From pearl trade to e-wallets: The rise of digital payments in the GCC

At the turn of the 20th century, Bahrain’s illustrious pearl trade was at its peak. While formal banking was yet to be properly established in the kingdom, a number of savvy merchants took deposits from the pearl traders, which they kept in their shops. In 1919, these deposits were estimated to be worth some 2 million rupees. This exceptional wealth led to the merchants opening branches of their companies in Bombay, where local pearl traders could deposit their money and send it to Bahrain – a kind of early proto-banking. These merchants long opposed the establishment of formal banking, which they saw as being disastrous to their own economic interests. But eventually on 3 June 1920, with the support of the British foreign office, the Oriental Bank officially opened its first branch in Bahrain. Thus, 100 years ago in Bahrain, the GCC banking industry was born.

Since then, the rise of GCC banking has been vertiginous, with Bahrain, the region’s oldest and most established banking and financial services centre leading the charge. Today, nearly 400 financial institutions call the island home, enjoying a stable, predictable and proven regulatory and business environment with a substantial presence from every major industry and business sector. Indeed, banking and financial services more broadly have come to the forefront of region-wide economic diversification efforts, and play significant roles in almost every GCC economy. Here in Bahrain, the sector now constitutes some 17 per cent of national gross domestic product (GDP) – the largest non-oil contributor.

However, despite the banking and financial services sectors taking on such prominent roles for GCC economies, the region lagged others when it came to adapting to the digital era. Just as the early merchants who provided proto-banking services for the pearl traders resisted the establishment of formal banking, for some time banks across the GCC resisted another paradigm shift: rapid global digitisation. This was in large part owing to the behaviours of GCC consumers, specifically their persistent preferences for paper cash and physical retail. A recent report from KPMG notes that in the GCC, shopping malls are the main driver of the retail industry, while in the US and Europe, for example, online shopping plays a much larger role. In fact, in the Middle East cash has long been the preferred method of payment even for online purchases, with cash on delivery accounting for a staggering 76 per cent of the region’s ecommerce orders as recently as 2017. But in more recent years, a change started to take place.

According to data published by the Central Bank of Bahrain, point of sale  (POS) transactions indicating the use of debit and credit cards have been steadily rising in number and value. The number of such transactions rose from some 64.5 million in 2018 to 73.7 million in 2019 – a 14.3 per cent increase. Moreover, in that same period the number of POS terminals in use increased by 15 per cent. The value of transactions made on the national Electronic Fund Transfer System (EFTS) was on the rise too, with e-wallets such as Fawri, Fawri+ and Fawateer seeing a 13.4 per cent rise in total amounts transferred – to BHD 12.7 billion in 2019. Consumer behaviour was shifting – Bahrain’s banks began to follow suit. The last couple of years has seen a flurry of activity from the kingdom’s banking sector that can only be characterised as a digital revolution. It included Bank ABC’s launch of ila Bank – the region’s first fully digital bank; the National Bank of Bahrain – the first in the region to launch open banking services; BISB, which launched Bahrain’s first virtual branch; and GIB, which launched Meem – the region’s first shari’a compliant digital banking service.

This revolution in digital banking and payments has been reflected across the entire region. Online payments penetration across the Middle East and North Africa (Mena) had already reached 76 per cent, which is expected to increase. E-commerce is expected to grow exponentially from $8.3 billion in 2017 to $28.5 billion in 2022. In short the move towards digital was already underway. But then a sudden global event took place that would catalyse the movement, decisively shifting consumer behaviour, and subsequently the activities of service providers, straight into the digital era: Covid-19.

Governments across the GCC responded quickly and robustly to the pandemic, instigating strict lockdowns and temporarily closing non-essential businesses from an early stage. In Bahrain, the change in consumer behaviour was instant and dizzying. In March 2020, EFTS saw a 1257 per cent increase in the number of remittances through its Fawri+ service alone – worth some BHD103 million ($273 million). Nine months on, Bahrain’s BenefitPay looks set to surpass $4 billion worth of transactions by the end of 2020, having facilitated $3.99 billion worth by the end of November this year. And as we look ahead to the new normal, it seems that many of these new consumer habits are here to stay. According to a survey of consumers across the Middle East and Africa region from Mastercard, 70 per cent of respondents said they are now using some form of contactless payment amid safety concerns relating to the pandemic; 81 per cent said they will continue to use contactless once the pandemic is over, pointing to a long-term behavioural shift.

Small wonder then that platforms across the region are continuing to enhance their payments technology offerings for customers across the GCC. The GCC contains over 54 million people predominantly united by a common language and similar consumption habits, not to mention some of the highest internet and smartphone penetration rates in the world.  Formal banking might have only appeared in the region a century ago, but the likes of Careem, Talabat, Benefit, Apple and Android are all right to bet on the GCC as a hub for digital payments in the future.

Dalal Buhejji

Director Business Development FInancial Services - Bahrain EDB

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