Unlimited scalability, demystifying complexity

Network International offers a highly advanced suite of payment products, services

Recently, e& announced a strategic partnership with Mastercard aimed at benefiting consumers and businesses in 16 markets across the Middle East, Asia, and Africa. The collaboration will offer innovative technologies and user-friendly experiences powered by Mastercard’s capabilities when using digital financial services provided by e& operating companies.

To enable this initiative, Mastercard is providing a fullyfledged payment processing platform through its partnership with Network International, a leading enabler of digital commerce in the MEA region. To learn more about this strategic partnership and the payments sector, Economy Middle East interviewed Navneet Dave, Group Managing Director - Processing, Middle East & CoHead Group Processing, Network International

What is Network International’s role as the key payments processor in e& and Mastercard’s partnership?

The collaboration between Network International, e&, and Mastercard marks a significant milestone for the UAE, as it is the first time a telecom company has expanded its offering to become a digital payments player. Network International is playing a crucial role in enabling e& and Mastercard to provide a comprehensive payment processing platform that will revolutionize digital payments for 10 million consumers in the UAE.

By utilizing Network International’s payment solutions, Mastercard is helping e& to diversify its revenue streams and make a smooth transition to digital commerce, with the exclusive prepaid card enabling payments worldwide. This groundbreaking initiative also highlights how institutions like e& can leverage Network International’s technology infrastructure and capabilities on a large scale to enter the payments space.

Can you highlight Network International’s network capability and technology infrastructure?

We love all the innovative ideas fintechs bring to the table, but we also understand they lack the necessary infrastructure to execute their plans. At Network International, we offer a suite of highly advanced payment products and services to provide fintechs with the resources they need to stay ahead of the game and meet the needs of their end-users.

Our open and flexible pan-regional technology platform allows for easy integration with entities through Rest APIs. We prioritize scalability, openness, and availability in our platform’s design, enabling fintechs worldwide to connect to a single Network sandbox with the same set of APIs. Furthermore, we manage data residency requirements by routing requests based on the country of operation to the appropriate localized cloud platform.

We seamlessly span through size and complexity with easy scalability, which means we can accommodate clients whether they have 1,000 or 10 million customers to serve. Most importantly, our exceptional resilience minimizes downtime in processing with nearzero-fault tolerance.

What are the key payment trends for 2023?

In 2023, we anticipate a rise in mobile payments via wallets, virtual and tokenized cards, along with enhanced security features enabled by biometric authentication methods. I also see growing integration of AI and machine learning continuing to expand in payment applications, enabling improved fraud detection and personalized recommendations. In terms of innovation, voice recognition for making payments is gaining momentum, while the advent of virtual reality and metaverse environments will likely result in augmented reality being used to provide shoppers with more tangible online experiences. Furthermore, digital currencies are expected to become more prevalent.

With non-financial institutions and non-banks entering the payments space, how will this develop the payments ecosystem?

This initiative highlights the growing trend of non-banks offering enhanced customer experiences, such as faster onboarding, simpler access to financial services, and features like loading wallets through IBAN, remittances, B2B and P2P transfers, and more.

As a result, banks can expect to face greater competition as non-banks introduce more compelling Super App propositions, potentially driving them to launch more innovative solutions as well.

Apart from e&, what steps should other major sectors such as energy, travel, and transport take to enter the payments space?

Our robust suite of payment products and services and our infrastructure can serve large fintechs and facilitate the transition to digital payments for any category of clients outside of banking and financial institutions. We are ready to help any business, in any sector, anywhere in the region, effectively transition to digital payments.

We indeed anticipate a growing number of non-banks and financial institutions entering the payments space, driven by global trends toward the adoption of new payment methods. This will allow them to better serve the evolving needs and behaviors of their customers.

Although this presents a significant challenge for financial institutions facing alternative payment players with more extensive relationships, reach, and innovative solutions, it ultimately creates positive disruption for consumers.

