Impact of Digital Payments Ecosystem in Dubai and UAE Exchange
Being a cashless economy is not just an ambition anymore. UAE has entered the phase where the vision of only digital transactions is turning into reality. Earlier, people relied solely on cash. Now a significant shift can be seen where people prefer digital payments for retail transactions. The rapid expansion is fueled by the enforcement of specific governmental policies and the advent of new payment providers.
Since many payments in specific sectors no longer need physical cash, the necessity to keep money is steadily declining. Several banks are offering multi-currency cards to fulfill the demand for monetary transactions.
Also, a progression in buyers’ behavior towards digitalization clearly impacts the banks’ physical branches, leading to lower bank expenses.
A surge in digitization
A survey was conducted by VISA, a financial service company, and the Department of Economic Development (DED) regarding digital payments. More than 80% of the customers prefer making digital payments over cash. In the case of payment on delivery, almost 92% of buyers pay using cards if a mobile POS device is available.
Furthermore, like in most other areas, the global health catastrophe has accelerated digital payments in the UAE. A study by McKinsey & Company revealed that the non-cash transactions had been boosted by 10% across the region.
Payment practitioners who participated in the survey predicted that almost 90% of the consumers would permanently adopt digital transactions in the future. In addition, most survey participants believe that a dramatic increase in non-cash transactions will be evident in the upcoming years.
Digital payments revolution
The transition from cash is reflected in the advent of online payments and consumers’ behavior. A rise in digital payments doesn’t mean that the banks will shut down. Instead, financial institutions are putting in their best efforts to become more digital-savvy.
The customer survey further highlighted that more than 55% of the buyers in the Middle East strongly prefer digital transactions. And just 10% of them choose cash.
A rise in open banking
“Open bank data” is another term for open banking. Open banking technique uses application software to give third-party financial institutions unrestricted access to users’ banking transactions and other financial information from banks (APIs). Through open banking, customers, financial institutions, and third-party suppliers will connect accounts and information across companies. Open banking is set to alter the banking industry as a key source of innovation.
Many countries in the Middle East are considering open banking. For instance, in 2018, Bahrain passed open-banking law, backed by a govt framework of recommendations in 2020. Furthermore, open banking will be enforced in Saudi Arabia by the start of the year 2022.
The factors mentioned above are anticipated to influence the UAE’s digital economy significantly, particularly in Dubai. In the survey, participants were asked what regulations and actions would encourage customers to adopt digital payments. Out of all the survey respondents, 27% wanted permits for open banking, and 20% demanded to provide consumers rewards to switch from cash to electronic payments.
Moreover, it becomes difficult for customers to rely on banks providing inconvenient payment alternatives. Instead, users will easily shift to payment service providers who give a satisfying consumer experience.
Non-banking institutions are winning the race
Despite the fact that banks controlled the industry, 65% of studies predicted that non-banking companies would succeed in the upcoming years. Furthermore, 83% of the survey participants regarded digitizing client transactions as vital to surviving in a dynamic market.
Now, as open banking is trending, banking firms must devise a strategy immediately to prevent getting eliminated. Institutions in other nations have shown that they can thrive in an open banking system while fintech and other rivals grow. Developing a growth idea and abilities beyond financial services, and establishing great alliances with fintech to handle advanced technologies, will decide banks’ survival.
Banks will have to select which business segments to target with distinctive offerings to benefit from new opportunities from rising cashless transactions in the business sector. They must also devise strategies carefully to approach the potential consumers.
A growing number of fintech firms
Governmental reforms enable new fintech and telecom firms to enter the finance industry. The region’s policymakers encourage these firms toward high digitization goals via payment service licenses and open-banking laws. Saudi Arabia aims at 70% electronic payments by 2028.
But the primary challenge will be offering reliable services and designing strategies to meet individual problems with distinctive characteristics. On the other side, small companies might just need essential services to make cashless transactions in-store.
As a result, those firms will win who make a reasonable value offer and meet consumers’ demands from all market segments.
Therefore, companies must create business models that produce value in addition to monetary transactions. Payment entities should not restrict users’ payment-related activities and other services.
Dubai is on the tipping point of a financial transformation. Its digitization objectives are ambitious yet attainable.