High-spending UAE millennials drive e-commerce surge

dubai - eCommerce spending in the GCC has increased by 25% in 2015

Millennials in the UAE and Saudi Arabia, who tend to be higher spenders than their global peers, are driving a surge in eCommerce spending in the region, a study released by global payments technology company Visa revealed on Tuesday.

The study, which interviewed over 1,000 millennials (18 to 34 years old) and non-Millennials (34+ years old), said millennials in the UAE and Saudi Arabia offer a wealth of untapped opportunities for banks, credit card issuers and merchants.

Millennials will continue to drive the trend towards increased card usage over the medium-term, and Visa predicts that by 2018 credit cards will account for 65 per cent of non-cash retail payment volumes by all UAE residents, while in Saudi Arabia, debit cards will account for more than 70 per cent.

The study finds that 18- to 24-year-olds spend between 4.5 and 6.5 hours a day online. Another finding is that millennials are a large, influential and increasingly affluent group, and are the fastest growing segment within the region.

As a result of the high spending habits of millennials, eCommerce spending in the GCC has increased by 25 per cent in 2015, said the study.

The study observed that technology is deeply embedded in millennials' everyday lives, with the study showing they are actively online between 4.5 and 6.5 hours a day, and have fully embraced online payments. eCommerce is by far the most popular activity, with 76 per cent of UAE and 58 per cent of Saudi millennials shopping online, while approximately half currently pay their bills online.

Interestingly, millennials in the UAE and Saudi Arabia use social media to influence their purchasing decisions. The research highlighted the importance of social media and peer reviews, and their influence on spending and purchasing behaviour. Although social media is primarily used for entertainment purposes, millennials in both countries do use social sites to actively look for product information, seek out peer reviews and make purchases.

"The rise of online payments has seen a parallel move away from cash towards cards. In the UAE, credit cards are the preferred way to pay for all major online categories. In Saudi Arabia, due to their popularity among younger millennials, prepaid cards are the preferred means of payment for electronics [40 per cent], travel for leisure [44 per cent] and travel for business [53 per cent]. Cash on delivery, however, remains the preferred payment method for clothing [33 per cent] and takeaway food [40 per cent] in the Kingdom, suggesting untapped opportunities in these sectors for card issuers and retailers," said the study.

The decision to choose one payment proposition over another is heavily influenced by the rewards and benefits associated with specific products, with Saudi millennials particularly valuing travel-related benefits, while travel benefits, discounts and cashback are motivating factors in the UAE.

However, the study identifies a significant satisfaction gap between what millennials expect from their payment cards versus what they currently get. In particular, UAE millennials are dissatisfied with their travel miles and cashback offerings, while KSA millennials want more travel miles in addition to better voucher options.

Kriti Makker of Visa Performance Solutions, who undertook the study on behalf of Visa, said with a spending power two and five times that of their Middle East peers, millennials would be highly sophisticated consumers who have embedded technology into their lives, which has important commercial implications for areas like the development of loyalty programmes and the targeting of advertisements.

With approximately 80 per cent of millennials in both the UAE and Saudi Arabia paying their electricity and water bills online, Visa's research suggests this is a natural area for development, for instance by extending reward programmes and co-branded partnerships.

Digital banking is another clear opportunity, according to Visa's research. While more than 50 per cent of millennials in the UAE and Saudi Arabia prefer to bank digitally, they are frustrated by the user experience.  

"To adapt to the changing preferences of millennials, banks, issuers and merchants should adopt a consumer-centric business model focused on personalised services; an interactive and engaging digital community centered around the brand; seamless integration of the customer experience across various touch points; and accurately targeted communication with customers," said the study.

"Significant potential exists to fill the gap between what new-generation consumers want and what they receive. Those in the digital payments and banking industries need to increase their value propositions and create a seamless and integrated experience in order to satisfy the end consumer. A customer-centric and multi-channel approach is the only way forward to address an evolving tech-savvy market," said Makker.

- issacjohn@khaleejtimes.com