High fees derail Saudi Arabia's digital wallet adoption
Saudi Arabia-based businesses are facing an uphill climb in digital wallet adoption, with a new report citing high fees as a significant stumbling block.
A recent survey shows that the region's small- and medium-sized enterprises (SMEs) are reportedly hesitant to embrace digital wallet-based payments for goods and services. The poll, conducted by PYMNTS Intelligence and global payment solutions TerraPay, showed nearly 3,700 Saudi-based consumers and 63 enterprises with transaction volumes of over $10 million over the last year.
The survey results, explored in the 'Global Money Movement: Saudi Arabia Edition' study, noted that a raft of factors are impeding the enterprise adoption of digital wallets in the Gulf nation. Respondents say high transaction fees are stifling adoption metrics for small and midsize businesses in the country.
When compared to traditional payment offerings, many respondents say digital wallet transaction fees are higher despite the perks of faster settlement times.
Another reason for Saudi Arabia's low metrics revolves around security concerns associated with fintech solutions. The report also cites concerns about transparency as another hurdle for SMEs in Saudi Arabia.
Despite the raft of reasons provided by surveyed respondents, the report stated that individual consumers do not echo the same concerns. Digital wallet adoption among individuals is at an all-time high in Saudi Arabia, with consumers citing cross-border transaction perks and low fees.
The report calls for fintech service providers to reevaluate their offerings for both demographics to rationalize the stark differences between individual consumers and businesses. A concerted effort to lower merchant transaction fees and a push to offer cross-border payment functionalities may trigger a spike in adoption rates.
Furthermore, the report advocates instant transfers for businesses and increased transaction transparency.
While digital payment adoption is advancing at a snail's pace for Saudi enterprises, companies are making a play to embrace next-gen technologies. According to a Cisco report, 93% of firms have rolled out advanced strategies to integrate artificial intelligence (AI) into their internal operations.
Furthermore, the Gulf State is spending a staggering $40 billion on training its citizens on emerging technologies. On the Web3 front, Saudi Arabia is playing catch-up with the United Arab Emirates after Hong Kong-based Animoca Brands set up operations there.
Digital payments gather steam in Azerbaijan
Elsewhere, a new report by the Asia Development Bank (ADB) predicts a spike in the number of digital payment users in Azerbaijan before the end of the year. The ADB stated in its report that one-third of Azerbaijan's adult population will begin using digital payment offerings for their financial needs. It pegs the projected figure at 3.85 million people, translating to a double-digit percentage spike from current levels.
A slew of factors, including rapid sector innovation, will drive the incoming inflow of digital payment users. The ADB states that the Instant Payment System (IPS) created by Azerbaijan's central bank will significantly increase the number of new digital payment users.
Since its launch, the IPS has pushed the frontiers of digital payments, reducing the dependency on cash and facilitating 24/7 real-time money transfers. While IPS's adoption levels have been nothing short of impressive, the ADB is predicting a meteoric spike in new users.
For one, 19 banks have been onboarded, and more financial entities are signaling interest in being onboarded. An IPS integration with the State Treasury Agency and Azerpost, the national postal agency, is tipped to trigger a whole new demographic for the instant payment platform.
Furthermore, many technological innovations, including tap-to-pay functionalities and an Electronic Knowledge Management System for remote identification, will power a new wave of users.
Pioneering financial institutions are turning to blockchain technology for faster settlements, while other Azerbaijan-based entities are exploring new payment solutions.
'In addition, banks have expanded the use of tokenization technology and the issuance of virtual payment cards among innovative payment solutions, while four banks launched an Apple Pay project in 2021,' said the ADB.
To increase financial inclusion metrics, banks are going mainstream with a 'basic banking services' project, offering free bank account creation and issuing user payment cards. Since the initiative's launch, over 1.5 million Azerbaijanis have joined the financial system.
Underneath the push to improve financial inclusivity in Azerbaijan is Web3, with unbanked residents turning to blockchain-based digital wallets. Growing digital asset activity led to Azerbaijan imposing tax requirements for the fledgling industry while exploring real-world blockchain use cases.
However, stiff regulations by the Central Bank of Azerbaijan will adversely affect the rise of blockchain-based payments. There is also the slow pace of integration by traditional banking institutions, potentially affecting Azerbaijan's claim of its share of a $3 trillion global digital payments revenue.
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