Businesses in the Middle East are increasingly relying on digital payments. Â The COVID-19 pandemic has been an exciting test of the efficacy of digital solutions across the region. Widespread availability of cashless payment methods and universal access to affordable broadband services is a major facilitator of digital transformation and an important driver of economic recovery. Yet, despite the rapid shift to digital payments, traditional banks have been slow to adopt them.
According to McKinsey consultancy, digital payments have been steadily increasing in MENA since 2014, and the pandemic accelerated use. A survey suggests that cumulative growth in digital transactions has exceeded 50 percent since 2020.
McKinsey reported that between February 2019 and February 2020, card payments in Saudi Arabia increased by 70 percent, while between 2014 and 2019, digital consumer payments increased by more than 9 percent yearly in the United Arab Emirates.
SME payments and online acquisitions are set to be significant fronts. About 43 percent are confident that most small and medium-sized businesses will begin selling online within four years.
However, retailers’ widespread adoption of digital payment methods may require adjustments to the current environment.
McKinsey reported in August 2021 that a survey found that 33 percent of people think lower merchant discount rates (MDRs) will help the most with the transition to digital payments. The average MDR in the United Arab Emirates is 1.6 percent, significantly higher than the MDRs in Europe, where similar restrictions are in effect.
But these charges also encourage digital payment usage by supporting more generous customer rewards than in other locations, with some credit cards even offering as much as 5 percent cash back.
Introducing tiered MDRs depending on sales quantities and creating alternative payment-processing platforms are two further industry-level efforts that could encourage digital payments. Beyond cost, more than a fifth of respondents (23 percent, to be exact) highlighted the importance of merchant finance. In comparison, 20 percent highlighted the importance of user-friendliness and helpful customer service in the onboarding process for new businesses. Additionally, speedier settlement and value-added services (such as inventory and cash management) each received 10 percent of the total possible points.
Recent figures
The use of virtual corporate credit cards in the MENA region increased 126 percent between the third quarter of 2021 and the third quarter of 2022, based on newly released data by Tribal Credit, an American digital financial solutions firm.
The use of virtual corporate credit cards climbed by 91 percent in Egypt between Q2 and Q3 2022, 117.5 percent in Saudi Arabia, and 42.9 percent in the UAE, according to Tribal.
As more businesses move into the digital space, more digital payment options have emerged to accommodate them. As the trend continued, Tribal’s issuance of new virtual cards in Saudi Arabia grew by 157.4 percent between Q3 2021 and Q3 2022. Additional growth was seen at 64.6 percent in the UAE and 263 percent in Egypt.
In Saudi Arabia, digital payments have a considerable economic impact on all social categories.
According to a study by Rubini Thought Lab ad VISA, Individuals in Saudi Arabia will save around 1.1 bn Saudi riyals, resulting from reduced crime associated with cash transactions and the elongation of time saved on banking processes, purchases, and transportation.
At the same time, businesses can save roughly 13.9 bn Saudi riyals by reducing the time spent processing incoming and outgoing payments and by increasing sales revenues as a result of attracting more customers.
While Saudi Government may save roughly 10.1 bn Saudi riyals by improving administrative efficiency, which also has many other benefits for the economy.
In 2018, Visa released the findings in a study titled “Cashless Cities: Realizing the Benefits of Digital Payments.” It was considered the first study of its kind to quantify the net benefits that 100 cities worldwide will reap if they seek to increase the use of digital payments rather than the use of physical currency.