Cash use to go below 5% of total spending in Middle East

Banks in the Middle East are the most ardent proponents of a cashless society, with the use of cash to expected to reduce dramatically over the next few years.

Lockdowns across the world, in reaction to the Covid-19 coronavirus pandemic, are expected to reinforce this trend.

According to a study carried out in 2019 by the Economist Intelligence Unit (EIU), 60% of banks in the region expect cash to account for less than 5% of total spending within five years. This compares to 48% of banks globally expecting this to be the case.

The survey was carried out before Covid-19 took a grip and governments implemented lockdowns, which could accelerate moves towards cashless societies. Because of the risk of spreading the virus through contact, the use of cash is currently advised against, where possible.

For example, recent research in the UK from ATM network provider Link revealed the long-lasting impact that the pandemic will have on the use of cash. It found that 44% of consumers expect to increase their use of contactless and digital payments over the next six months. Some 75% of consumers said they are using less cash, with 58% of those using cash a lot less.

The Temenos-sponsored EIU report, A whole new world: how technology is driving the evolution of intelligent banking in the Middle East and Africa, also revealed that retail banks in the region are highly conscious of the threats that delaying digitisation pose to their business models.

A total of 43% of Middle East banking executives said new technologies such artificial intelligence (AI) will have the biggest impact on the region’s banking sector by 2025.

The study revealed that getting on top of digital marketing and engagement is the top priority for 35% of retail banks over the next five years.

Middle East banks also plan to encourage digital financial inclusion, with young populations and smartphone use in the region predicted to hit 74% by 2025.

“Governments across the entire region are increasingly embracing digital agendas to encourage financial inclusion and accelerate digital banking and a cashless economy,” said the report.

Building mobile-only and mobile-first banks is the top innovation strategy for 37% of Middle East banks, with 37% also planning to invest in fintech startups.

“The significant impact of the ongoing coronavirus pandemic is likely to accelerate the cultural and institutional shift towards digital banking that is already taking place in the Middle East region,” said Katya Kocourek, managing editor, financial services at the Economist Intelligence Unit.

Jean-Paul Mergeai, managing director for the Middle-East and Africa at Temenos, said: “Even in the most uncertain times, the power and opportunities of digital banking remain the same. This retail banking report outlines the opportunity for banks that adopt modern technology to accelerate financial inclusion and digital banking, to support economic and social development.”