The payment and ecommerce revolution has been a bit delayed in the Middle East, compared to tech hotspots in the US or Asia, but it is here nonetheless.

The MENA region’s ecommerce sector is one of the fastest growing across the world, and is fuelling a tidal wave of paytech adoption in the region. 76% of consumers across the MENA region reported using a fintech app in the past year, for instance, while e-commerce adoption has increased at levels higher than anticipated. In fact, 85% of consumers in the region made online purchases from brands and retailers outside their home country.

This trend can be observed amongst individual economies in the region as well. In the UAE, for instance, the rising popularity of B2C ecommerce platforms has led to a surge in digital payments. In Saudi Arabia, payments companies represent 32% of fintech companies in the country.

This evolving landscape provides “an opportunity to all services providers, banks, telecom operators and governments to respond to these trends and to match with end users’ expectations and new experience,”

says Ramy Fouda, Director Of Sales And Business Development, MEA at Netcetera.

Mobile payments and open banking are building blocks

From revenues of US$5 billion in 2015 to US$24 billion in 2020, the ecommerce market is now looking to grow to US$50 billion in value by 2025 in the GCC. The COVID-19 pandemic is anticipated to have provided an additional 6% growth in the ecommerce market for 2020-2022. Between 2023-2025, it is further expected to contribute an additional 4% growth to this market.

This has had a direct impact on mobile payment infrastructures in the Middle East. Digital wallets, for instance, are expected to be the most preferred mode of payments in the Middle East over the next five years. Original equipment manufacturer (OEM) pay options are also popular (think Samsung Pay or Apple Pay), allowing users the ability to pay both at the point of sale and online.

It has also led to the emergence of novel app-based payment methods such as buy now pay later (BNPL). BNPL solution providers such as tabby and and Tamara have surged in popularity, bagging some of the biggest startup funding rounds seen in the MENA region. Further, over 80% of consumers in the UAE and Saudi Arabia have said that they would be willing to use BNPL solutions. These solutions are also a key driver behind the growing paytech sector in the region.

All this is underlined by a growing fintech sector in the region. It is estimated that by 2022, 465 fintech companies in the Middle East are likely to raise over US$2 billion in venture funding, as compared to the 30 such companies that raised just about US$80 million in 2017. Providers such as Netcetera have come forward with wallet solutions, such as its ToPay Digital Payment Service Hub, for banks and card issuers to provide wider payment offerings, such as mobile wallets, click to pay, cloud payments and more.

These companies are emerging across dominant verticals, such as payments, or savings and investment. And while these remain the top trends in fintech, open banking has also rapidly gained precedence in the region. In fact, in Bahrain, the UAE, and Saudi Arabia, regulators have picked the pace on developing open banking frameworks and support open banking API providers.

In addition to trend-related innovations, fintech companies provide expertise to power back-end areas, such as digital customer onboarding, including biometric verification eKYC, or virtual card issuance for NFC payments.

These solutions act as a bridge in helping enterprises meet changing consumer needs and the demands of technological sophistication. As an example of this, Fouda highlighted how Netcetera’s infrastructural solutions allows banks and financial institutions to integrate technology into the customer journey.

“Netcetera and partners are providing innovative solutions in the area of digital onboarding using mobile phones as part of a full journey solution for banks and financial institutions to onboard their customers effortlessly and to issue virtual cards to provide a unique and instant experience marking their interaction with e-commerce and mobile payment worlds,”

Fouda explains.

Security comes into the spotlight

Payments and security go hand in hand, not only in terms of ensuring secure transactions, but also boosting trust while lowering abandonment rates during transactions. In the Middle East, 34% of financial companies have systems that generate large numbers of false positives. Meanwhile over half of businesses in the MENA region reported facing new financial crime risks due to the pandemic, including in payments fraud, account takeovers and identity theft.

On the other hand, as the security landscape fortifies itself through new developments, financial institutions and ecommerce merchants alike will need to bring themselves up to speed. This means doing away with cumbersome legacy infrastructure to make room for advanced authentication pathways, such as the EMV 3DS2.0 protocol, risk-based authentication and biometric authentication. The rise of digital ID also means payments verification and authentication can now take place across multiple touchpoints.

Integrating with these advanced security layers is becoming more seamless as well. For example, Netcetera’s 3DS Server, 3DS SDK and 3DS Merchant Plug-In products can be licensed and operated onsite, or by a payment service provider (PSP), acquirer or a bank.

“At Netcetera, we believe that everyone deserves a secure digital payment journey with the most convenient experience. Combining biometric authentication and other means of digital identity verification to EMV 3DS as well as risk-based authentication are not only fortifying higher security rates but also greater experience for shoppers and improved revenue for the financial services providers due to the lower abandonment rates and higher acceptance,”

Fouda notes.

Tokenisation gains relevance

Payment tokenisation is a one of the newer additions to a growing arsenal of security products aimed at preventing online fraud. The process refers to the digitisation of sensitive personal financial data by replacing primary account numbers (PAN) with a series of algorithmically-generated numbers, or tokens.

By not exposing account numbers through card transactions, tokenisation finds a special use case in card-on-file transactions, where merchants gain permission to store payment details for recurring transactions, and one-click checkouts. This, in turn, helps merchants to build a network of returning customers, encouraged by a smoother and more secure payments and checkout journey.

Tokenisation is also popularly used as an added layer of security (on top of biometric verification, PIN numbers, and other security layers) in NFC-enabled mobile wallets. Meanwhile, partners can make the integration process easier. Netcetera, for instance, provides a ToPay eCom Token Connector that allows PSPs and merchants to easily integrate with the tokenisation services of card organisations.

Superapps and distributed ledger to rise in prominence

If the present is any indication, the payments and ecommerce landscape in the Middle East can only expect to further benefit from infrastructure innovation, amidst transforming payments and checkout expectations from consumers.

Take, for instance, the arrival of superapps in the region. Superapps have seen resounding success especially in East and Southeast Asia, and local players such as Careem and MNT-Halan are looking to bring a similar level of one-stop functionality and end-to-end customer experience to the Middle East region. This will have a direct impact on mobile payments and digital wallets, as well as customer convenience.

There’s also been increasing focus on distributed ledger technology (DLT) in the region. The Arab Monetary Fund recently issued strategic guidelines for financial service providers on DLT and blockchain in the Middle East. DLT and blockchain integrations can provide benefits across the financial value chain, including data, payment automation, new financial instruments (such as smart contracts or tokenised loans), and compliance automation as well.

With so many moving pieces, local payments schemes are likely to emerge as a priority in the region, due to the benefits they provide in terms of convenience and governance. Fouda highlights that local schemes are an area of focus for Netcetera as well.

“Netcetera is one of the leading providers for directory server and other payments components helping regulatory bodies and organisations to build their own local scheme not only using the latest technology but also when combining this technology business knowledge and best practices of EMVCo standards,”

he says.

Local payments schemes can help to address data protection, customised offerings, and cost effectiveness. They’re also attractive to regulators due to the ability to store data locally, and to domestic service providers as well, for integration avenues that can help boost interoperability.

From a wider lens, all of this put together creates a picture of a robust and healthy financial system in the Middle East, matching customer expectations with the technologies that can solve for them. This in turn, bodes very well for what’s looking to become a near US$30 billion ecommerce market in the Middle East, amidst the rising tide of non-cash digital payments.

Featured image: edited from Freepik