Payments innovation in the Middle East
 Meet worldwide manufacturers, wholesalers & importers in Alibaba now! |
INTERNATIONAL. Like much of the world, the Middle Eastern region is currently going through a period of change on several levels in addition to relative economic uncertainty, which in turn impacts on banks’ ability to be innovative.
Firstly, officials in GCC countries revealed plans to establish a monetary council by January 2010, similar to the European Monetary Institute (EMI) that preceded the European Central Bank (ECB).[1]
Whilst a common currency framework for the six GCC countries has been under discussion for several years, a recent statement from Banque Saudi Fransi predicted that it would be four to five years before a single currency comes into circulation.[2]
While the rate and extent of the changes surrounding this international announcement to come is still uncertain, banks are affected by government initiatives at the domestic level.
Secondly, new regulation in the UAE, known as the ‘Wages Protection System’, is introducing changes to the payments landscape of the Middle East.
The new regulatory requirement obliges businesses to pay workers by electronic transfer as opposed to cash. All businesses must choose an approved third party – a bank, money exchange or financial services company – through which their workers will be paid .[3]
The deadlines for compliance vary depending on the size of organisation. From 30 November 2009, companies that employ more than 100 workers had to comply. Firms with 15 - 99 workers are required to comply by the end of February 2010, and those with fewer than 15 have until the end of May next year. [4]
These changes in regulatory requirements are also driving the popularity of new payment methods such as prepaid cards, which presents an opportunity for financial institutions to roll out new and more innovative services to both individual and corporate customers. It also reflects a wider trend towards electronic transactions driven by the banks in an attempt to reduce the high processing costs associated with cash and cheques.
While the payments landscape in the Middle East is changing, there are still some hurdles to overcome to successfully innovate the existing payment infrastructures and methods.
Given the large population of labourers, particularly in Dubai, this transition has been a challenge due to low penetration of ATM usage in the region and lack of employee understanding around electronic banking. Language barriers have also posed problems as a result of the influx of migrant workers who do not speak English or Arabic, and will therefore struggle to use ATMs in the region.
It is possible that this change will manifest itself in large spikes in ATM transactions around payday, when workers can withdraw the full amount. ATMs in remote locations such as petrol stations are also likely to see increased use as employees attempt to physically obtain their pay.
In addition, uncertainty around the total impact of the economic downturn meant that banks across the UAE, and also in countries such as Saudi Arabia, kept their spending low and investments in new technologies to a minimum.
It may take several years to fully restore confidence in the region, however, there are already some signs that banks are reconsidering payments innovations.
For example, the National Bank of Kuwait recently announced the first Near Field Communication (NFC) mobile payment trial in the GCC.[5] The banks that take advantage of growing consumer acceptance of innovative payment methods can gain a significant advantage over their less agile competitors in the region.
One of the challenges associated with the rising popularity of electronic and card transactions is the risk of escalating levels of fraud and money laundering.
Card skimming has become increasingly common in the UAE, particularly in Dubai, and many banks are now issuing EMV cards to protect their customers. Banks should look to introduce sophisticated transaction monitoring systems in order to quickly identify and prevent fraud.
Some banks in the region are also already employing SMS alerting, enabling the bank to contact customers when a transaction occurs that is outside of their pre-set parameters, such as when it is over a certain amount or outside their usual spending habits.
The customer receives an alert about the transaction which gives them the opportunity to immediately reply and block their card if it is fraudulent. Banks in the Middle East in particular, face a unique set of challenges when rolling out this type of service, as unreliable mobile phone networks can delay alerts for hours, rendering them effectively useless.
Challenging economic conditions and changes in the regulatory landscape in the Middle East have created both a challenge and an opportunity for banks in the region. Consumer education will be an ongoing focus for banks over the next year as more companies have to meet the deadlines for the Wages Protection System.
Fraud associated with the growth in electronic transactions will force banks to review their fraud detection and prevention systems. However, those banks and financial institutions that use the changes as an opportunity to introduce new products and services to their customers will be able to gain an important competitive advantage, and that can only have a beneficial effect on the bottom line.
Note: For more comment and opinion on the latest industry issues, visit ACI's Payment Industry Media Centre at www.paymentsinsights.com
Alternatively, subscribe by email or RSS feed to be kept up-to-date with the latest developments
REFERENCES:
1-2. http://www.arabnews.com/?page=6§ion=0&article=127828&d=28&m=10&y=2009
3. http://www.thenational.ae/apps/pbcs.dll/article?AID=/20091129/NATIONAL/711289869/1010
Facebook
Delicious
Digg
StumleUpon
RedditMIDDLE EAST BUSINESS COMMENT & ANALYSIS
_180.jpg)
