Has COVID-19 turned the Middle East into a cashless society?

The Middle East is on the cusp of a digital revolution. By adopting cutting-edge technologies and diversifying their economies, governments in the region are fast modernizing their countries in every sector.

Fintech is firmly at the forefront of the transformation happening right before our eyes.

According to the latest ACI Worldwide report, the region is uniquely positioned to capitalize on the productivity and efficiency gains and the economic benefits of real-time payments.

This shift accurately reflects the rise of digital payments and the quick acceleration of the COVID-19 pandemic due to safety and security matters.

As the world returns to a new normal and cash in circulation continues to decline significantly, digital payments will be central to developing a post-pandemic world. With COVID-19 acting as a forced pathway to the digital economy and business models that create value beyond payment transactions alone, a growing and thriving fintech ecosystem will continue to boost the role of digital payments in people’s everyday lives.

Even before the pandemic, however, digital payments were on the rise and part of a more significant movement toward the global elimination of cash. China, the world’s e-commerce leader, is leading the way, even as Sweden, Finland, South Korea, Australia and the UK become poised to follow in its footsteps.

In the UAE, digital payment transactions grew almost 10 percent annually between 2014 and 2019. More broadly, non-cash transactions in the Middle East and North Africa region grew by 23.1 percent between 2017 and 2022, compared to 9.7 percent between 2012 and 2017.

Following the introduction of Apple Pay in 2019, Saudi Arabia is also quickly moving toward becoming a cashless society, with a set e-payment target of 70 percent by 2030 as part of its Vision 2030 reform plan. Non-cash transactions in the Kingdom amounted to 18 percent in 2016 and were expected to increase to 28 percent in 2020. However, with the unforeseen consequences of the pandemic, they are projected to jump 69 percent in 2023.

Clearly, the above digitization targets are no longer aspirational but might be well within reach. Moreover, these targets align with the enthusiasm of citizens of the Kingdom and the entire MENA region.

According to a 2021 McKinsey survey, 58 percent of Middle East consumers expressed a strong preference for digital payment methods, while only 10 percent strongly preferred cash.

For a region that has spent so long heavily relying on cash, a near 60 percent strong preference is astounding. It seems that the pandemic has accelerated digital adoption among an unprecedented number of first-time users, overriding poor digital payments infrastructure and services, underbanked consumers and merchants and a cultural bias toward cash which was holding the region back.

Within a flourishing digital ecosystem, local and global players’ infrastructure is now there to develop the right value proposition and customer experience to meet each target segment’s needs.

Moreover, this transformation will likely stretch across borders, with payments practitioners in the Middle East identifying bilateral arrangements between countries for real-time settlement of digital money transfer operators as a critical shift they expect to see in the next five years.

By understanding the laws and regulations of each country and continuing to track new and innovative technologies, B2B providers in the region will be able to help small or big merchants and even governments move toward a full-fledged and secure digital society.

When it comes to widespread universal access to digitalization in the region, the socio-economic benefits should not be underestimated.

With digitization, the gross domestic product per capita could rise by more than 40 percent; employment in manufacturing by 7 percent; tourism by a staggering 70 percent; and female labor force participation could double to more than 40 percent, the World Bank reported.

It further pointed out that governments and providers need to work together to target the roughly 20 million adults in the region without a bank account. Building trust in these institutions is critical in ensuring increased use of different digital payment solutions.

Since contactless and digital payments proved significantly safer and less liable for spreading infection during the COVID-19 pandemic, consumers gained confidence in these new services. They got used to their ease, speed and convenience.

But entering a post-pandemic landscape and looking at the data emerging from the last two years, it is clear that cash is no longer king. And the pandemic might have been partly responsible for the shift we are now seeing, but digitalization would not stop once the pandemic is over. So we might not be entirely cashless yet, but it increasingly looks like it will be our new normal.

• Muhannad Ebwini is the founder and CEO of HyperPay