Middle East goes digital as bank mergers loom
Banks in the Middle East are pushing ahead with new digital payment methods as the impact of the falling oil price starts to bite.
Historically, the Middle East has been a laggard in its implementation of modern payments methods. Still heavily dependent on cash and cheques to complete transactions, the region is now looking at how it can benefit from bringing payments technology up to date.
Recent economic challenges have forced change in how banks and corporates operate. The drop in oil prices is having a strong impact in the region, most visibly on the availability of working capital and supply chain financing.
Corporates are, therefore, looking at how they can streamline operations to open up internal sources of liquidity.
Clients expect their
bank to be able to provide them with the most
up-to-date systems and mobile functionality
Emre Karter, head of treasury and trade solutions for MENA, Pakistan and Turkey, at Citi, says: “The economic downturn, as a result of lower than anticipated oil prices, coupled with an increasingly challenging regulatory environment, is likely to lead to mergers between banks, particularly in markets that are considered to be overbanked.
"As USD liquidity is drying up in the region, we expect a distinct differentiation between larger banks and smaller local players to become more apparent.”
Payments, which still rely heavily on paper in the region, are one area ripe for an overhaul.
Qatar and the UAE only introduced a direct debit payment system in 2013, and there are restrictions on which banks can receive payments. Transactions across the region still rely heavily on cash. However, Bahrain, Kuwait, Qatar, Saudi Arabia and the UAE have moved to using IBAN account numbers, which has increased standardization.
The adoption of digital payments by some government organizations has taken the technology beyond the consumer space and defined digital methods as an accepted option for corporates.
The UAE has launched the Smart Government initiative in 2013 which identifies the government services that can be paid for electronically. It is possible to pay utility bills and fines, and renew trade licences digitally.
Sunil Veetil, regional head of payments and cash management, HSBC MENA, says: “Different government entities have started digitizing many processes. Significant amongst them is the move to digitizing all government collections through electronic means.
“A number of corporate payments made to government entities like customs duties, utility bill payments are available through online portals. This improves the speed and efficiency of collecting or making a payment for both parties involved.”
Such initiatives have forced banks to update their payment platforms to meet client expectations.
Citi's Karter says: “Banks are investing more and more in technology, both in terms of updating internal core systems and add-ons as well as customer facing products. It is the client that is driving this change. They expect their bank to be able to provide them with the most up-to-date systems and mobile functionality.”
In turn, the banks are encouraging their clients to consider their payment methods and switch to digital. Karter says Citi offers educational programmes and webinars to provide advice and up-to-date product information.
Sunil Veetil, HSBC
The benefits of switching go further, as corporates are also being financially incentivized by their banks to change how they do business.
“We offer our clients incentives for electronic funds transfer (EFT) payments through lower pricing and have invested resources in to improving client-facing channels, including e-banking, mobile banking and e-signature solutions,” says Karter.
The region has also seen a move into mobile payments. HSBC has seen strong growth on the use of its mobile software. The region has strong adoption rates for new technology, with figures from Nielsen showing that 85% of UAE residents possess a smartphone. Veetil explains that since the launch of its HSBCnet Mobile solution in 2011 the bank has seen the value of the transactions executed increase by more than 50% year on year.
Veetil says it is down to how willing the corporates are to try out new technology, adding: “This figure reflects corporates’ open attitude to new technologies. The adoption of mobile-based payments by individuals will also influence the traditional distribution models amongst corporate clients.
"Different central banks in the region are also proposing to introduce digital frameworks and regulations that will facilitate this change.”