Huge untapped opportunities in online distribution, travel, payroll, not to mention Gen Y programs, called for stakeholder collaboration and increased consumer education to leverage prepaid solutions. Anna Milne reports from the annual Cards International Prepaid Middle East Conference and Awards in Dubai
That there is great potential in the Middle East for prepaid is indisputable. So much so that the challenge has become what not to do as opposed to what to do.
"We are in a very blessed situation to have the opportunity to grow payments and move cash into electronic payments and that becomes a big responsibility. We need to make sure that we don’t abuse that position of power, that the pricing is appropriate for what it is- that we do follow the AML and KYC requirements, and that we’re responsible in the way that we grow it. By doing that we actually grow the market much more quickly," said Fiona Duncan, head of prepaid, CEMEA, at Visa, the event’s premier sponsor.
The Middle East prepaid market is fairly unique as its consumers range from the unbanked to ultra high net worth individuals. People buy Ferraris in the Middle East on prepaid; even houses.
Discussion around prepaid as a launchpad for growth, especially in the Middle East was discussed by industry players and the best products and innovation were celebrated in the awards ceremony.
Key growth areas in travel, online distribution and payroll
Personal preferences should be taken into consideration when designing. People use the internet in very different ways and there need to be programs to fit everybody.
"E-commerce is definitely not something that should be ignored and as the world moves more into a digital space, we will see this grow substantially. We will spend more and more online- it’s a trend we need to be aware of. The internet is a very personal environment and is used very differently by people. Different people will always use different cards online: some, their debit card; others their credit card and others still a prepaid card," said Duncan.
The beauty of prepaid is it’s really a platform that can be turned into any type of program. "So we shouldn’t limit ourselves by saying it’s a general purpose card or a travel card. But work with the usage and behaviours we see happening on it to evolve it as needed. We’re only constrained by the constraints that we put on ourselves.
"Ecommerce takes away the boundaries and the borders; with international borders being removed for Ecommerce you’ll reap double the benefits," Duncan continued.
Ecommerce and online distribution are tricky customers, and while it is crucial for prepaid programs to be adapted for online, it can be an expensive route to market.
"The commercial world is becoming much more aware of the efficiency and control that electronic means of payment allow, such as reducing costs. The UK is an incredibly well evolved Ecom market, especially within supermarket spend and during Christmas. Shopping is not as social an activity as in other regions such as the US, CEMEA and APAC," said Duncan.
The advice went as follows: when building your products, start to understand usage patterns and also how products have evolved in other geographies, just to get insight into how people are likely to operate, which will help you get more out of your program.
According to Rob Groombridge, head of prepaid cards and remittances at Majid Al Futtaim, "Online is a massive opportunity; it enables you to drive your distribution model. The challenge is it’s relatively new in the Middle East; and the real challenge is the payment side- we’re hoping that opening up the central bank will expedite the payment gateway offering to enable easy payments at a low cost, which should open up the whole market- not just for prepaid but for all online transactions in the UAE.
AML & KYC- room for improvement
Malek Mroueh, co-chairman, PIF, Middle East said prepaid bodies need to come together as a group and work out these models so that they can educate the regulators, helping them understand what is at play. It is crucial that they understand the bigger picture in order to create a playing field that works for everybody.
"Most of the regulation we know today is around this- often the regulators don’t understand prepaid and we need to work with them to make sure they do so that we can drive it forward with the regulators fully on board. Rich Bialek talks about AML risk mitigation, pricing and what I call Industrial Policy. Put these three together to encourage a strong robust market for prepaid that rewards all players alike- consumers, governments and banks.
Young consumers need to be taken into account as well- "they don’t like traditional products, they want to be fully online. The old-school prepaid card is not tomorrow’s prepaid card- be aware that mobile and wearables and all these things will start being part of the prepaid ecosystem for that new generation," Mroueh said.
Is it a question of communication, however? Rich Bialek, CEO, Global Technology Partners thought so. "I think the challenge is that much more communication is needed to explain what this is as a value proposition, as opposed to travel. This takes time and requires persistence and the ability to assess performance. UBA has done this very well, in markets such as Burkino Faso, Ghana, Nigeria and Kenya.
"Tokenisation is important- you can’t just be vanilla processing, you need to be able to support tokenisation, which is an enhanced security- you may need to consider the NFC technology- with Visa it’s the paywave technology. These things are happening and need to be on people’s radar."
Jim Grabow, CEO, iPrepaid, said there were opportunities at every path from improved KYC processes to better, simpler, more user friendly processes to allow more people into the system using prepaid. Government issued ID cards and electronic checks to allow people onto the system have always been constrained.
"I see that possibly going away here. The power prepaid has to serve the underserved is becoming more recognised, to bank more consumers," Grabow said.
Geographical hotspots for prepaid growth
The sheer potential in the African market, in particular Sub-Saharan, was to the fore on everybody’s radar. Bialek: "Our focus is the Africa view, the markets, Sub-Saharan Africa- it really is emerging- a giant is discovering its opportunities and capabilities- the market there is probably three or four years behind where MENA or Europe are- although it depends on what part of Africa you’re talking about. We need to understand how the different stakeholders in these markets view each other and how we can work together – Visa, the issuers, the processor, the marketers; it’s a market perfectly placed for prepaid- to have the ability to quickly establish an account at low cost and provide access to include hundreds of millions, nearly a billion consumers in Africa."
