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Cashless transformations represent a game-changing opportunity to drive growth for GCC economies, with a potential to provide at least a 1% boost to non-oil GDP, equating to nearly $3 Billion, to the region’s largest economies. Boston Consulting Group’s (BCG), recent study titled How Cashless Payments Help Economies Grow, shows that cash-intensive economies are at risk to lose financial potential, whereas those that switch to digital can boost annual GDP.
Today, cash remains the world’s most widely used payment instrument in the Kingdom of Saudi Arabia (KSA) and the United Arab Emirates (UAE). The UAE’s reliance on cash used in day-to-day transactions is forecasted to drop from 72% to 46% by 2021, according to BCG data.
“While payment systems are slow to adapt globally, there are big rewards available to countries willing to innovate and overhaul existing payment ecosystems,” said Godfrey Sullivan, Managing Director & Partner at BCG Middle East. “UAE’s economy could realize enormous benefits by adopting the cashless agenda, and reap even more benefits when they execute this vision by shifting to a cash-free payment ecosystem. As a nation that has a clear roadmap for social and economic digital transformation, adopting a holistic approach to implementing electronic payment infrastructure will prepare them for achieving future progress.”
Restraints to Digital Adoption
Barriers to cashless uptake are a common source of frustration for policymakers, merchants, and financial institutions. Additionally, the costs to completing electronic payments exceeding the average costs seen in Europe.
While digital is an attractive alternative for many nations, areas of resistance remain. These include high cost of fees and charges that exist for electronic payments, lack of customer-centric solutions, a slow uptake by banks and companies in improving their cyber resilience in comparison to the rapid uptake of digital payments, and delays in real-time interbank transfers as a result of poor infrastructure.
Levers to Drive Cashless Agendas
The right strategies, incentives, infrastructure, and regulation can encourage innovation and boost public confidence in cashless systems. Partnerships between governments, central banks, and financial institutions are vital towards creating holistic national payment agendas.
For policy maker, the enablers of a cashless economy include:
- Establishing the right incentives – targeted incentives will motivate consumers and merchants to adopt cashless systems.
- Encourage competition, ensure a level playing field – competition forces downward pressure on prices, and encourages innovation, helping to offset the high cost of electronic payments.
- Provide world-class supporting infrastructure – cashless payments will be enabled by robust internet, mobile and payments technologies, regulation, security, and electricity networks.
- Streamline and enforce regulations – targeted and proportional regulation can strengthen confidence in electronic payments and enforce financial inclusion.
- Partner with the private sector – policymakers should seek to collaborate with stakeholders to foster innovation.
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