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| 14 November, 2017

INTERVIEW: Klip boss believes he can steer 'unbanked' towards digital cash

Maki Vekinis, general manager in charge of delivering the new Klip service for Emirates Digital Wallet

Maki Vekinis, general manager in charge of delivering the new Klip service for Emirates Digital Wallet

Klip/Handout via Thomson Reuters Zawya

Maki Vekinis said system backed by 16 local banks and Emirates ID will mean blue collar workers will not need their own accounts

“Cash is king” is the age-old business catchphrase which has often been popular during times of economic instability.

However, this cliché could become redundant in the United Arab Emirates over the next few years, according to the general manager in charge of delivering the new Klip service for Emirates Digital Wallet.

Maki Vekinis said Klip is an attempt by its network of participating banks to replace physical cash with a digital equivalent but it will be different to services that rely on using credit or debit cards as an intermediary, he said.

As a result, he said he does not see any comparison between its offering and the likes of Samsung Pay, the newly-launched Apple Pay or even apps such as Smart Dubai's Dubai Now service offering mobile payments for a variety of government and private services.

"What they do is depend on the point of sales. They depend on a credit card put on a phone," Vekinis said during an interview with Zawya at the Gitex 2017 exhibition last month.

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"This has nothing to do with that. This is a pure cash replacement. We are not competing with anybody. This is a different solution."

Apple Pay announced its launch into the UAE on 24 October, following the launch of Samsung Pay in April.

Apple said in a statement to Zawya that Apple Pay would work with both Mastercard and Visa cards once users upgrade the operating systems on their devices to iOS 11. Several local banks and other institutions immediately announced they would accept Apple Pay, including Emirates NBD, RAKBank, Standard Chartered and HSBC.

Vekinis argued, though, that these technologies still involve a link to a bank credit or debit card, and that the merchant then has to pay accompanying card processing fees.

Its system, he said, will not take fees from either users or small businesses, such as convenience stores, but it will charge fees to the suppliers and merchants to whom small businesses pay their bills.

Even then, he said, these suppliers will benefit from lower processing fees and the fact that they would no longer have to pay cash handling charges or arrange for secure cash collection from small store owners.

Vekinis said that the real benefit to the system would be providing a service to people that are currently 'unbanked'.

Anyone in the UAE with a valid residency visa and Emirates ID will be able to walk into a bank and load digital cash onto their own, or someone else's Klip account, on their phone.

"All of the people like gardeners, drivers or maids at home - the ones that don't have salaries normally. These are the ideal use cases for us because you can transfer to their phone. They download the app and then you transfer to the phone whatever they get paid per week and after 4-6 weeks they go to UAE Exchange and send the money out. There's no cash ever in their hands. If their local Baqala (convenience store) has digital acceptance, then that's it. The loop is closed."

The Klip system, which is due to undergo a soft launch in the UAE by the end of the year, ahead of a rollout early next year, has been three years in the making.

The technology’s origins lay in meetings between the UAE’s telecoms companies and the Central Bank, which then invited the UAE’s major banks into a discussion into how to make digital payments much easier.

Security a priority

One benefit of this is that digital currency is considered more secure, but the other is economic.

"The thinking behind it is if you take cash out of the ATM and put it in your pocket… until you spend it, it is not part of the economy.

"It has no effect whatsoever. And when you go and buy something and you spend your cash, when the cash stays in the till, it doesn't have any part in the economy until it's deposited in the bank."

Yet with a digital cash system such as Klip, the money is mapped into an account "so it's never really out of the economy".

Figures on the UAE Central Bank's website for September show that the M2 money supply in the country (including currency in circulation and short-term bank deposits, but excluding government deposits), stood at about 1.26 trillion UAE dirhams ($343 billion), and that the amount of currency in issue outside of banks stands at 64.4 billion UAE dirhams, or about 5 percent of the total.

Klip’s owner, Emirates Digital Wallet, has 16 local banks among its shareholders, including First Abu Dhabi Bank, Abu Dhabi Commercial Bank, Mashreq Bank and Dubai Islamic Bank, among others. These are working with Mastercard and EDC (Electronic Documents Centre – a joint venture between Emirates Post Group and ABBA Electronics) to deliver the service.

Challenges ahead

Vekinis is under no illusions as to the task he faces in terms of convincing people to dump physical cash for Klip, but he feels that this can be done by starting in small areas with convenience stores and other local retailers and moving throughout cities area-by-area, potentially offering initial digital cash incentives to encourage users to sign up.

"It will be a hard two or three years, and then it will be in one wave," he predicted.

"I believe it will start from the ground up."

Although cash is still seen as a necessary payment channel for many e-commerce firms, the amount being spent digitally is increasing, according to a study published last month.

Payfort, an online payments company owned by Amazon, said in its fourth annual State of Payments in the Arab World study, that online goods and services transactions increased by 22 percent last year, to $30.4 billion.

The UAE was the biggest market for online payments, increasing by 21 percent to $12.4 billion, but Saudi Arabia was the fastest-growing, posting a 27 percent increase in transactions, with a total value of $8.3 billion.

Despite this, cash-on-delivery remained the most popular payment option in a number of Arab nations - most notably Egypt (70 percent usage) and Lebanon (60 percent).

More than 50 percent of cash-on-delivery customers surveyed in all countries cited security concerns as the reason for preferring cash.

“Despite the enormous growth in the region’s online payments and usage of e-commerce, security fears remain prevalent among consumers,” Nardeen Abdalla, marketing director of Payfort was quoted as saying in a press release announcing the company’s report. “Although we now see a greater willingness to make online transactions, consumers are increasingly aware of the risks of fraud and other cybercrimes."

Yet there are also significant benefits to using digital payments in big cities. Another study published in October that was commissioned by Visa and carried out by Roubini ThoughtLab argued that the economic benefit to using digital payments in 100 cities studied equated to about $470 billion per year - or 3 percent of the combined cities' gross domestic product.

© ZAWYA 2017