The future of payments in the Middle East: key trends and projections

61% of the consumers in the UAE are already using digital payments indicating the region's readiness to embrace digital transactions. 

The Middle East has come a long way in terms of payments, from bartering to coins, banknotes, and plastic cards. But now, digital payments are taking center stage and gaining serious popularity among consumers. 

The numbers don't lie! The future of digital payment lies in contactless and click-to-pay payment methods. 

Let's take a look at the key trends and projections shaping the future of payments in the UAE, along with the current payment landscape and Covid-19's impact on payments. 

History of payments in the UAE

The Middle east evolved from barter trading to the introduction of coins then banknotes, and now the adoption of digital payment methods.

Payments landscape in the UAE: growth & trends

Digital payments, mobile payments, e-commerce, contactless payments, and QR code payments are reshaping the payment landscape in the Middle East, providing consumers with more convenience, security, and options for making transactions.

Key drivers for digital payment trends in the UAE

One of the main reasons why consumers are shifting their payment preferences towards modern digital payment methods is the convenience it offers and the safety of payments and personal information.

The proliferation of digital payments

Digital payments are experiencing a surge in popularity, with a projected CAGR (Compound annual growth rate) of 15.39% over the next five years. With a combination of growing consumer demand and proactive government initiatives, the digital payment sector is set to soar in the Middle East, closing the gap with other thriving markets like the US and Europe. 

This growth can also be attributed to several factors, including the widespread use of smartphones, increased social interactions, and the implementation of enablement programs by merchants to bridge the gap between physical and digital transactions. 

The growing popularity of mobile wallets

Mobile payments are also gaining momentum, expected to grow at a CAGR (compound annual growth rate) of 30.1%. In fact, mobile wallets are projected to become the most preferred payment method by consumers by 2025. 

The convenience and ease of mobile payments are fueling the development of this market. In addition, consumers are embracing the ability to make payments using their mobile devices, further driving the growth of mobile payments in the region.

Modern e-commerce payment options

The e-commerce market in the Middle East and Africa is poised for substantial growth with factors such as high internet penetration, urbanization, and the rising mobile shopping trend contribute to this growth. 

E-commerce and mobile commerce are increasingly becoming part of customers’ daily shopping needs. With the growing e-commerce industry, rises modern e-commerce payment options, including QR payments, click-to-pay, tap-and-pay, and POS financing arrangements.

Contactless payments (QR codes, soft POS)

The speed and efficiency of contactless payments, combined with the added security layer, make contactless payments an attractive option for consumers. 

From the seamless experience to effortless transactions, technology is revolutionizing payments. QR codes are gaining popularity in the UAE as they offer a convenient and secure way to make payments by simply scanning a code with a smartphone. 

Covid 19 impact on payments in the Middle East

The COVID-19 pandemic has left a significant impact on the payments landscape in the Middle East, transforming how we shop and transact. 

• Increased adoption of online shopping channels: As people adapted to the new normal, online shopping channels witnessed a meteoric rise in the Middle East (49%), becoming the go-to avenue for purchasing goods and services. 

From clothing to electronics, UAE consumers flocked to the virtual marketplace, embracing the convenience and safety of e-commerce.

• Rise of contactless payments: The Covid-19 pandemic has also increased digital payments in the Middle East, with contactless methods leading the way. 

Fueled by hygiene concerns, tap-and-go transactions surged as individuals sought to minimize physical contact at payment terminals. 

• Accelerated in-app purchases: The pandemic supercharged in-app purchases, particularly in groceries. An impressive 73% of survey participants expressed their intention to buy groceries online within the next year. 

Additional reads:

1. Gen Z & the future of finance: How are they redefining financial services?
2. From desktops to smartphones: the evolution of shopping in the m-commerce era
3. From impulsive to strategic: How to make the most of flexible payment options

Future of payments in the UAE - The way forward

Rising virtual card payments

Around 90% of people believe that even after the pandemic, at least half of new users will continue using them instead of returning to cash. This means we can expect a rise in the use of virtual cards. By 2030, it's expected to grow 21%. And you know what? The trend is already evident.

POS (Point-of-sale) payments

In the Middle East, the POS (point-of-sale) market is all set to experience remarkable growth, 16.8% by 2030, reaching a whopping $81.15 billion. This shift toward contactless payments is changing the game. As a result, consumers can expect more convenient and seamless payment experiences.

Pay later payments get stronger

The pay-later transactions are projected to reach 14% of all e-commerce transactions by 2024, empowering everyone with access to luxuries and bigger one-off purchases. Access to flexible and convenient payment options allows consumers to enjoy everyday luxuries and make bigger purchases without immediate full payment. 

POS financing to accelerate

POS (point-of-sale) financing is a short-term credit offered to the customer at checkout. It takes the shopping experience to a whole new level. POS financing tends to be categorized as spreading payments over 6-24 months with minimal fees and is most commonly used on the purchase higher ticket purchases. 

Key features of POS financing:

• Greater flexibility: You can break down the cost of your purchase into manageable installments.
• Convenient application process: You can complete the financing process right at the point of sale.
• Greater control over installments: You can decide whether you want to divide the payment into multiple installments or a single one-time installment.
• Cost-effective: Certain POS financing products are interest-free while others may charge interest, but it is cost-effective overall.

As POS financing generates better accessibility, consumers are shifting their preference toward one of the most convenient and flexible digital payment methods.

Benefits of POS financing:

POS financing is attractive for businesses as it helps boost sales. Consumers can more freely shop big-ticket items which they otherwise would not have bought. You can maintain a positive cash flow with the POS financing option and pay when you have enough cash to make the payments.

Banking-as-a-service to gain traction

According to the latest Gartner Hype Cycle for Digital Banking Transformation, Banking-as-a-Service (BaaS) is set to become mainstream within the next two years. Since the COVID-19 pandemic nudged consumers to predominantly shop, bank, and borrow online, the demand for fintech solutions has skyrocketed. 

An era of AI-led payment processes

Artificial intelligence (AI) has digitized payment procedures, facilitating online bill payments and shopping. 25% of small and medium-sized enterprises use AI technologies in banking, financing, and financial management.

Here are some notable advantages of AI-based payment processes:

• Faster transactions: eliminating long wait times for seamless payments.
• More visibility: providing businesses with a comprehensive view of their financial operations through accurate and real-time data analysis.
• Crunched data & pattern identification: to anticipate future trends and consumer behavior, empowering businesses to plan, adapt, and seize opportunities.
• Personalized & seamless journey: with personalized recommendations, tailored offers, and proactive support for delightful transactions.

So, from personalized recommendations to tailored offers and proactive support, AI transforms transactions into delightful experiences.

How cashew revolutionizes modern payments in the UAE?

cashew is making transactions easier and more convenient than ever before. Providing access to financing on everyday luxuries and large one-off purchases. Experience the freedom of flexible payment options with their pay later product, allowing you to make purchases now and pay over time. 

Plus, you can combine and pay your bills, discover exclusive discounts and rewards and more all in the cashew app. Take control of your personal finances with cashew.