Major Trends Driving Transformation in the Middle East’s Digital Payment Landscape

Major Trends Driving Transformation in the Middle East’s Digital Payment Landscape

In the Middle East, the digital payment landscape is changing at a rapid pace, shaped by the advent of instant payments, booming adoption of new payment methods and the rise of online retail, a new whitepaper produced by Euromonitor International (EMI) and Sixth Factor Consulting, and sponsored by Amazon Payment Services, says.

Titled “What’s next for Digital Payments in the Middle East” and released in February, the paper takes a deep dive into the Middle East’s digital payment ecosystem, exploring the key themes and trends emerging the region’s payment landscape.

Looking at the three largest digital payment markets in the region specificially, data show that the digital payment markets of the United Arab Emirates (UAE), Saudi Arabia and Egypt have risen steadily over the past few years, a growth that’s been driven by rising Internet penetration, favorable demographics, strong economic growth and a booming fintech sector, the report says.

Between 2021 and 2023, the digital payment sector in Egypt, the UAE and Saudi Arabia rose by estimated compound annual growth rates (CAGRs) of 19.6%, 18.6% and 13.6%, respectively.

Consumer food services (37.4% CAGR), travel intermediaries (33.6%) and insurance (29.1%) drove most of that growth in Egypt, achieving the highest growth rates. In the UAE, online ticketing (40.8%), transport (33.4%) and airlines (30.8%) propelled that rise. And in Saudi Arabia, the sectors of transportation (54.1%), online ticketing (46.5%) and airlines (26.3%) rose the most.

Digital Payments industry size - United Arab Emirates

The advent of instant payments

The report outlines a number of trends shaping the future of digital payments moving, citing first the advent of instant payments as a major driver of transformation.

Though Saudi Arabia and Egypt already have instant payments in place, the implementation of real-time payments is currently in the works in the UAE, the report notes. These systems are expected to fuel the rise of new and innovative fintech solutions which will improve digital experiences for both consumers and businesses.

Egypt launched its Instant Payment Network (IPN) in 2022, allowing instant payments between accounts at different banks and the ability to transfer money from bank accounts to wallets. So far, consumer acceptance has been strong, with total transaction value reaching LE 112.7 billion (US$3.7 billion) in its first year of operation, data from the Central Bank of Egypt show. A total of 20.3 million transactions were recorded during the period involving 2.16 million users.

Saudi Arabia, meanwhile, launched its real-time payment scheme, Sarie, in 2021. The system allows bank customers to send and receive money in real-time using a wider range of services and transfer options, including online banking, mobile numbers, email addresses and ID numbers.

Upon the launch of Saris in early 2021, the country saw real-time transaction volumes reach 175 million that year. Cost savings were estimated at US$23 million for businesses and consumers, and the economic boost was calculated at around US$166 million.

Finally, in the UAE, the launch of a national real-time payment system is currently in the works. The Instant Payment Platform will begin its phased rollout later this year with a pilot group of licensed financial institutions, allowing payments and fund transfers in the UAE to be processed 24/7 and in real time.

BNPL gains momentum

Buy now, pay later (BNPL) arrangements are gaining traction in MENA, attracting consumers for with the ease of use, convenience and flexibility these payment options provide.

In the UAE, consumers are adopting BNPL across categories, supported by increased e-commerce penetration. Various industry stakeholders are looking to tap into the opportunity. In addition to pure players, the report notes that the sector is seeing an influx of payment processors joining in the trend. These companies are expanding their products by including cashback and providing virtual cards that offer BNPL services in stores.

In Saudi Arabia, usage of BNPL grew considerably over the past years, with an increasing number of customers exploring BNPL services. Competition among BNPL providers is now intensifying, the report says, necessitating the development of loyalty programs and discounts to bind customers to certain providers. Adoption of BNPL is likely to expand further driven by an influx of new service providers and alliances, the report predicts.

Finally, in Egypt, BNPL is growing strongly, driven by the current economic situation and hurdles in consumers’ ability to get bank loans. These factors are making installments an attractive alternative, the report says, prompting the entry of new players and the ramp-up of competition in BNPL offers.

With the onset of BNPL in the Middle East, installments are expected to mature rapidly over the coming years, the report predicts. New products will emerge, targeting specific basket sizes and high-ticket-value industries.

Current and forecast adoption of BNPL'

The boom of e-commerce calls for omnichannel payments

The Middle East’s growing digital economy and booming demand for online retail are fueling a significant transformation of the consumer experience and prompting the rise of omnichannel payments.

Omnichannel payments refer to payment systems that enable customers to make purchases and complete transactions using multiple channels, including online, mobile, in-store, and even via phone or mail. These systems aim to provide customers with the flexibility to choose their preferred payment method and channel, and improve the overall shopping experience.

In the Middle East, omnichannel payments remain a novel concept. Moving forward, wider adoption of payment methods that integrate online and offline payments, such as peer-to-peer (P2P) payments, Tap on Phone, virtual cards and BNPL are expected to accelerate omnichannel payments into the growth phase, the report says.

Current and forecast adoption of Omnichannel Payments

In the UAE and Saudi Arabia, omnichannel payments are still in introduction phase and limited to multichannel options. Like omnichannel payments, multichannel payments provide customers with the ability to make payments different channels, but unlike omnichannel payments, they rely on channels that operate independently of each other, failing thus to provide the seamless and integrated experience that omnichannel offers.

And in Egypt, omnichannel payments are struggling to take off because of a lack of interconnection of the front and back end, and because of the continued high penetration of cash-on-delivery, the report says. However, growing consumer interest in digital cards, SMS payments, digital money transfer apps and instant payment services is leading merchants to look for payment service providers that offer a blend of options to enhance the overall customer checkout experience.


Featured image credit: edited from Freepik

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