The trend towards real-time digital payments in the UAE is expected to accelerate this year with the introduction of a program, which is expected to launch in the fourth quarter. The UAE Instant Payments Platform (IPP) will allow transfers between bank accounts 24/7/365.
As part of the country’s national payment systems strategy, the IPP aims to provide the best services, promote financial inclusion and increase financial stability. One would assume that digital transactions are already dominating the payments landscape in the country, especially considering the success of real-time systems in other countries like India.
However, until recently – despite the remarkable digitization of its economy and its impressive smartphone penetration – the UAE has remained heavily reliant on cash. According to McKinsey & Company, only about a third of retail transactions are conducted electronically, due to factors including underdeveloped digital payment infrastructure and services, underbanked consumer and merchant segments, and a cultural bias towards species.
This changed after the onset of the pandemic which placed immense pressure on businesses to deliver seamless experiences to consumers, reduce operating costs, and improve the level of transparency and security. Therefore, the sector is expected to become a $14 billion market by 2030.
With the impending introduction of IPP, the market for real-time and digital payments will receive a significant boost. Research by ACI Worldwide predicts that real-time payments will exceed a 5% share of all digital payment transactions in the UAE by 2024.
It is clear that the customer appetite for real-time payments exists, and as participation in the IPP program is mandatory for all financial institutions, banks in the UAE are now under pressure to redesign their payment infrastructure and explore new business models. But with challenge comes opportunity.
So, rather than just striving to comply with regulations, regional banks should recognize the potential that real-time payments have to positively impact their business.
Real benefits in real time
For consumers, real-time payments offer unparalleled convenience. These systems enable instant, 24/7 secure interbank electronic funds transfers that can be initiated via smartphones, tablets and digital wallets. The majority of real-time payments use cases today are primarily for low-value, person-to-person, and consumer-to-business payments.
By connecting to the IPP, banks in the UAE will be able to both capture these growing transaction volumes and offer customers accurate, up-to-the-second account information. By doing so, they will be able to attract and retain customers by meeting their growing expectations for payments and real-time information.
Banks can also turn to real-time payments to counter the threat they face from the new generation of fintechs that have made significant inroads in the market in recent years. After all, banks are in a better position to capitalize on the benefits of real-time payments and deliver them to their customers. They have richer product portfolios and greater scale than their fintech counterparts.
As they become more familiar with the real-time payments provided by banks from their account, consumers in the UAE will also become more receptive to the additional services made possible by real-time payments. For example, banks will begin to provide digital overlay services, such as Request to Pay, which will undoubtedly result in increased customer spending, the ability to engage with entirely new consumer segments, and no doubt most importantly, will allow these traditional banks to push back the advances. of the growing number of fintechs.
In the retail segment, overall, for most UAE consumers, their bank is their most trusted financial institution. They would appreciate a real-time P2P solution that gives them control of their money and the perceived added layer of security that comes with being a bank-operated service.
For banks, this would mean becoming more entrenched with their customers, which will go a long way to fostering brand loyalty and avoiding churn and churn – particularly important measures for banks in the digital age.
Prime time for real time
The impending introduction of the IPP presents an opportune time for UAE banks to entice customers with new value-added services that roll on rails in real time. This means developing payment modernization strategies and revenue models that leverage the strengths of real-time rather than resist it. And, if managed well, better and smoother customer experiences.