As of October 2024, the outstanding credit card portfolio in Pakistan stood at Rs8.5 billion, according to the State Bank’s Credit/Loans report. This represents approximately one per cent of the industry’s total consumer financing portfolio.

While the financial sector has traditionally prioritised the mass consumer segment, there is significant potential to broaden its focus. Expanding into the largely underserved corporate and small and medium enterprise (SME) segments for business credit cards could address their growing credit needs and unlock new opportunities for growth.

With over 67pc of Pakistan’s bank financing directed toward the corporate sector, there is a significant untapped opportunity to introduce business credit cards. This product, which is a staple in the offerings of most Gulf Cooperation Council banks and even widely available in neighbouring India, remains notably absent in Pakistan. Leveraging this potential could cater to the financial needs of businesses and drive diversification within the banking sector.

Business credit cards offer companies a practical tool for managing expenses and optimising working capital. They are particularly effective for handling short-term costs such as travel, utility bills, supplies, and entertainment. By issuing these cards to employees, businesses can implement category-specific spending controls, set limits, restrict usage to approved merchants, and even enable offers or discounts tailored to specific needs.

Business credit cards remain largely untapped despite their immense potential to support the corporate sector and SMEs

For employees, business credit cards eliminate the need to use personal funds for company-related expenses like travel, streamlining processes by reducing the burden of reimbursements, internal approvals, and associated delays. Companies also benefit from rewards such as cashback, loyalty points, and discounts on business expenses like fuel, retail, and travel, which can be passed on to employees as added perks.

It can be argued that generating revenue from corporate credit cards can be challenging due to setup costs and the negotiation leverage of large corporations, which often results in the avoidance of late fee payments.

However, banks can leverage alternative revenue streams to ensure profitability. These include annual and maintenance fees, minimum deposit requirements for corporate accounts, transaction fees, interchange fees, and foreign transaction fees.

Additionally, fees for setting up and maintaining expense tracking systems, as well as revenue-sharing agreements with value-added services such as travel insurance and retail partnerships, can contribute significantly.

Corporate credit cards also present cross-selling opportunities for products like employee loans, savings plans, and payroll accounts, which can further diversify income streams. In the event of delayed repayments or misuse, banks can mitigate risks by promptly blocking cards, reducing credit limits, and taking corrective actions to protect their interests.

With the rise of fintech and innovative financial solution providers, banks can offer business credit cards without incurring significant setup costs. By partnering with established global fintech companies that specialise in this domain, banks can seamlessly integrate card functionalities into their existing product suite using application programming interfaces.

These companies provide a range of solutions, including various card types with customisable limits, merchant-specific onboarding, advanced expense tracking systems, and branding options — all without requiring heavy upfront investments. This approach allows banks to expand their product offerings efficiently while leveraging the expertise and infrastructure of fintech partners.

Business credit cards can also be tailored to meet the unique cash flow needs of different business segments. In Pakistan, the SME sector, which accounts for only around 6pc of total private sector credit (as per the Small and Medium Enterprise Development Authority’s March 2024 report), presents a significant opportunity for targeted financial solutions.

For instance, a stable SME that incurs upfront inventory costs, faces high transportation expenses and experiences delayed payments from customers could benefit from a business credit card offering features such as cashback on office supplies and utilities, expense management tools, and fuel cashback or surcharge waivers.

Customising credit card solutions for SMEs, corporates, and even startups or venture capital-backed businesses can attract more firms to bank credit products, fostering loyalty and trust in the banking system. Despite the potential, only two banks in Pakistan currently advertise corporate credit cards, which falls short of the sector’s capabilities and the demand for such products. In the current environment of declining interest rates, introducing business credit cards could help banks improve their advance-to-deposit ratios (ADR) and enhance credit availability.

As the banking sector transitions toward Islamic financial models, introducing Shariah-compliant business credit cards should be on the list for product development and structuring. This aligns with the evolving needs of businesses while adhering to Islamic principles. The financial sector plays a critical role in market creation, and the success of such products in other regions highlights untapped potential in Pakistan, underscoring missed growth opportunities.

The writer is a seasoned Islamic finance professional.

Email: Aisha.kudiya@gmail.com

Published in Dawn, The Business and Finance Weekly, December 16th, 2024