Rapidly shifting payments landscape: How the way we pay is changing forever

Padmini Gupta is the Co-founder and CEO of Xare and rise in the GCC. Padmini began her career in banking in the 1990’s in California, where she was responsible for running a $200 million+ portfolio in commercial banking. She was one of the early pioneers dedicated to bringing financial products to women and minority-led businesses; and, as a result was awarded twice by the US Small Business Administration. Padmini also sat on the Banker’s Board of Accion and was a part of the San Diego City Redevelopment Task Force.

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A fully digital payments landscape cannot be cemented without first addressing the proportion of people who are either hesitant, or simply unable to transact online

  

The global payments landscape has changed drastically in the short space of a year. The Coronavirus pandemic has forced transactions to shift online with businesses required to set up secure payment platforms allowing most consumers to shop from home, driven by convenience, hygiene, and concerns for public health. As a result, digital payments both worldwide and in the UAE have skyrocketed in 2020, with the World Economic Forum estimating the UAE’s 2020 e-commerce market at $27.2 billion, and similar growth across the region.

As the global economy begins its emergence from the effects of the Coronavirus pandemic, the uptake of digital payments will continue to aid an economic rebound. However, it is equally important to acknowledge that a fully digital payments landscape cannot be cemented without first addressing the proportion of people who are either hesitant, or simply unable to transact online.

Online spending is a factor of two things: 1) the number of people making purchases online and 2) the actual amount spent online. The barriers affecting the number of people making purchases are: 1) the proportion of people who do not have a bank account; 2) the number of people who do not have online enabled cards; and 3) those without enough credit to do so.

There are between 2.5 to 3 billion people in the world who do not have a bank account, underpinning a large portion of society who, as a result, are without credit and not able to make payments online. Typically paid less than Dhs5,000 per month (usually in cash), modest income employees often working in construction, transportation, logistics and domestic help make up the outliers to the traditional banking system here in the Middle East.

Modest income earners who are paid in cash tend to remit the majority of their wages to their home countries via a cash transfer with a remittance house. Not only is this is a huge leakage for the economy, but it is also a lost opportunity for financial institutions in the UAE to provide credit, wealth products, or insurance products to this market.

Moreover, it is not just the consumer who is impacting the shift to a fully online payment space, but it is businesses too. Many smaller businesses, be it a local shop or individual agents such as, gardeners or plumbers have an inability to accept or provide digital payment solutions, which of course puts them at a disadvantage. Especially when compared to larger businesses who have the means to transition seamlessly to an online transaction platform. For perspective, 61 per cent of consumers are now using cards or digital wallets to make payments online instead of opting for cash on delivery (COD) according to the UAE E-commerce Landscape Report. Thus, not being able to accept contactless or digital payments as a merchant and opting only for a COD method puts certain businesses in a vulnerable position in the current climate, where e-payments are encouraged, and cash is commonly considered as an unhygienic method of payment.

It can also be the case whereby certain businesses and consumers alike from a lower income demographic are wary of transacting online, as physical cash payments may offer a sense of security and reality. When many migrant salaries are remitted via “hand-in-hand” cash transfers with a remittance house, it is a confirmed process of seeing the transfer take place, thus leaving many modest income earners wary of the reality of digital payments.

To bridge this gap, innovations in the UAE include initiatives by banks offering free digital accounts for modest earners, which can be opened with just their Emirates ID. Inclusive fintech products like Xare have also enabled UAE residents who typically go unbanked to share access to their cards with their family back home safely and securely, as well as being totally controlled by the primary earner. Companies like FAB’s Payit wallet, Telr and Noon Food have also contributed in helping offline merchants digitize their payments too and are growing in popularity across markets, much like the greater speed, safety and security they offer.

To conclude, it is expected that digital payments will eventually overtake the use of cash. The shift to spending online is also expected to hold long-term as consumer confidence in digital payments surge across the MENA region, according to the UAE E-commerce Landscape Report. However, in order to affect the speed of the shift to a fully digital economy by 2030, financial inclusion must evolve to enable everyone, everywhere, the ability to participate fully in the new digital economy – to create, save, invest, borrow and grow.

Any opinions expressed in this article are the author’s own

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