The UAE’s 2021 Vision envisages establishment of reliable and trusted electronic payment systems as building blocks to enable a comprehensive e-government environment.
The new smart identity cards being issued to all UAE nationals and residents are equipped with the necessary features to ensure integrity and security of electronic transactions and payment systems. As a result, the UAE is in a much better position than other Arab countries to effect a seamless transition to inclusive electronic payments systems that do not exclude even non-banked segments of the society.
The main concern that underlies increased reliance on digital cash is that of security. This concern is indeed valid as the losses faced by the markets on account of online frauds have skyrocketed. A whopping $11.27 billion went down the drain in 2012 as a result of credit and debit card frauds.
But the lion’s share of such frauds involved human signature ‘verification’, a notoriously unreliable method of authentication. Against the backdrop of such massive threats to the integrity of digital transactions, the availability of a foolproof multiple factor authentication system for individual identities — such as offered by the UAE’s system of individual identity management which links individual identity to the card holder’s biometric and biographic details in addition to encryption and digital signature — is an infrastructural bedrock to build reliable electronic payment systems.
Alternate payment mechanisms will soon become the mainstay in the global economy as digital cash is fast overtaking, if not altogether replacing, physical cash. The digitally driven world of tomorrow will put in place more efficient, automated, secure, simple and low-cost mechanisms to collect money. Those countries that lag behind will have to struggle to cope up with a world they can hardly recognise.
The UAE realised this long ago and took effective and early steps to keep pace. The E-Dirham, the first of its kind in the Arab world, was indeed a precursor to the transformations we are now discussing.
The Wage Protection System (WPS) was another giant step forward, which also went a long way in protecting the rights of millions of blue-collar workers in the country. The mushrooming of stored-value cards across the UAE in diverse sectors (e.g. OJRA, NOL, Rahal, etc) represented another significant move in the direction of reducing dependence on physical cash.
But these payment deployments suffered from a number of limitations. Lack of interoperability and the burden of carrying multiple cards with no refund mechanism made them rather cumbersome, in addition to the merchants and service providers facing the challenge of integrating multiple schemes with their back end systems.
The UAE Government is acutely aware of these issues and their potential impact on the future. It has recognised that in the absence of a coherent strategy and mechanism to support payments in e-government and e-commerce, the disparate payment deployments currently in place will soon become obsolete and unmanageable.
It is now examining the ways in which the smart identity card infrastructure available in the country can support secure electronic payment systems suitable for both government and commercial purposes.
Once we effectively deal with the security risks pertaining to electronic payment mechanisms, we are at the threshold of a clear win-win situation, promising unprecedented benefits for all. The cost and risks associated with physical cash have always been a determining factor behind new age payment systems.
For instance, European Payment Council estimates that the EU’s 360 billion euros in cash transactions cost at least 50 billion euros a year. These are substantial and though they vary widely between countries, the availability of a coherent mechanism to digitise these payments will not only reduce costs significantly, but also make the transactions much smoother and easier.
No wonder that there is a growing appetite across the world for conducting financial transactions electronically.
According to a report by World Payments, the number of non-cash transactions reached $307 billion in 2011. Interestingly, the same report says that the growth rate for non-cash transaction is far higher in the developing markets at 18.7 per cent as opposed to 6.2 per cent in mature markets.
Added to this is the fact that the existing literature on the subject establishes a strong link between electronic payments and their role in supporting the participation of any country in the global economy. In developing or transitional economies, electronic payment systems are envisaged to play a powerful role in modernising financial systems, bringing in more economic transparency, greater predictability, liquidity and stability.
The evolution is contingent on several prerequisites, including reliable infrastructure, trust and credibility of issuing authority and the overall ignition strategy. With the smart identity cards issued by the UAE Government providing a credible and fraud-proof means of individual identity authentication, the UAE is all set to become the first Arab country to transform itself to the era of digital economy, while fraternal countries still largely remain cash-based societies.
The establishment of an independent, open and interoperable platform for electronic payments accessible to all may take some time, but we are on the right track to that end.
The role of Emirates Identity Card in that transition will be crucial as it is the principal enabler for smart government not only in the sphere of economy, but also in other walks of life for this perpetually trail-blazing country of ours.
— The writer is director-general, Emirates Identity Authority, UAE.