9 minute read
Payments Plan
Houssam Chaker Regional Sales Head, Volante Technologies explains that banks in the Middle East are in the midst of significant digital changes that bring many challenges, but by educating their clients about new processes, they can smooth the path to developing smarter and faster payments systems and their accompanying benefits
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Payments in the Middle East are picking up pace, fast. As the region continues its path toward instant payments, banks need to develop faster and more sophisticated technology platforms to comply with regulations and meet customer demands. With all the developments taking place, UAE NPSS, KSA IPS, BUNA, GCC RTGS, SWIFT gpi, to name a few, banks in the Middle East have many competing priorities to contend with. The Middle East has recently seen significant growth as a FinTech hub both for investors and techsavvy innovators - broadly speaking, the Middle East is amid profound digital change.
Geographical Advantage
Egypt holds a unique opportunity within the Middle East region due to its geographical placement, bridging the gap between the two major regions and beyond. Cross-border payments are important in the Middle East, with two of the world’s three largest remittance corridors located in the UAE and Saudi Arabia. According to Mckinsey & Company, they handled $78 billion dollars in payments in 2020, equating to 7 percent of the GDP of the two nations combined. Two-thirds of survey respondents (67 percent) said bilateral arrangements between countries for
real-time settlement and the scaling up of digital money-transfer operators will be key drivers in cross-border transactions over the next five years.
Approximately one third of retail transactions are conducted electronically, thanks to factors such as underdeveloped digital-payments infrastructure and services, underbanked consumer and merchant segments and a cultural bias toward “cash is king”. However, new regulation and government initiatives are driving further innovations in the retail payments sector. Under the supervision of the Saudi Central Bank (SAMA), the launch of Saudi Arabia’s instant payments system ‘sarie’ was announced in 2021. The introduction of ‘sarie’ is in line with Saudi Arabia’s Financial Sector Development Program (FSDP) under Saudi Vision 2030, which targets achieving 70% non-cash transactions by 2030.
Business ecosystems are evolving promoting a frictionless payment experience for consumers. New products, services and transaction models enable next-generation payments, such as proxy payments, QR code payment, Request to Pay etc.
Banks across the Middle East region are facing the pressure of tighter liquidity and increasing competition amidst a more challenging macroeconomic backdrop. The shift to modernising technology is putting banks under great pressure as they evolve rapidly to support the growing needs of their clients. There is a great deal of balance that is required to operate day to day business while exploring how to leverage new, innovative developments. Banks in the Middle East face the challenge of enhancing legacy systems tools, banks also have an important role to play in educating clients, whose own processes are built around legacy systems. It is crucial to find a partner that can offer the opportunity for banks to accelerate its learning curve as well as saving time and resources in bringing products to market.
Schemes:
ISO 20022 is sweeping the financial industry, fast and nowhere more so than the Middle East. Banks in the region must manage multiple ISO 20022 modernization programmes for both domestic and crossborder payments: SWIFT, BUNA,
GCC RTGS, and instant payments schemes like those being rolled out in various countries in the region.
The motivation for banks is in part the recognition of a need for more advanced, flexible platforms that can improve innovation and meet client demands, using digital scale for better fraud protection and client intelligence, all with minimal effort.
Houssam Chaker Regional Sales Head, Volante Technologies
to achieve faster, more streamlined processes. This has led banks to invest in initiatives like real-time payments and SWIFT gpi.
In addition to the technology and services and providing the technology
Platforms and ecosystems: To meet today’s customer demands and regulatory mandates, financial institutions need to modernise their payments infrastructures and partner with innovative payment providers, co-creating a digital payments ecosystem based on newer hub models. When doing so, they should look for platforms that are cloud-native and cloud-ready, microservices-based, and API-enabled. Continuous real-time operation and 24×7 availability are essential components. Payments features: Instant Payments systems offer unprecedented transaction speeds with a maximum execution time of a few seconds; they are ISO 20022-compatible, which means they carry reams of valuable data; and they instantly notify customers and provide immediate access to funds.
