Jul 18 2012
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Mastercard: Cash is biggest competition in region
"If you think about the total cash flows that take place in the economy, only 10% is electronic so 90% is cash and checks," Raghu Malhotra, Mastercard's division president, Middle East and North Africa, said in an interview.
"And remember that the emerging markets are really only just catching on to that," he added.
"The reason they're coming up with e-strategies is because they're saying 'we've got to get more efficient in how we carry out transactions'. They feel that cash is slightly old-fashioned," he said.
In May 2009, the UAE government launched the Wage Protection System (WPS), which transfers workers' wages through selected financial institutions and is regulated by the government. This system, Malhotra says, is effectively "driving cash out of the economy", becoming more efficient so the speed to market is better.
Mastercard recently released its fourth-quarter and end-of-year financial results for 2011 in the Asia-Pacific, Middle East and Africa region. Gross dollar volume in the fourth quarter grew by 21.8% compared to the same period in 2010, purchase volume by 23.5%, purchase transactions by 18.2%, cash transactions by 18.4% and the number of cards issued grew by 12.3%.
Cardholders in the region made almost 1.6 billion purchase transactions, compared to 1.13 million in the fourth quarter of 2009.
In the first quarter of 2012, purchase volume in the ME&A region grew by 23%, with the corresponding figure for MENA purchase volume at 32%.
For Malhotra, the world is "about emerging markets" now. "The Middle East as well as North Africa - even beyond my world - I think that's the next bastion for most countries, for most economies; so that's where the next growth is going to come from.
"In a lot of ways it's the right time to actually make all the right investments in this part of the world," he said.
Malhotra has worked for Mastercard since 2000, including roles in South Asia, sales and marketing in India and in business leadership. In the late 1990s, he was head of debt management and risk control at ANZ Grindlays Bank, managing credit and risk functions for the bank's card business. While in that role, he established a "negative file" which later became a credit bureau. This, he believes, is both socially and economically beneficial.
The establishment of a nationwide credit bureau for the UAE is currently under discussion and is likely to be established in the near future. The board of the bureau held its first meeting in March 2012. The emirate Dubai has its own credit bureau.
"Credit bureaus I think bring a sort of clarity to the economy. It brings clarity to lending, it makes it transparent. It creates an infrastructure that allows for the growth of the economy and the banking sector," Malhotra said.
From a payments perspective, the UAE's credit bureau will create the right environment and infrastructure for expansion, he said.
Released in April this year, the Mastercard Worldwide Index of Consumer Confidence showed a surge in the Middle East, with its consumers remaining optimistic about the region's future and financial state. The ninth Middle East Index measures confidence for the forthcoming six months based on five economic indicators: economy, employment, stock market, regular income and quality of life. Zero on the index indicates pessimism, while 100 is the most optimistic. In the April Index, Qatar and Oman each scored 93.6 with Egypt and Kuwait at 88.3, Saudi Arabia at 83.9 and the UAE at 82.1.
Middle East consumers, Malhotra said, clearly feel they're in a better space than those in other regions.
"They haven't seen a downturn, necessarily, oil prices are doing well... the economies are healthy, infrastructure development continues to take place, prospects for employment continue to grow. That's the reason that you continue to see the core Middle East markets display a higher consumer confidence than other parts of the world," he said.
"If you feel good, you spend more."
While reforms and 'fundamental changes' have boosted consumer sentiment, concerns over oil lowered the index score in some part of the region. Saudi Arabia was down 14.5 points, the UAE 10.8 points.
For the remainder of 2012, Malhotra said, Mastercard in the Middle East will be concentrating on three key aspects: creating a locally relevant brand; broad-basing products and services; and innovation. Creating a locally relevant brand involves relating to consumers "on a local level", as well as operating locally, "country by country", he said. Hiring locally has benefits, he added.
"You've got people who are actually from the local workforce; so our speed to market is improved, our relevance in the local marketplace is improved, we respond much better to what the local needs are... it's locally relevant," he said.
Broad-basing products and services is a second aim for the region. In some markets Mastercard is well-penetrated, but in some markets payments or electronic payments are not well-penetrated.
The innovation side of the credit provider's operations relate to applying features for countries individually.
"This world is about emerging markets and the business model in emerging markets is very different to what you see in Europe or the US or even parts of Asia. In effect, you have to come up with a new business model... for that you need to innovate."
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