Despite the controversies that surround the usage and legitimacy of ‘Shariah compliant’ credit cards, Islamic credit cards are undeniably an integral component of the consumer Islamic banking sector which provides the industry with necessary leverage to compete at par with its conventional counterpart. VINEETA TAN catches up with Sam Guest of Eiger Trading Advisory, to discuss how Islamic financiers not only have to create a unique proposition for its consumer credit card facilities but also have to rival conventional banks in terms of convenience, cost and sophistication, in order to capture its retail base.
According to a study conducted by Moody’s Analytics, economies in the Middle East and Africa gained some US$18 billion between 2008 and 2012 from the growth in the use of electronic payment products including credit and debit cards. In Islamic fi nance bastions such as the UAE, card usage for the four-year period added US$4.2 billion to the emirate’s GDP while in neighboring Saudi Arabia, US$4.7 billion was recorded. On a global scale, electronic payments contributed US$983 billion to the GDP of the 56 countries analyzed over the same period, with GDP of these economies expanding by an average of 1.8 percentage points. These figures build the case for credit cards in the Islamic banking industry and this in turn is the driving force behind the rising utilization and offering of this contentious product. “[Islamic] credit cards are indeed becoming more popular: we are seeing more of our bank clients offering them to their customers by utilizing our trading platform,” confirmed Guest, who is the head of product development at Eiger Trading Advisors which offers Islamic credit card automation and facilitation services as part of its Eiger Trading Platform.
It is generally agreed that the rise of Islamic credit cards are not only due to the fact that there is a swelling demand from Shariah-seeking consumers but also because Islamic credit card facilities are appealing due to its non-compounding interest-bearing element — a Shariah requirement which adds an additional layer of complexity in the area of product development. “Unlike conventional credit cards, alternative Islamic products must be structured within a Shariah compliant credit mechanism, which in most cases involves trade-based contracts such as Murabahah and Salam,” explained Guest. “This extra layer of operational processes requires highly efficient systems for sourcing those underlying assets to avoid volume constraint or processing bottlenecks for credit card systems that perform tens of thousands of transactions a day, 24/7.”
As a result of the complexity involved in Shariah compliant financial transactions, it is clear that Islamic financiers not only have to create a competitive advantage in terms of product benefits but they will also need to secure operational efficiency in the deliverance of its Islamic credit card services. This has prompted further innovation from Islamic finance service providers, including Eiger Trading, as they learn to adapt to the nuanced needs of Shariah compliant financial transactions: “Creating a system that is scalable and adaptable has ensured we can tailor our systems with bespoke functionality add-ons to suit the needs of all of our bank clients, and ultimately provide a service that is right for their retail customers,” shared Guest. As Islamic finance and banking gain grounds in existing and new markets, it remains ever more important for the Islamic finance players to continue to drive operational innovation by actively seeking ways to improve the customer experience of the product they develop, regardless of the Shariah structure employed.