Kickstarting mobile payments in the Middle East
By Srinivas Nidugondi, senior vice president and head of mobile financial solutions, Mahindra Comviva
The mobile payments industry over the past few years has definitely made its presence known on a global stage.
In 2011, the number of mobile-payment users stood at 160.4 million, according to data from Statista. In 2015, the number of users jumped to 384 million
While this growth is impressive, it varies across different regions. In 2015, a majority of these customers came from the Asia-Pacific region (141.4 million), according to Statista. Meantime, the Middle East saw 4.7 million users.
Let’s take a deeper dive into the Middle East and North Africa.
The financial landscape in the region is characterized by variations in financial inclusion, according to a report from the Arab Financial Services Company. Over 65 percent of adults in the GCC region (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates) have an account at a financial institution. This figure stands at less than 20 percent in countries such as Egypt, Sudan, Iraq and Yemen.
Naturally, as a result, the development and uptake of mobile payment solutions in the region has been patchy at best. In fact, there is a wide gap between the kinds of solutions the customers are demanding as well. In this context, the Statista report states that in the less developed countries, particularly North Africa, mobile money solutions have been the main growth vehicle for financial inclusion. Needless to say, the GCC region has a different story to tell. Here, developing mobile payment solutions such as mobile banking, mobile wallet, etc., is the norm.
Now, let’s put the GCC region under the microscope.
Seeds of growth
There is little doubt that the business case for mobile payments in this region is strong. How? For starters, the average mobile penetration is high at 90 percent.
Needless to say, operators and third party providers didn’t let the grass grow under their feet before jumping onto the mobile payments bandwagon. As a result, the space saw a flurry of activity. Several examples can be cited in this regard, but for the sake of remaining crisp and concise, let’s cite a few.
It all started in 2013. Boloro, in collaboration with Zain, launched the GCC region’s first mobile-payments service on buses in Kuwait. Customers could pay their fares by tapping their mobile phone when boarding the vehicle. In fact, all the major bus operators in Kuwait and Qatar currently offer this service.
There are entities in the region that have been slow to add mobile payments, such as banks. They have preferred to adopt a “wait-and-watch” stance with to mobile payments. In my opinion, banks ought to flex their muscles on this stage. And why not? These players can easily leverage their already-established relationships with merchants, not to mention the treasure trove of customer data they’re sitting on.
So, what’s stopping them? Well, the biggest barrier is the fact that these entities still consider the mobile handset, and all applications concerned, as a value-added service. As a result, non-banking players have ventured far ahead of them in mobile payments. In my opinion, it’s time for these players to straighten up and create a strategy to at least compete with the competition. The first step? Consider the mobile channel as an integral part of the business.
Of course, these entities must have a war chest in place before meeting the competition head-on. Enter the prepaid wallet. Now, the advantages of the prepaid wallet have been discussed a lot, which is why I won’t do the same here. I would like to point out, though, that the most important reason (arguably) why banks ought to take prepaid wallets seriously is two-fold. Firstly, their merchants are empowered and second, this service reduces the high card-not-present rate during a transaction. A prepaid wallet is typically built around a stored value account. Customers can transfer the funds from their bank account or card to the prepaid wallet account. Since payments are not made directly through cards, the high card-not-present charges do not apply. As a brief side note, permit me to point out that the very enthusiastic uptake of smartphones in the region can play a crucial role in the uptake of this service. After all, 68 percent of all handsets in the region belong to this category So, why shouldn’t such applications flourish?
Now let’s turn our focus to another interesting trend that is rearing its head in the region.
Enabling seamless payments through contactless cards is the new kid on the block. In fact, a few banks have already launched this offering. Boubyan Bank sparked this trend in 2015 and launched contactless card in Kuwait. Later that year, Riyad Bank and NCB (supported by AFS) followed to introduce Saudi Arabia’s first contactless credit card. With mobile payments creeping into those markets, I expect mobile handsets to replace contactless cards.
As for the best technology banks can pair with mobile payments, NFC (specifically the HCE protocol) is the best option over QR codes and sound-based options. Adding another dimension to this, banks may consider investing in the development of their own HCE platform, as opposed to opting for OEM Pays like Apple Pay and Samsung Pay. Here’s why: a bank-owned HCE platform is compatible with more NFC-enabled smartphones. And with their own HCE platform, banks will have complete control over the tokenization platform as well as the token lifecycle. Banks will have the ability to monetize the token platform to enhance tokens for other use cases, like token-based ATM withdrawals, P2P and more.
It is only a matter of time before prepaid wallets and contactless payments are in the spotlight in the GCC region. The revolution is truly underway. What remains to be seen is the direction it takes, in terms of uptake, technologies and services. After all, the Middle East market is an inherently contradictory one. A customized stance is thus needed to succeed. Remember, there is no one-size-fits-all approach to mobile payments.