Visa taps region's youth market
The world's biggest electronic payment network is tapping into burgeoning demand for prepaid credit cards among the region's youths.
Transactions using Visa prepaid cardsgrew by 182 per cent in the Middle East last year, making the region one of the fastest growing for the company, said Scott Salmon, the head of prepaid global market expansion for the company.
Visa predicts card transactions will top US$250 billion (Dh918.19bn) in Central Asia, the Middle East and Africa next year.
Prepaid credit cards, which require a deposit before use, are a halfway house between debit cards and credit cards. They allow users to top up their cards as they do with prepaid mobile phones, allowing banks to generate interest on those deposits in the meantime.
In some cases, they allow for small lines of credit, which are secured by the initial deposit.
However, prepaid credit cards, which are marketed mainly to young adults and people with lower incomes, have already drawn criticism in the US because of high fees. "There are a number of important factors driving this growth, including globalisation of the workforce, increasing spending power among youth, [and] a general shift from paper to electronic payments," said Mr Salmon.
RAKBank has aggressively targeted this section of the market in the UAE, although other banks, including Emirates NBD and National Bank of Abu Dhabi, also offer prepaid cards.
Julien Faye, the head of financial services at the business consultancy Bain & Company Middle East, said prepaid credit cards allowed banks to serve segments of the market that they otherwise tended to avoid.
"The problem for the banks with credit cards and debit cards is that it's difficult for them to tap into the huge part of the market which is risky, less well-paid, or with no regular salary," Mr Faye said.
Because those earning low wages tended to spend their income quickly, "usage of direct debit cards isn't always optimal for end users or even the banks", he said.
But intense competition in this nascent market has generated controversy in the US. The Kardashian Kard, a prepaid credit card marketed by the reality show family, was pulled from the market last year after the Connecticut state attorney general, Richard Blumenthal, questioned the legality of the card's "pernicious and predatory fees".
These included monthly charges, loading fees, activation and cancellation fees, and a fee for talking to a call centre operator - all of which Mr Blumenthal said made the card unsuitable for the "financially unsophisticated" young adults to whom it was marketed.
Many banks have competed aggressively for the prepaid credit card market, seeking to capitalise on micropayments associated with computer gaming and digital music downloads. Banks have sought a foothold in this market against PayPal, a dominant online payments provider, and prepaid credit cards are seen as one way of securing a piece of the business.
Francesco Burelli, a principal at the consultancy Value Partners, said "the online games segment alone has 400 million active users worldwide, all ripe for a prepaid product to support swift purchase and download of new games".