Digital Financial Transactions: UAE’s Shift Towards Cashless Payments

Revolutionizing Finance: UAE’s Journey to a Cashless Payment Ecosystem

Discover how the UAE is rapidly transitioning towards cashless payments, paving the way for a seamless and secure digital financial landscape. Explore the latest trends and innovations in digital transactions, empowering consumers and businesses alike.

There was recently a report that revealed that wallets were the UAE’s second-leading online payment method, accounting for 24 percent of transaction values, up from 23 percent in 2021. Last year, cash on delivery accounted for only 7 percent of e-commerce deals.

“A similar picture comes at the point of sale [POS], where debit cards were responsible for 45 percent of transaction worth, with credit cards earning 17 percent chunk,” the report said.

“Cash accounted for an 18 percent share at POS. Wallets are growing even faster at POS, increasing from a 13 percent share in 2021 to a 16 percent share in 2022.

“Consumers in the UAE can pick from among the world’s largest wallet brands, such as Alipay, Apple Pay, Google Pay, Samsung Wallet, and WeChat Pay, as well as local wallets like Careem Pay, e& money [Etisalat Wallet], lastly Payit.”

Globally, the COVID-19 lockdowns spurred the faster adoption of digital financial transactions, particularly contactless payments, because of heightened knowledge about the spread of the virus through banknotes and coins.

Almost two-thirds of people in the UAE, or 64 percent, expect the country to become cashless by 2030, as per a 2020 poll by Standard Chartered.

The Emirates also ranked as the seventh-most cashless payment society in the world in 2023, according to a report by UK-based price comparison company Money.co.uk.

Uae Is Eighth In The Global Ranking Of Most Cashless Payments Economies

Although still in its early phases, the buy now, pay later method is growing fast in the UAE, the GPS 2023 report found.

In the UAE, BNPL increased its share of transaction values to 2 percent last year from 2021.

“The UAE is a hub of BNPL development, with local BNPL providers such as Cashew, PostPay, Spotii also Tabby competing with regional companies like Saudi Arabia’s Tamara,” according to the research.

The report predicted that BNPL would continue to expand in the UAE’s e-commerce sector at a compounded annual rate of 37 percent to 2026.

This company is also the Middle East and Africa’s quickest-growing e-commerce payment method. The report said it is estimated to grow at a compound yearly rate of 43 percent in MEA through 2026.

Meanwhile, the report found that the MEA also recorded a major decline in the use of cash at POS transactions, falling to 43 percent last year from 73 percent in 2018. It projected that the share of cash dealings would fall to 29 percent by 2026.

No longer the domain of the tech-savvy and financially literate, digital financial transactions are permeating every part of society, unlocking new opportunities for small- and medium-sized enterprises (SMEs) and entrepreneurs to grow their markets in previously unimaginable methods.

Covid-19 has had a major role

in accelerating the taking up of digital financial transactions in the Middle East, COVID-19 has had a major role, as shutdowns and movement restrictions young consumers to switch to cashless payment options.

Despite this, the level of use continues to vary across the area. For instance, in the UAE, digital financial transactions accounted for approximately 23 percent of total transactions in 2020, while in Saudi Arabia, the Gulf Cooperation Council’s (GCC) largest economy and one of the most populated, digital payments were only 18 percent.

The discrepancy highlights the scale of opportunity currently in the region, particularly compared to the US or some European countries where digital payments make up over over 80 percent. Indeed, Saudi Arabia’s leadership has recognized this untapped potential and has made the increased adoption of digital financial transactions a key priority in Saudi Arabia’s Vision 2030.

The UAE leads the region. 

Historically, the UAE has been the trailblazer in the region in digital financial transactions. With a supportive government and regulatory framework, the Abu Dhabi and Dubai governments have established the Cashless Payments Dubai Working Group. This was to create an action plan to move all payment transactions in Dubai to secure and easy-to-use cashless payment platforms across all areas.

More recently, Sheikh Mohammed bin Rashid Al Maktoum, Ruler of Dubai, revealed that the UAE Cabinet had come to an agreement to link the payment methods of the GCC. This move will further integrate the region and play a major role in expanding the already significant multilateral trade.

We have seen the tremendous rate of digital financial transactions across the UAE. According to consulting firm McKinsey & Co., the

number of consumer digital financial transactions in the UAE grew by more than 8 percent annually between 2014 and 2020. This is great compared with Europe’s average annual growth of 4 percent to 5 percent. We have seen even faster growth, with a 44 percent increase in digital payment volumes from SMEs during 2021.

The positive impact of this change is clear. Digital payments have and continue to improve efficiency across the public and private sectors. This is done by providing people easy access to reliable, safe, and affordable payment systems. These things are convenient to use and promote financial inclusion.

SME Adoption Is Vital To Achieving A Cashless Payments Economy

The UAE’s business-friendly regime with easy licensing and a supportive regulatory framework has attracted entrepreneurs worldwide. This was to set up businesses in the country.

As a result, SMEs account for 95 percent of all businesses in the UAE. These companies represent a major interest group in the move to a cashless payments economy. Driven by increasing consumer demand and a greater understanding of the rewards of going digital. In 2023 digital payment adoption in the UAE isn’t restricted to large enterprises.

A recent global survey by payments firm Visa highlighted that 71 percent of SMEs surveyed in the UAE, wanted to go cashless. This is against 59 percent globally, indicated being either cashless or looking to become cashless by 2024. These facts are backed up by our data. The figures that shows SME transactions now represent a quarter of total transactions in the UAE.

E-commerce represents a serious avenue through which the adoption of digital payments can broaden growth opportunities. Thus they open new markets for SMEs.

Our data revealed a 44 percent increase in combined digital and offline digital payment volumes for SMEs during 2022. The figure would be closer to 75 percent if we considered online payments. These facts highlight an acceleration in SMEs’ adoption of online payments as they realize and capitalize on the growth opportunities.

Unlocking potential in Saudi Arabia 

Recognizing the economic benefits of digital financial transactions. The Saudi government is looking for digital payment participation of 70 percent as part of Vision 2030. That is up from levels of approximately 18 percent in 2020.

Strong progress has already been made toward reaching these goals. McKinsey & Co. noted that Saudi Arabia saw astronomical growth in card payments. That is of over 70 percent between February 2019 and January 2020. Not to be outdone, digital point-of-sale (POS) deals in the kingdom doubled in the time to January 2021.

Benefits of digital payments 

The transition to a cashless payment society brings many other benefits. These include increased convenience for consumers by accepting multiple payment methods, including mobile wallets. However, beyond the convenience factor, which became obvious during the COVID-19 pandemic when availability of physical cash was partially restricted. The reason is because of health and safety issues. Thus, having an alternative to carrying physical cash also significantly impacts personal security and safety.

Likewise, going digital can bring substantial cost savings for merchants and businesses. This saving is done by reducing the complexity of their cash management procedures and the risk of misappropriation.

Digital payments form the basis of the global financial system. Increasing access unlocks a world of benefits from being connected to the mechanism. Merchants gain access to novel forms of venture capital to grow their businesses and finance their working capital requirements.

Consumers also get access to cool services such as buy-now-pay-later companies. This is enabling them to manage their financial resources by spreading out the payments of goods and services.

Businesses adopting digital payments also get an edge through access to live real-time data. These allow them to identify emerging patterns and trends and equip merchants with data-driven insights. Thse insights help to drive long term planning and decision-making.

On a grander scale, the wealth of data generated from digital payments enables governments to come up with more reliable economic forecasts. Thus, allowing for more effective policy setting. A cashless payments society that seemed like an ambitious dream just a few years ago is fast becoming a reality.

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