Play your cards right: UAE credit card rewards and risks

A new survey reveals a growing appetite for UAE credit cards and the perks they bring. But, with 15 per cent of us paying off only the minimum balance, there is cause for concern.

Atul Dhawan with his 14 credit cards in his three wallets. Intelligent use of the card can save a lot of money,he says. Jaime Puebla / The National

Unsure which credit card reward programme offered the best return, Atul Dhawan, a PR firm boss, developed a simple strategy to ensure he never lost out - he signed up for several at once.

In fact, Mr Dhawan has 14 credit cards, spread across three wallets, ensuring he earns as many rewards as possible.

"Intelligent use of the card can save a lot of money," he says, revealing that over the past 12 months, he has earned six flights' worth of complimentary air miles, Dh34,424 in cash discounts, Dh1,680 in free movie tickets, countless free concierge, valet and lounge services and hundreds of thousands of reward points.

Mr Dhawan's story is not as unusual as it sounds. According to a survey released today by Souqalmal.com, the region's leading comparison website, two thirds of the population have at least one credit card, 30 per cent hold two cards or more and 5 per cent have more than five cards.

While holding several cards is not a concern if subscribers pay off balances in full, the survey revealed that 15 per cent of the population and one in five Emiratis pay only the minimum balance.

"The big issue is not the number of credit cards UAE residents have but how much they have indebted themselves," says Ambareen Musa, the chief executive of Souqalmal.com, which commissioned the survey to measure the appetite for different types of credit cards.

"If you don't pay off your monthly credit card bill and you have a personal loan, car loan and mortgage as well, then your credit card debt would just be one part of your household debt burden and that would be dangerous."

The UAE certainly has a healthy appetite for credit card debt. According to Lafferty Group, specialists on the international consumer credit industry, there were almost 4 million credit cards in use in the UAE in 2012, compared with 1.3 million in 2005, with outstanding debt of $3.7 billion - just over half of total outstanding GCC credit card debt.

That figure might be higher if the 2008 financial crisis had not dampened credit card numbers, with some expats struggling to keep up with repayments and others leaving the country.

More worrying is the nation's rollover rate - the proportion of outstanding debt that rolls over into interest-bearing balances - which stands at 60 per cent.

"The UAE is by far the most mature credit card market in the Gulf but they are not good at paying off credit card debt," says Andrew Neeson, Lafferty Group's head of group research.

"Typically, you have three types of consumers; one that pays everything off at the end of the grace period; one who pays off the minimum, and one who pays as much as they can.

"What is good for the UAE is that rollover rate has come down from 80 per cent in 2008."

Mr Neeson attributes that falling rate to banks focusing more on the affluent consumer.

"They are very low-risk; they spend more money and also spend on key revenue mechanisms for credit cards such as international currency conversions. People who use their cards abroad get charged on every bit of spend so it generates big revenues," he says.

This trend for offering products that deliver more to high-end customers, is certainly reflected in Souqalmal's study: one in three respondents and one in four expat Asians say they prefer cards offering cashback and discounts and one in three westerners and Emiratis opt for air miles frills.

However, the comparison site, which features 195 credit cards on its website representing 95 per cent of the UAE products available, says their survey also highlighted a more traditional approach to choosing a credit card.

Rather than air miles, golf privileges and valet services, the number one priority for UAE consumers is the cost of the card, with one in four considering fees first and 30 per cent the interest rate.

"Banks spend a lot of money advertising all kinds of incentives on the cards but if you look at the survey, it's about the rates and the fees," says Ms Musa. "People are still paying attention to the basics, which is how much is this going to cost? This is a good thing because they are considering the price of this product rather than getting swamped by all the features and benefits."

However, Mr Dhawan, a native of India who has built up his collection of cards since the 1990s, says it is the benefits offered by the nation's 51 banks that is the big draw.

The trick, he says, is to never pay for a card when you don't have to. "Most of them don't give a fee in the beginning when they come out with a big promotion," says the chief executive of Sakshi Advertising, adding that paying off the balance in full every month ensures he never incurs any of the UAE's punishing credit card interest rates - which are about 20 percentage points higher annually than those charged in the UK and US.

His other trick is to avoid paying annual fees on his cards.

Most banks are more than happy to renew Mr Dhawan's cards free of charge, he says, because the amount of expenditure he puts on his cards generates revenue for them through costs borne by the merchants. "Then when there's a renewal fee they give it free to me again," he adds. "It's win-win."

But Ms Musa warns that not every UAE credit cardholder wins.

“If you are someone who pays off a balance, then you are probably enjoying the benefits. But if there is debt on the card then the cost is not just the interest rates,” she says.

A balance that is not fully paid off during the previous month will be charged a rate of interest which will result in overall debts creeping higher every single month until they are fully paid. “This is where you need to be careful.”