The Future Of Payments In Middle East


Consumer expectations have risen as a result of the faster digital revolution caused by the Covid-19 pandemic and preventative social distance restrictions, as they now want higher levels of digital services.

This shift has increased the pressure on regulators and financial institutions to advance payment market infrastructure, as they must figure out how to work with multiple payment schemes around the world, combat the increased risk of fraud, and develop new services to provide value to their customers and shareholders. Furthermore, in this new fast-paced digital marketplace, financial institutions in the region are under pressure to deliver real-time payment services domestically and cross-border due to the growing adoption of instant payment systems and new financial payment regulations such as the PSD2 and ISO 20022.

The Future of Payments Middle East and Africa is taking shape as the Instant Payment System and ISO 20022 become more widely used in the region. The Digiconference will bring together CIOs, CDOs, payment and compliance leaders from throughout the area, as well as payment technology specialists, to discuss the region’s payment system implementation and how the sector can successfully change to become Instant Payment and ISO 20022 compliant.

Digital payments had been quickly expanding even before the outbreak. Between 2014 and 2019, the number of consumer digital payments transactions in the United Arab Emirates (UAE) increased at a rate of more than 9% each year, compared to Europe’s average yearly growth rate of 4 to 5%. Even more dramatically, between February 2019 and January 2020, Saudi Arabia saw a 70 percent increase in card payments.

Payments practitioners, according to a McKinsey survey, expect the change to digital to be permanent: 90% expected that at least half of new users will continue with digital payments rather than revert to cash later. Furthermore, more than half of survey respondents believe that robust noncash payment growth will continue over the following five years, resulting in a total increase in digital transactions of more than 50% above 2020 levels across the area.

Payment method preferences are shifting. Only 10% of Middle Eastern consumers strongly favored cash, whereas 58 percent strongly favored digital payment options. However, achieving real-time domestic and cross-border payments 24 hours a day, seven days a week typically poses a number of obstacles, necessitating the reform of present business models and the adoption of cutting-edge standards and technologies by regulators and financial institutions.

While account-based wallets are widely used in Asia and some European nations, card and card-based wallet usage is increasing rapidly in parts of the Middle East. Since the beginning of the pandemic, POS contactless-card transactions have increased by 10% per month in SaudiArabia, while payments via pass-through card-based wallets have increased by 18% per month. In time, embryonic payment methods based on QR may capture a portion of the Middle East market, but growth in cards is likely to continue as digital payments speed in nations where the requisite infrastructure is well developed.

According to McKinsey & Company, the Middle East payments sector has lately expanded to include fintechs, tech businesses, and telecom companies alongside traditional banks, thanks to regulatory changes like those implemented in Saudi Arabia in late 2019 and the United Arab Emirates in 2021. When we asked poll participants which organisations would have the most impact on the future of payments, around 40% chose banks or bank-backed wallets as the most important; another 30% chose telecom-company-backed wallets, and 17% chose big-tech
corporations (Exhibit 3).

Tech businesses, on the other hand, were most frequently placed
second, with 30%, followed by banks (23%), and telecom-backed wallets (12%). (20 percent). When we go deeper into the comments, we find that the bulk of those who anticipated that banks and bank-backed wallets would triumph were from banks (62 percent of respondents). When asked to select their second option, more than half of bank respondents said big-tech businesses were best positioned, highlighting the threat these players pose.

Payments practitioners in the middle east perceive tech and telecom companies as strong challengers in payments, as evidenced by these data, implying that they pose a threat to incumbent banks. these firms’ vast reach and technological prowess position them well to compete in an industry where the capacity to quickly build, tailor, and refine client offers is a competitive advantage. STC Pay, for example, used its dominating position in telecoms to scale to 4.5 million active consumers by November 2020, less than a year after exiting the regulatory sandbox. 4 Through its relationship with Western Union, the company has been able to address significant customer pain points and gain market share by automating international remittances.

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