Is this the end of the (physical) wallet?

ARTICLE

Is this the end of the (physical) wallet?

"The MENA region is fast gaining ground in the digital payments space. DWTC’s Sophia Sheikh explores our cashless, cardless future during Seamless Middle East."

​​​The rise of a new generation of digital wallets, which require neither a bank card nor even a bank account to make transactions, is changing the way we trade in the Middle East.

C ash, chequebooks, credit and debit cards: each of these methods of payment were revolutionary when they were first launched, enabling swift and fair trade between strangers who might have no firm reason to trust each other.

Yet each has its drawbacks, and new technologies are arriving that could make all three as old-fashioned as the postal order — even in the Middle East and North Africa (MENA) region, which has been slower than other parts of the world to its end its love affair with cash, but is nevertheless now making the switch.


MENA is ready for the switch to cashless

By 2016, according to online payment gateway Payfort, a boom in e-commerce had driven a 22 per cent rise in online purchases in MENA. This is an exciting progression, which is helping build trust in cashless transactions, and opening up business opportunities for online merchants as well as digital payments solution providers, information security experts, and others in adjacent industries.

The UAE has always been at the forefront of technological adoption in the region, and debit and credit card transactions more than doubled in the UAE between 2011 and 2015. In 2016, the nation’s citizens made more than 38.6 million service transactions using e-Dirhams, which can be bought as prepaid cards and spent on government services – that’s a 7 per cent jump compared to 2016.

Prepaid salary or payroll cards are being seen increasingly as a smarter alternative to cash to pay employees in the region who may not have a bank account. The National Bank of Abu Dhabi offers their Ratibi Prepaid Payroll card to allow people to receive salaries digitally without a bank account, with perks like free personal accident insurance. Meanwhile, in December 2017, the Saudi government issued a six-month deadline to all employers to pay domestic workers using prepaid salary or payroll cards, to protect their wages and ensure that they get their salaries on time.

UAE is pioneering digital wallets

While e-Dirhams, payroll cards and online payments all offer huge advantages over cash transactions, a new type of payments solution is now being pioneered in the UAE that is not only cashless but also cardless.

It’s in 2018 that the eagerly anticipated Emirates Digital Wallet is tipped to arrive: a mobile app that allows UAE residents to pay with a wave of their mobile phone. Owned jointly by 16 leading UAE national banks, and supported by the UAE Central Bank, it won’t require a bank account and will be accepted at tills and terminals across the country.

All potential users will have to do is download an Emirates Digital Wallet app to their smart phone or other digital device; if they’re with a bank that’s a member of the scheme, they’ll also be offered the app under the bank’s own branding. They can then link this account to their credit or debit card, or deposit cash to the account using a designated cash deposit machine. From then on they are free to store money, pay for goods and services, and send money to other individuals using the app, and will be eligible for rewards for doing do.

While Emirates Digital Wallet is groundbreaking in its scope and ambition, it is not the first time the UAE has led the way in financial innovation. In February 2018, First Abu Dhabi bank announced the launch of its own fully featured digital wallet, called “payit,” which is open to anyone with valid Emirates ID, regardless of who they bank with.

The previous year, the digital wallets Samsung Pay and Apple Pay, which link to users’ bank accounts, allowing customers to pay for goods and services with a simple touch of their mobile phones, chose the UAE as the first MENA country in which to launch.

Digital payments are safer, quicker and more versatile

It’s no secret that the MENA region is still attached to cash: even in the UAE, which leads the world in terms of smart phone penetration, cash still accounts for 75 per cent of all transactions. But there are plenty of reasons to welcome the switch away from the ancient exchange medium of physical money.

Security is a huge risk when dealing with cash. When your mobile phone doubles as your wallet, app-based accounts can be deactivated if the device is ever lost or stolen, and advances in encryption technology and biometric verification mean that the data is safer than ever before.

Cash also doesn’t bring about financial inclusion in the same way that cashless solutions do. The number of opportunities for commerce and investments that are online is growing every year, and those without bank accounts can’t participate in this activity if they only carry cash. Digital wallets open up the world of e-commerce to the unbanked, and they can also make it easier and cheaper to send remittances home and, in some cases, to juggle multiple currencies.

Convenience and ease-of-use is another huge benefit of digital payments. Having to drive to an ATM when you’re out of cash is a pain, and banks aren’t open 24/7. Handling change increases wait times at checkout, which can decrease profits for merchants, as well as creating a negative experience for customers. Anyone who has never tried paying for something with a wave of his or her smartphone can testify to how seamless the experience is.

Talking of merchants, the cost of carrying, holding and managing cash can be high, and there’s a risk of fraud and mismanagement. Digital payments can be tracked easily, which cuts down on time spent doing accounts. This transparency and versatility is also helpful for individuals who are implementing budgets and want to track expenses digitally, or make it easier to do things like split a bill in a restaurant or set up a recurring payment.

Opportunities abound in the new cashless era

The switch from cash to digital payments, including transactions made with digital wallets, is happening fast, all over the world. UK supermarket the Cooperative has predicted that 65 per cent of all transactions will be made by mobile phone by 2025 — and the UAE is at the forefront of this change in the MENA region, thanks to its young, digitally savvy population, its forward-thinking regulatory framework, and its innovation in the blockchain space.

The cashless era will bring huge opportunities and rewards, not just for fintech companies and for individuals, but also for all kinds of policymakers and business leaders who want to streamline their handling of payments, improve user experience, save time and money, and keep their finances trackable and secure.


Topics

  • eCommerce
  • Innovation
  • Technology