The Middle East payments industry has been aided by a robust regional economy. Even during a period of exceptional challenges for financial institutions across the world, the regional payments sector proved to be remarkably resilient, in part due to its high per capita GDP and a diversified population. With the regional financial position improving markedly, infrastructure spending on sectors such as retail, travel and tourism has also picked up and the potential growth prospects for the payments industry is expected to rise dramatically in the coming years.
In particular, the UAE has proven to be an attractive market for payment processing companies, backed by efforts to position itself as an international tourist destination and a global hub within easy reach of approximately two billion people. This position is likely to be consolidated further if Dubai wins its bid to host Expo 2020.
The evidence is in the numbers. While industry estimates point to a low-key global growth in credit and debit card issuance — between 2 and 3 per cent in the first half of 2013 versus the same period in 2012 — the potential for growth has been far higher in the UAE. This year alone, credit-card issuance grew by approximately 7 per cent, while transaction volumes went up 15 per cent. Debit-card issuance witnessed 12 per cent growth during this period, while transaction volumes grew by 22 per cent, backed by greater confidence in the security of chip and PIN transactions.
Payment processors also view the UAE as having great potential for card usage, because currently only 26 per cent of transactions are made by payment cards — well below the global average where cashless transactions account for 66 per cent of spend.
As payment processors focus on increasing size, scale and reach through a combination of geographic expansion and innovative product offerings, globalisation forces have had a strong impact on the Middle East’s payment processing industry as well. And this is not limited to international schemes such as Visa or MasterCard.
Two major forces from Southeast Asia that have emerged as strong global participants are JCB and China Union Pay. The Shanghai-headquartered Union Pay is now available in 127 countries including the UAE, while JCB, the only international credit payment brand based in Japan, is being used by 64 million people worldwide.
However, this is not a one-way street. The Middle East has developed a strong financial services industry from which regional payment organisations are emerging. Moreover, these companies are not only looking to support international schemes but are putting into place schemes of their own. This has generated many benefits for the regional payments sector, especially for customers, as increased participation will naturally lead to product innovation and lower prices. The potential for local schemes is further enhanced by the fact that the bulk of transactions are made intra-regionally, requiring a rather small regional footprint of acceptance locations.
With questions being asked regarding foreign exchange on transaction costs that local banks have to pay for affiliation with international card associations, and the need for routing even domestic transactions through a switch located outside the country, the market has seen the rise of a number of regional payment schemes, customised to the needs of the local customer. This is particularly true of closed-loop schemes where charges between issuer and acquirer are eliminated as they are the same entity. These schemes also mean no competition within the brand, since this would be a franchise setup with only one franchisee in each market. Regional payment schemes can also use local market knowledge, enabling them to devise loyalty programmes and benefits that understand customer requirements, instead of a one-size-fits-all approach.
Despite their obvious potential, it is important to note that the growth of regional payment schemes in the Middle East has been both gradual and complementary to established global schemes. Regional payment providers are first focusing on the under-served segments of the payment card market such as prepaid or contactless payments, before moving into the more profitable debit and credit cards. This is in keeping with industry intelligence from payments associations, which states that prepaid cards will see the biggest growth over the next five years, with transaction throughput expected to double by 2018. Currently, debit cards make up about half of the 11 million cards in use in the UAE, accounting for more than 80 per cent of cashless transactions totalling Dh572 billion per annum, while the 1.9 million prepaid cards in use make up about 5 per cent of total transaction volume.
The global card market is shifting gears, and regional card schemes could be game changers. Their biggest challenge may come from the rapid change in payment habits brought on by technology, as it requires more investment in online and mobile payment systems.
— The writer is CEO of Network International, a Mena-based
payments solution provider
