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Covid-19 sparks boom in Middle East digital payments sector

Stubborn cash use could fall in the Middle East after an acceleration in the take-up of digital payments amid the coronavirus pandemic

The e-commerce and digital payment industries in the Middle East region are set for major growth in 2021, with nearly half of consumers likely to increase their online shopping over the next year, according to a report.

The region, traditionally dominated by cash payments, presents a growth opportunity for tech players as online shoppers now prefer using digital payments, said the study from London-based payment systems provider Checkout.com.

The report draws insights from a regional survey, which polled more than 5,000 consumers in the UAE, Saudi Arabia, Egypt, Jordan, Qatar, Kuwait, Bahrain and Pakistan. 

Across those countries, 47% of consumers said they expected to shop online more frequently over the next year. Only 15% expected their online shopping frequency to decline, while the remaining 38% expected it to remain the same.

The likely surge in e-commerce and digital payments in 2021 is consistent across the countries surveyed, with 49% of Gulf Cooperation Council (GCC) consumers saying they will shop online more frequently, and 48% in Jordan, 47% in Egypt and 39% in Pakistan saying the same.

Mo Ali Yusuf, regional manager at Checkout.com, said Covid-19 was driving a “significant share” of e-commerce and digital payment transactions in the Middle East, with 40% of online shoppers saying they are buying and paying online because of the pandemic.

“We’ve witnessed this steady shift to digital payments over the past six years, but the pandemic has really served as a catalyst – condensing five years of growth into a matter of months,” Yusuf told Computer Weekly.

“While there has been a sudden surge in e-commerce and digital payments this year due to the impact of Covid-19, what we are seeing today is more than a temporary change in consumer behaviour.”

Yusuf said that despite a big uptake in digital payments across the Middle East in the last few years, cash on delivery still occupies a significant proportion of share of wallet for consumers.

“This presents a market with huge potential for continued growth over the next decade,” he pointed out.

Preference for digital payments over cash on delivery or bank transfers rises significantly as consumers shop online more frequently, according to the report. Among those who shop online at least once a month, 62% usually pay by card or digital wallet, compared with 44% among the less frequent online shoppers.

“Robust digital payment options have become an integral part of what consumers expect from merchants, especially as e-commerce is more widely embraced in the region,” said Yusuf.

According to Khalid Dannish, CEO of Bahrain Fintech Bay, the island’s fintech accelerator hub, the region is seeing a flood of new digital payments activity in the wake of Covid-19.

“The infrastructure and accessibility is now there for merchants and consumers,” he said. “The pandemic has changed consumer behaviour in a lasting way.

“Given the young nature of regional demographics, the preference is to move towards digital payment strategies not just for convenience but also for user experience. We are seeing digital payments being used for everything from meals to clothing to groceries and utilities.”

Read more about digital banking in the Middle East

Dannish said regional “cashless society” government strategies were helping to stoke digital payments, the growth of mobile payments and related technology infrastructure.

He added that high regional mobile penetration, particularly in the GCC, provides the core infrastructure needed for digital payments growth. “It just needed a push and the pandemic has pulled us into that space,” he said.

Dannish predicted the imminent rise of digital wallet banking in the Middle East, as well as a shift to open banking and higher rates of financial inclusion.

The Checkout.com survey highlighted a particular preference for mobile commerce and digital wallets in the region, with Apple Pay and Google Pay leading the way, as well as an increased reliance on popular payment methods across the region, such as Mada, QPay, BenefitPay and Fawry.

“The biggest opportunities lie in getting everyone in the region into the financial system,” said Dannish, adding that the advent of open banking will allow application programming interfaces (APIs) to transform regional payment systems.

“APIs enable innovation and allow businesses to perform in a better way,” he said. “There is so much growth still to be had in this market. The barriers to entry have been lowered since the pandemic.”

However, Yusuf noted that fragmentation remains a major barrier to growth for the digital payments sector. “The region is split in terms of payment methods, policy and regulation, infrastructure and consumer preference,” he said. “There is also a generally fragmented landscape in terms of payments partners. Merchants often have to operate payments strategy at a granular level.”

Yusuf added that cash as payment remains stubbornly popular in the Middle East. “Despite the momentum away from cash, if we look at the region compared to the rest of the world, it is still cash-centric and digital payments are only on the way to fulfilling their potential,” he said.

“While Covid-19 and deep digital penetration are fostering change, our report showed that cash has deep-rooted social and cultural significance in the region, and that won’t be transformed overnight.”

Gaurav Dhar, a global fintech investor and CEO of Dubai-headquartered payments firm Marshal, said digital payments firms should also pay attention to the deep nuances across Middle Eastern countries in terms of demographics, consumers and digital readiness.

“There needs to be a genuine understanding of each segment,” he said. “People are transient when it comes to the region. While technology and other barriers will drop eventually, deep regional experience could be an ongoing barrier to the growth of digital payments.”

Dhar said the creation of a unified regional fintech framework would help to “demolish all points of entry”, adding: “Such a framework would save money, time, and generate more opportunities for lending, credit and anti-fraud.”

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