More UAE banks must sign up for true benefits of instant payments

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• UAE joining Bahrain, Saudi and Oman with new real-time facilities
• Sluggish use of current instant payments system in Emirates
• GCC-wide system possible if backed by political will

The Central Bank of the UAE needs to mandate more banks and financial institutions to sign up be ready for the roll out of its new instant payments system.

The Emirates will soon join its neighbours Bahrain, Saudi Arabia and Oman in offering the Instant Payments Platform (IPP), a new and more comprehensive real-time payments scheme that replaces the system launched by the central bank in mid-2019.

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No specific launch date has been revealed, but industry experts believe IPP is likely to be launched in early 2023.

However, despite being supported by around 70 banking and financial institutions, usage of the current instant payments system has been sluggish, accounting for just 0.8 percent of total payment transactions in 2021.

While payments systems operator ACI Worldwide predicts IPP will help instant payments in the UAE to grow to 134 million by 2026, it says banks and financial institutions have been slow to sign up in sufficient numbers.

“Only the central bank knows the exact adoption rates. If we think about how we talk to our customers, we are seeing customers look at this as a tactical compliance need at the moment, and I don’t think they are seeing the true benefits of real time,” Craig Ramsey, global head of real-time payments at ACI Worldwide, told AGBI.

“We’re not seeing the strategic investment-led thinking that will see success that the country obviously wants to see for instant payments.”

This week Khaled Mohamed Balama, governor of the Central Bank of the UAE, met with the country’s top bank executives, the UAE state news agency WAM reported.

“The central bank also reviewed the updates on the ongoing initiatives to implement a state-of-the-art financial market infrastructure that will enable instant payments in the country and support the transformation of the payment landscape in the UAE,” WAM reported.

GCC-wide instant payments by 2026

Around the Gulf other GCC members are pushing ahead with their own plans, with an industry expert suggesting that cross-border instant payments across the whole of the Gulf will be possible in around four years.

Saudi Arabia launched its inaugural real-time payments system, Sarie, in April 2021. 

According to ACI, 175 million real-time transactions took place in Saudi Arabia last year, which resulted in an estimated cost savings of $23m for businesses and consumers. It predicts that the number of real-time transactions will rise to 473 million in 2026, leading to net savings of $109m.

Bahrain was the first member of the GCC to implement a real-time payments scheme, known as Fawri+, which was launched in 2015. By 2021 the volume of real-time payment transactions reached 142 million, an impressive amount for a population of just 1.7 million.

Bahrain is currently seeing an estimated cost savings of $39m.

Oman launched its Mobile Payments Clearing and Settlement System (MPCSS, or MPClear) in July 2017, but low transaction volume has meant real-time payments accounted for just a 1.1 percent share of the total payments transaction last year, compared to around 50 percent in Bahrain.

“I was in Qatar, and they have aspirations about having cross-border payments. I’m going to push the politics to one side for the moment. But technically it’s doable and manageable… The first thing is to get the domestic house in order,” ACI Worldwide’s Ramsey said.

While technically it is possible to implement a full cross-border GCC-wide instant payment system, Ramsey reiterated that it would need to be backed by strong political will to make it happen among the six member states, or even extend it further to include other large expat source markets.

“I expect to see Saudi, UAE, Qatar… very quickly getting to a position where they want to see GCC-wide payments and perhaps to the other big remittance corridors as well.

“There’s no reason why it should only be a GCC initiative. It could extend to the other real-time enabled countries where the big remittance corridors exist. And again, that gives the banks a competitive opportunity against some of the money transfer companies,” he said.

When pushed for a likely forecast, Ramsey believed it could happen within a few years.

“There is momentum building in the industry globally for cross-border real-time payments,” he said.

“I’m still in that three to four years [timeline bracket]. I think when cross-border, real-time payments happen, it will happen quite quickly, but we do need to see the countries enabled first.” 

The region is certainly moving quickly towards a cashless society, with a recent report by the MENA Fintech Association claiming that almost seven out of 10 payment transactions in the Middle East will be non-cash in 2023.

Hany Fekry, group MD (Processing) of regional payments giant Network International, has been living in the UAE for about six months. In that time he says he has spent a grand total of AED40 in cash transactions.

“I think before 2025 cash will represent five percent or less of transactions in the UAE,” Fekry told AGBI in July, meaning that within three years the UAE will effectively be a cashless society.