At a time when the consumer relationship with cash is more virtualiser and abstract, and where use of physical cash continues to decline in many markets, the next phase of digital money offers undiscovered potential for a new period of expansive growth in transactions, beyond the limits of national borders.
The possible applications of the blockchain technology that underpins new currencies, such as Bitcoin, are endless, but Bitcoin transactions and working blockchain business models have been confined to a limited number of uses so far.
As the technology that supports Bitcoin, blockchain has attracted a much wider range of supporters than the varying degrees of suspicion that have greeted the virtual currency of Bitcoin — partly because of its association with the dark web. Blockchain is simply a cloud-based ledger or shared database. With no central authority, blockchain enables any user on the network to make and verify a transaction that is permanently recorded on the ledger. Most blockchain applications so far have been on public ledgers, an ability to reduce the cost and time of verifying transactions across a wide range.
The GCC and MENA region more generally, have a mixed record in payment virtualisation. The fundamentals are there; a high proportion of the population consists of under-30 digital natives whose use of smart phones and social media in some countries is among the highest in the world.
The region’s e-commerce marketplace is thriving too, but it depends more on cash on delivery than on electronic payments. At the same time, a relatively low share of adults have bank accounts, while mobile money accounts have had limited success. That could be about to change. New Fintech entrants are playing their part in helping drive payment digitisation.
Dubai-based bank Emirates NBD partnered recently with Open Bank Project on a Fintech hackathon to identify new financial start-ups. The Dubai Government has also taken up the potential of next-generation e-commerce. The Global Blockchain Council, founded in 2016 by the Dubai Future Foundation, a government initiative, is bringing together public and private sectors to identify test cases for new blockchain business models.
Similarly, Dubai Smart Government initiative aims to record all government transactions on blockchain by 2020 — an initiative that could amount to savings of more than US$1.5b in document processing and more than 25 million hours in lost productivity.
The Dubai Government is also trying to position itself and the emirate at the forefront of technology development. The aim is to create an environment in which government departments naturally work with established businesses and start-ups to tackle specific challenges, while creating the infrastructure to allow Emiratis and expatriates to start new blockchain-based businesses. Where solutions would previously have been developed in isolation, the digital age and the agility of start-ups to innovate faster than institutional peers has encouraged the Government to develop new relationships.
Across the wider GCC, technologies such as blockchain are set to transform other financial industries such as remittances. Related costs being one of the biggest problems faced by the large expat population in the region, which relies on remittances to transfer cash across borders. For an industry worth nearly US$100 billion (Dh367.2 billion) in the GCC, and $19bn in the UAE alone, the process is at times for many time-consuming and costly, with the exchanges, banks and central banks functioning as intermediaries. Blockchain removes the need for these intermediaries, with organisations such as Ripple predicting that through reduced time and cost per transaction this could lead to a 60% reduction in transaction costs for users.
Furthermore, developments in payments technology are making it easier for us all to transact. Egypt’s Payfort recently has successfully helped smaller merchants accept electronic payments, and offers instalment payment options to help merchants improve sales. We’re also seeing global providers such as Apple Pay, Google Pay becoming more active in the region after a slow start and more global players are coming, for example Samsung, with Samsung Pay about to deploy payment services that are promising to be easier, faster and more secure using your Samsung smart phone.
While these pockets of progress in MENA and the future global potential are very encouraging, a coherent plan is still needed to harness the open source approach to the development of financial services, and reap the rewards offered by the digital and demographic dividend. The natural place to start is installing the flexible but robust regulatory infrastructure needed to leverage mobile money.
Africa transformed global perceptions of the potential of mobile financial services by using them to leapfrog its
missing payments infrastructure. With the right approach, the UAE and the wider Middle East could do the same
with the next generation of money and blockchain.
-- Robert Abboud, MENA Financial Services Advisory Sector Leader, and Grant Niven, Director, EY MENA Financial Services Advisory