No Interest in Interest: Islamic "Credit" Card Banking Takes Its Place in Global Commerce

TowerGroup Take-Aways

• The Islamic banking business model, which rejects the assessment of interest in favor of structured fees, is emerging around the globe as petrodollars accumulate and developing economies mature.
• Islamic banking standards require all parties to be compliant with Shariah, religious guidelines that call for ethical banking; two Shariah-compliant card-scheme variations are forming, one in the Persian Gulf region and another in Asia.
• The Islamic market includes almost 24% of the world's population, and the more than 1.5 billion adherents of Islam reside in countries whose economies vary from the wealth of Qatar to the poverty of Tanzania.
• Three types of credit card issuers now operate in the Islamic card space: major global banks that set up separate Islamic banking companies, traditional banks converting to the Islamic model, and Islamic startups.
• Islamic credit cards offer similar external features of international access and settlement through their association with MasterCard Worldwide and Visa International, but special conditions are necessary to address revenue, accessibility, and compliance.
• As this market emerges, entrants will need a sustainable business model and will have to deal with issues such as interoperability with global card companies, product design, and processing venue.

Report Coverage

Religious prohibitions against interest and profiting from uncertainty prevent the assessment of interest, flexible revolving payment terms, and speculation by either the cardholder or issuer in Islamic regions. In external features for settlement and international recognition, Islamic credit cards are similar to traditional credit cards, but internally, they require a pricing alternative to interest and scrutiny of transactions to ensure purchases do not violate Islamic prohibitions. This TowerGroup Research Note considers the development of payment cards designed to conform with Shariah, the religious guidelines of Islam, and explains the structure, processes, and potential of the Islamic credit card market.

Report Coverage

Introduction

Market Scope

Islamic Credit Card Standards

The Shariah-Compliant Card Product

Card Operating Platform in an Islamic Environment

The Issuing Environment

The Credit Card Adoption Model

Summary