DUBAI — Amid global challenges such as the pandemic and economic fluctuations, the UAE payments industry has demonstrated remarkable resilience.
Between 2018 and 2022, the total revenue for the UAE payments industry grew at a Compound Annual Growth Rate (CAGR) of 9.7 percent, reaching a revenue pool of US$12.8 billion by the end of 2022.
In contrast, the global payments industry registered an annual growth rate of 8.3 percent, reaching US$1.6 trillion by the end of 2022.
According to the latest report from Boston Consulting Group (BCG), titled ‘Global Payments Report 2023’, slower growth is anticipated globally.
BCG’s in-depth analysis of the UAE payments sector expects that the overall revenue growth will increase in the next five years (2023-2027) to a CAGR of 3.6 percent, pushing the revenue pool to US$19.8 billion. In comparison, global payment revenues are projected to grow to US$2.2 trillion by 2027 at a CAGR of 6.2 percent.
At A Glance UAE Payments Industry Resilience: Despite global challenges like the pandemic and economic fluctuations, the UAE payments industry has shown remarkable growth and resilience. Significant Growth Rate: Between 2018 and 2022, the UAE payments industry's revenue grew at a CAGR of 9.7%, reaching US$12.8 billion by the end of 2022. Global vs. UAE Growth Comparison: The global payments industry grew at a slower rate of 8.3%, reaching US$1.6 trillion by 2022, compared to the UAE's higher growth rate. Future Growth Projections: BCG predicts the UAE payments industry will grow to US$19.8 billion by 2027, with a CAGR of 3.6%. Technological Advancements: The UAE's early adoption of GenAI and other technological innovations is driving growth in the payments sector. Shift from Cash to Digital: The UAE's transition from cash to digital transactions is a key factor in the sector's growth, forecasted at a CAGR of 10.9% from 2023 to 2027. Disruptions and Opportunities: The UAE payments industry faces disruptions from new technologies and market entrants, including over 5,000 fintech companies globally. Strategic Focus Areas: The report highlights four key areas for strategic focus in the UAE's payments industry: Operational Resilience, Generative AI, Risk Management and Compliance, and Mergers and Acquisitions. Generative AI's Role: GenAI is increasingly significant in the UAE payments sector, enhancing compliance and operational processes. M&A and Smart Partnering: Mergers and acquisitions, along with smart partnering, are essential strategies for UAE-based companies to maintain a competitive edge in the evolving payments landscape.
The report provides a comprehensive market analysis, exploring challenges and opportunities for acquirers, issuers, and other key players in the UAE payments ecosystem.
“The UAE is experiencing a defining moment for those in merchant services, issuers, transaction banks, and payment infrastructure. While our research shows slower growth globally, the UAE payments revenue pool is expected to grow in the years ahead. This is largely due to the UAE being an early adopter of technological advances powered by GenAI, which is being utilized across organizational processes. This evolution will improve customer pathways and offer specialized solutions, resulting in heightened service quality and profit growth,” said Mohammad Khan, Managing Director & Partner at BCG.
A changing tide in the UAE payments industry
The recent development in the UAE payments sector can be attributed to a combination of factors, including the transition from cash to non-cash transactions. From 2023 to 2027, the UAE’s transactions are forecasted to grow at a CAGR of 10.9 percent. This growth is spurred by the country’s shift from cash to digital transactions.
Key drivers of growth in the UAE payments industry include technological advancements in payment systems and supportive government initiatives. Additionally, the UAE’s economic expansion and changing consumer preferences towards digital payments are leading to continuous growth.
The UAE payments industry is facing multiple disruptions, ranging from technological advancements to new market entrants. These disruptions include the rapid growth of real-time payments, the introduction of value-added services, and the commoditization of basic payment processing. Over 5,000 fintech companies globally are now making their mark in the payments arena, collectively accounting for a significant portion of the industry’s revenue. In this evolving landscape, UAE-based companies must strategize effectively to maintain their competitive edge.
A future defined by innovation
As the global payments ecosystem undergoes significant changes, UAE-based payment providers are uniquely positioned to redefine their roles and services. Digital currencies, for instance, are no longer mere theoretical concepts. Local central banks are exploring the feasibility of digital currencies, contemplating their future role in the financial ecosystem.
Navigating the future of payments in the UAE
The report highlights four pivotal areas that are shaping the strategic direction of the UAE’s payments industry:
- Operational Resilience: Ensuring robust operational performance is crucial. While global trends show varying results, UAE-based entities must prioritize operational resilience and cost optimization. This approach will not only enhance operational outcomes but also align business and financial strategies to maximize shareholder returns.
- Generative AI: The advent of Generative AI (GenAI) offers transformative possibilities for the payments sector. Early adopters in the UAE are already witnessing its benefits. By identifying and leveraging high-impact GenAI use cases, companies can achieve significant productivity gains. The long-term vision should focus on integrating GenAI across organizational processes, emphasizing key customer touchpoints.
- Risk Management and Compliance: The regulatory landscape in the UAE is evolving. Companies are advised to undertake comprehensive risk and compliance assessments, addressing any gaps proactively. Establishing a target operating model will ensure long-term resilience and elevate risk management standards.
- Mergers and Acquisitions: The investment dynamics in the UAE’s fintech sector reflect global trends. With a shift in focus from large-scale deals to capability-centric acquisitions, companies must revisit their partnership strategies. This approach will enable them to identify and capitalize on current Mergers and Acquisitions (M&A) opportunities, ensuring long-term growth and success.
Lukasz Rey, Managing Director and Partner, Head of Middle East Financial Institutions Practice at BCG, said: “In analyzing the UAE’s payments sector, the significance of Generative AI (GenAI) is growing, particularly in its ability to enhance compliance measures as it becomes more integrated into core organizational processes. Additionally, smart partnering and M&A are proving to be valuable in building capabilities in this domain.”