Card payments boom in the UAE – but what is the future of the vertical?

By Puja Sharma

The pandemic has accelerated the rate of transactions– As of January 2021, Saudi Arabia’s digital point-of-sale (POS) transactions have doubled. The UAE’s total card payment value is forecast to grow by 7.3% between 2021 and 2025, reaching AED345.2b ($94.0b) in 2025, according to the data.

UAE card payments are projected to grow by 9.4% in 2022. According to GlobalData, the COVID-19 pandemic has led to a shift in consumer preference toward cashless payment methods even though consumer spending is still affected overall.

The UAE card payments market has experienced robust growth in recent years, despite the country’s notoriously high cash consumption. In his comment, Ravi Sharma, Lead Banking and Payments Analyst at GlobalData, mentions that the shift toward card payments can be attributed to the government and the financial sector promoting electronic payments through various financial inclusion initiatives and developing payment acceptance infrastructure in the country.

The country’s total card payment value is forecast to grow by 7.3% between 2021 and 2025, reaching AED345.2b ($94.0b) in 2025, according to the data.

Using contactless Visa cards and mobile wallets, Sharma stated that Visa partnered with the Ajman Transport Authority and the Government to introduce the city’s buses with contactless technology in February 2022. Before the outbreak, the Central Bank of the UAE raised the contactless payment limit from AED300 ($81.69) to AED500 ($136.15) to encourage consumers to use contactless payments.

The Government of Dubai developed the Dubai Cashless Framework in November 2020 to shift all payment transactions in Dubai to cashless methods. To promote initiatives that help reduce the use of cash, the Cashless Dubai Working Group was established.

Even with lower penetration than debit cards, credit cards are the most widely used card type for payments and are driving market growth, accounting for 87.2% of total payments in 2022. In addition, to reward points, discounts, and cash back, value-added benefits are also contributing to this. Credit and charge card payments are expected to grow by 9.6% in 2022, while debit card payments will grow by 8.5%.

A McKinsey survey found that 58% of Middle East consumers favored digital payment methods; only 10% favored cash. Several government initiatives and new payment providers have been bringing rapid change. The pandemic has accelerated digital adoption and also triggered a flight from cash, as in other regions. In the MENA region, (Point Of Sale) contactless-card transactions have grown by 10% per month since the start of the pandemic, and payments via pass-through card-based wallets by 18% per month.

Increase in Digital adoption–the pandemic has accelerated the rate of transactions. As of January 2021, Saudi Arabia’s digital point-of-sale (POS) transactions have doubled. As compared to the other reforms identified, open banking goes beyond digitising payments to making banks interdependent by creating circumstances in which others can disintermediate banks.

Key highlights

• There has been a rise in digital payment in the Middle East, led by increased digital adoption.
• Newer opportunities for banks and FinTechs: The regulatory changes allowing new players to enter the payments industry present opportunities for FinTechs, telecom companies, and other attackers to capture more market share.
• Cross border payments: Paying across boundaries is an important practice in the Middle East, with two of the three largest remittance corridors located there.
• Consolidations: M&A has driven payments globally in the past decade, and the Middle East may be the next hot spot for consolidation.
• The growing demand for neobanks: In the Middle East, tech and telecom companies are seen as potential threats to incumbent banks.