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Payments modernization in the Middle East: A critical transformation strategy

Vijay Oddiraju
CEO and Co-founder, Volante Technologies

Over the past decade, banks in the Middle East have become increasingly focused on digital transformation. And according to a recent study by Mordor Intelligence, this focus is beginning to take the form of substantial progress for the region, with the digital payments market in the Middle East and North Africa estimated to achieve a compound annual growth rate (CAGR) of more than 15% over the next five years.

There are a number of excellent reasons why this should be the case. For one thing, widespread technological innovation, evolving regulations, and a growing demand among consumers for digitalization over the years has created an environment in which transformation is imperative. In fact, research from McKinsey dating back to 2016 revealed that 80% of consumers in the UAE were willing to move at least a portion of their funds to an institution offering modernized, digital-only banking solutions.

But beyond navigating the inevitable tides of change, an accelerated digital transformation strategy presents no shortage of additional benefits. These include everything from dramatically improved customer service and operational efficiency to significant cost reduction and time savings related to updating and maintaining critical IT infrastructure. And as modernization efforts accelerate across the global banking sector alongside regulatory developments, institutions are now racing toward the opportunity to capture market share and gain a competitive edge.

As it turns out, all of the above drivers are equally applicable to the more specific category of payments modernization. Moreover, taking a payments-first approach is almost certainly the fastest, most efficient way to realize the full spectrum of benefits associated with a full-scale digital transformation.

Perhaps the best way to understand this is to consider that the vast majority of digital services that banks intend to deliver are actually based on payments, as are emergent compliance initiatives such as the implementation of the ISO 20022 messaging standard. And as evidenced by both the introduction of the new standard as well as government initiated real-time payments rails around the world, including the UAE’s National Instant Payments Platform (IPP), the key to securing a competitive advantage will be a bank’s agility as it relates to integrating modernized, digital-native payments solutions.

The importance of payments modernization is fortunately not lost on Middle East banks. In Volante’s 2022 survey on international payments trends, 22.3% of MEA organizations confirmed they had modernization plans scheduled for the next 1-2 years. Additionally, Volante’s direct discussions with leaders in the space continue to suggest an urgency around the implementation of real-time, 24/7 payments capabilities, as well as gaining the broader ability to provide innovative, value-added services for both consumers and corporate clients.

Understanding the overall objective, the most important thing going forward is that payments modernization is tackled efficiently. More specifically, banks should be looking to circumvent the time and cost-intensive burden of replacing entire legacy systems by implementing modern, cloud-native and Payments-as-a-Service (PaaS) based technologies, and ideally those that offer highly configurable, ISO 20022 fluent, and microservices and API enabled payments solutions.

At the end of the day, there’s no escaping the fact that payments exist at the core of the broader digital transformation of the financial services sector, and this is something that banks in the MEA region should continue to embrace with open arms. Whether the goal is improving customer satisfaction and retention, or raising the competitive bar through the introduction of new features and capabilities, payments modernization provides institutions with the clearest path toward an increasingly bright and innovative future.

This blog was first featured in the May 2023 edition of MEA Finance Magazine.

Vijay Oddiraju
Vijay Oddiraju
CEO and Co-founder, Volante Technologies

Vijay is Volante’s CEO and one of the company's three co-founders. Vijay began his career in Oracle's consulting division, and then followed his entrepreneurial instincts to launch companies like GlueBeans and Volante.


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