There has been a shift towards a cashless society over the last number of years, but similar to digital transformation initiatives, this movement has been accelerated by the onset of the COVID-19 pandemic. As an expert in this area, why has there been such a surge to have non-cash transactions in our day-to-day lives?
How we pay for goods and services is often a matter of habit, conditioning and familiarity. As a result, material change to payment behaviors often involves a long journey toward incremental improvements.
However, COVID-19 has somehow tremendously accelerated this digital payment improvement by creating an unprecedented global appetite for changes to how a payment is executed.
Despite assurance from global health organisations that banknotes pose low risk of spreading the virus, many countries have restricted cash as a measure of caution. Therefore, this has dramatically impacted consumers behavior towards cash.
Another factor that caused this surge to non-cash transactions is the implementation of lockdowns. As lockdowns went into effect all around the world, customers turned to digital commerce sites, which has resulted in a marked increase in the e-commerce penetration rate.
Taking Saudi Arabia as an example, we are witnessing growth in online shopping and believe that improvements in the online payments landscape are bound to drive Saudi’s cashless economy transformation forward.
Personally, I am in support of a cashless society, and conduct almost all my transactions by card, or e-wallet. However, I do understand why there has been strong and vocal criticism and condemnation of a cashless society from some quarters, especially when millions remain unbanked. The labour workforce in the UAE is almost exclusively unbanked, so as a direct consequence of propelling the move towards a cashless society, are we not also creating a bigger chasm between those at the bottom and those at top, thereby increasing poverty in many cases?
Cash or non-cash must not be seen as binary choices. In reality, across the world cash-in-circulation is increasing in parallel with digital payments. For emerging economies, it may well be that cash and digital payments play complementary and not alternative roles.
This does not mean that such countries should renounce plans to become cashless economies, but that these plans would need to be backed by financial inclusion initiatives that promote equitable access to digital financial services, connectivity, and infrastructure.
It is also important to note that some countries such as the UAE, KSA, and Bahrain have already adopted an Open Banking strategy for their ecosystem. This would, by default, allow fintechs to reach out to a much broader target than the traditional banks. Needless to say, this drive to innovation will help bridge any gaps.
Can you tell our readers about the new partnership agreement you will be announcing with Saudi Payments, which will see the installation of Saudi’s first instant payments system – and what impact you envisage this will have on the banking sector in the Kingdom?
Saudi Payments under the supervision of the Saudi Central Bank (SAMA) has a mandate to continue to develop a secure, interoperable national payment infrastructure, serving banks and fintechs equally, and providing the required standardisation to ensure all providers have a level playing field.
As part of this mandate and a key part of Saudi Vision 2030, Saudi Payments sought to deliver a national instant payment solution. They chose IBM as the System Integrator and Mastercard as the provider of the core payment engine.
This program will allow the Kingdom to enhance low value – high volume electronic payments; reduce reliance on cash and establish a digital products and services footprint; foster economic development by increasing financial inclusion to Saudi Banks, lay foundations for new payments business initiatives. It will also improve the overall financial ecosystem and enhance banking reconciliation by lowering lquidity equirements, and risk management.
Can you tell us a bit more about the technology IBM is bringing to the table to ensure that this will be the fastest end-to-end rollout globally of a digital payments system in terms of size and scalability?
Saudi Payments selected IBM Global Business Services (GBS), the services and consultancy arm of IBM, to lead the project as the System Integrator (SI) partner and a leading end-to-end digital payments solutions provider.
That proven track record allowed IBM GBS to design and architect the solution through its complex system integration methodology. IBM GBS built a technical platform and integrated Mastercard’s instant payments platform into Saudi Payments’ existing infrastructure while connecting it to the IT systems of locally operating banks.
The sheer scale of the project makes it a first-of-its-kind as developing a digital, instant payments system requires not only coordination but connection with a multi-faceted economic system – from the central bank to the banks and many touchpoints in between – and it’s a testament to the collaboration between Mastercard, IBM and SAMA.
IBM is one of the world’s greatest technology companies, and has been since its inception over 100 years ago, but what is that makes the company so special, and how has it been able to sustain all the success it has enjoyed over such a long period of time in a very competitive industry?
Transformation has been core to our history and is a reality to our presence today. However, one purpose that remains one and at the heart of everything that we do at IBM is to be essential to our customers and their journeys, bringing them the technology and intel that they require for their operations and essential to the community.
In terms of our transformation, IBM has gone through many transformations in over 100 years. Today, we are in a multi-year transformation, accelerated by strong Red Hat adoption which has positioned IBM for success in the hybrid cloud and AI market.
With a broad portfolio that includes Analytics, AI, Blockchain, Security, and Cloud, IBM has been helping financial institutions worldwide continually meet growing demands to improve their customer experience and innovate to respond to fierce competition.