Credit cards are the world’s global currency. They work better than dollars, yens, sheckels or ruebels. But a card is not just a card. Payment terms vary among markets. In the United States the standard payment term is about 2.5% of the balance, but try opening a credit card account in South Africa with Standard Bank and you will see the product resembles more of a U.S. secured card than it does a general purpose card, with rights of offset to your bank account. Looking for a credit card in Israel? Instead of the good old U.S. standard of 2.5%, expect your card to work like a deferred debit card, allowing for monthly settlement, into a demand deposit account where overdrafts are not a bad thing. Having a payment issue in Germany? Better learn how to say “Zahlungsdiensteaufsichtsgesetz” to reach your local regulator.
Today’s read comes from Dubai, found at MySalaam, a Gulf region lifestyle offering by the Dubai Islamic Economy Development Centre and Thomson Reuters. Here you will find stories ranging from “all-female ride sharing, taking on Uber” to comply with restrictions on driving to modest fashion trends that comply with local standards.
Our story talks about sharia complaint credit cards and it is interesting because of the Islamic rejection of credit card interest. If you look at credit cards from a global perspective, you need to consider this because Muslims represent 1.8 billion of the world’s 7.5 billion people, and in the U.S., 3.5 million according to Pew Research.
The article, Muslims and credit cards: Balancing practicality and prohibition, talks about the prohibition of interest, something we westerns have come to love about the credit card industry. In the U.S., it generates about 40% of credit card profits. Not so in the Muslim world where interest is haraam, or forbidden. Consider the analogy:
- Absent a pressing need, opening a credit card with the intention of not paying any interest is analogous to walking into a casino with the intention of not gambling. The bottom line is that you are taking footsteps in the wrong direction and bringing yourself unnecessarily closer to doing that which is prohibited.
- In my opinion, I think it is permissible to use your credit card if you already have the money you need to make the purchase and you pay off your credit card immediately. By doing this, you will not pay any interest since banks typically allow customers a 25-30 day “grace period” before they charge interest.
- Credit card companies prey on people who don’t have the discipline to wait until they have enough money to make the purchases they want. Don’t be one of these people! Don’t get caught in the debt trap! Remember, one of the motivations of credit card companies who offer 0% introductory rates is so people rack up large balances during this period which they are unable to pay off before the interest kicks in.
USA today published an article on the market a few years ago and noted that assets in the market exceed $1.6 trillion, inclduing countries ranging from Luxembourg to Hong Kong and Great Britain. We see three important takeaways when looking at the card business from a global card perspective.
- A card is interoperable across the world; unlike cash, they are accepted and converted anywhere.
- The plastic in your pocket may look like your counterparty’s card but it might not work in the same manner.
- If you are doing business abroad, understanding the nuances of individual markets is essential.
If only world peace was as easy as global interoperability!
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group