The collaboration of Network with the partnership between Mastercard and e& serves as a significant catalyst for major sectors in the country to explore and adopt digital payments. It demonstrates that non-bank industries can participate in the payments ecosystem, emphasizing the availability and significance of trusted players offering core processing services that enable these industries to explore more business opportunities and enhance competitiveness. Furthermore, it encourages trust in companies like Network, which can simplify the complexity of payments and provide clarity to their clients.

What is Network International’s growth trajectory in the UAE in terms of key focus sectors and markets for 2023 and beyond?

At Network International, our growth strategy centers around diversifying payment and acceptance methods while enhancing value propositions for merchants, financial institutions, fintechs and verticals.

We are actively seeking opportunities to assist our partners in meeting the payment needs of their digitally-driven customers while also working to include unbanked and underserved citizens in the financial services ecosystem. We are intensifying our focus on building new client relationships and adding value to existing ones by investing in machine learning, AI, process automation, data and analytics and other key areas. Our ultimate goal is to establish deep trust within the markets we serve and among our partners.

D33: An unprecedented economic transformation agenda to reimagine the future of Dubai

DAMAC Group Chairman Hussain Sajwani delves deep into what the newly-launched roadmap represents and how its four key focus areas will help turbocharge Dubai’s growth and development over the next decade

Dubai has a long history of embracing change and fresh thinking, from its early days as a small trading port to its current status as a global hub for tourism, trade, and investment. While the city’s strategic location, advanced infrastructure, abundant resources, and political stability have all contributed to its rapid transformation, it is Dubai’s constant desire and unique ability to reinvent itself that is fueling its exceptional journey.

As it gears up to mark 200 years since its foundation, the city’s forward-thinking leadership led by His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai, has put the Dubai Economic Agenda ‘D33’ in motion, offering us a window into the future of the Middle East and the world.

The recently launched bold and audacious agenda has set its sights high, with several ambitious goals outlined for Dubai to reach during the next decade. It aims to position Dubai among the world’s top three economic cities, top three international destinations for tourism and business, top four global financial hubs, and top five leading logistic hubs, among many other targets. With 100 transformative projects planned to achieve the D33 agenda, Dubai is envisioned to become the most important global business centre when it celebrates its second centenary in 2033.

As with many previous strategies, economic diversification is the underlying theme of the new agenda. While it directs that traditional trade and economic sectors be developed further, the roadmap has a strong focus on increased investment in future growth sectors, with sustainable economic growth and self-sufficiency in key sectors and industries being Dubai’s priorities. In the process, the agenda will open up new avenues for the city’s private sector to thrive more and more. With all the new projects and initiatives rolled out, Dubai will see the size of its economy double to AED 32 trillion over the next 10 years. Four key focus areas of this agenda have piqued my interest in particular – partnerships, technology, education, and people empowerment. D33 attaches great importance to expanding Dubai’s partnerships with the rest of the world to enhance foreign trade. The Dubai Economic Corridors 2033 initiative aimed to strengthen existing foreign trade relations with Africa, Latin America and Southeast Asia and the plan to add 400 cities as key trade partners will be a game changer in Dubai’s growth. These initiatives will enable it to harness the strengths of its partners to create new business opportunities while also sharing prosperity with them. One of the key factors that set Dubai apart from other cities is its willingness to embrace and be at the forefront of new technologies. Unsurprisingly, technology finds a prominent place in the D33 agenda. It is promising to see that the leadership is giving much weight to innovation and future technologies to reinforce Dubai’s reputation as a global tech hub. Sandbox Dubai, which aims to make the city a major hub for incubating business innovation by enabling the testing and marketing of new products and technologies, will be a huge step toward this goal as it will attract more tech talents and entrepreneurs to be part of Dubai’s pioneering journey. As befitting the avant-garde economic blueprint, Dubai is hoping to generate a new economic value of AED 100 billion from digital transformation annually.

