How the Middle East and Africa are transforming digital payments

Leveraging technology to reach financial inclusion goals

In recent years, collaboration between the public and private sector in the Middle East and Africa has made a real difference to the levels of financial inclusion in the region. Central banks, financial services providers and government agencies have made use of innovative technology and payments data to overcome many public concerns around trust and extend financial access to the unbanked.

OMFIF, in partnership with the Mastercard Policy Center for the Digital Economy, has released a report exploring the digital transformation of payments systems in the Middle East and Africa. The report is part of a broader project, ‘Path to Morocco’, which focused on strategies for fostering financial inclusion in the region, building on the World Economic Forum’s report on ‘Shared principles for an inclusive financial system’.

The report pulls together the findings of a survey of financial institutions and summarises the discussions held at two events hosted by OMFIF and Mastercard. The first was a virtual roundtable, ‘Fostering financial inclusion through payments in the Middle East and Africa’. The second was a seminar held in Marrakech at the sidelines of the International Monetary Fund and World Bank annual meetings on ‘Payment innovation and secure digital infrastructure in the Middle East and Africa’.

Digital financial services are now mainstream

According to the World Bank’s Global Findex Database, just over half the population over the age of 15 in the Middle East and North Africa reported having an account at a financial institution in 2021, and only 40% reported having one in sub-Saharan Africa. Both regions lag the world average of 74%.

On the other hand, there has been a significant uptick in the adoption of digital financial services in the region, especially after the Covid-19 pandemic. Global Findex data report that in 2021, 50% of the population over the age of 15 had made or received a digital payment in sub-Saharan Africa and 45% in the Middle East and North Africa. In 2017, this was 37% and 34% respectively.

One of the biggest benefits of the move towards digital payments is the wealth of data generated, as this can better inform policy decisions. Another is the greater potential for extending financial access to the unbanked.

Participants at the seminar in Marrakech, as well as panellists at the virtual roundtable, noted that many countries in the Middle East and Africa have a large rural population that can be reached better through digital services. Paul Oluikpe, head of financial inclusion delivery at Central Bank of Nigeria, stated that the majority of the population in the country lives in rural areas where modern infrastructure can be porous. However, ‘mobile phone access is ubiquitous’ and can be used to extend financial services to all demographics.

It is important to cultivate trust in the financial system to fully realise the benefits of digital financial services. ‘Building trust in digital payments is crucial in today’s interconnected world,’ noted Khalid Elgibali, division president, Middle East and North Africa at Mastercard. He added, ‘it is important to address the perceived trust issue in digital [payments] by implementing the right security measures, tools and solutions, and it is equally important to showcase the benefits and value-add digital brings to positively impact consumer habits’.

However, low levels of financial and digital literacy among citizens hamper efforts to deepen trust. Mohamed Helmy, head of payment systems at the Central Bank of Egypt, noted that there is a need to ensure cybersecurity risks are addressed through the right infrastructure and a robust legal and regulatory framework.

Building on this discussion, participants at the seminar in Marrakech underscored that merely addressing the trust issues in financial services to promote the use of digital services is insufficient. It is important to show the benefits of digital payments in changing habits and incentivise consumers and businesses to shift away from cash. Customising digital services to cater to the specific needs and preferences of different segments of the population is the key to altering habits and encouraging adoption.

Integrating new technology for financial inclusion

The digitalisation of financial services has also opened the door for new and emerging technology to be incorporated into the payments system with the aim of bolstering financial inclusion. Participants highlighted various instances where digital technologies are harnessed to streamline accounting frameworks, significantly enhancing operational efficiency for businesses and individuals alike. In remote and underserved regions, biometric data is leveraged to enable individuals to access essential banking services, bridging geographical gaps and providing financial security.

In the OMFIF-Mastercard survey of financial institutions, Kenya and India were mentioned by almost all respondents when asked about countries that inspire policy-makers in their efforts to create an inclusive financial system. In the Kenyan case, m-pesa has been successful in leveraging technology and private-public partnerships to advance financial inclusion. India’s digital public infrastructure model has also been recognised as a potential model for countries seeking to boost levels of financial inclusion.

Co-operation and policy-making

Increasing financial inclusion necessitates the active engagement of key stakeholders, a concerted effort to improve financial literacy and addressing the often-prohibitive costs associated with financial services.

Participants from the Central Bank of Uganda and State Bank of Pakistan at the Marrakech seminar acknowledged that collaboration with stakeholders, such as payment service providers and fintechs, should be the way forward. Central banks alone may not always understand the specific needs of different consumers, particularly the conditions that affect retail service delivery on the ground. A collaborative approach, involving private sector actors, allows for the use of data to provide more tailored services for citizens and increases opportunities for innovation.

The collaboration of central banks, government agencies and private sector players has already yielded notable progress in the region, but the work is far from complete. By engaging key stakeholders, enhancing financial literacy and addressing the cost of financial services, the path to greater financial inclusion becomes clearer, benefitting millions of individuals seeking better access to financial services.

Improving financial inclusion is a multifaceted endeavour. The enhancement of existing digital money systems through the integration of innovative technologies requires intentional collaboration among policy-makers and other stakeholders.

Arunima Sharan is Senior Research Analyst at OMFIF.

Read the OMFIF-Mastercard report here.

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