Examining the digital payments landscape in the Middle East

  At the table:

• Mehdi Manaa, CEO, Buna
• Seemanti Considine, Head of Operations and Correspondent Banking, Wio Bank
• Maram Al-Jazireh, Head of Financial Institutions, Arab Bank
• Bana Akkad Azhari, Head of Treasury Services EMEA, BNY Mellon
• Andrew Haskell, Product Executive – Global FX Solutions, Treasury Services, BNY Mellon

Q: What are your clients looking for with respect to their payments experience and how do needs differ across different countries or regions? Has the increased appetite for digital solutions that was seen during the COVID-19 pandemic been maintained or have client priorities changed?

Mehdi: We serve financial institutions (FIs) in a wide geography that includes the Arab world and its key trade partners from around the globe. They all share the need to provide digital solutions to their customers, which have increasing expectations in all geographies, and whilst certain industries witnessed a trend of return-to-classic user experiences after the recovery from the pandemic, the trends in cross-border payments remain towards a digital-first approach.  

Maram: The Gulf Cooperation Council (GCC) has large expatriate communities who remit money to support their families back home. Their main priorities are cost-effective, fast transfers. The Levant and Egypt are on the receiving end of such transfers. Hence, expectations revolve around accessing their funds at nearby locations and at no additional cost.

Seemanti: When it comes to payments, our customers seek simplicity, transparent pricing, and visibility of payment status. Some customers also require BaaS (Banking-as-a-Service) solutions to support their payment and collections processes. As Wio is a digital platform bank, our customer base consists of more digitally native individuals, and their requirements tend to be focused on digital-only solutions. It’s important to keep a finger on the pulse of emerging payment methods and integrate them into our business operations on time. In terms of change in customer priorities post-pandemic, cash flow management tools and flexible payment solutions that cater to changing market conditions have become a key priority, and we are working to ensure that we can help our customers manage their transactions efficiently.

Maram: Now that customers have experienced digital payment solutions, there is no returning to pre-pandemic times. Digital appetite continues to grow, and the market is demanding further digitization. It is now an ever-evolving process of enhancing customer journeys and aligning our solutions with market and economic developments as well as ambitions. That said, we are expanding our digital solutions whilst ensuring customization, as we operate in an extensively diverse environment in the Middle East North Africa (MENA) with differences in legal, regulatory and operational frameworks. 

Bana: Change in the payments space is constant, though the pace of change is dependent on the market in question. For example, the Middle East – despite its digital-savvy population – has had a longstanding, cultural bias towards cash¹, whereas the European market has tended to have a higher level of payment option fragmentation². One unifying factor has been the pandemic, which has acted as a catalyst to drive a real move away from cash towards digital payments. Emerging electronic payment tools, such as real-time payments and digital wallets, have all shown very strong levels of growth across the board3. Today, this momentum continues – and our clients in the region continue to demand a payment experience that is increasingly instant, 24/7/365 and transparent. And as our clients’ priorities have changed, so have ours, and we are committed to exploring a comprehensive range of payment options to meet these new and evolving needs.

Q:  What innovations and collaborative strategies are you introducing to meet clients’ evolving requirements in an increasingly competitive environment?

Mehdi: The best strategy to address clients’ needs is to make sure their perspective is considered in all steps of the decision-making process. Our governance has a strong user representation in the board of directors and in our advisory group. Their voice is heard on all aspects of the business to ensure their needs are met in line with our strategic objectives.  

Maram: Arab Bank’s wide and entrenched geographical reach in MENA position us to leverage our network to shape digital innovation. We can establish commonalities in customer requirements and typically build our offerings on that basis to meet customer demand and deliver competitive solutions. One example is our Arabi Cross-Border program, which links customer accounts across several markets within our network, therefore allowing our customers the benefit of unified account views as well as real-time transfers.

Bana: From real-time payment rails to the advent of digital currencies, a host of new and innovative payment solutions have emerged over the past several years. This is creating a dynamism in payments – not just in terms of the type of capabilities on offer, but also the type of companies that are offering these services. The result is that collaboration is increasingly becoming a recipe for success, with traditional providers and the new wave of fintechs coming together to optimize the client experience. We are actively exploring a range of new payment solutions and opportunities to bring value to our EMEA clients. Specifically, these new options include unique and proprietary insights utilizing client and market data to provide actionable recommendations, as well as robust and comprehensive experiences offered through secure and automated channels for payment processing, reporting and cash positioning.