Another important aspect of Dubai’s D33 agenda is its focus on education and human capital. Making Dubai a hub for higher education and investing in human development and skillsets are integral components of the agenda. It is worth highlighting that Dubai’s visionary leaders have prioritised the integration of new generations of Emiratis into the private sector. The plan to attract 65,000 young Emiratis into the sector over the next decade will have a profound positive impact on the sustainable growth and development of the UAE’s economy and its society. In line with this exemplary initiative, I was so pleased that the social responsibility arm of DAMAC Group proactively collaborated with The Knowledge Fund Establishment and the Dubai Schools Project to offer scholarships to Emirati children for a 5-year period.

As someone who has closely watched and been a part of Dubai’s growth story over many decades, I believe this D33 agenda has no parallel and is set to turbocharge the growth and development of Dubai in ways unimaginable, with the new wave of opportunities it will unleash in various sectors. Opportunities abound and goals are set. It is just a matter of time to see Dubai bounding down the road to holistic economic development, sustainable prosperity, and global leadership in key sectors and industries.

Banks face challenge of expanding financial inclusion to achieve growth

Nearly 1 billion women in developing country households remain outside formal financial systems

Over the past decade, various terminologies have emerged, such as sustainable development, good governance, responsible capitalism, and inclusive growth, among others. This highlights the increased awareness among societies and decision-makers that economic policies must consider social dimensions and justice to fulfill the aspirations and needs of people and avoid social and economic instability. Furthermore, the recent discourse on financial inclusion has added to this economic discussion. Research has demonstrated that achieving financial inclusion has a positive correlation with promoting growth and generating job opportunities, as it facilitates a more equitable distribution of capital and risk. Therefore, financial inclusion has gained paramount importance as an essential component for promoting all-encompassing growth and fostering overall economic development in the Middle East and MENA region. The progress towards achieving large-scale financial inclusion has been significantly accelerated by technological advancements and innovations in the banking sector. This underscores the pivotal role that banks and financial institutions are playing in transforming the financial inclusion landscape.

So, what is financial inclusion and why is it important?

Financial inclusion, as defined by the World Bank, refers to the provision of affordable and convenient financial products and services to individuals and businesses to meet their financial needs. These products and services include transactions, payments, savings accounts, credit facilities, loans, insurance services, and more. It is essential that these offerings are delivered in a responsible and sustainable manner to ensure that they are accessible to everyone.

Financial inclusion has been identified as a catalyst for achieving seven of the seventeen Sustainable Development Goals. The World Bank recognizes it as a crucial enabler for eradicating extreme poverty and promoting shared prosperity. Recent data from the World Bank indicates significant progress in financial inclusion, with 76 percent of adults worldwide now having access to accounts through financial institutions or mobile financial service providers, up from 51 percent in 2011. Developing countries have shown a particularly noteworthy rise in account ownership, with figures increasing from 63 percent to 71 percent in recent years, largely due to increased access to accounts in several developing nations. This growth is a significant departure from the previous period of 2011-2017, where growth occurred primarily in China or India. Mobile money has played a vital role in increasing account ownership in Sub-Saharan Africa. The gender gap in developing economies narrowed from 9 percentage points to 6 percentage points in 2021, according to recent data. The figures show that 74 percent of men and 68 percent of women in developing countries have a bank account. Globally, 78 percent of men and 74 percent of women had bank accounts, resulting in a gender gap of just 4 percentage points. However, these statistics also highlight the significant gender inequality that persists in Arab societies. Despite the Arab Monetary Fund’s urging of Central Banks to prioritize financial inclusion and the yearly celebration of the “Arab Day for Financial Inclusion” on April 27, there is still much work to be done to bridge the gender gap in financial access. Despite some progress, financial exclusion remains widespread in Arab countries, as evidenced by various indicators. The Arab Monetary Fund acknowledges that there is still much work to be done to improve financial inclusion metrics, citing recent World Bank data that reflects the efforts of Arab nations to improve access to financial services. The data shows that the proportion of adult males in Arab countries with access to formal financial services has increased on average to 48 percent, while for women, it has only risen to 26 percent. The statistics also reveal a 48 percent increase in access for low-income groups. While these figures do highlight a gender disparity in Arab societies, they also present significant opportunities to enhance financial access in these communities by promoting the social responsibility of financial institutions and implementing appropriate credit policies that target disadvantaged individuals.

