How payment digitisation can stimulate economic growth in the Middle East

While countries and cultures around the world may differ in many aspects, governments are united in their quest for economic growth.

As we gradually transition into a post-Covid-19 world, this will become even truer. Amidst the resurgence of economic activity will be hopes for inclusive growth, an improved standard of living, lower unemployment, and a movement towards a more equal society. More than ever before, all of these now rely on a digital infrastructure to thrive.

Even before this pandemic, emerging markets in particular were increasingly recognising the need to digitise their payments economy and reduce cash dependency as a way to achieve financial inclusion and citizen wellbeing. In this context, I believe payment digitisation will undoubtedly not only alleviate many of the downsides of cash, but also create avenues for growth and innovation for people and businesses to thrive.

A study that I conducted with my team at Mastercard reinforces this statement. The research found that cash continues to represent 85 to 90 per cent of all consumer transactions globally, and often comes with significant direct and indirect costs including lost tax revenues as well as production, handling and transport costs. Cash is also the main currency of a shadow economy, which weighs down governments with indirect costs due to crime, corruption and associated law enforcement operations. A 1 per cent decrease in the shadow economy decreases corruption by 0.81– 1.14 per cent.

Our study calculated the total cost of excessive cash usage at 3.2 per cent to 4.5 per cent of global GDP. Payments digitisation allows governments, businesses and citizens to thrive in an ever-changing, pressurised and complex global economy by – counterintuitively – carrying less cash.

To elaborate, when an unbanked member of the community begins to move from cash transactions to digital payments, and becomes financially included, their future starts to brighten and the whole economy begins to thrive. Take for instance farmers who are able to sell their produce on a marketplace app that allows their payments and receivables to be recorded digitally, thus enabling them to access credit facilities. This in turn helps them buy more seeds or land, growing their produce and business in the process.

According to a study by Moody’s Analytics, each 1 per cent increase in the use of digital payments produced an average annual increase of $104bn in the consumption of goods and services. This represents a 0.04 per cent increase in GDP in developed markets and a 0.02 per cent increase in developing ones. Every contribution will count when commercial activities resume in earnest.

At Mastercard, we’re working with governments on digitising their economies to benefit from the associated economic growth, and offer citizens and visitors a seamless digital journey. We partner and work with central banks, cities, ministries and government authorities to advise and streamline implementation of digitisation initiatives, supported by our global network of specialised partners.

We focus on fostering public-private sector collaboration and partnership, as it’s unrealistic to expect governments to pursue economic development alone. We achieve this by understanding their expressed and unexpressed needs, and consequently engage with them to develop their digital payments economy blueprint through our proprietary advisory methodology: Mastercard’s PEDD (Payments Ecosystem Design and Development).

PEDD leads to the development of the strategic initiatives required to develop cashless programmes that accelerate digital innovation initiatives and modernise national payment infrastructures. It builds and deploys solutions and digital platforms. Our white paper ‘Cashing Out: Economic Growth through Payment Digitisation’ discusses this in detail.

Additionally, we focus on making tech work for people, particularly for events such as Expo 2020 Dubai, via our Mastercard urban collaboration model, City Possible, and Mastercard Lab for Financial Inclusion. Such initiatives are also starting blocks for future smart cities as they digitise the citizen journey within the payments value chain, thereby creating a seamless experience.

Take for example Mastercard’s active role in supporting the Central Bank of Egypt to develop its strategy for the digital payments economy coupled with the Egyptian government digital payroll solution. This initiative has financially included millions of citizens and blue-collar workers, and has grown into one of the largest such programmes in the world.

Also in Egypt, Mastercard built an interoperable mobile ecosystem and digital wallet – the first of its kind globally. Launched in partnership with the Central Bank, it serves more than 13 million users in the country, enabling more than 30 per cent of the Egyptian population to engage with electronic financial services.
Earlier this year, we also launched phase 1 of our smart city vision that we developed for the city of Beirut, enabling inhabitants to pay their municipal fees digitally and seamlessly.

A digital future provides a range of choices in a competitive society, usually leading to a happy nation. One of the choices to make is to be digitally and financially included in an economy. This gives consumers and businesses, banked or unbanked, a choice in payment methods, as well as easy ways to retrieve and view their funds. They will have better access to credit, the ability to access seed capital to launch a small enterprise, and the opportunity to conduct business in the palm of their hands.

It is the right time to focus on digital inclusion. Through partnerships, we can achieve a digital payments economy that includes the economically disadvantaged, mitigates the costs of cash, and achieves the economic growth and wellbeing that we want for our societies.

Elias Aad is vice president, Business Development and Government, MENA at Mastercard