Almost one in four UAE residents consider credit card issuers the least trustworthy among financial services providers, according to a new study that examined the industry’s reputation among consumers.
Twenty-three per cent of UAE residents perceive credit card providers as having the worst reputation in the financial services sector, according to the Middle East Investment Panorama report from market intelligence consultancy Insight Discovery, with recruitment companies taking second position, telemarketers and call centres third and real estate agents fourth.
“Credit card providers have a reputational problem in the Middle East, not too surprising when their monthly interest rates are often 3 per cent and the annual percentage rate (APR) with some companies exceeds 40 per cent,” Nigel Sillitoe, the chief executive of Insight Discovery, said.
There were 6.5 million credit facilities such as loans, credit cards, mortgages and overdrafts in the UAE in November 2018, according to data from the Al Etihad Credit Bureau, with approximately 3 million active borrowers.
Credit cards can be a healthy way to borrow money in the short-term if the holder clears the balance every month. However, they can become an issue if a customer only pays off the minimum each month or misses payments, which can cause the balance to escalate with high interest charges and late payment charges.
Last month the Central Bank of the UAE unveiled a Dh100 billion stimulus package, which it later increased to Dh256bn, to encourage lenders to offer debt relief to borrowers affected by Covid-19 either though illness, a salary cut or job loss.
The report found that consumers on lower incomes, earning between $1,350 (Dh4,958) to $2,800 a month, gave credit card issuers the worst scores, while those earning more than $11,000 are “reasonably well-disposed” to credit card issuers.
Mr Sillitoe said card issuers should focus less on benefits, such as cash back schemes, fee-free golf sessions and air miles, and instead “reveal the true cost of owning a credit card by being more upfront about APRs”.
The reputation of independent financial advisers has also deteriorated over the past year, with 9 per cent of the 1,000 consumers polled in the study in February 2020 perceiving the profession badly, compared to 5 per cent last year, followed by advisers from banks at 8 per cent.
The report noted that while independent financial advisers “are seen as having a bad reputation”, they still fared better than other professions in the sector.
Independent financial advisers tend to have a better image among those earning between Dh10,001 and Dh25,000 monthly, the study found, while bank advisers are better regarded by those earning over Dh25,000 monthly.
“Relative to other professionals, financial advisers have to cope with a wave of new regulation, including various initiatives by the authorities in the GCC countries, that have sought to improve the conduct of the advisers," Mr Sillitoe said. "The advisers have met the challenges, and the industry will be stronger as a result."
Earlier this month, the UAE Insurance Authority postponed the roll-out of its new life insurance regulations until October 16, which are set to offer customers greater transparency and apply commission caps to the sale of protection products.
The UAE Insurance Authority first proposed an overhaul of the life insurance sector in 2016 to improve how savings, investment and life insurance policies are sold. At the time, the regulatory body said it had received “an alarming number of complaints” from residents mis-sold long-term savings products, which are provided by insurers and distributed by financial advisers.
The mis-selling by some advisers damaged the reputation of the industry, with many financial advisory companies cutting costs at the start of 2019 by employing fewer or cheaper advisers, according to the study.
"Even though the region’s economies were growing, the advisers serving the expats faced a contraction of their business," said Andrew Hutchings, the research director at Insight Discovery. "This was at a time that the remaining expat clients were better informed, more demanding and had a clearer concept of what they wanted from the advisers. In the meantime, costs for many advisers were increasing, in part because of increasing regulatory requirements."
At the start of this year, however, the situation had changed with more than 60 per cent of advisers increasing their business over the last 12 months. Only 17 per cent of advisers experienced a contraction in business, the study found.
While 58 per cent of revenue for financial advisory firms comes from initial fees or commissions, the remaining 42 per cent come from recurring fees or commissions. However, some advisers are concerned that the new regulations may dent incomes, as it includes caps on commissions.
Almost two thirds of advisers think their cash flows will be lower because of the new regulations, with 13 per cent looking to sell their businesses once they are in force. However, 27 per cent are optimistic that the new regulations will benefit the industry.
Tom Bicknell, a partner at law firm Pinsent Masons, said there would have been a "collective sigh of relief across the UAE’s life insurance market", when the IA announced the delay of the regulation's implementation from April 16 to October 16 as a result of the pandemic.
"Given the implementation costs for market participants and also the supervisory costs arising from its roll-out, the postponement of this game-changing regulation does make sense to give the market time to work through the challenges posed by Covid-19," he said.