Introduction

Payments have been the heart of fintech and they still continue to hold its position as a key accelerator in the global world of Fintech. The Middle East and North Africa collectively as a region have demonstrated the tremendous opportunity it holds, but with these opportunities come the regional dynamics which makes this part of the world more unique and demand a curated approach. This vibrant region with rich cultural diversity not just benefits from a young population and high adoption rates of newer customer experiences and technologies, but also with a progressive infrastructure and governments that have shown resilience and their trust in a connected future. Our aim was to establish a payments guidebook for the industry, by the industry to understand the market not just with macro indicators but with an on-ground understanding of how this unique market full of opportunities should be approached.

Cross-Border Payments and introduction of Fintechs in MENA

Cross-border payments are generally defined as payments between two different countries that require conversion between the send country’s currency and the receive country’s currency. These payments can either be P2P like remittances, or P2B like e-commerce payments or B2B like trade and invoice payments. With the increase in people residing in countries other than their home for work or business, globalization and outsourcing of businesses, opening of economies (FDI, FII), increase in international tourism and international e-commerce transaction; cross-border payments are increasingly becoming not only an important but integral part of business as well as day to day life.

A few decades back, cross-border payments were limited mostly with the banks and used to be costly as well as slow because of the legacy systems used by the banks and the slow adoption to the new technology. This fueled a demand for change in the system which was aptly supplied by the Fin-techs. With the entry of Fin-techs in the cross-border payments space, the cross-border payments has seen a big shift towards the better, be it in terms of real-time transfers, digital onboarding and payments, transaction tracking and reduction in the cost. 

Technology 

Cross-border payment technology has been a driving factor that has helped in increasing the speed of transactions, making it more secure, easy to use and cost efficient. APIs have reduced the TAT for various steps of the transactions by providing real time secure connections between the parties, digital KYC has increased the reach of the product to everyone with a smartphone, Blockchain technology has provided a secure and fast method to facilitate transactions and payment technologies like Transfi have increased trust and transparency in the system.

Regulator 

The central banks in the MENA region have been a pioneer in driving these technical changes. With the regulatory Sandboxes in many GCC countries and initiative from central banks to invite Fin-techs to experiment with new technologies in a secure environment has helped a lot in the betterment of crossborder payment products. The central banks have also been phenomenal in accepting the changes and bringing these new products and innovations in the licensing regime through new licenses and regulations. Central banks in many of the MENA countries are also working on CBDC (Central Bank Digital Currency) projects to increase digital adoption and enable a true cashless economy.

Government support 

The government across the MENA region has been incredibly supportive to the Fin-techs in the cross-border payments domain. Regulatory bodies like ADGM, DIFC, Saudi Fin-tech and central bank endorsed Bahrain Fin-tech Bay have been very helpful and supportive to the local as well as global Fin-techs working in the region. These regulatory bodies provide the Fin-techs with the necessary licenses and infrastructure to operate in the country and partner with banks and financial institutions to improve the cross-border payment product. 

Customer demand 

A lot of changes that happened in the cross border payments domain were fueled by the demand of the modern, tech savvy and informed consumers. Be it real time/near real time credits, digital channels, and choices of disbursal. MENA region has real time payment capabilities into almost all the major remittance corridors and provide multiple channels of payments as well as credits be it account credit or wallet credit or even cash payouts. 

Challenges in the cross-border payments across MENA

Cross-border payments have come a long way in the past two decades in the MENA region but still faces a lot of challenges. These challenges can be categorized in the below 4 broad categories. In the next section, we will discuss these challenges and the remedies offered by the Fin-techs to these challenges

1. Cost

Cost of cross-border payments has always been the most important challenge faced by the industry. Although the MENA region has become quite competitive and economical in terms of reducing the cost of remittances, it still has a long way to go to reach the UN sustainable development goal of less than 3%. The cost of digital transactions is even higher with scheme cost being a certain percentage of the payment amount in the MENA countries. Mobile money operators and wallets (like Airtel, MTN, M-pesa) have been able to bring down this cost substantially by reducing the number of middlemen in the ecosystem and API first Fin-tech like Transfi have provided end to end connectivity by aggregating the aggregators in the major remittance corridors and providing low-cost real-time credits into wallets and accounts

2. Speed 

Speed of cross-border transactions have increased a lot in the last few years and has reached near real time for the major receive corridors for the remittance transaction, but B2B transactions and Swift transactions still face a lot of delay in credit mostly due to the complicated nature of transactions and presence of multiple correspondent banks and intermediary banks involved in a single transaction. Technologies like Transfi are trying to solve this problem by using the blockchain/API technology for real time tracking and payment of B2B transactions.

3. Accessibility 

Cross-border payments, especially remittances and B2B payments have always been highly regulated due to the nature of transactions which involve a lot of cash and interaction between unrelated parties/ individuals. MENA and GCC regions have been extra careful when dealing with cross-border payments owing to the tax-free economy that they are and hence, the cross-border payment services can only be offered by Banks, MSBs and MTOs which are regulated directly by the respective central banks. While this kind of control is required to restrict illegal activities like money laundering and terrorist financing, it also limits the accessibility of the cross-border services to a set of organizations. Fin-techs and new-age payment tech companies which are disrupting the financial market have still not been able to enter the cross-border payment space in a substantial way till now. Having said that, in the recent past, there have been a lot of collaboration between the Fin-techs and the licensed players which indicates that accessibility of crossborder services will increase substantially in the near future with the blessings of the Fin-tech friendly regulators in the region and with proper monitoring tools so as to curb any financial wrongdoing. 

