happen with cash," he added.

The focus, Keliehor believes, should be promoting plastic money over cash, without giving preference to one particular kind of card.

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