A “Black Swan” Moment for Digital Payments in the Middle East?

Vivek Agrawal, Global Head of Enterprise Business Comviva Technologies
Vivek Agrawal, Global Head of Enterprise Business, Comviva Technologies

Has the 2019 novel coronavirus (2019-nCoV) staged a “black swan” moment (however unintentionally) for digital payments in the Middle East?

Industry experts certainly seem to think so. A study conducted by Mastercard in April, for example, unearthed that a hefty 82 per cent of customers in the United Arab Emirates (UAE) preferred to pay in a contactless manner. This was due to safety and hygiene concerns amid the coronavirus pandemic, of course. No small numbers, these, whichever way one chooses to look!

“Digital” We Stand

  • A study conducted by Mastercard has indicated that contactless payments rose 100 per cent in March 2020.
  • Industry studies have highlighted that contactless payments such as mobile wallet transactions have risen in hypermarkets across the region by 78 per cent in Q1 2020 when compared with the same period a year ago.
  • A 2019 Visa-DED Stay Secure study stated that about 80 per cent of people in the UAE who already use contactless payment technology trust this payment method.
  • As per Mastercard estimates, one in every four transactions is digital. Six in 10 (61 per cent) respondents in the region have swapped out their top-of-wallet card for one that offers contactless.
  • According to a 2018 study by Visa, wider adoption of digital payments could save Dubai’s consumers, businesses and governments up to $2.2 billion annually.
  • More than 92 per cent of people in the UAE use smartphones, thus, as per experts, presenting a substantial opportunity for contactless payments to thrive.

A Digital Revolution?

Having said that, however, let’s not undermine the fact that the transition to a mobile-first, cashless society economy in the region was well-underway in any case. 

So much so, in fact, payment methods such as cash and cash-on-delivery are already on their way out. Contactless mobile payments, such as Apple Pay, Google Pay, Samsung Pay and a bank’s own payment applications, are expected to expand. In a nutshell, the UAE already ranks foremost amongst regional economies rapidly moving away from cash, owing to several well-placed factors. As per industry experts, the trinity is made up by; accessibility of financial services; the level of technology available; and the extent of consumer participation in the formal economy. These are key determinants in a country’s readiness to move to a cashless society, and the UAE fares extremely well on all these counts.

Under the Lens

Now for a closer look. First off, contactless payments and digital wallets are being focused upon in minute detail. Various card schemes have increased the contactless payment limits across the region. 

Meanwhile, it has been a busy time for the Banking space as well. Leading players have encouraged customers to leverage digital and online banking services. Notably, over the past few years, banks in the region have already undertaken multiple digital payment initiatives. This ranges from launching separate digital-only banking platforms, to strengthening existing mobile and online banking services with various technologies like QR code, NFC-HCE.

In fact various Banks/Fintechs are offering a seamless digital experience -spanning across customer onboarding, payments & various other requests with multifold levels of security, of course.

For instance one of the leading wallets in the region, has complete digital identity verification process where the documents are uploaded by the customer, who is then verified via a WhatsApp’s video call and finally the account gets activated. Once concluded, the customer’s status is updated to “done”. No strings attached (or contact required) here.

The “Digital” Scheme of Things

  • A consumer digital bank in the UAE has said that the number of cashless transactions for customers increased by a staggering 280 per cent from January to July 2019, with contactless payments being 5-6 per cent of the mix, which grew to 10 per cent of total in fourth quarter of 2019.
  • The UAE’s key figure in the banking space has increased the Card Verification Method (CVM) limit for contactless transactions by 67 per cent. This is aimed at supporting, in fact, enhancing the focus on contactless payments.

A leading bank in the UAE has launched a secure payment solution facilitating consumers to use their smartphones for contactless and cashless payments in physical stores. Customers, via their smartphones, will also be able to order essentials online, pay for deliveries on arrival, transfer and receive money, and share cash gifts with family and friends.

Envisaging an Optimistic Future

Contactless payments seem set to stay in the headlines for quite a while. As per McKinsey, this is especially true in the mobile payments sector. Which, itself is expected to register a 30 per cent year-on-year growth. 

The e-commerce sector will aid and abet this growth as well-as it should! It is, interestingly, expected to total $16 billion (Dh59b) in 2019 and grow 23 per cent annually between 2018 and 2022, according to a joint study by Dubai Economy and Visa.

Overall, the, picture seems rosy and banks are exploring to launch a new generation of digital banking services and digital payment services.

A “Digitally-led” Future

  • As per a Mastercard study, nearly two in three respondents (64 per cent) confirmed that the pandemic has led them to use less cash, and 81 per cent said they will continue to use contactless post-pandemic.
  • By 2025, e-wallets are expected to be the second-most preferred method of payment after cards – and the first among millennials-Deutsche Bank AG.
  • As per a survey conducted by Visa, 70% of retailers are interested in investing in new payment technology in near future.
  • Banks are expected to ink partnerships with third parties and Fintechs to provide new capabilities via APIs.
  • Government-spearheaded initiatives will continue to play a significant role.

Multiple technologies, too, are expected to come to the fore. 

Let’s not forget, though. Contactless digital payments are not a “flash-in-the-pan” trend. They are here to stay, for better or worse. After all, the pandemic has changed the way we live, communicate and transact. So, the question is-is this the future? Watch this space for more. 

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