High octane branding on UAE credit cards, but many offers come at a cost



UAE banks are hitting the airwaves with advertisements and promotions high on testosterone in an effort to attract customers, each new commercial seemingly flashier than the last.

The branding is centred on fast cars and football. But many of the offers come at a high cost to the unwary buyer.

Al Hilal Bank kicks off its annual car festival on the Abu Dhabi Corniche this weekend, promising buyers the opportunity to "walk in, drive out", with car loans approved within 60 minutes.

Commercial Bank of Dubai launched prepaid cards in collaboration with Al Ahli Football Club. Not to be outdone, United Arab Bank said it was inviting its private banking clients on an all-expense paid luxury trip to the 2014 Fifa World Cup in Brazil.

First Gulf Bank launched a Ferrari-branded credit card this week, offering discounts on merchandise, branded baseball caps for those spending more than Dh10,000 (US$2,722) and the chance to win a weekend cruising in a supercar.

Retail banking chiefs say that the difficulties of standing out from the crowd require aggressive marketing on the part of lenders.

The 52 banks operating in the UAE are "quite a lot" to compete with, said one retail banker. "Competition is stiff."

It is an attractive time to launch credit cards and other products, with a few months still left before the UAE's population departs on holiday and local retail spending dwindles, said Osama Bahaa,the assistant vice president at First Gulf Bank's cards division.

MasterCard has pointed to improving levels of consumer confidence as the local economy strengthens. "Consumer confidence levels in the UAE have been steadily increasing in our most recent indexes, reflecting a positive outlook for key sectors and confidence in the UAE's plans and vision for the coming years," said Eyad Al Kourdi, UAE country manager at MasterCard.

But the optimistic outlook is despite large proportions of the UAE's population either having no savings or are already in debt. A third of nationals and a fifth of expatriates have nothing saved for a rainy day, according to a study released this week by Souqalmal.com.

One factor behind this is that the annual percentage rate charged as interest on a credit card is 37.75 per cent on average in the UAE, substantially higher than many international markets.

For example, in the United Kingdom, the equivalent rate is on average 17.5 per cent.

First Gulf Bank's Ferrari card, for example, offers a rate between 12.6 per cent for some UAE nationals with a good credit records and 42.5 per cent at the top end. At that rate, the cost of a purchase on credit would double within two years.

Banks differ on how to best keep consumers from falling too far into financial trouble.

"We as a bank will never allow the customer to overspend," Mr Bahaa said. "We give each and every customer a credit limit that suits and matches his profile."

Commercial Bank of Dubai said its tie-up with Al Ahli was about encouraging responsible personal finances rather than encouraging credit-fuelled spending sprees, said Frans Jan Burkens, the bank's head of consumer banking.

The bank had noted that local football teams tended to carry around large quantities of banknotes while travelling overseas.

Mr Burkens hopes the branding will appeal to football fans as the bank tries to build its retail business, although he said the lender was "not a cowboy bank screaming from the rooftops".

However, charging a monthly interest rate of 3 per cent or more, the equivalent of 42.5 per cent per year, was neither necessary nor responsible on the part of consumer lenders, Mr Burkens added.

The lack of a federal credit bureau was the main factor causing banks to demand high borrowing rates on unsecured lending though credit cards, he said.

"One of the biggest drivers of interest rates is risk premium, and the risk premium is a component of those parameters," he said. But in the end there's an unknown parameter - you don't effectively know whether the person claiming that he has no other bank accounts has no other debt … and if he's actually telling you the full truth."

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UPI facts

More than 2.2 million Indian tourists arrived in UAE in 2023
More than 3.5 million Indians reside in UAE
Indian tourists can make purchases in UAE using rupee accounts in India through QR-code-based UPI real-time payment systems
Indian residents in UAE can use their non-resident NRO and NRE accounts held in Indian banks linked to a UAE mobile number for UPI transactions