By Stiven Muccioli, Founder and CEO of BKN301
Monetary transactions have evolved significantly over the years, progressing from the exchange of gold coins through bartering to the introduction of banknotes to the current trend of online banking and digital currencies such as bitcoins. As societies become increasingly connected and mobile devices become ubiquitous, the adoption of digital payment systems is accelerating, leading to the rise of cashless economies. This shift towards digital transactions is not only reshaping the way we pay for goods and services, but it is also driving financial inclusion and creating opportunities for individuals who were previously excluded from the formal financial system.
With digital payments penetrating every facet of the society, the Middle East and North Africa’s (MENA) payment landscape has witnessed significant transformations in recent years. Digital payment methods have made significant inroads, extensively impacting how we handle and regulate money. It has pushed companies as well as individuals to adopt digital mode of transactions, which encourages financial inclusion and stimulates economic growth. With increased transparency, efficiency, and convenience, cashless transactions reduce any risks pertaining to cash transactions, such as corruption, tax evasion, and other fraudulent activities.
A notable feature of electronic payments that makes it more appealing to businesses and customers alike is the provision of the ability to track and oversee financial activities and records. Recognising its revolutionary potential, the MENA region’s governments are constantly embracing the digital channel of payments and has established many national policies and legal frameworks to foster its development, as it boosts regional commerce and economic integration by enabling seamless cross-border transactions. Cross-border transactions are considered extremely significant to the MENA’s financial ecosystem. The UAE and the Kingdom of Saudi Arabia (KSA) remain two of the world’s biggest sources of remittances, with USD 78 billion payments handled by both the nations in the year 2020. This is equal to 7 per cent of combined Gross Domestic Product (GDP) of the two countries. [1]
For instance, the UAE launched an integrated digital platform called the ‘Emirates Digital Wallet’ in 2018, with the primary objective of promoting diversity in finance and decreasing the use of cash. Additionally, the Saudi Payments Network (mada), which facilitates electronic payments and encourages a cashless society, was also developed by the Kingdom of Saudi Arabia. These efforts support the region’s mission to decrease the use of cash and improve financial access while simultaneously fostering transparency, reducing corruption, and facilitating the more effective distribution of government benefits and social welfare programs.
To promote cashless societies, many fintech companies are presenting their seamless solutions that alter the financial industry by rendering it more practical and convenient for businesses. A major benefit that digital payments offer is the capacity to promote financial inclusion by engaging all segments of the populace, especially the unbanked population, into the present established financial system. Digital payment platforms have become a major powerful instrument to bridge any gap within the industry in the MENA region. With around 50 per cent of the unbanked population, [2] the MENA region has been ranked one amongst the regions with the largest unbanked populace.
Mobile money services provide users with increased accessibility to digital wallets, which accounts for around 49 per cent (USD 2.6 trillion) of eCommerce transaction value worldwide [3], without the requirement for traditional bank accounts. This enables individuals to use crucial financial services like credit, payments, and savings. The digital wallet use is slated to account for 52.5 per cent of the eCommerce transaction value globally by the year 2025. Factors including the pandemic, growth of internet access, and the increased use of smartphones have been a major catalyst in the shift to digital payment models. In addition, the growth of technologies has also made it possible for people in remote locations to access financial services more easily and securely, offering them the opportunity to engage in the formal economy and promoting financial inclusion.
Digital payments further provide a myriad of advantages for organisations, including better control over cash flow, reduced risks of handling cash, and an expanded consumer base, in addition to enhanced productivity and efficiency by streamlining corporate procedures and reducing expenses. Furthermore, the use of digital payment channels has also fostered entrepreneurship and innovation in the region. More and more fintech firms have emerged, utilising technology to create cutting-edge solutions suited to the unique requirements of the MENA market. These enterprises revolutionise how consumers and businesses conduct business by providing services including peer-to-peer transfers, mobile banking, digital wallets, and online payment gateways.
Although the MENA region’s journey toward cashless economies has been positive, there are still several challenges involved. Widespread acceptance and adoption remain hampered by infrastructure issues, security worries, and cultural preferences for cash. Nevertheless, initiatives are being made to solve these issues via stepped-up cybersecurity precautions, investments in digital infrastructure, and public awareness campaigns to inform the public of the advantages of digital payments.
The region’s use of digital payments appears to have a promising future. The region’s young, tech-savvy population and the continuous digital transformation offer a favourable environment for the industry’s continued expansion and innovation. As digital payment platforms progress and grow into more reliable and more user-friendly service, they will contribute even more to financial inclusion, economic growth, and the transition of the MENA to a cashless society.
The MENA’s embedded finance industry is projected to grow at a compound annual growth rate (CAGR) of 27.8 per cent from USD 10,359 million in 2022 to USD 39,820 million.[4] With more and more fintech firms continuing to rise and revolutionise traditional financial services, this growth requires significant cooperation from businesses and governments.
