UAE online shopping stalled

Online retail in the UAE struggles not only from a lack of an address system, but also from the absence of online payment providers with local operations.

A lack of online payment providers could be holding back the development of web shopping in the Emirates.

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Cash transactions still account for more than two thirds of total UAE retail payments, a report from Euromonitor International says.

Online payments have so far failed to catch on, although the UAE leads other Middle East nations.

Goods and services bought by mobile phone, also known as m-commerce, have also made little progress, despite 99.1 per cent of households in the UAE owning mobile phones.

"People have moved on from thinking that online payments aren't secure in the Middle East region and the UAE especially," said Umer Rabbani, a sales manager for retail banking at SunGard, which provides IT services in the financial services sector.

"But customer confidence is still low, and the volumes are still low compared to the rest of the world." Euromonitor predicts internet retail spending will almost double over the next four years, rising from Dh701 million (US$190.8m) last year to Dh1.3 billion in 2015, with consumer electronics accounting for the biggest increase.

But other industry experts said significant barriers remained for businesses looking to sell their goods and services online.

The Middle East appears prime territory for online retail. The region, and the UAE in particular, have young, tech-savvy populations with high levels of mobile phone ownership and internet access.

But the region lacks the data infrastructure to allow more transactions and companies that could provide those services, such as PayPal, refrain from basing themselves in the market because transaction levels are low.

"It's a chicken-and-egg problem," said Julien Faye, a partner and the head of financial services at Bain & Company Middle East.

"Some of the important international actors are trying to see if it would be in their interest to go into the Middle East and develop their presence here.

"For the moment, they're focusing on big countries like China and India," seeking the economies of scale in the world's two most populous countries, Mr Faye said.

However, many online payment providers are being deterred from the Middle East by a combination of tight regulation and the need to partner with local companies, he added.

Mr Rabbani said establishing online payment mechanisms in the UAE would be a challenge.

"The market is picking up, but not enough to fulfil the business case to have a PayPal-like service hosted out of the Middle East region," he said.

The absence of an local online payment provider means such transactions must be settled between different countries and currencies.

This creates a barrier for small business owners and entrepreneurs who might otherwise develop more online commerce, Mr Rabbani said.