The Middle East & Africa – the drivers behind this unstoppable payments market

It’s an exciting time for payments in the Middle East and Africa. Often considered one of the world’s smaller banking and payments markets in terms of available services, the growth in this region in recent years has really exceeded expectations, and this is not set to stop any time soon.

The stats

Gold globe with many gold coinsAccording to RBR, at the end of 2016, MEA housed 188,000 ATMs, growing nine per cent from 2015 – a significant six per cent higher than the average growth for the global ATM market – writes Alexey Osipov Executive VP, MEA & CRD Managing Director, Compass Plus.

The same report put the number of payment cards in circulation at 637 million with card numbers growing 7%, against the global average of 2%. In fact, due to the number of unbanked and the very active government initiatives driving financial inclusion, card numbers are predicted to reach in excess of 910 million by the end of 2021.

The drivers

Whilst incredibly important, financial inclusion initiatives alone cannot take credit for the impressive electronic payments market growth. A growing e-commerce market, which has increased in size by 1,500% over the last decade and is expected to double in size by 2020, is also slowly but surely driving digital payments, as is the penetration of mobile.

By mid-2017, 63% of the MENA region’s population owned a mobile phone. There is, of course, huge variation across the region – from 76% in the GCC to less than a third of Somalians (GSMA). However, the young demographic (in excess of 30% of the population is aged between 15 and 29, representing over 100 million people), coupled with fast-improving mobile connectivity and a notable interest in m-wallets make the mobile payment space one to watch.

The hurdles

Although the growth of electronic payments in the region is high, MEA is still heavily cash-based and this cash culture will provide the biggest hurdle to electronic payments adoption. History has informed us that habits are hard to break, and with estimates of cash retail payments at as high as 85% – this is one tough behaviour to shift. Electronic payments may remain the safest and smartest way to pay, however, it will take careful planning, diverse and tailored product offerings, and education to convince the masses to change culturally ingrained habits.

Luckily, the increasing popularity of card products (credit, debit and prepaid), the push from retailers against Cash on Delivery driving electronic e-commerce behaviours, the young tech-savvy populations, the improving infrastructure, and the subsequent increasing numbers of mobile and internet penetration, are steadily paving the way for change.

The future

This diverse market certainly has plenty of challenges ahead in the fight to encourage the uptake of digital payments. Financial institutions (FIs) looking to increase market share and offer all the services customers are looking for in this diverse and dynamic market should ensure they have trusted technology partnerships in place to ensure they make the most of their technology investments. The potential for growth in this electronic and alternative payments space is undeniable – FIs need to make sure they don’t miss out.

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