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Is the Middle East on the road to a fully cashless society?

The payments industry has proven highly resilient to the global economic slowdown

Last year, the total transaction value of digital payments grew from $4.1 trn in 2019 to $5.2 trn in 2021 In 2020, $7.4 billion worth of card payment transactions were recorded by the four major card issuers The Middle East became a hotbed for digitization and an ideal location for expansion by those in payments

Words by Nauman, Director Client Services at Paymentology

The payments industry has proven highly resilient to the global economic slowdown. Accelerated by the global pandemic, the total transaction value of digital payments grew last year from $4.1 trillion in 2019 to $5.2 trn in 2021.

Traditionally the large transient, multicultural workforce in the Middle East relied on cash. This was primarily due to a severe drought in banking innovation and next-generation payment products, combined with a lack of awareness of FinTech solutions.

Through the years and various initiatives, such as cash-back incentives and loyalty programs, banks have been able to drive credit cards as a mainstream non-cash payment channel. In 2020, $7.4 bn worth of card payment transactions were recorded by the four major card issuers, rising from $4.3 bn in 2015, rapidly becoming the preferred method of payment in the region.

The emergence of the likes of Revolut and N26 contributed to changing the banking landscape globally, taking a much-needed customer-centric approach to the delivery of financial services. Since then, several challenger banks and neo banks are growing rapidly chipping away market share from traditional banks. These banks are meeting the needs of niche market segments that include immigrants, freelancers, independent contractors, small businesses. Innovative omnichannel retailing has enhanced the customer shopping experience by diversifying the channels to purchase. 

Since then, the Middle East has become a hotbed for digitization and an ideal location for expansion by those in the payments sphere. There is a massive effort to shift economies away from heavy reliance on government spending and the energy sector, and toward economies spurred by diversified private sector investments leading to lower volatility and increased sustainability. This has helped to foster healthy FinTech ecosystems in the region.

While the increasing levels of urbanization have prompted the diversification of the industry and contributed to the growth in card products, the change in the landscape of the regulatory environment in the region has also influenced the market. For example, the immigrant workforce contributes heavily to the economy, and mandating wages to be secured in bank accounts paves the way for providing innovative solutions to the consumers. Talking about the immigrants; there are opportunities to secure competitive leverage in the thriving remittance market through inventive products.

Though we are witnessing an upsurge of FinTech activity in the Middle East, the region is in early-stage in a push towards becoming a global FinTech hub and creating a vibrant FinTech ecosystem.