The Middle East is experiencing a transformative phase in its payments landscape. A mix of technological advancements and visionary policies is pushing the boundaries of conventional financial systems. The shift towards a cashless economy in the Middle East is no longer just a distant goal; it is rapidly becoming a reality.
This shift is central not only to driving economic growth but also to promoting financial inclusion and replacing outdated methods of payment, such as cash and cheques. Investing in payment initiatives that usher in this new era has deservedly become a top regulatory priority.
Cash and cheques have been the backbone of financial transactions for centuries. However, these methods are no longer compatible with the demands of a globalised and digitised economy. They present several inefficiencies: increased risk of theft, higher transactional costs, and a slower pace of business. On the contrary, a cashless transaction system offers promptness, transparency, and increased security, driving efficiency throughout the financial ecosystem.
The cashless economy also offers an unparalleled opportunity to drive financial inclusion, particularly relevant given a significant portion of the Middle East population remains unbanked.
Driving this transformation is not solely the duty of private enterprises. Regulatory bodies play an instrumental role in ensuring a seamless and secure transition. Recognising this, governments and financial regulators in the Middle East have set an exemplary standard with their ambitious visions. They are collaborating with banks and fintech firms, embracing new technologies, and formulating policies to create a conducive environment for a cashless future.
UAE’s Financial Infrastructure Transformation Programme, the Saudi government’s digital payment participation target of 70% as part of Vision 2030, Bahrain's commitment to being a fintech hub, and initiatives like Egypt's ‘Digital Egypt’ strategy all demonstrate that momentum is gathering pace.
The cashless economy also offers an unparalleled opportunity to drive financial inclusion
Transitioning from one established norm to another is always challenging, yet inherently crucial for evolution. Just as the world grapples with the complex yet essential shift from carbon-based fuels to renewable energy sources, the financial landscape of the Middle East must undergo a seismic shift from traditional cash and cheque-based transactions to digital payments.
This transition won't be seamless; it requires a concerted effort from all actors within the financial ecosystem, including regulatory bodies, financial institutions, corporations, and consumers. Public awareness campaigns will be vital to educate and ease people and businesses into this new financial norm, highlighting the benefits and addressing concerns.
Corporations have a critical role to play and will need to overhaul their payment methods both in their supply chains and the payment options they provide to their customers. Eliminating, not reducing, their use of cash and cheques will significantly influence the pace and success of this transition. Financial institutions can play a key role by ensuring that the cost of these outdated financial instruments reflects the true cost of processing, storing, and handling.
The transition requires a concerted effort from all actors within the financial ecosystem, including regulatory bodies, financial institutions, corporations, and consumers
Two crucial elements are emerging as driving forces of the modern financial landscape: instant payments and embedded finance. Together, they are not only reshaping how transactions occur but also redefining the relationship between consumers, financial institutions, and third-party providers.
1. Instant payments
The demand for real-time transactions is no longer a luxury; it's a necessity. Instant payments have revolutionised the way individuals and businesses interact, offering immediate settlement of transactions, reducing cash flow constraints, and enhancing liquidity. This real-time processing, free from traditional banking hours and long processing times, fosters a more dynamic economy.
Throughout the world, instant payment systems have proven transformative in driving economic growth. And with the demand already in place, the Middle East is set to replicate this success, with instant payments as a catalyst for digital transformation.
As seen in other regions (particularly in Asia), cross-border networks and links between domestic networks can generate further growth and enhance inclusion. The Middle East is already looking to this next step, for example via regional multi-currency payment and settlement platform Buna.
2. Embedded finance
Embedded finance, enabled by API connectivity that creates constant and real-time transfer of data, allows financial services to be seamlessly integrated into non-financial applications or platforms, providing a streamlined user experience.
Businesses using embedded finance can tap into new monetisation strategies, deriving revenue from financial transactions and services.
This integration not only enhances convenience and accessibility but also promises a more interconnected and customer-centric financial future.
While significant strides have been made, the journey is far from complete. Integration of digital payments in all sectors, ensuring last-mile connectivity, building robust and foolproof cybersecurity frameworks, and most crucially, instilling public trust, are some challenges that lie ahead.
The immense potential that a cashless Middle East can unlock is worth the journey. Embracing a cashless future is not just a technological or economic upgrade; it's a societal evolution, matching the ambitions of countries across the Middle East to step into the future.
The emphasis now lies in strategic investments, cohesive regulatory policies, and public-private collaborations. By channelling efforts in these directions, the dream of a cashless Middle East is not just achievable but imminent.
The future beckons, and it is digital. Let's embrace it wholeheartedly.
Fernando Pacheco is the head of cash management product at Mashreq, the Dubai-based bank
