5 minute read
Defining the Future of Innovative Payment Solutions in Middle East – Lessons from Asia
Rajashekara V Maiya Vice President and Head, Business Consulting Group, Infosys Finacle, talks with MEA Finance about the opportunities and challenges for banks to drive innovations in payments in the Middle East region, taking inspiration from some developments in other Asian economies such as India and China
Describe what makes payments such fertile ground for innovation in Middle East banking.
Advertisement
Globally, the total value of digital payment transactions is projected to touch US$ 7.86 tn 2022 and grow at a CAGR of 10.88% to reach over US$10.7 tn by 2025. With the Middle East being one of the biggest and most stable trading hubs connecting Europe, Africa, and Asia, the number of payment transactions is bound to grow in this region. The Expat community in the Middle East is one the largest in the world. For instance, Dubai is said to have people from 120 nationalities. These huge expat communities regularly send money back to their respective home countries.
In addition to Dubai, we’re seeing infrastructure investments in emerging financial hubs such as Doha, Abu Dhabi, and Riyadh. The hubs are bound to attract considerable investment and participation. At the same time, we’re seeing the growth of smart cities or cognitive cities that incorporate smart finance, smart payments, smart remittances, smart manufacturing, smart trading and more, which require a digital impetus. These cities will also attract more talent and a digitally capable workforce that will then drive the transformation of cash-based economies into digital economies.
Together, all these factors will build considerable expectations around payment and remittance innovations to make them faster, cheaper and more transparent. To enable these, banks in the Middle East must move away from the traditional hub and spoke transaction models to distributed, network-based transactions based on distributed ledger technologies. This will be true for both domestic and international transactions.
Rajashekara V Maiya, Vice President and Head, Business Consulting Group, Infosys Finacle
How much further can retail payments go in terms of innovation and what might we expect to see next?
In a recent Efma – Infosys report on ‘Innovation in Retail Banking Beyond the Pandemic’ the respondents were asked to pick players whom they believed would lead innovation in the area of payments and cards in the next five years. Surprisingly, 30% picked leading digital commerce platforms such as Amazon and Alibaba; 22% picked fintech start-ups and a mere 14% picked incumbent financial institutions. Over the coming years, we are likely to see third-party channels play an increasingly prominent role as open banking and embedded finance gain popularity.
India is a great example. In August 2021 India saw monthly payment transactions carried out on its open payments network, Unified Payment Interface (UPI), touch 3.3 billion with 91% of these originating on apps such as PhonePe, Google Pay, and Paytm. The biggest reason is that there is a payment corridor and payment infrastructure that is available to the market, allowing them to develop innovative ways of doing transactions at a cheaper rate.
In the future, we can expect to see these channels being used in the Middle East too, not just for domestic transactions but international as well. Also, the entry of big tech companies such as Apple, Amazon, Google and Alibaba will completely disrupt the payments space.
What are the main challenges banks face in providing or advancing payment services and solutions?
One of the biggest challenges is the legacy environment that banks operate in. Unlike fintechs that are nimble and agile, most large banks have systems that are batch-oriented and ill-equipped to handle online real-time transactions. Therefore, these banks must collaborate with fintechs and lay the groundwork to address new disruptions, while they build a modern infrastructure internally.
Also, payments and remittances lend themselves well to platform business models which enable banks to render these services in a cheaper and faster way. Banks must invest in building an ecosystem with the right kinds of partnerships, whether transactional or transformational, to boost international remittance and crossborder payments. the Middle East. Emirates NBD is a great example. It not only established its Future Lab to accelerate the development of innovative banking services but also became the first bank in UAE to pilot the launch of a blockchain network for international remittances and trade finance.
For international trade, Finacle Trade Connect which has been implemented as a consortium of banks– running on
Blockchain and distributed ledger technologies will play a key role in enabling real-time payments and as well as innovative payment offerings.
Banks must also work alongside regulatory authorities to safeguard and secure transactions while enabling new and reimagined business innovations such as ‘payment as a service’ or ‘remittance as a service to generate new revenue opportunities. In addition, the ability to enable real-time liquidity, cash management and a multi-country view for corporate customers will also emerge as a priority.
How do you maintain your competitive edge in the busy regional banking payments market?
Finacle Payments Connect, a blockchainbased solution for payments and remittances is already running live in the Middle East – India corridor. This can be extended to other Asian economies such as the Philippines, Indonesia etc. that have an active trade corridor with Blockchain banks can use these to conduct international transactions using Blockchain. Banks have an opportunity to offer both Finacle Payment Connect and Finacle Trade Connect to customers as a service, enabling them to transition towards a platform business.
When it comes to payments, there is a huge opportunity in the area of corporate payments.
Finacle offers comprehensive digital cash management which has been leveraged by several banks such as Qatar National Bank (QNB). With Finacle’s enterprise-class payments hub solution, QNB has been able to leverage a realtime payments platform. The platform provides seamless interoperability across various global and local payment networks, clearing services, and comprehensive support for multiple payment types and instruments.
Overall, Finacle’s cloud-native, API-first, customer-first and digital-first products built on cutting-edge technologies can allow banks in the Middle East to build powerful digital banking strategies.
