Over the past few years, the mobile payments industry has certainly made its presence felt on the global stage. As per data released by Statista, in 2011, the number of global mobile payment customers stood at 160.4 million. A mere four years later (in 2015), this number jumped to 384 million.
However, while this growth is impressive, it varies across regions. In 2015, a majority of these customers hailed from the Asia-Pacific region (141.4 million), as per the firm. Meanwhile, a stark contrast was the Middle East, which had 4.7 million to its credit.
Moving on, let’s zoom closer into the Middle East and North Africa (MENA) region. Sample this-according to a report released by the Arab Financial Services Company, the financial landscape in the region is characterized by variations in financial inclusion. On one hand, over 65 per cent of adults in the GCC region (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates) have an account at a financial institution. On the other, however, this figure stands at less than 20 per cent in countries like 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 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. First off, there is little doubt that the business case for mobile payments in this region is strong, to say the least. How? Well, for starters, the average mobile penetration is very high-190 per cent. No mean number, this!
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 regards 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 ever mobile payments service on buses in Kuwait. Customers could securely and conveniently pay their fares by simply tapping their mobile phone when boarding the vehicle. In fact, all the bigwig operators in Kuwait and Qatar, Zain, Ooredoo and Viva currently offer this service.
On the other hand, there are entities which have been a bit slow on the uptake. I allude to banks, which have preferred to adopt a “wait-and-watch” stance with regard 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 the mobile payments game. Allow me to add my two cents-it is time that these players straighten up and chalk out a strategy to at least finish neck-to-neck with the competition. The first step? Start considering 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 ad nauseam, which is why I won’t wax eloquent on the same. I would like to point out, though, that the most important reason (arguably) why banks ought to take prepaid wallets seriously is two-fold. First, 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 money from their bank account or card to the prepaid wallet. 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 per cent 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 up in the region. Enabling seamless payments through contactless cards is the new kid on the block. In fact, a few banks have already launched their offerings in this regard. The revolution was sparked off in 2015 by Boubyan Bank, the first entity to launch Tap & Pay credit cards in Kuwait. Later that year, Riyad Bank and NCB (supported by AFS) followed to introduce Saudi Arabia’s first contactless credit card. Also, with mobile payments foraying into the game, expect the contactless card to be replaced by the mobile handset.
Let’s take a quick look at the secret sauce behind mobile-based contactless payments-namely, the technology. Several can be used for this service, for instance, Near Field Communications (NFC), QR Codes and sound-based technologies. Of these, NFC is emerging as the forerunner in this race. The reason is simple-Host Card Emulation (an NFC variant) lets banks launch contactless payments rapidly without changing the existing SIM card and involving a trusted service manager (TSM). Little wonder, then, that NFC is the technology of choice for banks and financial institutions alike.
Adding another dimension to this, banks may consider investing in developing 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 works on any NFC-enabled device, unlike the Apple Pay and Samsung Pay, which function only on the Apple iPhone 6 and the Samsung S6 devices respectively. Moreover, 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 cash out, P2P using tokens, etc.
Net, net, it is only a question of time before prepaid wallets and contactless payments are in the spotlight in the GCC region. The revolution is well and 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 customised stance is thus needed to succeed. Remember, there is no “one size fits all” approach to mobile payments!