Two of the biggest economies of the Gulf Cooperation Council (GCC), UAE and Saudi Arabia are moving quickly towards cashless transactions.
China (55%) and the UAE (26%) topped the list of countries adopting cashless transactions.
Mastercard Advisors new global report The Cashless Journey has revealed that in Middle East, the UAE and Saudi Arabia are rapidly accelerating towards becoming a cashless society. The research studied the evolution of consumer payment patterns in 33 countries across 5 regions, representing more than 85 percent of global GDP, using a single methodology.
According to the MasterCard report, the United Arab Emirates and Saudi Arabia will continue to transform at a rapid pace, driven largely by government mandates to shift benefits payments and worker salaries to cashless solutions
The research indicates that a country’s readiness to move to a cashless society is determined by factors like:
- The accessibility and affordability of financial service
- The scale and market share of retailers
- The level of technology that is available
- Participation of consumers in the formal economy
Cultural behavior seems to be keeping cashless modes of payment lower in countries such as Germany (where an estimated 76% of the value of consumer spend was cashless), Japan (62%), Spain (54%) and Taiwan (43%)
The Cashless Journey report measures nations’ progress towards more modern, efficient payment processes, by looking at the current share of cash versus non-cash payments for consumers (Share), how this share has shifted in the past five years (Trajectory), and whether conditions exist for cash payments to move to electronic (Readiness).
Though Saudi Arabia has overcome many macro-economic hurdles to go cashless and has a Readiness score of 57, a majority of the unbanked population will continue to affect the growth of cashless payments.
With a Trajectory Indicator of 30, Saudi Arabia seems to be moving at a better than average pace on its cashless journey and the key reason for reduced cash share appears to be a substantial share shift from cash to debit cards between 2006 and 2011.
The Share Indicator score for Saudi Arabia is 19, which puts the market in a category of countries that Advisors refer to as “Inception” — which refers to countries just starting their cashless journey.
In the UAE, rapid rise of debit cards was cited as the reason for the increase in cashless transactions.
“The main reason for reduced cash share appears to be a substantial share shift from cash to debit cards between 2006 and 2011. The UAE’s share indicator score is 26, which indicates that only 26 per cent of consumer payments by value were made by non-cash methods. With a readiness score of 69, the UAE has eliminated many of the typical macro-economic barriers of creating a cashless society,” the report said.
Kevin Stanton, President, MasterCard Advisors: “While each nation’s journey is unique and requires an understanding of local realities, the benefits that come with a more cashless society are universal: more convenience for consumers, better efficiencies for governments, higher productivity for businesses, and greater financial inclusion for society as a whole by bringing more citizens into the economic mainstream. This report provides a roadmap for how countries can reap these benefits and enable a better life for all constituents.”
Khalid Hariry, market manager, KSA, Bahrain and Yemen, MasterCard: “Saudi Arabia is indeed moving at a better than average pace on its cashless journey, which has been significantly spurred along by government leadership. Regulation mandating wages assignment of employees’ to bank accounts has vastly increased access to electronic payment methods for the Saudi population over a short period of time. These changes, coming alongside initiatives to spur acceptance, and a push to migrate payments made during the Hajj and Umrah pilgrimages, can be expected to shift substantial share of consumer payments away from cash in the coming years.”
Key global findings of MasterCard’s Cashless Journey report:
- The study focuses on the value of all consumer payments ($63 trillion in total spend), including those that happen beyond retail point-of-sale. In 2011, 34% ($21 trillion) of total global consumer spend was done with cash, with cashless payments accounting for 66 percent ($42 trillion)
- The most rapid recent shift away from cash was observed in China, where cash share of the value of consumer payments is estimated to have declined by as much as 20% between 2006 and 2011. China (where an estimated 55% of the value of consumer spend was cashless) and the United Arab Emirates (26%) are among a group of countries where the respective governments have taken strong leadership in promoting electronic payments to support their social and economic goals
- The report identifies Belgium (where an estimated 93% of the value of consumer spend was cashless), France (92%), Canada (90%) and the UK (89%) as the countries where cashless payments are nearly ubiquitous
- Countries such as the United States (where an estimated 80% of the value of consumer spend was cashless) and Singapore (69%) are approaching the “tipping point” to becoming nearly cashless, and remaining cash use is largely a product of consumer habit. Conversely, emerging economies such as Indonesia (31%), Russia (31%)
- and Egypt (7%) are just embarking on their cashless journey
- Having relatively recently put all the elements of a modern consumer payments infrastructure in place, countries such as Brazil (57%), Poland (41%) and South Africa (43%) are now in a transitioning stage, and are quickly shifting share away from cash
- Kenya (27%) is an example where disruptive technology is contributing the most to decrease cash share of consumer spend