Middle-Eastern payments market, technology and transaction banking segment set to boom

14 October 2013

The Middle-East has long been an oil rich region with fabulous commodities wealth but the economies in the region have not necessarily diversified or grown elsewhere as quickly as expected. This is changing however, says Paul Thomalla, general manager of the Europe, Middle-East and Africa (EMEA) region for ACI Worldwide, citing his firm’s prediction of $192.3bn worth of payments volume by 2020, five times more than it was worth a decade earlier. The technology investment in bank and payment systems, mobile offerings and so forth, needed to cater for this growth will create a technologically advanced payments region, with none of the legacy concerns of the West.

I was pleased to attend the recent Sibos 2013 trade show in Dubai, UAE, and to see that the Gulf region of which it is such a key part is now attracting such large financial and technology-related trade shows.

The Middle-East has become a hot spot for financial institutions (FIs) servicing the rapid development of the economies in the region. It now has a larger middle class than ever, consuming more high-end products, financial services (FS) products and instruments, and is importing an increased amount from other countries. All of which is leading to more trade finance, payments and financial technology (fintech) systems and products being rolled out in the region as customer demand grows and its links to world trade develop.

In this growing area, increased affluence is helping to stimulate huge investment in commercial real estate, which combined with the world’s continuing reliance on oil, has resulted in the Middle-East becoming a destination for businesses of all types, all looking to grow and expand into new ventures. For all these reasons, I believe Middle-Eastern FIs are poised to lead the transaction banking space in the years ahead, investing in new technologies and systems in an ever-developing market.

The Middle-Eastern Market
To get an idea of the potential of the payment and technology market in the Middle-East, ACI Worldwide’s own research suggests the Middle East will make up 20% of the total payments account and transaction revenues sector in 2020. That translates to around US$192.3bn; compare and contrast that with the fact in 2010 the market generated just US$31.6bn. This mushroom effect provides great opportunity, but also crucially fosters an environment for more innovative services, technology and products.

It is now generally accepted that the growth in the Middle East is set to continue, thanks in part to the Cooperation Council for the Arab States of the Gulf (GCC). Standard Chartered bank recently forecast that emerging market trade will account for more than 30% of global trade volumes by 2030. Emerging market trade corridors are expected to account for 40% of global trade by 2030, up from 18% last year.

When you look at more mature markets, gross domestic product (GDP) growth looks anaemic in comparison. Recent GDP growth in emerging and developing markets has far exceeded that of the old Western G7 countries. Trade flows have grown rapidly, as GDP in emerging and developing markets expanded by 31.4% between 2008 and 2011, compared with just 5.3% for G7 countries during the same period.

All the metrics you want to look at point toward a healthy future for the GCC and wider Middle-Eastern region.

Growth Opportunities
With so much happening in the region, and seemingly with so many growth avenues to explore, the temptation for businesses is to leap before looking. For FS companies, the trick will be cutting through the hype and strategically making the right decisions about which opportunities to pursue.

To do this they can look at where other businesses are going, namely down the convergence path. Achieving as much as possible with the resources they have and eliminating the wastage of duplication is right at the top of the agenda. This collaboration theme was evident at the recent Sibos 2013 trade in the heart of the region in Dubai, UAE. For FIs this can relate back to their payment and core banking infrastructures. In many cases, these will be relatively old systems that have become a patchwork of bolt-on improvements and upgrades. This legacy issue is less pronounced for the relatively younger banks present in the region, as compared to older FIs in the West, but collaboration and shared service benefits are still available to Middle-Eastern banks. Avoiding a multitude of separate, proprietary, non-standardised payment and processing systems must be a priority for FIs in the region if they are to avoid the legacy concerns elsewhere in the world and many Middle-Eastern firms can avoid the problem by creating shared platforms at the very beginning.

Legacy concerns and systems are far less embedded in the Middle-East, so the opportunity is there to consolidate infrastructure and make for a far more efficient shared solution. It makes sense that all aspects of back-end components, especially when it comes to payments processing, are working in unison on standardised platforms.

Technology should make systems agnostic in terms of allowing for a FS company to process any payment type, across any channel, currency or network. Bridging what is there now and what we see in the future will be the trick, but it seems hard to imagine anyone disagreeing that a streamlined organisation is a better one. Technology and common standards can help the process.

With the Middle-East still a relatively blank canvas, the future should be one encompassing single platform that provides all the payment and transaction banking services a company would need - a ‘one-stop shop’ if you like that makes the entire ecosystem run that much smoother.

Setting the Pace
It’s an exciting time to be involved with Middle-Eastern institutions. The rate and pace of change is astonishing. But as the old adage goes, you can sometimes run to stand still. The clever companies will take a step back from this expressway of change and rationally think about how they can manage growth to the best of their ability.

Where companies in the region have a big advantage over those in other markets is that they are less reliant on older systems. They can use the technology available to refine, hone and improve what they already have. There is no need to rip out and replace old systems, simply consolidate and evolve. New system can also more easily be installed in virgin markets.

Wealth is rising in the area, organisations are flocking to do business here, and key metrics point to a sustained burst of growth, but it is essential to have the core infrastructure in place if the Gulf and wider Middle-Eastern region is to rival other international financial hubs. The opportunity is there for the Mid-East to grow.

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