Seemanti: We believe that collaboration is key to creating the right solutions for our customers, and are actively collaborating with various banks, fintechs, government agencies and freezones to address customer needs in the cross-border payments space. This has helped us tap a wider net of small and medium enterprises (SMEs) and start-up customers in the UAE and provide them with value-added services, personalized features and integrated options that cater to personal and professional needs. Some examples of our initiatives include subscription-based pricing, providing a choice of payment channels for routing and tracking payments, and exploring BaaS solutions for payments and collections. 

Bana: Collaboration is also an important trend in trade finance, with smaller, local banks increasingly looking to outsource their trade capabilities through collaborations with global institutions. To this end, we have been leveraging our leading trade finance services to help our clients in the region improve their overall trade operations and transition from a manually intensive, high-fixed cost environment to a more flexible, variable cost structure.

Real-time payments

Q:  What impact are real-time payments initiatives such as Buna and Gulf Corporation Council Real-Time Gross Settlement (GCC RTGS) in the Arab region – and RTP® and FedNow® in the United States, for example – having on your payments strategies?

Mehdi: As a centralized, cross-border, multi-currency real-time payments system, Buna streamlines cross-border payment flows in Arab and international currencies (AED, SAR, EGP, JOD, USD and EUR) by making them as efficient as domestic payments. We aim to reinforce the economic integration of the Arab world and strengthen the ties with trade partners around the globe. This transformative model reinforces the position of FIs in the future competitive payments landscape, where clients’ experience regarding speed, cost and efficiency of payments is critical. 

Maram: Real-time payments have reaffirmed the market direction and standard of payment speed, efficiency, and transparency, all of which have become central to bank payment strategies in general. Several MENA countries have already started or are in the process of starting their own local real-time payments initiatives. However, the region does not have a uniform payment platform or infrastructure like Single Euro Payments Area (SEPA) in the EU, for example. Therefore, regional banks find themselves formulating regional systems/platforms that collectively cater to their different markets of operation and meet customer requirements, while aligning with local regulations.

Andrew: The development of real-time payment networks and initiatives around the world is furthering the transition of payments from legacy methods – leveraging new technologies to accelerate commerce and improve the transaction experience for all parties involved. Accordingly, the payments strategies of FIs require continuous reevaluation and refinement to remain abreast of these changing market dynamics, while simultaneously providing a stable experience for clients and their counterparties. Regionalized initiatives such as the 19 building blocks referenced in the Committee on Payments and Market Infrastructures (CPMI) report are showcasing the power of utilizing standardization to improve cross-border payments.4 This is prompting financial system participants to align their strategies to remain competitive and take advantage of these processing efficiencies.

Q:  And with Buna’s recent pilot with European transfers, how is the region leading the charge on real-time cross-border payments on a global stage? What opportunities is this presenting to local banks and clients?

Mehdi: Building bridges between the Arab world and its key trade partners is one of our strategic objectives. The proof of concept (PoC) with Europe represented a quick go-to-market experiment that establishes key learnings and paves the road for putting that strategic objective into action through the interlinking of Buna and Target Instant Payment Settlement (TIPS).

Maram:  In addition to the many product developments by existing global players in the payments space, we have seen the rise of new fintech entrants, and global banks offering partnerships and participation in their global payment platforms to make cross-border payments faster, cheaper and more seamless. For local banks, these developments allow the sector to be more interconnected and in tune with global market trends and solutions that are either SWIFT based and/or using other technologies such as DLT and blockchain. Most importantly, it makes the local payment market more competitive, which translates to better prices and products for clients.

Seemanti:  The challenge with SME payments in the region lies in the truly cross-border nature of transactions, especially in USD, where the majority of USD payments initiated are destined for non-US destinations. Any solution that can expedite the last-mile delivery would be a significant opportunity for the region and its local banks and customers.

