Digital payments in the Middle East are at a watershed as regulations, culture and technology all shift, opening the door for innovative companies to disrupt one of the oldest payment ecosystems in the world.

In the Middle East, opportunities for innovation in payments are plentiful. More than 80% of brick-and-mortar retail payments and 65% of e-commerce payments are still made in cash, and smartphone adoption exceeds 100% in several countries, according Global Growth Markets research.

Pairing those facts with the socioeconomic and demographic realities of the region, household incomes above the global average and the share of young people the highest on the globe, suggests all the makings of an ideal environment for safe, secure and convenient alternative payments.

Statistics from Global Growth Markets back up this suggestion. Online retail spending per person in the Middle East reached $167 in 2017, higher than Eastern Europe, Southeast Asia and Africa. And despite spending already being the highest among those regions, it is also projected to be one of the fastest growing over the next few years, at 30% annually. This compares with 34% in Southeast Asia, but note that per-capita spending in the Middle East will still be nine times that of Southeast Asia in 2020.


In the past year, those factors have spurred major international e-commerce and payment companies such as Amazon and Mastercard to make sizable investments in the Middle East. Local companies such as PayFort, noon.com and CashU are also making big moves to increase their presence, initially through organic growth methods but increasingly through consolidation in the ecosystem.

So, if the foundation for growth is in place, what considerations should companies already in the market be conscious of, and how should regional market factors be taken into consideration by new market entrants?

The Global Growth Markets research found that new shoppers in the market are increasingly choosing cash-on-delivery (COD) as their payment method of choice when shopping online. In fact, the COD growth rate continues to be higher than the 19% growth in overall e-commerce. COD, while a pragmatic method for attracting buyers, results in layered complexities for online retailers.

A myriad of factors can drive an online shopper to select COD, and they vary from country to country, but the four leading factors in the Middle East tend to be:

The cash habit. In a region where local physical markets, or souq, stand in the same locations they have been in for 2,000 years, and sell many of the same products, for cash, there are long-standing cultural factors driving the preference for cash payment.

Lack of trust in online. As is frequently the case in early- to mid-stage digital growth markets, shoppers in the Middle East are hesitant to spend money for goods they cannot touch or see in person. This is especially true as e-tailers expand outside of primary urban areas and begin to attract shoppers from lower tier cities and rural locations, many of whom have less exposure to and reliance on digital technologies.

Risk of fraud. While trust issues with online payment platforms are less of a barrier in the Middle East than they are in some other regions, 40% of mobile shoppers in the Middle East say they have been victims of cybercrime, and 71% say they had observed cyberattacks. Many are therefore reluctant to use online payment methods when COD is available.

Lack of compelling value proposition. E-commerce companies offering COD slows the uptake of alternative digital payment methods, in the absence of more compelling reasons not to use cash.

These strong historical and cultural dynamics present differentiation opportunities for companies who can navigate them effectively. For international companies with less of a finger on the pulse of such cultural factors, more setbacks will come part-and-parcel with growing an online business in the region.

The Middle East is not the first region where the ability to scale online and offline business has been stifled by the persistence of cash payments. Research by Global Growth Markets on payment markets around the world found both carrots and sticks being used to drive users away from cash and towards new and more cost-effective payment methods.

In Southeast Asia, the e-commerce site Lazada.com, owned by the Chinese internet giant Alibaba, partnered with local 7-Eleven stores, allowing them to receive deliveries and accept payments for online purchases. The partnership reduced costly repeat delivery, simplified delivery locations, and in some cases required customers to pay using a noncash method.

Some digital payment companies in Eastern Europe — a region where bank account penetration is much higher than the global average, yet COD persists — have partnered with e-commerce and logistics companies to offer discounts for customers willing to pick up their goods at local distribution centers.

Other examples of disincentivizing COD exist, such an Amazon initiative under consideration in India to charge a small fee for COD orders.

The Middle East presents a rare opportunity for digital payment innovators to access a populous and high-spending region with good levels of connectivity. While there are few trends that are consistent across all the countries in the region, it is nearly universal that the share of credit card, debit card and digital payment methods is increasing.

With the foundations in place, innovators are sure to challenge established business models with growing frequency, and consumers will gradually become increasingly accustomed to new payment methods and platforms.