The UAE Central Bank has recently launched the Financial Infrastructure Transformation Program to expedite digital transformation in the financial sector. The program’s goals are to support the financial services industry, promote digital transactions, achieve financial inclusion, and introduce secure and effective payment innovations towards a cashless society.

Similarly, in Egypt, the Central Bank of Egypt has made financial inclusion one of its policy objectives and recently announced a strategy for 2022 that aims to expand financial services to individuals who have not previously used banking services, with the goal of achieving economic growth.

Targeting community groups

While it is true that banks are making efforts to provide financial services to more people, targeting specific segments of society, such as young adults aged between 16 to 21 and self-employed women, is crucial for building on the progress made in the region.

This is where the importance of the “Know Your Customer” (KYC) system used by financial institutions comes into play. The system helps banks gain insight into their customers’ goals, needs, and circumstances, and enables them to determine if the customer requires additional support. An official responsible for financial inclusion in an Arab bank emphasizes the need for close cooperation between governments and banks to develop a joint strategy aimed at achieving the highest rates of financial inclusion. Governments should prioritize financial inclusion as a key aspect of their overall development strategies, much like poverty alleviation. For their part, banks should adopt a strategy that expands their customer base, identifies marginalized groups, and prioritizes their financial inclusion.

Inclusion and women

Despite notable advancements in recent years and the efforts of numerous organizations around the world to increase women’s financial inclusion, the gender gap remains.

According to the Global Findex database, almost 1 billion women living in the poorest 40 percent of households in developing countries remain excluded from the formal financial system. However, financial inclusion can significantly contribute to women’s economic empowerment. For instance, access to formal savings accounts can help women manage economic shocks, and digital payments can enable women to have greater control over their income and transactions. Targeting women in financial inclusion policies requires the following steps:

• Conducting a comprehensive market study to gather data on the detailed use of financial services across gender, age, and regional groups.

• Implementing financial education programs specifically designed for women to enhance their financial literacy and promote better financial behavior.

• Strengthening educational curricula to include topics such as social responsibility and financial efficiency.

• Developing new financial instruments that directly target women based on their economic needs.

It’s important to note that the ultimate goal of financial inclusion is not only to improve financial indicators but also to improve economic indicators for society as a whole. Achieving economic inclusion, through various means including financial inclusion, is critical for securing a better future for people.

Risk management and stress tests: Crucial tools in times of uncertainty

Federal Reserve’s tightening policy contributes to bank losses

What caused the proliferation of bank collapses in the U.S. and how did their consequences extend to other countries and banks? Is this reminiscent of the global financial crisis of 2008?

The root of the current situation can be traced back to the bankruptcies that hit a number of American banks, with far-reaching effects on banks outside the U.S., particularly in Europe.

Three major U.S. banks – Signature, Silvergate Capital Bank and California-based Silicon Valley Bank –declared bankruptcy within a week, making it the largest bank failure since the 2008 financial crisis. This sent shockwaves throughout global financial markets.

As soon as bankruptcies were announced, Speculation that history was repeating itself and that the 2008 crisis was about to engulf the world once more began to circulate. This was compounded by the challenging situation faced by the prestigious “Credit Suisse,” which required a government rescue plan to prevent its collapse.

Let’s examine what occurred in 2008. In September of that year, the crisis erupted with the announcement of the bankruptcy of U.S. bank “Lehman Brothers,” triggering a banking and financial meltdown that was later regarded as the most severe since the Great Depression of 1929.

The crisis initially began in the U.S., but it spread to many countries around the world. In 2008, the number of banks that failed in the U.S. was 19, and it was anticipated that more failures would occur among the remaining 8,400 or so American banks.

Is this a repeat of 2008 but with a modern-day format?

