By Paul Thomalla

Depending on how you look at it, the world of payments is either approaching a perfect storm or the biggest opportunity for change we have ever seen in the sector. The Middle East, with a fragmented market with multiple players, is one of those regions ready for a digital payments revolution.

The ongoing health crisis is also having a drastic impact on the use of cash, leading to a sharp rise in digital payments. According to a 2018 study by Visa, wider adoption of digital payments could save Dubai’s consumers, businesses and governments up to $2.2 billion annually. Consolidation of payments, regulation, technological innovation and greater data accessibility are just some of the trends we will see this year.

Consolidation continues

Consolidation of digital payment networks will continue, as global payment frameworks are streamlined, simplified and merged. Banks increasingly recognize that they need payment platforms that are stable and highly secure, yet agile.

Making do and mending with siloed back office payments systems is increasingly expensive, particularly because the skills required to keep older systems running are becoming ever more rare. One way forward is to partner with innovative third parties and fintechs to provide new capabilities via open application programming interfaces (APIs) on a platform like Finastra’s FusionFabric.cloud.

Transparency increases

A key step forward for the payments industry is the inclusion of more data in payment messages under ISO 20022, a standard for electronic data interchange between financial institutions. This will reduce the need for manual checks and balances, benefiting corporates and SMEs in particular.

Technologies like machine learning and artificial intelligence will also enable banks to leverage robust, cloud-based payment hubs to build intelligence based on previously inaccessible payment data.

Not only will banks be able to see where errors and friction are occurring in their own systems, but they will also have the information at their fingertips that helps them understand customer behavior and predict future usage. This will allow them to build tailor-made services that support customer expectations and journeys.

Banks embrace partnerships

The region’s banks will increasingly embrace open banking collaboration with the launch of application programming interface (API) sandboxes. Open APIs provide a standardized way for fintechs, startups, developers and SMEs to interact with bank data to enable the creation of new digital services.

Open banking sandbox environments will enable the secure testing of these applications prior to launch. By working securely with third parties, banks will be able to launch a new generation of digital banking services, supported by digital payment technology.

Governments support digital payment

According to the Better Than Cash Alliance, around 1.7 billion people worldwide are still unable to participate in the formal financial system. Moving from cash to digital payments will enable more and more ‘unbanked’ or ‘underbanked’ to join the banking system and start saving and investing.

Under the Vision 2030 strategy, Saudi Arabia aims for 70% of all payments to be electronic in 2030, up from 18% in 2016 and 28% in 2020. Dubai Department of Economic Development (DED) has created the Empay wallet to enable contactless and remote payment.

— The writer is head of payments at Finastra