In an era where technological change accelerates at an unprecedented rate, keeping up with consumer payment trends can be a challenge. The rapid pace of development has extended into the payments landscape, and this is evident from the emergence of innovative alternative payment solutions and the increased adoption of digital payments worldwide.
Businesses, e-commerce merchants and digital services providers must stay on top of developments in the payments landscape. Our guide below provides insights into the UAE’s online payments landscape. It also discusses the growth of mobile payments and popular online payment methods in the UAE.
An overview of the UAE’s payments landscape
The UAE has been a traditionally cash-based society; according to ResearchAndMarkets, cash remained the preferred payment method in 2018 and accounted for 82 percent of total payment transaction volume that year. In comparison to other parts of the world, the UAE may have been relatively slower in its adoption of cashless payments—but the recent growth of alternative payments is a clear indicator that the country is heading towards a cashless society.
Moving towards a cashless economy
The UAE’s cashless transition has been spurred by several factors. Cashless payments have been identified as a key priority in the UAE’s Vision 2021 strategy, and the launch of government initiatives have driven demand for contactless payments and encouraged developments in the digital payments ecosystem.
Additionally, the UAE has a ready ecosystem for digital payments in place; the country boasts robust digital payment infrastructure, as well as high smartphone and internet penetration rates.
The country’s demography is also a significant factor. With a relatively young median age, the UAE’s general population is digitally adept and highly receptive to new modes of payments. It is also home to a significant population of unbanked migrant workers. This segment is increasingly turning to alternative solutions that offer greater cost-savings and convenience for remittance transfers.
The UAE’s online payments landscape
The online payments landscape in the UAE is fragmented. There’s no one particular preferred payment method, as a variety of payment options—including credit cards, debit cards, e-wallets, cash on delivery and bank transfers—garner double-digit shares of the market.
According to payment processing company Worldpay, the leading payment methods for e-commerce transactions are credit card (29 percent), e-wallet (19 percent), cash on delivery (15 percent), bank transfer (14 percent) and debit card (10 percent). These payment methods are typically supported by popular payment gateways in the UAE, such as Telr, PayFort, 2Checkout and HyperPay.
The growth of mobile payments
Reflecting on research findings from GlobalData’s report, ‘Payments Landscape in the UAE: Opportunities and Risks to 2022’, Nikhil Reddy, banking and payments analyst at GlobalData commented: “While traditional payment instruments such as cards, cash and bank transfers are widely used for online purchases, consumer preference for alternative payments is also on the rise.”
Data from ResearchAndMarkets and Mobilesquared indicate likewise and point to the growth of mobile payment methods such as mobile wallets and direct carrier billing (DCB). According to ResearchAndMarkets, the mobile payment industry is expected to record a CAGR of 12.7 percent to reach US$11,125 mn by 2025, with the mobile wallet payment segment in value terms increasing at a CAGR of 12.3 percent during 2018-2025.
Additionally, research and consultancy firm Mobilesquared predicts that revenue for the Middle East carrier billing market will rise by 30 percent to US$885 mn by 2023, while the number of users will see a 58 percent increase from 38mn to 60mn.
Online payment methods in the UAE
Credit and debit cards
Data from Worldpay indicates that credit cards are the most commonly used online payment method in the UAE (29 percent). In comparison, debit cards account for a significantly smaller proportion of the online payments landscape (10 percent). Using credit and debit cards as a budget planning tool, as well as access to a variety of reward programs are factors that drive card usage among UAE consumers.
Euromonitor International reports that First Abu Dhabi Bank (FAB) and Mashreq Bank are the leading domestic credit card issuers locally. Visa ranks first as the top international card brand, and this is due to its growing partnerships with leading local banks in the UAE.
E-wallets are a type of electronic service that enable users to store funds, credit cards, debit cards, loyalty and other cards in the cloud. Users can access e-wallets on the web, or through applications via devices such as laptops, smartphones, tablets and wearables.
Key e-wallet functions include storing funds, credit and debit card information and digital loyalty programs, as well as enabling online and in-store payments and facilitating peer-to-peer transfers. E-wallets account for 19 percent of the UAE’s online payments sector.
The UAE’s e-wallet landscape, comprising domestic and foreign players, is competitive. There are a variety of e-wallet services available to consumers—from established domestic brands like Beam, Etisalat and Trriple, to global mobile payment solutions like Google Pay, Samsung Pay and Apple Pay.
Presently, WeChat Pay and Alipay are still in its early stages of expansion into the UAE market. These e-wallet services were launched by Chinese tech giants Tencent and Alibaba Group, respectively, with the primary objective of capturing the growing segment of Chinese tourists to the UAE.
Cash on delivery
The UAE has seen a fall in cash payments in recent years. Wael El Aawar, vice president, NCR Financial Services indicated in a Khaleej Times article that the proportion of COD payments has seen a steady decline—from 75-80 percent in 2014 to 40-45 percent in 2018. Presently, COD accounts for 15 percent of the online payments sector.
A further decline in COD is expected, due to the impact of the COVID-19 pandemic on cash payments. According to ResearchAndMarkets, almost two-thirds of respondents in the MENA region reported having reduced their use of cash since the outbreak.
Bank transfers account for 14 percent of the online payments sector in the UAE. The payment method remains a fairly popular payment method, as it offers a couple of key benefits: there’s no reversal risk, and transactions are reliable and secure—as each payment needs to be authenticated and approved before a purchase is confirmed.
Prepaid cards function like debit cards—the card is issued by a bank or financial institution, and can be used to make in-store or online payments. However, unlike a debit card, prepaid cards need to be preloaded with cash. Any payments made are deducted from the balance, and once the balance is used up, the card can be reloaded with value.
Prepaid cards are more commonly used by minors or unbanked individuals. Its usage is relatively low in the UAE, accounting for just 3 percent of the online payments landscape. Prepaid cards available in the UAE include OneCard, Emirates Islamic Visa Platinum prepaid card, RAKBANK Travel Prepaid Card and MyNet card by Majid Al Futtaim.
Charge and deferred debit cards
Charge cards are electronic payment cards that require a full payment of the charge at the end of each billing cycle. Unlike a credit card, no interest is charged, and balances cannot be carried forward. Deferred debit cards function in a relatively similar manner, except that the value of all card payments are deducted from a user’s bank account in full at the end of a billing cycle. According to Worldpay, charge and deferred debit cards make up 5 percent of the UAE’s online payments landscape.
Direct carrier billing
Direct carrier billing (DCB) is an alternative payment method that enables users to make purchases by charging payments to their monthly mobile bill. DCB enables secure transactions and convenience, and these are key factors driving its widespread adoption globally.
Research collated by SuperDataResearch indicates that DCB ranks as the third most popular payment method for digital gaming transactions. The rise of DCB is especially significant for mobile game service providers targeting the UAE market, given that the Middle East boasts the world’s fastest-growing gaming sector with a 25 percent annual revenue growth. Demand is largely driven by the influential youth and millennial consumer segments—the latter which accounts for nearly 30 percent of the population in the UAE.
These figures indicate a promising opportunity, and DCB can help digital services providers capture the growing volume of consumer spending. It signifies the importance of diversifying into mobile payment methods, especially for UAE businesses that have primarily focused on traditional payment methods.