As payments modernization efforts continue to accelerate across the global financial services sector, the Middle East is quickly emerging as a stand-out when it comes to instant payments adoption. In fact, it has been anticipated that the digital payments market will have a 6.5 percent CAGR between 2020 to 2025 in the region.
Heightened real-time payment activity has been particularly concentrated in Bahrain and the Kingdom of Saudi Arabia (KSA), with the former projected to become the leader in consumer adoption, and the latter continuing to represent the largest instant payments market by transaction volume. Following closely behind is the United Arab Emirates (UAE), whose recent implementation of the National Payment Systems Strategy (NPSS) is expected to significantly accelerate the adoption of real-time payments in the country over the coming months.
However, while instant payments growth in the Middle East appears to be a net positive for consumers, it also poses considerable challenges to banks and financial institutions operating in the region. More specifically, in addition to achieving real-time capabilities, banks face the dual responsibility of establishing additional revenue streams while creating novel value for customers beyond the realm of instant payments.
For example, as payment volume migrates to the UAE’s Instant Payments Platform (IPP) per the NPSS, banks in the country will need to address an inevitable and significant loss in revenue from service fees, which will be reduced to near-zero as a result of the transition. And as the ability to send and track payments in real-time gradually becomes the norm, customers are bound to seek financial services providers that can enhance their experiences in new and exciting ways.
But while developing and delivering new products in a short timeframe won’t be easy, the good news is that the increasingly modernized payments ecosystem also inherently provides banks with a variety of opportunities for further innovation and subsequent revenue growth.
Perhaps most notably, the migration of payments into the digital space has created a new importance around consumer data, both in terms of how it can be leveraged by banks to improve customer experiences beyond payments, as well as the responsibility of protecting it against emergent threats and technical oversights. Put simply, the key to securing additional revenue in the evolving payments environment will lie in a bank’s ability to deliver products that simultaneously utilize and secure customer data—and to do so more creatively and reliably than competitors. With most countries moving to ISO 20022 standardization for local payments, the key lies in the utilization of rich data sets coming as part of the payment to re-bundle the product proposition and re-imagine customer experience.
When it comes to specific methods for creating value from consumer data, the possibilities are virtually endless. For example, each consumer’s data reveals certain behavioral and spending patterns, and each consumer represents a unique opportunity to upsell through personalized products and recommendations. This might be a rewards program tailored around an individual’s preferences, or a financial planning application that allows consumers to track and analyze their own spending habits. This not only elevates the customer experience but at the same time provides an opportunity for the banks to create new revenue streams.
Again, the trick will be building innovative products alongside advanced security mechanisms such as data protection, fraud and dispute management, as well as broader safeguards against various potential technical errors. And for many banks in the Middle East, this will require seeking a trusted partner with both the knowledge and technological flexibility to identify the most efficient path forward, and to bring their visions to life at an accelerated pace that matches, and even exceeds the rate of payments modernization in the region and around the world.
