While cash has traditionally dominated the Saudi Arabian payments market, there is a shift in the air. Not only are government initiatives encouraging the usage of cards in the country, but markets such as the unbanked, expatriates, and religious tourists are bringing forth a booming prepaid card sector
Cash was the predominant payment instrument between 2010 and 2014, accounting for 98% of total transaction volumes in 2014. This was primarily due to a lack of knowledge of other payment instruments such as payment cards, little or no access to banking infrastructure and religious beliefs.
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However, the government’s initiative to promote POS transactions, banks’ efforts to introduce Sharia-complaint cards, the rising technologically advanced young population and increasing e-commerce market are expected to push the growth of the country’s cards and payments industry over the next five years up to 2019.
Saudi government’s effort to encourage less-cash payments propelled debit cards’ growth
The government took a number of initiatives to migrate towards a cashless society during the last five years. One such initiative was the introduction of the Wage Protection System (WPS) law in June 2013. The law mandates that the salaries of employees are to be paid directly into bank accounts. WPS was implemented in phases depending upon the number of employees in any given organisation.
It became mandatory for companies with 100 or more employees to transfer salaries into bank accounts in November 2015. Such initiatives are anticipated to further increase the volume of debit cards in circulation over the next five years.
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By GlobalDataCard issuers’ technology adoption to encourage the penetration of cards in the country
Technology adoption is expected to be the key driving factor of industry expansion. Europay, MasterCard and Visa (EMV) chip enabled cards are already in circulation, and banks started to issue contactless cards, causing the cards and payments industry to be on the cusp of transformation.
The adoption of EMV enabled cards grew substantially between 2010 and 2014, rising from 6.3 million in 2010 to 20.5 million in 2014.
In addition, the country is moving towards contactless payments with Riyad Bank launching the country’s first contactless card in September 2015 and took the initiative to transform its entire card portfolio to contactless technology. Other banks and card issuers are anticipated to follow the same pattern over the next five years, to propel the growth of the industry.
Unbanked and expatriates, coupled with religious tourism, supported prepaid card growth
The prepaid cards market poses significant growth opportunities due to the high unbanked and expatriate populations. Prepaid cards for remittance and cash transfers were found to be of interest across the board, particularly for expatriates.
Prepaid cards are more popular in Saudi Arabia than other Middle Eastern countries. The country has a large influx of tourists to the Islamic holy cities of Mecca, Jeddah and Riyadh.
Every year, millions of religious tourists visit Saudi Arabia as part of the Hajj pilgrimage, with others also taking part in the Umrah pilgrimage.
A substantial number of tourists withdraw cash and carrying it during the pilgrimage which signifies an opportunity for prepaid card issuers. As a result, many banks and card issuers offer cards exclusively for individuals travelling to Mecca and Madina.
Rising e-commerce to drive electronic payments
The value of e-commerce transaction grew rapidly in Saudi Arabia between 2010 and 2014, from $459.9m (SAR1.7bn) 2010 to $2.0bn in 2014, and was estimated at $2.6bn in 2015.
The growth of the online transaction volume was assisted by the rise in internet penetration. The government has also been taking steps to develop the e-commerce market.
The Ministry of Commerce and Industry introduced the first draft of the eCommerce Law in February 2015 to increase the competitiveness in the e-commerce market as well as to enhance the customers’ trust on online purchase.
The growing e-commerce sector prompted many banks – such as Al Rajhi Bank, Riyad Bank, the National Commercial Bank and SABB – to offer cardsthat were exclusively targeted at the online shopper sector.
With more than half of the population below the age of 30, online transactions are expected to increase, which in turn push the growth of electronic payments.
Rising POS terminals to support card-based payments
The number of POS terminals in Saudi Arabia recorded a CAGR of 13.19% between 2010 and 2014, rising from 80,505 in 2010 to 132,146 in 2014.
With the increased number of POS terminals installations at retail outlets, the potential of card-based payments in Saudi Arabia is also expected to grow.
The US-Saudi Arabian Business Council estimated that the number of contactless payment terminals will increase from 100,000 to 500,000 over the next five years.
Despite a significant number of POS terminals available, the usage by customers is still low.
With the new electronic payment system, mada, and its enhanced features, POS transactions are expected to improve, and in turn the number of POS terminals is expected to increase over the next five years.
Retail and tourism sectors offer scope for payment cards
The total value of retail sales in Saudi Arabia increased from $78.9bn in 2010 to $104bn in 2014, at a CAGR of 7.14%. Growth in demand due to increased disposable income, declining inflation and lower unemployment rate compelled retailers to invest in new outlets, promotional activities and convenient payment systems.
Increasing disposable income was an impetus for outbound tourism between 2010 and 2014.
The number of tourists travelling to foreign destinations increased from 17.8 million in 2010 to 19.9 million in 2014. Outbound tourist expenditure also grew; from $17.7bn in 2010 to $25.1bn in 2014.
This was due to the preference for outbound over domestic trips, as Saudi Arabia lacks entertainment destinations such as water parks, cinemas and theatres, which are preferred by many families during occasions such as the summer and Eid.
About 20.1% people visited abroad for leisure. In addition. 3.7% visited friends and relatives and 1.5% travelled abroad for business purposes.
The Saudi Arabian travel and tourism industry registered growth during the review period; an increasing number of pilgrims performing Hajj and Umrah contributed to this.
The holy cities of Mecca and Medina are located, encouraging Muslims to visit from different parts of the world.
Moreover, new projects in these two cities are supporting the growing demand for accommodation.
