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Chequeing
out on Cash
The world is moving towards a cashless society. NOTES and coins represent only 3% of Swedens economy, compared with an average of 9% in the eurozone and 7% in the US. However, 90% of payments are made with cash or cheques in the MENA region. smartphones ARE ALSO paving the way to a mobile payments revolution. so is a cashless society just around the corner?
by r o r y c o e n

Emerging
economies such as Qatars are slowly accepting mobile as a primary means of payment. Where there is a traditional reliance on cash or even a historical attachment to a national currency and an existing financial infrastructure, adoption of cashless micropayments tends to remain relatively low. Consumers are slow to change their payment habits, or the payment methods they inherently trust. The Middle East is largely a cash-based society, says MasterCard President for the Middle East and Africa (MEA) Michael Miebach. Consumers tend to take out cash for their daily purchases out of sheer habit. This leads to 90% of transactions in this part of the world taking place via cash or cheques. Central banks and governments around the world are increasingly looking at this issue as they realise that cash transactions are actually quite inefficient and costly. Multiple studies estimate the cost of cash to be 0.5% to 1.5% of a countrys gross domestic product (GDP). These figures may show the region to be lagging behind the developed world, but there are real signs of progress. While

growth in the number of credit cards is pretty much flat in the MEA region, debit cards are growing in double digits and prepaid cards are growing at close to triple digits. As far as transactions are concerned, debit is growing twice as fast as credit, while prepaid is growing nearly eight times faster than debit. This trend can be attributed to a number of factors, says Miebach, like tighter lending limits by banks following the global crisis. In all markets globally, the electronic payments cycle tends to start with credit cards, before the introduction of debit and prepaid, so while credit is maturing in many MEA markets, debit and prepaid starts from a low base. Consumers are starting to prefer the better control on their personal finances that is offered by debit and prepaid. They are also now getting more aware of the benefits and appeal of prepaid for gifting, travel, purchases by children. Emerging markets will drive growth The importance of the region stems from the fact that consumers in emerging markets will drive value creation and growth in

the global economy over the coming years, marking a major shift in global consumption from West to East, explains Miebach. MasterCards Insights report Consumer Spending Outlook and Value Creation in the New Global Economy shows that between 2012 and 2016, emerging markets will add an average of $1.2 trillion (QR4.36 trillion) of consumer spending to the global economy per year, whereas developed markets will add only around $700 billion (QR2.55 trillion). And as we all know, the MEA region is becoming a very important player within the emerging economies, he adds. Payment solutions in Qatar Worldwide mobile payment transaction values were expected to be $171.5 billion (QR624 billion) in 2012, a 61.9% increase from 2011 values of $105.9 billion (QR386 billion), according to Gartner Inc., a leading information technology research and advisory company; the number of mobile payment users would reach 212.2 million in 2012, up from 160.5 million in 2011. Mobile phone penetration in Qatar is currently

5 6 Qatar Today

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in implementing a national e-payment gateway system by providing onsite and offsite technical and operational support throughout the project. The gateway leverages the MasterCard Internet Gateway Service (MiGS), and provides online payments solutions to both government ministries and private sector merchants. Consumers in Oman have the convenience of paying online, without having to go anywhere for their services, he says. In the UAE, MasterCard works with financial institutions and payroll programme managers to support the government-led Wages Protection System programme, which was developed to safeguard the payment of labourers wages. New trends Predicting new trends that are emerging in the region, Miebach says: Card segmentation is very popular in the Middle East as it is a very useful way to reach out to a diverse consumer base. Credit card segmentation targets different kinds of consumers in various categories and offers payment cards such as premium and affluent cards, debit cards, Sharia-compliant cards, lifestyle cards and corporate cards. We see great potential for contactless payments, such as EMV Chip and MasterCard PayPass. In fact, in 2012, Qatar National Bank (QNB) Group, Qtel, Oberthur Technologies and MasterCard announced the launch of the first mobile Near Field Communication (NFC) payments programme in Qatar. This is also the first programme to offer consumers a contactless PayPass sticker in MEA, he adds. Islamic banking has also gained tremendous popularity over the years not just in the Middle East and South East Asia, but in markets such as the UK, says Miebach. We will continue to collaborate with our customer financial institutions to enhance the usage of payment cards in lieu of cash through targeted promotional campaigns and loyalty programmes aimed at educating consumers about the significant benefits of using cards over cash, he adds. MasterCard finally opened a brand new office in Doha in January. One of the primary reasons for this expansion was to get closer to its customers the banks, merchants and other strategic stakeholders. A more intimate relationship may encourage more institutions and consumers to believe in the power of plastic, according to Miebach

two and a half times the global average (approximately 165%) and Business Monitor International expects this penetration rate to rise to 190% by 2015. The Middle East has one of the youngest populations in the world with one in five people aged between 15 and 24, says Miebach. These young people are the drivers of technological innovation, and tend to be early adopters of new technology. Qatar also has one of the highest mobile phone penetrations in the world and a rapidly rising standard of living, providing significant opportunities in the payment solutions landscape. As an example, the MasterCard PayPass payments programme in Qatar is enabling more and more consumers to make contactless payments at a range of locations, including coffee shops, malls and cinemas. We believe that by working closely with the authorities and major businesses in Qatar, we can provide a technological framework that gives customers the ability to make payments in a way that best fits their needs and lifestyle, he adds. Government and innovative payment solutions By supporting governments around the world with electronic payment programmes, MasterCard is helping save money, improve efficiencies, provide transparency and help cut administrative costs. Today, more than half of the world is underserved, with 2.5 billion consumers globally, and 67% of adults in the Middle East lacking access to traditional financial services. Together with governments, we are

Consumer Spending Outlook 2012 and 2016,

emerging markets will add

($1.2 trillion) to global economy per year developed markets will add

QR4.36

trillion

QR2.55

trillion

($700 billion)

opening up a world of financial inclusion for those who have previously not had access to traditional financial services, says Miebach. Examples of how MasterCard benefits governments in the region include the Ministry of Finance MasterCard Prepaid programme in Egypt, which was launched in November 2010 through state-owned local financial institutions to drive the issuance of government payroll and pension payments for 10 million government workers in Egypt. The programme is the largest public sector payroll programme in the region, and through this initiative MasterCard cardholders were the only public sector employees who received their pay on time during the unrest in 2011. In Oman, MasterCard supported the Information Technology Authority (ITA)

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