The current situation cannot be considered a sequel to the 2008 global financial crisis. In response to that crisis, a regulatory system was established, designating the world’s major investment banks as “too big to fail” and requiring them to hold significant amounts of cash or liquid reserves to survive any future financial turmoil.

The reasons behind the current collapse of US banks are apparent, and they are closely linked to the Federal Reserve’s hawkish policies. The Federal Reserve raised interest rates in an attempt to control inflation, which had risen to extremely high levels.

U.S. banks accumulated substantial deposits during the pandemic and invested a large portion of their inflated portfolio of deposits in low-risk Treasury Bonds, but failed to implement adequate preventive measures. This exposed them to interest rate risk, as the rising interest rates eroded the value of their long-term bonds, as in the case of Silicon Valley Bank. As interest rates increased, the value of long-term bonds held by U.S. banks decreased due to their inverse relationship with interest rates. This resulted in significant losses, which were further compounded when bank depositors made substantial withdrawals.

The banking crisis spread to Europe, specifically to Switzerland, where Credit Suisse faced significant setbacks and a decline in its share price, prompting authorities to intervene to save it.

Although the difficulties faced by the Swiss bank differed from those of Silicon Valley and Signature banks, Credit Suisse’s troubles heightened concerns about the overall economy.

Why did this happen?

The current crisis can be attributed, in part, to mismanagement of asset and liability risks by bank officials, which has resulted in a rapid decline in depositors’ confidence. Silicon Valley Bank, in particular, took on excessive risk, as it was not subject to the same level of regulation as other major U.S. banks that adhere to Basel III standards. This lack of regulation was a key contributing factor to the current predicament.

In 2018, then-U.S. President Donald Trump passed a liberalization law that exempted thousands of small banks from strict regulations and relaxed the rules that large banks had to follow. Under this law, the asset limit for “significant financial institutions” was raised from $50 billion to $250 billion. However, Silicon Valley Bank was not subject to stricter regulations that applied to top-rated banks because it was not classified as a significant financial institution.

In other words, Silicon Valley Bank was able to invest billions of dollars of its own deposits in U.S. Treasuries without having to hold sufficient reserves to protect client funds, should markets move against the bank’s interests. This was due to the bank not being subject to the stricter regulations of Basel III standards, unlike other major U.S. banks. After the 2008 financial crisis, banks were required to maintain 100 percent liquidity coverage, meaning they must hold enough high-quality liquid assets to finance cash outflows for 30 days. Treasury Bonds were among the assets that banks could hold for liquidity purposes. However, with the Federal Reserve raising interest rates continuously since last year, the value of older, longer-term bonds has fallen, causing significant losses for bondholders.

The repercussions from Silicon Valley Bank’s collapse have increased credit risk globally, as investors fear further failures in corporate debt markets.

The situation creates a “moral hazard” in economics, where a bank or investor has an incentive to increase financial risk because they are shielded from the potential consequences of risk.

Many economists argue that moral hazards in financial markets increase the risk of harmful economic activity, while others believe that maintaining incentives to reduce financial risk can help markets avoid excessive and reckless risk-taking.

Stress tests

Thus, it is crucial that central banks and regulatory bodies carefully consider the potential repercussions of their policies, especially when it comes to raising interest rates. The Federal Reserve’s recent tightening policy has already caused U.S. banks to suffer unrealized losses of $620 billion from assets that have lost value but have not yet been sold, according to data from the Federal Deposit Insurance Corporation. These events underscore the importance of accountability for central banks and regulatory bodies when it comes to hedging risks and preventing crises before they occur. Laws related to banks, such as stress tests, must be strictly enforced to ensure that institutions are adequately prepared for economic and financial shocks. Stress tests are essential tools for banks’ risk management and are among the most important precautionary safety measures at both the macro and micro levels in the banking sector. They provide a snapshot of financial institutions’ ability to withstand difficult scenarios, allowing regulators and managers to assess their resilience and take appropriate measures such as capital consolidation, procedural modifications, and advanced contingency planning. In times of uncertainty, risk management is paramount.