How does our region rank against other world markets in term of payments modernisation?
As global markets shift towards payments modernisation, the pace of adoption in MEA is swift. Fueled by forward-thinking government policies in many markets and a majority digital native population across the region, MEA stands at a pivotal juncture in its financial evolution, where the modernisation of payment systems serves as a catalyst for economic transformation.
Despite the dizzying speed at which MEA is racing towards the future of payments, the region faces a unique set of challenges that must be navigated with precision. Within these challenges lies an extraordinary opportunity: the potential to leapfrog traditional financial systems and establish a robust, inclusive and modern payment infrastructure that is redefining economic landscapes. The question is not whether the MEA region is leading the rest of the world, but rather how it will harness technology to fuel innovation and economic inclusion.
The speed of adoption across various markets within the region is impressive, yet it’s important to recognise that each sub-region—whether it’s the Levant, GCC, or North Africa—has its own distinct needs and customer behaviors that drive these changes.
While countries like the UAE and Saudi Arabia are at the forefront of adopting cutting-edge payment technologies, others, particularly in North Africa, face challenges related to regulatory frameworks, infrastructure limitations and digital literacy. Despite these challenges, the region holds extraordinary potential to leapfrog traditional financial systems, establishing a robust, inclusive and modern payment infrastructure that can redefine economic landscapes.
How will real-time payments benefit the economies of our region?
Real-time payments, which enable the instant transfer of funds, are poised to have a transformative impact on the economies of the MEA region. These payments systems provide a faster, simpler and lower-cost method for transactions. Instant payments also enhance liquidity within the financial system, reduce payment friction and promote financial inclusion—all of which contribute to economic growth.
Mastercard’s recent study on real-time payments highlights that the adoption of these systems can lead to a 3% increase in GDP in emerging markets. This increase is driven by the multiplier effect that real-time payments have on consumption and investment. When money moves more quickly and at lower costs, consumers have more to spend and businesses can reinvest their earnings more efficiently. Additionally, the transparency and efficiency of real-time payments can attract foreign investment, further fueling economic growth.
How can banks maintain a competitive edge in the era of real-time payments?
For banks in the MEA region, maintaining a competitive edge in the era of real-time payments requires a fundamental shift in strategy. Traditionally, banks have focused on stability and security, often at the expense of customer experience. However, as real-time payments become more prevalent, banks must prioritise customer centricity to ensure that they remain relevant and competitive in an increasingly digital world.
Banks can start by simplifying and improving their digital channels. According to Bain & Company, banks that successfully embrace digital transformation and prioritise customer experience are more likely to thrive in the competitive landscape of real-time payments. By adopting Banking as a Service (BaaS) models, banks can integrate more seamlessly into the broader financial ecosystem, offering essential services that enhance the customer experience and foster long-term relationships.
Furthermore, the strategic use of data and analytics is crucial. By leveraging data, banks can offer personalised services, anticipate customer needs and streamline operations. This approach not only enhances customer satisfaction but also helps banks optimise their processes and reduce costs, ensuring they remain competitive in the fast-paced world of real-time payments.
Can real-time payments have inclusivity benefits for lower earners or the unbanked?
Absolutely. Real-time payments have the potential to significantly enhance financial inclusion in the MEA region, particularly for the unbanked. In many parts of the region, cash remains the dominant payment method due to its speed, ease of use and low cost. However, cash transactions come with several drawbacks, including the risk of loss, the inconvenience of carrying physical cash and the potential for fraud.
Real-time payments offer a secure, simple and fast alternative to cash, which can drive greater adoption among consumers who have been traditionally excluded from the formal financial system. For small and micro businesses, accepting real-time payments can increase sales and open new opportunities that were previously inaccessible to cash customers. This not only helps bridge the financial inclusion gap but also enables more individuals and businesses to participate in the formal economy.
Visa’s latest data underscores the potential of real-time payments to drive financial inclusion. In regions where real-time payments are widely adopted, the unbanked population has decreased by as much as 20%. This reduction is attributed to the increased accessibility and convenience of digital payment solutions, which encourage more people to open bank accounts and engage in the digital economy.
What are the possible drawbacks of real-time payments?
While real-time payments offer numerous benefits, they also present certain challenges and risks. One of the primary concerns is the risk of fraud. Unlike traditional payment methods, real-time payments are immediate and irrevocable, making it difficult to reverse fraudulent transactions. This presents a unique challenge for financial institutions, which must develop robust systems to detect and prevent fraud in real-time.
Additionally, in some markets, business-to-business (B2B) instant payments can be more expensive than traditional payment methods. This can be a deterrent for businesses operating on thin margins. Moreover, some businesses may resist adopting real-time payments due to the increased transparency and traceability of digital transactions, which can complicate tax reporting and compliance.
According to a McKinsey report, while real-time payments can drive economic growth, they also require significant investment in security infrastructure to mitigate these risks. The report highlights that financial institutions must prioritise fraud detection and prevention technologies to protect consumers and maintain trust in the payment system.
What are the leading benefits of the use of AI in real-time payments?
Artificial intelligence (AI) has the potential to significantly enhance the security and efficiency of real-time payments. AI systems can analyse vast amounts of transaction data in real-time, identifying anomalies and flagging suspicious activity for further investigation. This capability is crucial for combating fraud in an environment where transactions are immediate and irrevocable.
In addition to fraud prevention, AI can improve credit decisioning and underwriting processes by analysing a broader range of data points to assess credit risk. This leads to more accurate and fair lending decisions, benefiting both consumers and financial institutions. AI can also streamline processing and settlement, reducing the time and cost associated with real-time payments.
A recent study by McKinsey estimates that AI could help payment firms reduce fraud losses by up to 30% while also identifying new revenue opportunities and improving operational efficiency. As real-time payments become more prevalent, the integration of AI will be essential for ensuring the security and sustainability of these systems.
