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Technology Driving Saudi Arabia Cards and Payment Industry: Ken Research

Posted on 18 August 2017 by KenResearch Banking Financial Services and Insurance,

The Cards and Payments Industry in Saudi Arabia involves check payments, payment cards, cash transactions, direct debits and credit transfers. Saudi Arabia is a cash-dominated society where cash is the preferred mode of consumer payments. Majority of the high-value transactions are shifting to electronic platforms and low-value transactions are carried out with cash. Although, the payment cards were introduced in Saudi Arabia majority of the population tend to use these cards for cash withdrawals at ATMs rather than making payments at merchant outlets.

The Saudi Arabian Monetary Agency (SAMA) launched its modified electronic payment system Mada. To increase the penetration of debit cards, Mada cards were issued by local banks that can be used across all ATMs and POS terminals operated by local banks in the Saudi Arabia. Since, the debit cards are co-badged and can be used internationally with other payment systems such as GCC Net, Visa, Mastercard, and American Express. Saudi Arabian Monetary Agency (SAMA) has adopted a number of initiatives to encourage electronic payments. A new electronic payment system was established and was made mandatory for wage payments into bank accounts. The SAMA also launched a modified Saudi Payment Network (Span) that links all ATMs and point-of-sale (POS) terminals across the country to a central payment switch. This network provides authorization, routing, and clearing services for all the payment transactions made in Saudi Arabia.

SAMA encouraged the consumers to increase the use of POS terminals while the daily purchase limit per card was increased. All the card users are provided with a value-added service, and Purchase with Cashback such as card withdrawals. SAMA launched the Wage Protection System (WPS) where all the employees' salaries are paid directly into their bank accounts. Consumers can withdraw cash and make payments at POS terminals using debit cards. The encouragement and emergence of digital only banks has encouraged electronic payments in Saudi Arabia. Gulf International Bank launched the first digital-only bank, Meem, in Saudi Arabia that offers online and mobile banking only, with no physical branches. The leading banks in the cards and payments industry in Saudi Arabia are Al Rajhi Bank, The National Commercial Bank, Riyad Bank, Arab National Bank, The Saudi British Bank, Samba Financial Group, Visa, MasterCard, and American Express.

SAMA introduced an e-payment service known as the SADAD Account that provides a direct link between banks and online merchants. The consumers utilize the online payments service by directly debiting their SADAD Account and transferring the amount to the merchants account. The National Commercial Bank, Samba Financial Group, Riyad Bank, Saudi British Bank (SABB), AlJazira Bank, Al Rajhi Bank, Arab National Bank (ANB), and Saudi Investment Bank (SAIB) are offering the services of SADAD.

According to the research report “The Cards and Payments Industry in Saudi Arabia: Emerging Trends and Opportunities to 2020”, the use of credit cards remains low in Saudi Arabia due to religious reasons, as Islam forbids the receipt or payment of interest. This encouraged the banks to issue a wider range of Sharia-compliant credit cards. All leading credit card issuers in Saudi Arabia offer Sharia-compliant credit cards and banks issuing credit cards are using promotional offers to encourage credit card usage. The Saudi Arabian government has initiated contactless technology. Riyad Bank has launched the country’s first contactless cards, and transformed all its card portfolios to contactless technology followed by the National Commercial Bank (NCB). All the remaining banks and card issuers in Saudi Arabia are anticipated to follow the same pattern over the coming years.

Majority of the banks in Saudi Arabia adopted various strategies to market debit and pay later cards. There are various leading competitors and regulations governing the Saudi Arabian cards and payments industry. The Saudi Arabian government has also initiated E-commerce market which is a part of the Saudi Arabia’s cards and payments and is one of the available payment types. E-Commerce Law was made to increase the competitiveness in the e-commerce market in Saudi Arabia, and to enhance customers’ trust in online purchases.

The country is facing high unemployment rate, budget deficit forcing the government to slash many of the perks it provides its citizens, rising petrol prices, inflation are the major factors affecting the consumers disposable income. The cards and payments industry may face a stand still point due to the country’s crisis but will start off with a slow growth over the coming years. The dynamic and competitive advantages lured by the banks will surely encourage more opportunities in the cards and payments sector by the year 2020.

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Ken Research
Ankur Gupta, Head Marketing & Communications
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