Cashless payments trend gains ground globally but MENA is slow on the uptake
Other than credit and debit cards, another mechanism leading the way is prepaid cards. (File photo)
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Contactless payments are rapidly gaining ground across the globe. Driven by customer convenience and efficiency, this innovative payment method has opened up new dimension for daily transactions undertaken by consumers. Mobile wallets, online payment providers, near field communication (NFC) technology, have and continue to transform the space, and allow merchants to increase their point-of-sale transactions through customers making cashless payments, or using simple “Tap-and-Go” payment solutions. Many countries in Europe, such as Sweden are currently leading the field, and have made significant progress to becoming a more cashless society as many consumers use handsets, cards or online platforms for day to day purchases.
In contrast, several industry reports point out that in the UAE, cash remains king. Despite this, there has been a huge move towards cashless transactions as part of the country’s e-Government strategy, which has been supported by many of the UAE’s leading banks. Recent studies indicate card spending has increased substantially over the last couple of years — one of the key signs of an acceleration towards a cashless environment.
Other than credit and debit cards, another mechanism leading the way is prepaid cards. According to a global study conducted by MasterCard, there is an estimated $822bn opportunity by 2017 in the prepaid card segment — with a $13bn opportunity in the UAE and Saudi Arabia alone. Through prepaid cards, consumers are now able to pay for transactions using a MasterCard or Visa prepaid card — regardless of their credit history, or whether they have a bank account. This has led to greater financial inclusion, supporting much of the non-bankable population in the region.
Today, consumers have the option to buy prepaid cards as gifts with pre-loaded funds for someone else, pre-load amounts for travel overseas, place funds for virtual payments, or use reloadable cards, where more funds can be loaded till exhausted; therefore having many different applications of the cards.
In the UAE, the prepaid card trend began with the UAE Central Bank and UAE Ministry of Labour when the wage protection scheme (WPS) initiative was introduced to convert cash salary payments onto plastic for blue collar workers. The solution has since developed, and today, there are other areas where international programme managers and payment processors are looking to provide a value proposition to individuals and corporate customers.
Another new emerging payment option is digital wallet. Through these wallets, consumers can make purchases for entertainment, dining, retail and much more, using their mobile phones and accessing funds via their device. There are several initiatives at government level to promote this mode of payment; for example the ‘e-Dirham’ scheme, and also within the banking industry; such as the ‘m-wallet’ initiative undertaken by UAE Banks Federation.
Many non-traditional financial players are also getting involved in the creation of these wallets, each trying to bring in a new value proposition. However, banks remain a key player in this space, as they strive to provide new payment solutions to individuals as well as corporate entities. More progressive banks are investing in infrastructure to create the most appropriate enabling financial ecosystem that is compliant with regulations, and at the same time extends greater convenience and flexibility to customers.
A key challenge, however, is bringing various elements effectively together to deliver a seamless wallet solution — merchant interface, straight through funds settlement, wallet account maintenance, and much more. It is increasingly apparent that a successful strategy in this space for both Banks and Fintech companies, hinges on collaboration rather than competition.
As we head closer towards 2020, there is no doubt that these different initiatives in the payments space will become more accessible and gain widespread popularity in UAE. The government and regulatory support is certainly there to transition the payments industry towards digital and straight-through settlements, offering greater convenience and efficiency to the end users.
While no economy will be able to eliminate cash altogether, in the foreseeable future we should progressively witness a change in the mix, with greater contribution coming from cashless modes of payment.
By Ehsaan Ahmed