Mobile payments set for growth as UAE moves towards cashless society

The number of payments made through a mobile device in the UAE has been increasing significantly in the past two years. It is also set to accelerate further in the coming years, which presents opportunities for local businesses.

The COVID-19 pandemic affected every area of life for many people across the globe over the past two years. One of the perhaps most enduring effects of it is the decline in the use of cash to make payments and increase in digital transactions, including those on mobile devices.

With cash being viewed as a touch risk, especially in the early days of the pandemic, digital transactions became the payment method of choice for many people. This is due to the fact that purchases could be made without any physical contact, be it online, through contactless payment devices in stores or via mobile devices. Supported by these factors, this trend appears to be here to stay.

Notably, digital payments had been growing quickly in the UAE for some years pre-pandemic. In the years 2014–19, digital payments grew by 9% per year on average – whereas in Europe, growth was only about half of that.

But the pandemic has turbocharged that growth, and it is estimated that the number of digital payments in the UAE had risen by as much as 20% during the period of the pandemic.

Now, more than half of consumers in the UAE want to move to purely digital transactions in the next two years, according to a recent survey by payments company Visa.

Again, UAE consumers are ahead of the global curve in this sentiment – it was more than 10 percentage points higher than the global average in Visa’s survey.

One of the primary reasons for this is that the UAE is one of the fastest-growing e-commerce countries. The government has invested heavily to improve internet penetration, and this has led to the rise of e-payment platforms and the logistical infrastructure needed to support it.

The government of the UAE has been proactive in the digitalization drive. In 2017, His Highness Sheikh Hamdan bin Mohammed bin Rashid Al Maktoum, Crown Prince of Dubai and Chairman of The Executive Council of Dubai, launched the Smart Dubai 2021 Strategy. One of the strategic objectives of the strategy is for Dubai to be a paperless, cashless government, driven by cutting-edge, disruptive technologies.

On a wider UAE scale, in 2018, the Central Bank of the UAE launched an initiative to develop a National Payment Systems Strategy with the aim of enabling safe, efficient and customer-centric domestic and cross-border payments.

All such strategies and programs paved the way for a cashless society well ahead of the decision that the global population was compelled to take due to the coronavirus pandemic.

Businesses in the UAE are also joining the move away from physical transactions, especially SMEs: all those surveyed said they plan to take some forms of digital payments in 2022, whereas the average for businesses planning to do this is just 82% across the nine markets that were surveyed.

One of the most preferred methods of digital payment in the wider Middle East region is the digital wallet or e-wallet. Perhaps surprisingly, acceptance of it is ahead of the Asia Pacific region, where the technology is more mature.

A survey by McKinsey found that 60% of Middle East respondents believe that digital wallets will be the most preferred payment mode within the next five years, compared to just 38% in the Asia-Pacific reasons. Credit cards came second with 17%, followed by debit cards and account-to-account transfers.

Business opportunities

The rise of cashless transactions presents opportunities for businesses, both established and start-up, in the UAE to capitalise on this.

For instance, customers, especially the younger ‘generation z’ – 20–25-year-olds – will be increasingly looking to make payments through their mobile phones or smartwatches, combining the convenience of online and the security of an app.

With smartphones now accounting for about 80% of all mobile devices, there is considerable potential for innovation, including using mobile phones to direct payments.

As mentioned, digital wallets are becoming popular in the UAE and around the world. These enable users to go cashless without using a traditional bank account. The app allows the users to send and receive payments, as well as complete more traditional ‘over-the-counter’ transactions in shops – the phone is scanned rather than a credit or debit card.

This is a market that can provide opportunities for quick growth and profits. Setting up a digital wallet business in the UAE is much like establishing other businesses – as it is a financial service being provided, and any business will need the required licences to be able to trade, which take time to do and have a cost attached.

But once in place, the business can trade and, as with any emerging technology, those that develop the easiest to use, most reliable and – perhaps most importantly – secure digital wallets will stand to become the market leaders. This also means there are opportunities for those that develop security solutions for apps and mobile devices.

Payments between mobile phones through apps are becoming increasingly popular. These have the advantage of cutting out the ‘middleman’ of traditional banks. With these apps, the user can select a mobile phone number, insert the amount to be transferred and then in one click transfer the money. They can even send the recipient an emoji to let them know the money has been sent.

There are several advantages for users, mostly the ease of use and speed, but it also removes the need to carry cards and remember passwords and PINs.

Numerous apps have been developed in recent years in the UAE and are gaining popularity, but the market has yet to reach saturation, so there are opportunities to enter the market, and relatively few barriers to entry.

Another opportunity – and something yet to properly take off in the UAE – is peer-to-peer (P2P) payment apps on mobile devices. In other countries, such as the US, P2P apps have gained popularity in recent years. These apps allow friends to, for example, share bills or send payments to each other. There are P2P apps in development in the UAE, but it means there is potential to capture a significant share of the market for early developers.

For those that do not want to download an app, there are SMS-based payment services that also work well for consumer to business transfers and peer to peer transactions.

Digital future

While we are not likely to see the end of cash transactions in the immediate future – there is still some resistance to mobile payments, especially from the older generation who might be less tech-savvy – the direction is clear. Digital and especially mobile-based transactions are only going to rise in popularity in the coming years.

Mobile payments will undoubtedly play an important part in the move towards a cashless society in the UAE, alongside more traditional debit and credit cards and solutions such as QR codes.

The mobile payments market is growing quickly in the UAE and around the world, which means there is plenty of scope for new players to enter the market as it is still developing and numbers that use it are still relatively small. This means that those businesses that can provide innovative solutions that disrupt the market can make big inroads quickly and healthy profits.

The changes sparked by the pandemic are here to stay and we are getting close to the point where cashless options are becoming expected from businesses, and those that do not offer them will start to fall behind their rivals – which, of course, provides a greater incentive for them to adopt such technologies.