The development will enforce the regulations laid out in article 25 of Law No. 20/2014, and will see all electronic payment methods come under the regulation of the CBK.
Online payments grow on back of technological advancements
The move to regulate digital payments comes amid efforts to limit the potential risks associated with online payment methods, while also ensuring financial stability through the supervision of all market participants.
The CBK conferred with local banks, as well as the IMF, in the lead-up to devising the regulations, and online transactions are expected to rise significantly in the coming years as a result.
As of 2015, Kuwait’s online payment sector, which includes all transactions made through digital channels, was valued at $1.3bn, according to Payfort’s State of Payment Report, and by 2020 the value of the sector is estimated to reach $2.8bn.
This growth is being fuelled by a series of technological developments in the market, from contactless cards to mobile wallet payment methods, which are increasingly shifting the landscape of payments away from cash.
In the wake of this shift towards digital payments, the Kuwaiti authorities have moved to address the various legal challenges arising from new technologies in the market, while also looking to protect customers and operators from risks and vulnerabilities such as cyberattacks and fraud.
Regulation could provide boost to e-commerce
Beyond ensuring greater security for digital payments, the formalisation of online payments is also expected to support growth in the e-commerce segment.
According to Marmore MENA Intelligence, the value of e-commerce in Kuwait was estimated at $560m in 2014, and it is expected to rise to almost $1.1bn by 2020. Furthermore, Kuwait’s high internet penetration rate, estimated at approximately 87%, and the fact that some 2.4m of the 4m-strong population are already active online shoppers, of which 65% are adults in their 30s, bodes well for future growth in the segment.
In order to respond to consumer demands for online retail, the local private sector has started creating online markets to cater to a broad range of sectors, ranging from online food and groceries orders to delivery services.
However, there is still significant room for growth, as e-commerce in Kuwait remains predominately limited to online banking and financial brokerage services. Domestic retailers have yet to fully tap into the potential of online markets, with the vast majority of online retail purchases bought and shipped from abroad. Indeed, the top countries from which Kuwait makes online purchases are the US and the UK.
Industry analysts have cited a lack of consumer awareness as one of the main obstacles for e-commerce growth, as only an estimated half of internet users are conscious of relevant platforms in the country.
However, the shift in the cultural mindset of consumers is expected to be a catalyst for growth in e-commerce. As more Kuwaitis turn to online shopping, retailers will likely invest more in digital platforms to help tap into the market potential.
© Oxford Business Group 2018