News & Blog

Digital Payments And Their Big Impact in Dubai

News & Blog

The payment ecosystem in Dubai is nearing a tipping point. Even though the populace is technologically literate. The region’s reliance on cash remains high. Only about a third of retail transactions are completed electronically due to challenges such as insufficient digital-payments infrastructure and services, under-banked consumer and merchant groups, and a cultural predisposition towards cash. The new government and regulatory policies, as well as the emergence of new local, regional, and global payment providers, are driving fast development.

Digital Adoption Is On The Loop

Digital payments were fast expanding even before the covid-19 pandemic. For example, between 2014 and 2019, the number of consumer digital payments transactions in the United Arab Emirates (UAE) increased by more than 9% each year, compared to 4 to 5% in Europe. Even more dramatically, between February 2019 and January 2020, Saudi Arabia had a sudden increase in card payments of over 70%.

The covid-19 pandemic has accelerated these already outstanding growth rates. More than three-quarters (80 percent) of payments practitioners polled by McKinsey assessed that non-cash payments had increased by more than 10% across the area due to the pandemic, with 43 percent believing that the increase surpassed 20%. Moreover, data from certain nations show even faster growth rates: in Saudi Arabia, for example, digital point-of-sale (POS) transactions doubled in January 2021.

Furthermore, payments professionals believe that the transition to digital cash would be permanent. According to a poll, 90% anticipated that at least half of new users would remain with digital payments rather than revert to cash afterward. Furthermore, more than half of surveys proved that rapid growth in non-cash payments would continue over the following five years, resulting in a total rise in digital transactions of more than 50% in the year 2020 across the area.

Open Banking Is Revealing Itself

Several Middle Eastern nations are implementing open banking open financial data, a regulatory reform mandating banks to exchange financial data with other banks or license financial service companies (with their agreement). Bahrain, for example, introduced open-banking legislation in 2018, which was followed by a government-sponsored framework of proposals in the year 2020. In addition, in Saudi Arabia, Open banking will be established by the beginning of 2022.

The above changes are likely to have a wide-ranging impact on the payments industry in the United Arab Emirates, specifically in Dubai. When asked what government- or regulatory-implemented decisions and actions would be successful and accurate in guiding customers toward digitized expenditure, twenty seven percent demanded regulatory clearance for open banking, following that 20 percent who offered consumers incentives to go to digital payments from cash. Furthermost commonly stated criteria were allowing operations to gather information regarding customers and implementing cash-free interactions between people and government.

Open banking or open financial data differs from the rest; it allows the digitization of payments and provides conditions where banks may face disintermediation by other participants. Around 75 percent of study and survey respondents predicted open banking would accelerate the multiplication of saving balances and capabilities to make payments as soon as possible. Customers will be able to switch to payment service providers who deliver a positive customer experience instead of depending on banks that offer inconvenient payment options in this circumstance.

Payments have been either constant (as with MDRs) or declining in recent years (remittance fees). However, a quarter of the payments practitioners polled predict reductions during the next 5 to 6 years. A charge reduction of up to 8% is expected by 38% of respondents, a fee reduction of 15 to 25% is expected by 13%, and a price reduction of more than 25% is expected by 17%.

MDRs vary in a number of fundamental points, from approximately 21 in Germany to almost 200 in Japan and Mexico. According to some calculations, a 20% decrease in the UAE’s MDR would reduce it to 130 basic points, roughly in the center of the global range. According to some estimates, a 20% reduction in the UAE’s MDR would bring it down to 130 basic points, about in the middle of the global range.

Payments are substantial over the border in the UAE, Saudi Arabia, and the Middle East, which house the world’s largest corridors. In 2020, they will handle $79 billion, which is 7% of the total GDP of both countries. Over the next five years, bilateral agreements between nations for actual expansion and adjustments of digitized cash-transfer operators, according to two-thirds of poll respondents (67 percent), will be major drivers in transactions for cross-borders.

The Expected occurrence of Consolidation

Most of the payment professionals polled expected some kind of industry merger in the coming years, for two-thirds of the participants, network acquisitions for acquirers of merchants. At the same time, 30% is projected specifically with value chain segments.

For the last decade, mergers and acquisitions have been a leading factor in payments internationally, and Dubai might be the following diving line for consolidation among regional players. Payment gateways are one potential area, as global firms want a market footing to pursue regional providers with basic solutions. These worldwide providers may also attempt to capitalize on development prospects in the UAE and utilize it as an initial milestone to Africa.

Convenience for banks

Even though banks dominated the sector, 65 percent of surveys anticipated that non-bank payment providers would triumph in the near future. In addition, respondents identified digitizing customer journeys as the essential method to stay current in the running market and stay applicable in a developing marketplace, with 83 percent seeing this as the most important way to stay relevant in an evolving market. Following closely behind, with 75 percent of respondents, is the desire to buy or invest. As the age of open banking approaches, institutions must develop a plan fast to avoid risk from being disintermediated. In other countries, banks have demonstrated that they can continue to succeed in an open-banking environment even while fintech and other competitors grow. Success will be determined by cultivating a creative mentality and talents beyond banking and developing successful relationships with fintech to tackle technology.

To capitalize on new possibilities in the increasing digital payments of the merchant sector, attackers and incumbent banks will be required to decide which merchant groups to focus on with unique offers. Further, they need to design a well-thought-out plan for reaching the targeted groups.

Opportunities for fintech and telecom companies

More possibilities for fintech, telecom firms, and other competitors to gain market share are launching as legislative reforms allow new participants to step into the payments sector. Whether through awarding licenses of payments services or open-banking rules, the region’s governments and regulators are turning to attackers to guide them to reach lofty digitalization objectives; Saudi Arabia’s goal of 70% digital payments by 2028 is a good example.

Launching trustworthy services and developing solutions to solve specific points with unique features and requirements will be the major difficulty. Large retailers, for example, may want solutions and guidelines to accept a diverse range of schemes and payment wallets from foreign tourists. Small businesses, on the other hand, may just require basic services to accept digital payments in-store. Further essentially, merchant demands revolve around going online and receiving assistance from complementary technologies to maintain and develop their firm. Thus, winning for whichever payments practitioners will rely on establishing the fair value offer, and customers may fit the needs of all target groups.

Final Thought

Finally, Players with pure payments must develop business examples that generate value beyond financial transactions alone. Payment entity regulations limit participants’ operations to activities related to payments, preventing them from profiting on services with profitable financial income streams, for example, lending. As a result, participants will be compelled to establish tactics and collaborations to produce more value.

Dubai & Ajman media freezone is on the verge of a revolution in payment methods. Its digitalization goals are lofty yet achievable. Payments made digitally will be essential as a new standard. The question now is who will win the race to bring customers there.

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