Demand and public initiatives 'to drive digital payments in Mena'

Region's current adoption rate is expected to grow to 10% in the 'near future', managing director of Amazon Payment Services says

Amazon estimates that only about 3 per cent of consumers in Mena prefer cashless transactions compared to about 20 per cent in developed markets in the US and Europe. Alamy

Consumer demand and government initiatives will boost the Middle East and North Africa region's digital payments industry over the next few years, narrowing the gap with other developing markets, a senior official at Amazon Payment Services said.

While there is a significant divide between the region and markets such as the US and western Europe, in terms of using cashless payments as a primary way to transact, Mena's pace of acceleration — at 25 per cent a year — is a signal of its readiness and the increased number of opportunities for FinTech providers, managing director Peter George told The National in an interview.

He was speaking before the start of Seamless Middle East 2022, the payments industry conference that is taking place in Dubai this week.

“Ultimately, we still have a long way to go to where the US and parts of Europe are,” he said.

“The magnitude of the rate at which acceleration has happened in digital commerce, and transitioning to a cashless digital economy in Mena, has been phenomenal over the past few months.”

The global digital payments market is estimated to grow to $12.55 trillion by 2027, from $6.75tn in 2021, according to Dublin-based data company Research and Markets.

Apart from the public sector, industries that have used digital payments the most include finance, hospitality, health care, transport, telecoms, retail, and most notably, e-commerce, with millennials more inclined to use it, it said.

Covid-19 has been widely credited as the reason for the sudden rise of digital payments. Mr George termed the pandemic, bad for the world as it was, as an “endorser” for the industry.

“Covid-19 forced it upon us, and transactions through contactless methods became a norm,” he said.

“All these were phenomena that were introduced to us and, guess what, we liked it. Now we want more of it, and that is exactly the sentiment we have here in the region.”

The majority of Middle East consumers have leaned towards digital banking, with 77 per cent of those in Saudi Arabia and 61 per cent in the UAE preferring to transact using online channels, US technology company Entrust said in a March report.

In the UAE, more than half of consumers plan to go cashless by 2024, compared with the global average of 41 per cent, a Visa study showed earlier this year.

Amazon estimates that currently about 20 per cent of consumers in developed markets in the US and Europe use cashless methods to transact, Mr George said.

In the Mena, the comparable figure is at only about 3 per cent. However, the aforementioned rate of acceleration is poised to grow this figure to about 10 per cent “in the near future”, he said.

“And that is purely on how the consumer is demanding it and how the government is facilitating and insisting that all of us, entities in the FinTech space, need to try to address consumer needs.

“Governments in the region have also chanced upon [the opportunity] and, therefore, all the policies you see in here have all been towards enhancing the cashless and digital economies.”

The UAE has one of the highest internet penetration levels in the world. E-commerce penetration more than doubled in the Emirates to 12.1 per cent between 2019 and 2021, said consultancy RedSeer.

Earlier this month, the Dubai government said it was setting up a task force to track the digital economy, a move that comes as the UAE aims to double its contribution to gross domestic product to about 20 per cent, from 9.7 per cent, within the next 10 years.

Trends in the payments industry — including buy now, pay later (BNPL) platforms, digital wallets and contactless card models — are also shaping consumer behaviour, Mr George said.

The BNPL industry is projected to top $1tn by 2025, which is 10 to 15 times its current volume, according to New York-based consultancy CB Insights.

Without divulging Amazon’s plans for the region, Mr George said that the company is “continuing to invest heavily” in Saudi Arabia, Jordan, Egypt and, especially, the UAE, where Amazon Payment Services — Amazon's financial services arm in Mena — is based.

He also declined to comment on cryptocurrencies and whether these digital assets would be integrated into Amazon’s ecosystem, but said they were “thinking about it very strongly”.

“We are super sensitive to it and watching it very closely. The number of entities that have started accepting cryptocurrencies as payments makes it front and centre in terms of how we should be looking at it,” Mr George said.