Mehdi:  The PoC demonstrated that different instant payment systems can interact with each other and exchange cross-border and cross-currency in a matter of seconds, without necessarily requiring new technical infrastructures and significant investments. The model creates a real business opportunity for banks to offer a new range of 24/7 services to customers, with enriched experiences, enlarged reachability and reduced costs. This is key for vibrant geographies like the Arab world and Europe, where a substantial number of cross-border payments are exchanged daily between the two regions.

Q: What needs to be done to facilitate greater cross-border payments standardization and interoperability in the industry - in the region and across the globe?

Maram: Standardization and interoperability are certainly the preferred ways forward but achieving that is easier said than done. That said, we remain optimistic that the market is moving in that direction and have seen promising examples in MENA with initiatives such as GCC’s AFAQ , a regional payment system equivalent to a GCC RTGS, which all banks in the block will have to sign up to when it is rolled out. 

Seemanti: Any scheme that promotes interoperability in multiple currencies would be a welcome change. To achieve true cross-border standardization, stakeholders need to collaborate closely to agree on mandatory payment information, regulatory requirements and messaging standards.

Maram: The success of the immediate cross-border payments model is contingent on building regional ecosystems that can interface globally. This requires regulatory harmonization, industry collaboration, being open to new technology such as APIs, DLT and blockchain, data standardization (ISO 20022 is case in point), and just as important, user education.

Mehdi: Initiatives like Buna and the interlinking of projects are envisioned to transform cross-border payment experiences for financial institutions, corporates and individuals. The expected efficiencies are promising to individuals who need faster and quicker remittances, to businesses that are looking for enhanced payables and receivables, and to financial institutions which aim to serve both segments in a better way and increase their business. However, this comes with the need to harmonize payment systems to achieve true interoperability. To deliver the expected benefits, it is important to align SLAs, operating hours, data frameworks and messaging standards, and to make consistent the governance and oversight models. Buna is actively engaged with the CPMI and Financial Stability Board (FSB) on all these fronts to support the G20’s global efforts to enhance cross-border payments.

Andrew: The efforts to date by the CPMI and FSB have outlined material changes to be made in the pursuit of improved cross-border payments, providing a blueprint for the industry to follow. Similarly, industry collaborations – such as Project Nexus – have shown what can be accomplished when said blueprint elements are implemented in practice, yielding a degree of interoperability and speed rarely witnessed before. That said, more can and should be done. The harmonization of regional efforts has the potential to advance the market forward organically, while governments, central banks, and network operator mandates can accelerate transformation in a more forceful manner, if said international bodies are aligned and promoting the same standards. Lastly, change agents and product champions will play an instrumental role in the adoption of new standards, project prioritization and migration from existing networks and solutions.

Mehdi: In our view, government use cases are a great catalyst for cross-border payments. The collaboration between government, banks and in-region industry players can lead to enriched experiences in areas such as government disbursements for students, healthcare patients residing abroad, pensions, government loans and investments, among others.

ISO 20022

Q: With the ISO 20022 migration underway for many, how are banks in the Middle East adapting? What has been your experience so far in navigating the requirements?

Maram: Banks in the region are at different stages of the migration process. Some are migrating their impacted infrastructure and applications to be fully ISO 20022 compliant, and others are targeting the migration with a like-for-like approach, where converters will be used to comply with message formatting. In general, substantial steps have yet to be taken to assess the impact of the new standard or to initiate the necessary procedures. 

The goal for Arab Bank's ISO 20022 adoption is to be fully compliant before the end of the co-existence period. With that in mind, the bank will also begin developing a strategy to capitalize on ISO 20022’s greater data offerings. The bank has already carried out several assessments to identify the impact on all systems.

Mehdi: Whilst Buna has been natively ready on ISO 20022 since the system launch in 2020, most of our participants are still using the ISO 15022 standard, and those who switched to 20022 did it mostly on the inward side and the left the adaptation of the outward side to a later stage, in line with the global deadline from SWIFT.

Seemanti: Yes, given the industry's move towards the ISO 20022 standard, banks in the region will eventually have to migrate, albeit on different timelines. Wio is currently evaluating the technical requirements to ensure full compliance within the required deadlines.