Growing Payments
Nabil Ibenbrahim Managing Director at HPS says that the regional payments environment is heading into a period of rapid development led by growing demand from more digitally savvy generations, which will bring with it a new set of challenges for banks
Until 2020 the Middle East was highly dependent on cash, with the pandemic providing the main catalyst for widespread digital adoption. Last year, in leading markets, smartphone penetration reached almost 90%, and so for the region’s digitally savvy population, convenience speed, and reliability are important to them. To cater to the growing appetite, many governments like the UAE and KSA have embraced regulatory changes to allow for digital payments firms to develop and license their products, also investing heavily in infrastructure to boost innovation in the space. Other drivers to the region’s rapid progress include population growth, diversity and increased affordability and accessibility to digital products.
In 2020, right at the dawn of the pandemic, we were appointed by Saudi Payments,
Nabil Ibenbrahim, Managing Director, HPS
a subsidiary of Saudi Arabia Monetary Authority (SAMA), to provide a QR code platform for banks, wallet providers and fintechs to interact seamlessly.
The aim of the unified QR code platform was to enable banks, wallet providers and fintech companies to interact within an interoperable platform thereby leading to the enhancement of the electronic payment sector.
Thanks to this, all parties now benefit from an integrated payment environment that allows for an open-loop payment environment based on the latest messaging standards, ISO 20022. It means merchants, individual customers, and service providers are linked together to complete payments using the same, EMVco compliant, QR code.
The development of a national QR code payment system is in alignment with the Financial Sector Development Program (FSDP) initiatives on digital transformation, entrepreneurship support and financial technology development, aimed at meeting the aspirations of Vision 2030 and a cashless society in the Kingdom.
While cash payments have traditionally dominated, there has been a steady shift towards digital payments as end customers expect this mode to be more flexible, efficient and customer centric.
Some of the factors contributing to this growth include the rising proliferation of smartphones, internet penetration and the adoption of modernized technology. The ongoing Covid-19 pandemic has further accelerated the adoption of digital payments as more people are migrating to digital banking channels due to their flexibility and ease of use. This has given rise to the emergence of new players in the market that are disrupting the payments landscape.
To leverage the rising demand for digital banking solutions, financial institutions in the Gulf Cooperation Council (GCC) are collaborating with ultimately eroding the influence of the banks in the market. They should look to selectively collaborate with payments providers, global card networks, and rival institutions and acquire new fintech to ensure they don’t get left behind.
This is especially crucial as demographics are also changing. Today’s consumers are more digitally savvy than ever before and expect a lot of personalization and convenience from their banking journey. Changing demographics play a major role in changing expectations as with each new generation comes a more “digital native” customer and increased expectations in terms of technology.
Millennials have led the charge to digitization, being the first to interact with brands on social media on mass. They also now make up the largest percentage of mobile users anywhere in the world. New generations, like Gen Z, will be even more demanding and expect a completely seamless, omnichannel banking and payments experience.
technology solution providers. The Middle East digital payments market is expected to register an estimated CAGR of 5-6% for the period 2021 - 2025.
With the market and the number of participants in it growing as rapidly as ever, the potential for innovation remains abundant and AI technologies and data will be manifested to develop new payments systems and improve existing ones.
Looking ahead to 2022, I expect we’ll see more interoperability. This is when customers send money across disparate networks to ensure the least interchanges possible, and with the volume of digital transactions from business to business continuing to rise sharply, it’s natural to assume that there will be a greater demand for it. I think payments firms will find new and innovative ways to leverage their data to hyper-personalise the customer experience, enhancing their ability to sell value-added products and services.
One of the main challenges facing banks is coming from the increased competition from non-bank challengers in the market. Widespread digital adoption has also meant rapidly changing customer payments needs and the banks will need to ensure that they are meeting them, otherwise they will be outsmarted by new, more agile competition. Non-bank firms market themselves as being able to provide more user-friendly ways of handling payments and have seen increasing popularity with younger populations globally,
At HPS, we understand the challenges of regional banking and payments markets. We are continually developing our solutions to enable a modern and flexible technology architecture to stay at the front of the rapid evolution of the industry. We work closely with clients and major industry players to ensure proactive responsiveness to market evolutions and strengthen our geographic proximity with our clients by local implementations and global partnerships.
