How fintech innovations are helping the unbanked across the GCC

Covid-19 has been a massive global disruptor on the way we live, work, eat and shop.

But a common thread across all these aspects has been the massive decline in cash usage. Indeed, in some countries like the UK and Italy, ATM withdrawals fell by 60-90 per cent in the early days of the pandemic. Although they have now recovered, for the UK they are still 35 per cent down from the past year and the CEO of the largest ATM operator in UK has said that cash machines may disappear altogether in the coming years.

But this is not just a European story; even in this region, a recent report by payment gateway checkout.com shows that digital transactions have surged 85 per cent and that 47 per cent of buyers are more likely to shop online and pay digitally. While this is great news for e-commerce players and digital providers, it raises an interesting question – how do the people who are not banked pay without cash?

More than two billion adults globally do not have access to a bank account. Even in the GCC, we estimate around 70 per cent of the adult population does not have a bank account – consisting mainly of low-income migrants and students.

But the Covid-19 disruption to cash is not just on the consumer side; if you are a small business (barber / local shop) or an independent agent (gardener/plumber) – you typically do not have the ability to take non-cash payments. An inability to accept digital payments also presents an unfair disadvantage to these merchants, especially when compared to larger businesses who have the means to offer their customers online and digital payment solutions.

Cash is suddenly a dirty four-letter word that many people are reluctant to handle. Banks and fintech firms globally have been innovating to provide solutions to increasing challenges in two key ways: By considering how the industry can empower more consumers to pay digitally, and by developing products that will enable more businesses to accept digital payments offline and move online.

It is important to consider each aspect individually while seeking to better understand the role that innovation plays in overcoming cash-related challenges.

Enabling consumers

It is important to realise that the ‘unbanked’ in the GCC are mainly modest income migrants – in the UAE that number is about 70 per cent of the working population, who earn less than Dhs5,000 a month. Think a domestic helper – who lives with her employer, gets free housing and food, gets paid in cash and sends 90 per cent of her income back home. Similar patterns exist for people in construction or working in large service companies – facility cleaners, hotels etc.

In many ways migrant workers have the lowest consumption footprints, which means that they have been most affected by many of the Covid-19 related disruptions around transferring funds. Many low-income workers struggled to send money back to their home countries in the form of cash because most exchange houses were closed at the height of the pandemic. Moreover, even if they could send money digitally, their families could not collect or spend that cash due to widespread lockdowns.

Innovations here include initiatives by banks offering free digital accounts for these customers, which can be opened with only their Emirates IDs and inclusive fintech products that enable these customers to share access to their cards with their family back home – be it India or Philippines or other territories.

The key is to provide workers with control of their hard-earned cash by providing them with full visibility on how their money is being spent, while allowing them to set monthly limits and category restrictions on what their salary can be used for.

Moreover, it is about providing strong financial solution and services that offer financial inclusion to those that have historically been ignored by traditional banks.

Enabling merchants

Companies that can help offline merchants digitise their payments or move online have been growing in popularity across markets.

In countries like India, that has a Unified Payment Interface (UPI) which enables people to pay merchants directly account-to-account using QR codes, digital payments have increased rapidly. UPI payments in Oct 2020 exceeded two billion transactions, up 80 per cent from a year ago.

For merchants who are still not online, we have had companies like Dukaan in India and Bukuwarung in Indonesia which have expanded dramatically during the pandemic. These companies enable small merchants to list their products and transact online – mainly using existing communication tools like WhatsApp to process invoices and pay bills.

Even in the region, we have had initiatives like FAB’s Payit wallet which allows merchants to accept payments using the customer’s Payit wallets. We have also had payment gateways like Telr launching its shop tool to enable merchants to quickly setup up online shop for the first time. Even outside of small retail, we have had initiatives like Noon Food, which help local restaurants accept online orders and deliver food.

While the world awaits a return to normalcy, with positive news around vaccines, it is safe to say that the pandemic has accelerated the long-term decline trends of cash usage.

As societies adopt more digital payment tools, it remains important to bring along the two billion people globally or the 25 million locally who are still living in cash mode.

Innovations that focus not only on digitisation of income (pay into account vs cash), but also on digitisation of consumption (pay digitally vs cash) will play a significant role in ensuring that the benefits of digital commerce are experienced by all.

Padmini Gupta is the co-founder and CEO of rise