Digital wallets: Enhancing move towards cashless society in VAT era

Dubai - While cash still accounts for 75% of payments in the UAE, things are looking up for e-services

As nations across the globe continue to make remarkable progress in the race towards cashless economies, it's no secret that we are living in a rapidly changing society. Notes and coins are quickly becoming a thing of the past, with smart devices set to replace traditional bulky wallets and purses in the near future.
In the UAE, where significant strides have been made in realising the nation's vision to become a technology and green economy pioneer, the age-old saying 'cash is king' still rings true. Cash still accounts for 75 per cent of all payments; however, things are looking up.
Between 2011 and 2015, debit and credit card transactions in the UAE increased by 102 per cent to 750 million. The UAE also leads the world with a nationwide smartphone penetration of 81 per cent. Over 90 per cent of homes are connected to the Internet, and the e-commerce market is set to double by 2020. The beginnings of the cashless revolution are well and truly underway, and here's why we should embrace it:
 'Change' is significant post-VAT
The introduction of VAT in the UAE is driving change in payment behaviours across our society. Residents and merchants are experiencing the need to carry extra change to cater for VAT inclusive pricing or risk rounding off the amount, which impacts their savings. This is where digital wallets enhance the payment experience, by allowing individuals to easily make purchases, pay the exact amount, track spending, and send or receive money on the go. Digital wallets will therefore play a significant role going forward in the day-to-day lives of individuals and merchants, and support the move towards a cashless economy.
Driving financial inclusion
Some digital wallets don't even require a bank account, providing an ideal solution for the 15 per cent of UAE residents who don't have ties to any financial institution. Wallets build bridges between different segments by replacing cash transactions with easy and convenient payment options that meet the needs of unbanked residents in the UAE, driving financial inclusion across the country.
Pay anyone, anywhere, instantly - 24/7
Digital wallets available in the UAE allow individuals to send and receive money instantly, 24/7. Payments happen online through merchant partner apps and websites, or at shops and restaurants, whilst bills can be paid with a simple scan, swipe or tap. Payments can be made to individuals, merchants and utility providers with ease, convenience, security and transparency.
Splitting bills, requesting money
Digital wallets plug into the social fabric of today's evolving communities and enhance interactions between groups. They represent a step-change in transforming the experience of sharing and splitting bills, by replacing the cumbersome process of paying in cash and managing the settlement between friends and different parties. Money requests from friends and loved ones are made easy, seamless and traceable.
Budgeting and tracking spending
In a cash-dependent economy, people rarely have as much visibility on their spending as they would like. Receipts are often lost, and very few have the time or willpower to manually tally up a month's spending. Digital wallets transform this experience by allowing anyone to track their spending conveniently. Some digital wallets even have built-in budgeting tools and automatically categorise spending so consumers have control over their spending and budgets.
Dealing with cash is expensive for merchants
The cost of carrying, holding and managing cash is very high for merchants. It creates additional challenges such as fraud, cash flow mismanagement and accounting. For businesses, cashless transactions save time and money. By accepting wallet payments, funds are instantly transferred into the merchant's account, facilitating better returns through the reduced cost of transactions. Cash-on-delivery businesses can also replace cash with wallet payments, maintaining the customer preference to pay after the goods are delivered and wallets can support multiple credits or debits through a single transaction. Tips for example can be directly credited to the front office staff whilst payment is made to the merchant.
Security
Digital wallets are also protected by the latest advancements in cybersecurity. All transactions are encrypted and rely on state-of-the-art algorithms and secure transfer methods. Whilst carrying large amounts of cash can expose people to personal risk, if a phone is misplaced or stolen, the digital wallet account can simply be deactivated and the money is safe. In light of the UAE's digital transformation goals, the argument for cashless is certainly a clear and compelling one. As the UAE continues to establish itself as a leader in technology and advancement, digital wallets are set to propel the nation towards a cashless future sooner rather than later.
The writer is senior vice-president and head of payments at First Abu Dhabi Bank. Views expressed are his own and do not reflect the newspaper's policy.