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UAE's Instant Payments Platform is scheduled to go live in fourth quarter 2022. Banks must do their best to be ready for it. Image Credit: Shutterstock

The drive towards real-time digital payments in the UAE is set to accelerate this year with the introduction of a scheme, due for launch in fourth quarter. The UAE Instant Payments Platform (IPP) will enable transfers between bank accounts on a 24x7x365 basis.

As part of the country’s National Payments Systems Strategy, the IPP aims to provide best-in-class services, promote financial inclusion, and increase financial stability. It could be assumed that digital transactions already dominate the payments landscape in the country, particularly when you think of how successful the real-time schemes have been in other countries like India.

However, until recently — despite the noteworthy digitalisation of its economy, and its impressive smartphone penetration — the UAE has remained heavily dependent on cash. According to McKinsey & Company, only about a third of retail transactions are conducted electronically, due to factors such as underdeveloped digital-payments infrastructure and services, underbanked consumer and merchant segments, and a cultural bias toward cash.

This changed following the onset of the pandemic which placed immense pressure on businesses to provide frictionless experiences to consumers, reduce operating costs, and enhance the level of transparency and security. Consequently, the sector is forecast to become a $14 billion market by 2030.

With the imminent introduction of the IPP, the market for real-time and digital payments will receive a significant boost. Research conducted by ACI Worldwide projects that real-time payments will surpass a 5 per cent share of all digital payment transactions in the UAE by 2024.

It’s clear that the customer appetite for real-time payments exists, and as participation in the IPP scheme is mandatory for all financial institutions, banks in the UAE are now under pressure to rethink their payment infrastructures and explore new business models. But with challenge lies opportunity.

So, rather than only striving to meet regulations, regional banks should recognise the potential that real-time payments have to positively impact their business.

Real-time, real benefits

For consumers, real-time payments offer unparalleled convenience. These systems enable instant, 24x7 secure interbank electronic funds transfers that can be initiated through smartphones, tablets, and digital wallets. The majority of current use cases for real-time payments centre mainly around low-value, person-to-person and consumer-to-business payments.

As they connect to the IPP, UAE banks will be able to both, capture these rising transaction volumes, and offer customers accurate-to-the-second account information. In doing so, they will be able to attract and retain customers by meeting their growing expectations for real-time payments and information.

Banks can also turn to real-time payments to counter the threat they face from the new breed of fintechs that have made significant inroads into the market in recent years. After all, banks are better positioned to capitalise on the benefits of real-time payments and deliver them to their customers. They have richer product portfolios and greater scale than their fintech counterparts.

As they become familiar and comfortable with bank-provided real-time payments from their account, UAE consumers will also become more amenable to additional services made possible by real-time payments. For example, banks will start providing digital overlay services, such as Request to Pay, that will undoubtedly translate to an increase in customer spending, the ability to engage with entirely new consumer segments and arguably most importantly, allow these traditional banks to fend off advances from the growing number of fintechs.

In the retail segment, by and large, for most UAE consumers, their bank is their most trusted financial institution. They would welcome a real-time P2P solution that gives them control of their money and the perceived extra layer of safety that comes from being a bank-operated service.

For banks, this would mean further entrenching themselves with their customers, which will go a long way in fostering brand loyalty and helping to avoid attrition and churn — metrics that are particularly important for banks in the digital era.

Prime time for real-time

The imminent introduction of the IPP presents the opportune moment for UAE banks to win over customers with new value-added services that ride on real-time rails. That means developing payments modernisation strategies and revenue models that leverage — rather than resist — real-time’s strengths. And, if handled well, better, more seamless customer experiences.