Leaving Cash Behind in the MENA Region

Governments and businesses in the MENA region are increasingly turning to e-payments to better manage their working capital and operate more efficiently. In due course, the shortcomings of cash-based societies—long lines, missed payments, and lost time—will be replaced by the efficiencies and increased transparency of the digital age. For e-payments systems to truly gain traction, however, the benefits must extend beyond those making the investment. Service providers, financial intermediaries, government agencies, and consumers all have something to gain as long as an e-payments platform actively involves them from the start.

For too long, governments and businesses in the Middle East and North Africa (MENA) region have relied on cash to pay their employees, make or receive payments, and fulfill other financial obligations. As a result, their economies are not as efficient as they could be as they are burdened by the negative side effects of needing cash on hand—long lines and wait times, instances of delayed or missed payments, and paper-based record-keeping, to name a few. Now, as governments and businesses around the world are increasingly turning to e-payment systems to capitalize on a wide variety of benefits, those in the MENA region are trying to catch up. “Although adoption of e-payments has grown at a strong pace in recent years, the MENA region still has significant ground to make up in terms of total penetration. In 2009 only around a third of total payment transactions were e-payments, as opposed to more than double that in North America and likewise in Western Europe,” said Ramez Shehadi, Partner, Booz & Company. What steps can governments and businesses in MENA countries take in order to replicate the success of e-payments’ early adopters?

The Case for e-Payments

For governments, e-payments expand the range of payment options available within a country, which often stimulates local consumption and eases the flow of capital by catering to a larger portion of the population. Economies can benefit from greater foreign direct investment and trade as it becomes easier to do business with other countries. Businesses benefit from e-payments through lower costs by providing secure, reliable, and efficient alternatives to paper-based cash or check payments. “Businesses also enjoy increased opportunities to better target their sales and marketing, as e-payments give them instant access to data on customer segmentation. Furthermore, by encouraging consumers to migrate to banking services and channels, these institutions increase their potential for cross-selling or up-selling their products and services to new customers,” said Lutfi Zakhour, Senior Associate, Booz & Company. Such benefits could substantially change the way businesses and governments operate in the MENA region.

Creating an Effective e-Payments System
No single formula exists to establish and sustain a healthy e-payments ecosystem within any given country, sector, or community. Ultimately, such an ecosystem’s success depends on the degree to which it caters to end users and accommodates country-specific factors. The optimal e-payments ecosystem incorporates all of the relevant players and considerations at the various layers of engagement.

Creating an e-payments system that incorporates country-specific factors and appeals to diverse end users can be a difficult task, but experiences from select cases in the MENA region have yielded three best practices that can help governments and businesses achieve this necessary balance: rationalize service offerings, actively involve key stakeholders, and align stakeholder incentives.

Rationalize Service Offerings
The design of e-payments service offerings must account for the country’s specific supply and demand landscapes; failure to do so often leads to the creation of new services that go largely unused.

Actively Involve Key Stakeholders
Creating and maintaining an e-payments system encompasses a number of diverse stakeholders, and the level of involvement of each can be a sticking point if potential conflicts aren’t addressed at the outset.

Align Stakeholder Incentives
“E-payments systems rarely succeed when they are structured in such a way that only a minority of stakeholders sees the benefits. Governments and businesses charged with establishing an e-payments platform should therefore consider what motivates each stakeholder and structure the system so that the benefits can be shared by all,” said Shehadi. This can be done by quantifying the value of e-payments and developing a fee structure or revenue-sharing split in a transparent and win-win fashion. But it can also be accomplished by ensuring that each stakeholder shares in the value proposition of participating in an e-payments network.

In Conclusion

In recent years, MENA countries have started to turn to electronic payments to alleviate cash payment constraints and boost the efficiency and transparency of their operations. As a result, governments have benefited by enhancing their liquidity and opening the financial system to a larger portion of their population. Businesses have lowered their costs of doing business, while creating more secure and reliable means of conducting transactions. Consumers have gained greater insight into their finances, along with reclaiming some of their lost time. However, going forward certain best practices need to be taken into consideration.

“As governments and businesses in MENA countries seek to replicate the success of e-payments’ early adopters, how well they fare will depend on the extent to which they are able to spread the benefits to these diverse stakeholders, account for their specific needs, and actively involve them in the design and implementation of e-payments systems,” concluded Zakhour.