Cash is still king in the GCC. But that is soon to change. The beauty of disruptive technology is it disrupts, no matter what. Either companies adapt quickly, or get swamped under.
Consider the case of mobile payments.
Sweden opened its first unmanned convenience store in March last year. Amazon is testing a grocery store in Seattle with no checkout lines. Customers check-in at the entrance of the store with a new app called Amazon Go, then grab whatever items are needed and when they are done shopping, they just walk out. Amazon claims it can track the items automatically through a combination of computer vision and deep-learning technologies.
After barter and money, plastic cards represented the third generation of payment systems. However, the world is already moving to the fourth-generation concept, viz mobile payments. It is surprising that the GCC enjoys one of the highest mobile penetration rates (about 175 subscriptions per 100 population) but is yet to embrace mobile payments, which account for a paltry 1.3 per cent of global transactions compared with about 37 per cent in Asia- Pacific.
The GCC has a poor track record of adapting to the third-generation plastic card era, with only 25 per cent of its population using them (and frankly, the reasons for the region’s adherence to cash are not entirely clear). However, here is a great opportunity to leapfrog into the fourth generation of payment systems, with some help.
Combine a tech-savvy youth demography with very high mobile penetration, and this leap to the fourth generation, mobile payment system is just waiting to happen in the GCC. In a study commissioned by Cards and Payments Middle East, 77 per cent of people polled said they needed more convenience and less hassle in their transactions. That opens up a US$3 billion market in the UAE alone by next year, according to Research Moz. But who will capitalise on this opportunity?
Banks are the usual suspects, but they run the risk of viewing this as another add-on service and may miss the trend completely. The GCC banks have so far demonstrated a lackadaisical attitude about embracing digital banking and are now under considerable pressure to innovate digital services. The dent the global financial crisis had on their balance sheets kept them busy restructuring and cleaning up, leaving little time to focus on technology investments.
Banks that beat this trend and focus on digital technology can create huge shareholder value. Some banks are offering digital wallets powered by MasterPass, which was launched by MasterCard, and lets smartphones store credit and debit card information in digital form, enabling users to make purchases with their phone instead of a card.
However, a delay on their part will enable non-bank players to swiftly move in and capture the market. The substantial success of the UAE-based Beam Wallet is a case in point. While this competition between banks and non-banks plays out, regulators will also catch up with the trend. The Central Bank of the UAE has already approved mobile wallets and it’s only a matter of time before other central banks recognise this trend and introduce norms for orderly growth.
The rapidly evolving mobile payment architecture will affect key stakeholders such as service providers (credit card companies and banks, for example), retailers, customers and regulators. Among them, customers are the most ready and will drive the change while others will catch up. Who knows, in about three years you might be able to forget your wallet at home – but not your smartphone.
M R Raghu is the managing director of Marmore Mena Intelligence, which is based in Chennai and has its parent company in Kuwait.
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