4. Transparency 

When it comes to cross-border payments, transparency refers to the clarity in terms of cost of doing transfers, the movement of money, the players involved in the transaction as well as the time taken to complete the transaction. When it comes to remittance, end customers are generally not aware of the actual cost of doing remittances as there are elements of currency conversion as well as transaction fee charged to the customer which is not generally understood by everyone. This leads to an increase in the cost of remittances and the end customer losing a substantial amount towards charges. In terms of B2B transactions, the transparency concerns are also in terms of the time taken to complete the transaction as well as the number of players involved in the transaction. The advent of API technology which facilitates point to point connections have increased transparency and have been able to reduce the number of players involved in the transaction. Innovations from institutions like Transfi which enables real time tracking of transactions have been instrumental in increasing transparency and speed of B2B transactions. 

How are emerging trends changing payments in MENA regions?

Digital transformation trends are becoming more and more visible and defined as the payment landscape evolves. They directly result from the connection between user desires and changes in government regulation and technological advances. Here's what is driving the evolution:

• Millennial-focused market: Tech-savvy consumers demand a seamless payment experience across all devices. With them, QR code-based payments at restaurants and BNPL services are gaining popularity.

• Growing alternative payment methods (APMs): Digital wallets like Apple Pay and local solutions like ANI in the UAE are transforming checkout. This makes the checkout process easier and more responsive to modern demands.

• Blockchain innovation: regulatory frameworks in markets like the UAE make cross-border payments faster and more cost-effective.

• Open banking: collaboration between traditional banks and fintechs causes innovations in services, e.g. in Saudi Arabia and the UAE.

These trends highlight the region’s ability and desire to adapt to global payment innovations. They also indicate it intends to become a key player in the worldwide fintech landscape. As a result, everyone benefits because businesses and users will benefit from more efficient, secure, and personalised payment solutions, paving the way for sustainable growth in the coming years.

Mastering payments in MENA with Transfi

Selecting the right payment processor that consolidates billing, payments and subscription management tools is key to the success in the MENA region. Transfi provides the following advantages over other solutions and gives valuable benefits to its users: 

1. Billing features: Transfi provides tools to support various billing methods, offers multiple payment options, provides robust fraud protection and includes robust subscription management.

2. Costs: Transfi comes with no transaction fees, minimal setup costs, and additional charges from various processors to fit the best fit for your budget.

3. Security and compliance: Transfi as a payment processor implements strong security and fraud prevention measures, complies with industry standards to protect customer data and collects taxes from customers correctly.

4. Customizability: The ability to customize functionalities and integrate with third-party software can help create a more seamless experience using Transfi.

5. Scalability: Transfi ensures to accommodate growing transaction volumes and expansion into new markets.

6. Localisation: for cross border payments, Transfi supports multiple languages and currencies.

7. Reliability: Transfi provides robust customer support and transparency in each and every step ensuring reliable means and legal compliances. 

Transfi is a cross-border infrastructure business focussed on enabling global companies to make payments in, out, and around the MENA region. Transfi is one of the first ones to bring Virtual Accounts, combined with a global foreign exchange network, to the Middle East and North Africa providing flexibility of payment methods, currencies and stablecoins. 

Conclusion

The cross-border payments segment is being disrupted by new entrants that promise to solve long-standing pain points around delays, high costs, and lack of transparency. These shifts offer opportunities across this trillion-dollar market, but incumbents and newcomers alike will need to develop differentiated strategies that consider the needs of different regions and customer segments. Transfi can be integrated into your cross border payment ecosystem, combining subscription management, advanced features, billing elements, transparency, and flexibility in a solution that supercharges revenue growth. 

Frequently asked questions (FAQs)

1. How is the payment landscape changing in MENA countries?

The MENA digital payments market is experiencing instantaneous growth, driven by the massive shift to cashless transactions accelerated by the pandemic and globalization in general. Demand for convenient, secure, and innovative solutions is growing exponentially.

2. What emerging trends are changing payments in MENA regions?

• Millennial-focused market
• Growing alternative payment methods (APMs)
• Blockchain innovation 
• Open banking

3. What factors should a business consider while dealing with cross border transactions in MENA countries?

• Billing features
• Cost
• Security and compliance 
• Customization
• Reliability
• Scalability
• Localization 

4. What are the challenges in cross-border payments across MENA?

• High costs
• Speed issues
• Accessibility problems
• Less transparent and unreliable payments 

5. What are the transparency problems faced in cross border payments?

When it comes to cross-border payments, transparency refers to the clarity in terms of cost of doing transfers, the movement of money, the players involved in the transaction as well as the time taken to complete the transaction. When it comes to remittance, end customers are generally not aware of the actual cost of doing remittances as there are elements of currency conversion as well as transaction fee charged to the customer which is not generally understood by everyone.