Q: Key benefits of ISO 20022 include richer data, and the potential to integrate APIs and analytical tools into payment processes. How can banks leverage these capabilities and in turn deliver enhanced services to clients?

Seemanti: One of the significant benefits of richer data in transactions is a reduction in payment delays caused by requests for information (RFIs). Having upfront transaction data should minimize the need to halt payments, thus reducing the friction caused by RFIs. Banks can leverage the potential of ISO 20022 to integrate APIs and analytical tools, which enable them to deliver more advanced and tailored services to their customers.

Maram: With enriched data availability, banks achieve improved payment information, straight-through processing, API connectivity, advanced analytics, compliance and risk management, integration with ecosystem partners, and personalized value-added services. By harnessing these benefits, banks can provide clients with more efficient, convenient, and tailored payment solutions.

Mehdi: These capabilities will deliver enriched experiences, higher customer satisfaction and new business opportunities for banks. The richness of ISO20022 will allow using the right set of data to achieve different purposes such as accounts pre-validation, reduction of false hits in compliance and the use of mobile number aliases to initiate payments. In a cross-border context, this will remove many exiting frictions and enhance efficiency.

Realizing the potential of digital transactions 

Q: How can global banks support FIs in the Middle East in the fast-moving payments landscape, and help ensure they can deliver a suite of payments solutions that meet the range of their end-client needs?

Bana: We are seeing the rapid uptake of instant payment solutions, the advent of buy-now-pay-later (BNPL) arrangements and a boom in e-commerce – making digital payments an increasing priority in the region. This means that banks need to be positioned with a range of payment offerings, incorporating both legacy and digital options, to cater to what is an increasingly diverse landscape with different client preferences and priorities. With long-standing experience of the rich diversity that exists within the Middle East, and intricate knowledge of local needs, we are well equipped to provide customized services to our clients in this respect.   

Seemanti: Global banks, with their extensive networks, are well-positioned to overcome geographic barriers in cross-border payments. By allowing their customers to access real-time payment schemes worldwide, regardless of where the payment originated, they can greatly enhance cross-border options available to end-customers. Additionally, digital banks and fintech companies can leverage the tools offered by global banks more quickly due to their agile technology stacks, further enhancing the cross-border solutions available to customers.

Bana: In October last year, we facilitated a first-of-its-kind, fully-transparent transaction between Egypt and China, leveraging the new SWIFT Go service. As we navigate this evolving payments landscape for ourselves and our clients, we believe it is important to continue investing in a comprehensive suite of payment solutions – from enhancing legacy rails to the latest technologies – to ensure we can cater to individual and varied client needs, both now and in the future.

Maram: Through global banks’ sizable budgets for digital solutions, platforms, and optionality, they are in a very good position to offer multi-currency payment solutions and platforms for other FIs to join and engage in as a network. These sorts of partnerships and interfaces are one way to help banks access a wider market for their payments with shorter execution times and lower cost, which ultimately leads to end-user satisfaction. 

Mehdi: Global banks must put this region, which includes some of the world’s largest cross-border payment markets, higher on their agenda and realize that it is home to an abundance of opportunities. Global banks can better serve their clients in the region and expand their overall footprint by utilizing Buna as a single window to process efficiently real-time payments in multiple currencies with large network of regional and local banks, in a safe, secure and risk-controlled environment.

Q: As the world we live and work in continues to march towards an on-demand and always-on environment, what requests have you received from your clients – businesses and consumers – with respect to 24/7/365 payments and treasury management capabilities?

Andrew: Clients – including banks, corporates, NBFIs and fintechs – each have unique questions and requests with respect to this move towards a non-stop financial industry, given the challenges and objectives of their customers. That said, one common theme is clients seeking guidance on how to support 24/7/365 processing without having to overhaul their entire internal technological infrastructure. There are also queries regarding interim solutions that could bridge the gap between their existing systems and new payment innovations, and which specific procedures and operations require upgrading to round-the-clock support, versus those that can remain overnight or batch processes. Clients are also looking to understanding which use cases and customer segments will be reliant upon or positioned to take full advantage of this new operating model.

Seemanti: Customers are seeking instant delivery with low transaction costs and competitive FX rates. There is also growing interest from customers in BaaS solutions related to accounts and payments.