Saudi, as well, is another hot spot for prepaid, as Mroueh pointed out. There is likely going to be a lot of movement in Saudi but it is as yet undefined what the prepaid model will be. Existing telco programs in Africa, such as those in Kenya, will pose competition for prepaid developments there but there is an active drive to move the banks back into an active position in Kenya.
"For sure, a lot of developing Africa is going to be hot. I think the rest of Africa; West Africa in particular, and Saudi, and the growing economies in East Africa, have huge prepaid potential," Mroueh said.
The expat prepaid programs that are being launched, in the Middle East in particular, also have great potential and these lend another angle to easier repatriation of funds and easier management of ‘sending money home’. This will be another big segment, right across the gulf.
"There’s an open question with the situation in Syria, for which there are a lot of relief funds being created by banks in nearby countries. The trick of getting front-of-wallet is getting the product to appeal to that customer’s lifestyle- that really ties in with their needs," Mroueh continued.
From Unbanked to UHNWI
"It’s the diversity of this region that is fascinating; the cards are used by the unbanked, through to the newly-banked, right through to ultra high net worth individuals. There are two or three interesting innovative programs- Kuwait companion cards, which have been very successful in meeting a cultural and economic need- and could easily be transported to other places. At the other end of the spectrum, the development of the Generation Y programs is very interesting," said Duncan.
If a prepaid account is not linked to a bank account then cash load is still very important, and unless there is an easy way to load cash onto a large proportion of the population then it’s no good. The challenge, Duncan said, is to balance this with AML. Duncan was heavily involved in implementing a cash load network when she worked at Western Union in Europe, transforming money exchanges into trusted and convenient outlets, open long hours.
The Middle East is one of, if not the fastest growing prepaid market in the world. The payment association has recorded double digit growth rates. From a volume perspective, the Middle East has surpassed the stalwart prepaid markets like India, Australia, South Africa and Sub-Saharan Africa. As Scott Salmon, general manager, i2c said, "We’ve seen an expansion of stakeholders, not just banks but organisations like FX houses, retailers, governments and even airlines, and also an expansion in types of products- initially growth based on payroll or salary cards and in recent years a significant expansion offering virtual cards, general purpose cards, government disbursement and so on.
That represents a significant opportunity for the various stakeholders but also challenges. How do we make sure that customers, upon receipt of these cards, will activate them, use them, load them and continue to reload funds and use the cards as top of wallet for the intended purpose? You need platform tools that allow you to provide value propositions to cardholders and incent their use."
The demise of the physical card?
Mroueh emphasised the disruption Apple Pay would bring to the market, saying he could not overplay the importance of Apple’s move to cement the future for payments, mobile payments in particular.
"More than anything the Apple Pay solution has absolutely confirmed that the payment mechanism in the next five to ten years is going to be touch contactless and mobile phone manufacturers are now lining up to get NFC chips in.
"Do not underestimate the absolute power that that technology is going to bring to the table – it will be a game changer- do not think you can sit on your laurels for a year or two, while you watch what happens- you’ve got to be engaged from now if you want to be playing in the future of the prepaid space."
Bialek said the digitisation of the card was nigh: "The dawn of digital- accounts on mobile phones. It’ll have positive implications for distribution- to be able to avoid the physical card being embossed and printed. It will also present some security enhancements, the ability with that digital environment to send one time tokens- reducing the risk of cards being stolen. I’m picturing in 2020 out of a garage in Lagos, not Apple Pay but Rhino Pay or Pepper Pay that is really driving the market!"
Grabow agreed on the disruptive potential of Apple Pay and NFC to change things dramatically.
"In the last six months since Apple Pay’s release, the volume from Apple Pay is way over any expectations and there are still a limited number of phones out there and just a limited number of issuing banks that are participating.
"But one year from now the spend volume on NFC is going to be a substantial percentage of spend in ways we don’t even know- certainly by 2020. Whether it’s ATM machines or NFC payment transfer or mPOS – there will be solutions we don’t even understand yet here today. It will drastically change business in a positive way."
Alex Mifsud, founder and CEO, Ixaris, said systems need to be strong enough so that banks can open up their infrastructure and let in developers- "very much like Apple developers and the App Store- an established business model; Facebook, Google and so on- this hasn’t happened in payments and opening up prepaid is an exciting prospect."
The demand is clearly there, despite distribution still lacking- but the understanding of the potential of sponsorship to leverage core capabilities of banks outside their current distribution networks will increase.
Virtual cards will come more into play, especially if you ask Mifsud. "Cards are really two things: a card number, to communicate with the merchant, and an account. I think these two will separate.
What won’t change is that the account continues to exist and therefore we’re talking about how we create it and deal with the risk associated with it. Prepaid has a set of rules around that which I don’t think is going to change."
Frank Creighton, head of relationship management, Tuxedo Money Solutions, predicted an increase in confluence of all the capabilities across prepaid and how they’re used to meet consumer demand. "I think if we’re looking at consumer behaviour, as an example, where people are using a prepaid card to withdraw cash, then going to a remittance bureau- this will be a lot more streamlined in the near future."
As Ranjit Mukherjee concluded in his presentation, quoting Charles Darwin, "It is not the strongest of the species that survives, nor the most intelligent, but the one most responsive to change".