Cash is king, but shift is on cards
Middle East and Africa holds huge growth potential for electronic payments as it is as secure as using cash
Markets in the Middle East and Africa, or MEA, are passing through the transition from cash-based systems to electronic payments, with mobile banking holding the future, says an industry specialist.
Rajeev Kumar, general manager at MasterCard for MEA, said about 85 to 90 per cent of retail transactions are still being conducted by cash and cheques in the region and there is a huge opportunity for the growth of electronic payments in MEA markets.
"The UAE is one of the leading countries in the Middle East in terms of adoption of electronic payment technologies and the high Internet and mobile penetration points to huge potential for mobile payments to increase," Kumar told Khaleej Times on the sidelines of an event held in Dubai recently.
Referring to the "2013 MasterCard Cashless Journey" study, he said that the UAE is among a group of countries where the respective governments have taken a strong leadership in promoting electronic payments to support their social and economic goals.
"The UAE has eliminated many of the typical macro-economic barriers of creating a cashless society. With strong support from the regulatory authorities, the growth of the Internet and a preference for remote payments by customers coupled with innovative payment products, we expect to see a significant increase in electronic payments within the coming years," he said.
Key payment trends
Kumar observed that the payment scenario in the region has witnessed a large change in recent years with payments going digital. He further noted that the retail space would eventually translate have a greater impact on larger corporates.
He said there are several examples of countries around the world where, thanks to successful collaboration and support amongst all players in the financial ecosystem, the rate of cashless payments has reached levels as high as 60 per cent.
"Currently, around 85 to 90 per cent of retail transactions carried out in the UAE are made using cash and we accept that it will take time and patience for consumer habits to evolve," he added.
Highlighting the latest payment trends in the UAE, he said MasterCard has seen significant growth both in conventional products such as debit and credit cards, as well as in its latest mobile offerings.
"Prepaid solutions in general are witnessing increased popularity including payroll, general purpose reloadable, gift, affinity and multi-currency prepaid cards, something that was previously missing from the UAE market," he said.
Elaborating, he said Manchester United prepaid, DubaiCard, gocash and Cash Passport multi-currency prepaid cards are some examples of latest products in popular payment solutions. Most of these prepaid cards are not linked to customer's bank accounts and accessible to all UAE residents, he said.
"The cards are open-loop cards, thus allowing cardholders to use the cards anywhere in the world where MasterCard is accepted. The introduction of these different types of prepaid cards reflects consumers' preference for payment solutions that allow them to make payments anywhere and anytime without compromising on security."
He said the UAE is an innovative market, and banks recognise products such as credit and debit cards and other forms of electronic payments will continue to be diversified and innovative in order to meet the ever-changing demands and requirements of consumers in the country.
"In particular, there has been an increase in co-branded debit and credit cards with prominent global, regional and local brands. At MasterCard, we work in collaboration with banks and other partners to design payment programmes that are innovative and address a customer and market need."
Challenges seen for cashless system
Kumar said there is a misconception that electronic payments are not as secure as using cash.
"In fact, electronic payments remain as one of the safest, simplest and smartest ways to pay. However, the Middle East is a predominantly cash-based society and shifting the primary behaviour of the market is going to take time and careful planning," he said.
"We believe that the key to recruiting and retaining consumers in MEA financial services is innovation. Consumers in the UAE are gradually becoming more financially aware and hence able to make responsible financial decisions for themselves and their families."
He said large amounts of foreign exchange cash is traded daily by banks and exchange houses in the UAE.
"At MasterCard, we are working closely with our partners to electronify the large cash pools of foreign exchange into innovative payment products such as multi-currency prepaid cards where a customer can instantly load multiple foreign currencies such as US dollars, British pounds, euros and others on one MasterCard card and travel without the hassles of carrying large amounts of cash be it for a holiday or for business purposes. Our partners and customers are embracing such new products wholeheartedly because of the convenience and control that advanced card products provide as compared to cash," he said.
"Mobile banking is also changing the way we pay. Consumers today are able to shop and pay in whatever way best fits their needs and lifestyles - anytime, anywhere and on any device. Mobile banking provides digital 'shortcuts' that provide speed, convenience and a great consumer experience, whether remitting money to your home country or making daily purchases online."
He said mobile banking definitely represents the future of payments. Using a mobile phone to pay only requires downloading an app and linking to bank details, offering unrivalled levels of convenience and seamlessness.
"Interestingly, the UAE has one of the highest rates of mobile penetration in the world and as more people recognise the benefits of being able to shop on-the-go, we expect to see further growth of transactions carried out using a mobile device," Kumar noted.
"Consumers are looking for convenience, speed, value for money and safety of their transactions while shopping online and as Internet penetration levels continue to increase, we also expect mobile shopping in the Middle East to become increasingly popular. Consumers are becoming more aware of the safety and security features and are getting familiar with the benefits of being able to shop on the go."
He said the results of the recently=conducted MasterCard 2015 Online Shopping Behaviour Study disclosed that over 80 per cent of those surveyed in the UAE had made an online purchase in the three months prior to the study, of which 80 per cent said they were highly satisfied with their online shopping experience.
Cash is king, but expansive
In reply to a question, Kumar said cash is not only expensive - costing governments up to 1.5 per cent of GDP to print and deliver - but it is also inefficient and contributes to corruption, illegal activity and potential waste. In addition to this, cash does nothing to help those left out of the financial mainstream.
"Electronic payments using mobile phones act as a vital bridge for financial inclusion for these people, especially in regions such as the MEA, where the majority of countries have a very high mobile penetration rate," he said.
To a question how banks add value through cash management solutions, he said lenders can add value through effective partnerships with various other organisations in the financial ecosystem.
"MasterCard, for example, as a technology company in the payments industry, partners with banks to provide a number of product solutions that enable consumers, merchants and corporations to move away from cash-based transactions and to have access to electronic payments," Kumar said.
In reply to another question, he said most airlines do not charge any fees for card payments.
"Only a few low-cost carriers impose some fees. However, we see the opposite trend when it comes to larger, more established airlines. These airlines actively encourage online and electronic payments due to the speed, convenience, security of electronic payments in addition to significant increase in sales due to electronic payments.
"In fact, according to our latest study, airlines were found to be one of the most popular categories for online spending in the Middle East," Kumar concluded.
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