Fawzya Ahmed, an Abu Dhabi-based television presenter, always shied away from credit cards in the past. Then the Islamic lender Al Hilal Bank issued a card that gives off a scent and she couldn’t resist.
“I thought the idea was fascinating,” says Emirati Ms Ahmed, who is in her 30s. “Emirati women like perfume and incense very much, it’s a strong part of our culture and we use it a lot at home. Also the card looks very attractive and comes with a lot of discounts, especially for things that women will benefit from.”
Ms Ahmed previously only had a debit card with Al Hilal Bank. While she says she plans to use the card for transaction purposes and not as a line of credit, it highlights the attraction a new breed of credit cards has on the UAE consumers.
Al Hilal’s credit card Laha, or “For Her”, which was launched in January, releases a fragrance through an absorbent pad on its top right corner. But behind the social affirmation, credit cards have become the latest front in the battle among banks for individual customers and lenders are scrambling for new ideas with which to lure clients.
While credit cards that emit scents have been around in the global market for some time, it is a new concept in the UAE. And other banks in the country are upping the game with quirky credit cards such as Mashreq’s selfie credit card, launched last week. Called Portraits, the cards let customers immortalise a treasured moment in plastic on the face of the card. It’s “a whole new medium for customers to express themselves”, according to Nimish Dwivedi, head of payments at Mashreq. It follows a similar “selfie card” offering launched by FGB last year.
Rakbank, the Ras Al Khaimah-based lender, has also joined the trend recently, issuing a credit card that gives back gold to its holder through a deal with a jeweller. The “goldback” feature works as loyalty points that are earned at a rate of up to 7 per cent and can be redeemed at any Kalyan Jewellers outlet in the UAE for jewellery.
While the marketing gimmicks behind these credit card launches make the headlines, consumers signing up often forget the banks are simply finding innovative ways to bring in their custom.
Credit card customers are an important segment for retail banks as they can generate much bigger interest rates than on a standard personal bank loan or overdraft facility.
Tony Graham, the executive vice president of retail banking at United Arab Bank, told The National last year that the average interest rate on a credit card is anywhere between 12 and 24 per cent, while the cost of funds is between 1 and 2 per cent. “That’s a very big margin,” he added.
Hind Al Oud, a perfumer specialising in musky Arab scents, has partnered with Al Hilal in the creation of the themed card and will be providing customers with a complimentary package of perfumes to get them started, the bank said.
“Today’s modern woman wants to send out a strong message about her individuality and her capacity to become a productive member of society while staying true to her heritage,” says Mariam Yousef Ahli, the bank’s head of corporate communications.
“Al Hilal Bank’s Laha credit card is a unique form of expression for aspiring women who desire to make a genuine difference,” she adds.
The new batch of concept credit cards marks a shift from the travel perks and sports, mostly football-themed, offerings of recent years as banks including UAB and National Bank of Abu Dhabi made sponsorship agreements with European football teams.
UAB’s partnership with Barcelona Football Club in 2013 helped to increase its clients, partly through the allure of football-branded cards. Emirates NBD partnered with Manchester United for co-branded credit and debit cards and FGB joined hands with Manchester City to become the club’s official affinity credit card bank partner.
Buyer beware, however, for while credit cards can give you an instant hit of cash, they can also be detrimental to your financial health as consumers fail to consider the high interest charges.
Richard Bamford, an Abu Dhabi resident from the UK, knows this only too well. The British sales executive, who has lived in the UAE since 2012, signed up for a credit card 18 months ago that offered the highest percentage of his credit limit in cash. He quickly maxed out the card, spending on furniture and the deposit for the apartment. Later, when opening a bank account, he automatically received a second credit card. And when he signed up for a car loan, the sales rep issued a third card at the same time. Within months he had about Dh80,000 in debt.
“It’s too easy. Every time I approached a bank the first thing they did was to give me a credit card,” says Mr Bamford, adding that the banks don’t need gimmicks to attract customers. “When you first move here, you come to work and save but you need some credit to set up.”
Marwan Lutfi, the chief executive of the nation’s nascent Al Etihad Credit Bureau, told The National last year that as well as preventing another boom and bust cycle, he was keen to promote financial responsibility. He said consumers must become savvier when taking on debt to see how it can be most efficiently done.
While personal loans are available with interest rates of about 5 per cent, credit card debt can cost six times as much to maintain. Part of the reason banks are keen to lend is because interest rates are at record lows. In the past couple of years, UAE bank growth has been propelled by an economy recovering from the financial crash of 2008 with lenders aggressively seeking out individual customers, often by sending their sales force onto the streets to fish prospective clients.
In 2012, lenders staged a comeback in earnest as government spending on infrastructure trickled down to the wider economy, spurring demand for credit to finance everything from home purchases to corporate expansion.
Last year, the economy is estimated to have grown more than 4 per cent, even after the price of oil fell more than 50 per cent during the course of 2014. As a result of the crude price drop, many economists, including those at HSBC and Standard Chartered, have lowered their 2015 growth forecasts for Gulf countries.
That slump in oil, the lifeblood of regional economies, has made it more urgent for banks to entice individuals to take on debt as many corporations that rely on hydrocarbons to fuel their business will suffer a slowdown this year.
“Retail for the best players constitutes half of their earnings, like FGB,” says Jaap Meijer, the head of financial services research at the Dubai-based investment bank Arqaam Capital. He adds that while the profit margins banks make on credit cards are high, the amount of money borrowed by holders through credit cards is small in the overall operation of banks.
Bank customers unfortunate enough to get caught in credit debt will rake in at least 3 per cent a month for their lenders – a figure, because of its compounding nature, that could reach 40 to 50 per cent by the end of the year and trap residents in a spiral of debt, financial advisers warn.
To help residents and keep banks in check, the credit bureau’s presence may limit growth of the credit card business. The organisation has created a database of the financial history of all retail borrowers, enabling banks to build an accurate picture of a potential borrower’s indebtedness.
But for some, it’s too late. Mr Bamford says he now struggles to make the Dh6,000 in minimum credit card payments demanded each month by his three cards.
“Rather than a loan, the first thing the banks will give you is a credit card. It’s the easy option,” he says.
Three of the latest concept cards
Launched: February 2015 The gimmick: Customers can take a selfie on their smartphone and transfer the picture to their credit card using the bank’s online platform. The bank will then issue the card with the image on the front.
Al Hilal Laha
Launched: January 2015 The gimmick: The card comes with a built-in “applet” that allows it to absorb the scent of any perfume. The card billed itself as: “The UAE’s first scented credit card. Your essence, expressed”.
RAKBANK Kalyan Jewellers MasterCard
Launched: February 2015 The gimmick: Spend on this credit card and earn “goldback” – loyalty points that are earned at a rate of up to 7 per cent and that can be redeemed in jewellery at any Kalyan Jewellers in the UAE.
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