Andrew: For banks, having a firm understanding and awareness of this new market mentality is essential to advising business partners (both externally and internally) and making prudent decisions needed to support clients as they evolve beyond traditional banking and business hours.

Andrew: Clients – including banks, corporates, NBFIs and fintechs – each have unique questions and requests with respect to this move towards a non-stop financial industry, given the challenges and objectives of their customers. That said, one common theme is clients seeking guidance on how to support 24/7/365 processing without having to overhaul their entire internal technological infrastructure. There are also queries regarding interim solutions that could bridge the gap between their existing systems and new payment innovations, and which specific procedures and operations require upgrading to round-the-clock support, versus those that can remain overnight or batch processes. Clients are also looking to understanding which use cases and customer segments will be reliant upon or positioned to take full advantage of this new operating model.

Seemanti: Customers are seeking instant delivery with low transaction costs and competitive FX rates. There is also growing interest from customers in BaaS solutions related to accounts and payments.

Andrew: For banks, having a firm understanding and awareness of this new market mentality is essential to advising business partners (both externally and internally) and making prudent decisions needed to support clients as they evolve beyond traditional banking and business hours.

Q: Financial technology has brought significant value to the banking industry but is not uniformly available to the unbanked and underbanked. What actions are being taken by your institution to address financial inclusion disparity in the financial services sector?

Mehdi: Supporting financial inclusion is a strategic objective for us. That is demonstrated via use-case specific services such as the Arab cross-border pension project that Buna launched jointly with the Central Banks of Iraq, Jordan and Egypt. The service will enable pensioners residing abroad to receive their salaries faster and more efficiently.

Seemanti: By embracing financial technologies, the future of banking and fintech could be transformed, providing a new way to deliver personalized financial services that meet the needs of the modern consumer. As a digital platform bank, Wio has simplified the account application process, with eligible individuals able to apply through the Wio Business app, thereby avoiding the sales-level rejections that often occur at traditional banks. By providing accounts to small entrepreneurs and freelancers, we help to legitimize their businesses by granting access to financial services. And, as we launch our personal banking proposition this year, we will continue to prioritize simplicity, transparency and rewards, making banking more inclusive for everyone.

Maram: We are actively taking steps to address the issue of financial inclusion and reduce the disparity in access to financial services. For example, we have launched Reflect, a neo banking platfrom that enables individuals to access basic banking services such as account opening, fund transfers and bill payments. Through our accelerator, iHUB, we are also collaborating with fintechs to develop inclusive financial products and services. Furthermore, we are currently working on a few other initiatives involving APIs with the main objective of making payments more accessible, affordable and seamless to all customers.

Bana:  Industry organizations and global financial institutions have collaboratively identified a greater need for financial inclusion in global trade. It’s important for the banking industry to come together and provide access to working capital to underserved market participants like the small medium enterprise (SME) segment. As one example, BNY Mellon, in collaboration with our correspondent banking network, is working to enhance our trade distribution capabilities, which will yield greater access to underserved markets. We remain committed to connecting all financial market participants to high-quality banking services.

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1. Jon Chan, Vaibhav Dayal, Olivier Denecker, Yash Jain, “The future of payments in the Middle East,”  McKinsey.com, McKinsey & Company, August 23, 2021, https://www.mckinsey.com/industries/financial-services/our-insights/the-future-of-payments-in-the-middle-east
2. Gilles Ubaghs, Katy Burne, “Trends in commercial payment methods,” bnymellon.com, BNY Mellon, Oct. 6, 2022, https://www.bnymellon.com/content/dam/bnymellon/documents/pdf/articles/trends-in-commercial-payment-methods.pdf
3. Gilles Ubaghs, Katy Burne, “Trends in commercial payment methods,” bnymellon.com, BNY Mellon, Oct. 6, 2022, https://www.bnymellon.com/content/dam/bnymellon/documents/pdf/articles/trends-in-commercial-payment-methods.pdf
4. Committee on Payments and Market Infrastructures, “Enhancing cross-border payments: building blocks of a global roadmap”, bis.org, Bank for International Settlements, July 13, 2020 https://www.bis.org/cpmi/publ/d193.htm