Gulf consumers are increasingly turning to e-payments as trust and mobile gateways improve.
In MENA, between 10 to 15 per cent of PayPal consumer purchases were done through a phone. The firm, which says it had a five per cent market share of MENA's e-commerce market in 2012, plans to double that to 10 per cent by 2015.
More consumers in the Middle East and North Africa (MENA) region are embracing alternative payment channels to buy online, settle bills, and conduct transactions as broadband services improve and more firms improve online services.
The high spending power of Gulf citizens in particular is attracting online firms to beef up their operations in the region, to benefit from a relatively robust economic growth, greater government investment in infrastructure and a growing young population that is quick to embrace technology.
Although the region remains very much reliant on cash payments, firms are starting to cater to electronic payment services, while governments are trying to get more citizens to switch to online payments.
Firms have a reason to be optimistic about the growth of the small e-commerce business in the Gulf. Gulf business-to-consumer e-commerce sales are forecast to grow year-on-year by 30-35 per cent and reach $15 billion by 2015, according to a 2011 study by IMRG International. Etisalat, the Middle East's second-biggest telecom operator by market value, introduced international mobile money transfers in 2011, in partnership with Western Union, in certain countries. Etisalat has also introduced contactless cards that allow consumers to use their sim cards to make payments.
Using mobiles to pay bills and make money transfers is spreading in many regions globally, especially in Africa, where the speed and cheaper cost of such services compared to bank channels are making them popular among the continent's low-income earners.
Online-payment platform PayPal, owned by e-commerce firm eBay, is bullish on the MENA's e-commerce prospects, especially mobile payments.
"MENA today is a $9 billion commercial opportunity and it is the right time to tackle this opportunity because the infrastructure is available in the region in terms of broadband penetration and smartphone penetration,'' said Elias Ghanem, PayPal's managing director for MENA.
PayPal, which opened an office in the UAE last year to focus on the region, has now close to two million consumers in MENA in 11 countries. That is nearly double the consumer figure PayPal quoted in November last year, when it launched a partnership with shipping firm Aramex, which was followed by other deals.
PayPal, which started offering its services five years ago in the region, expects to announce partnerships with banks and telecom firms in 2013.
"The other partnerships we will do with telcos and banks and with payment gateways in the region will be here to solve problems for consumers or merchants. These partnerships will help us grow our consumer base,'' said Ghanem. "For example, you could use your bank account to link it to the PayPal wallet to pay a merchant in the US.''
PayPal, like many other e-payment gateways, is banking on the increased usage of mobile phones for purchases, a method that emulates the global trend.
PayPal globally processed $14 billion in mobile payments in 2012, representing 10 per cent of its total payment volume and triple the mobile payment volume it processed in 2011. It expects mobile payment volume globally to reach $20 billion this year.
In MENA, between 10 to 15 per cent of PayPal consumer purchases were done through a phone, Ghanem said, declining to give figures. The firm, which says it had a five per cent market share of MENA's e-commerce market in 2012, plans to double that to 10 per cent by 2015.
Firms are not the only ones targeting e-consumers. Gulf governments are working to get more citizens and expatriates to use online e-payment channels.
In Saudi Arabia, the Central Bank has set up the Sadad e-payment platform that allows residents to pay anything from electricity to telecom bills.
The UAE has developed a Wages Protection System, an electronic salary transfer platform that allows firms to pay labourers through banks, exchange houses and other financial institutions as a means to track salary payments.
These initiatives are backed by efforts from Gulf central banks to encourage electronic transactions as part of economic plans to build a knowledge economy and save costs.
"Central banks have realised that cash is very expensive to operate for the country, with issuance of notes and coins, and are seeking to increase the usage of electronic payments,'' said Peter Sidenius, a director at consultancy Edgar Dunn & Company.
"The significant trends for payments (in the Middle East) are around cash substitution and social inclusion, driven by prepaid card offerings to the large migrant communities that were paid in cash."
The Gulf region's population is mostly made up of expatriates and is one of the world's largest originators of remittances, a fact that has attracted firms seeking to capture a share of this market.
The Society for Worldwide Interbank Financial Telecommunication (SWIFT), the Belgium-based financial messaging service, has seen an uptick in the volume of electronic payment in MENA and is expanding its operation in the region, with an eye on exchange houses and corporates.
Swift's international payment traffic in the Middle East grew by more than 10 per cent in 2012 from a year earlier, although business dipped in countries caught up in the Arab Spring and it stopped dealing with Iran due to tightening sanctions against the country.
Such growth figures have prompted SWIFT to set up a Middle East Consulting Hub in the UAE, with a view to adding more clients. The number of exchange houses using SWIFT in the region has swelled to 45 this year from two in 2007.
But the region's electronic payment growth potential is hindered by many factors. People in the Middle East still mistrust cards and online payment channels. Governments also have yet to set up comprehensive regulation to protect online payments or roll out a developed infrastructure that covers all areas within one country.
"There is a very well developed acceptance network in cities, but in rural areas it is not well developed. To move to a true electronic system, the payment acceptance side needs to be fully developed," said Sido Bestani, SWIFT's head of Middle East and North Africa.
© Gulf Business 2013
