A high level of expatriate workers,
millions of unbanked inhabitants and an emerging card usage culture
in the Middle East region would seemingly make it a natural habitat
for prepaid solutions. But, as Victoria Conroy reports, there are some
cultural and technical hurdles to overcome before prepaid takes


The search for profitability and potential in
the prepaid market has encompassed many countries around the world
with varying degrees of success. Where prepaid usage has grown
exponentially (in markets such as the US or Italy), it has done so
because it has filled a direct need for more efficient and secure
payment processes (such as replacing cumbersome paper-based welfare
disbursements), while also tapping into a multitude of cultural or
economic factors (such as large numbers of unbanked people) which
combined act as a catalyst propelling people towards electronic

Therefore, it is no surprise that prepaid
players are now looking towards the Middle East region, where there
seem to be an abundance of market factors that could help to
position prepaid as a win-win solution in a range of segments.
There are already nearly a dozen prepaid card programmes running in
the region, in markets including Jordan, Kuwait, Lebanon and the
United Arab Emirates (UAE), with many more are in the pipeline. But
what are the factors that are driving prepaid in the region – and
perhaps more importantly, what challenges need to be overcome to
sustain growth in the future?

An estimated 65 percent of the Middle East
region’s population is under the age of 30 and real GDP per capita
increased by about 4 percent per year from 2004 to 2006. In markets
such as Qatar and Bahrain, real GDP growth per year is in the
double-digit range, far outstripping GDP growth in developed card
markets. Huge resources of natural energy and capital inflows in
markets like Saudi Arabia and the UAE have helped to underpin rapid
economic growth which has trickled down into increasing consumer
wealth, helping to drive the growth of the service and financial
industry sectors.

A convergence of market

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There are some cross-country factors
that are driving the adoption of prepaid and e-money solutions –
such as government mandates in the UAE to end cash-based salary
payments in favour of electronic payment, which has led to a
dramatic growth in the number of prepaid payroll programmes, the
majority of which are closed-loop, enabling usage at ATMs and
merchants within worker camps. In Saudi Arabia, a recent regulatory
development was for all government employees to be issued with
payment cards through which they could access their salaries.

More recently, governments across the region
have undertaken huge transport and transit system modernisation
projects, many of which will see smart-card and prepaid-based
ticketing systems being introduced. Many industry experts agree
that in the short-term, it is likely to be payroll and transit
prepaid programmes that will enjoy sustained growth.

In December 2009, Sharjah became one of the
first emirates in the UAE to roll out prepaid transit cards.
Sharjah Transport buses are now promoting electronic smart cards,
which also incorporate passenger photographs, as a more efficient
alternative to cash. The cards are available from vending machines
dotted around transport terminals and also incorporate discounts
not available with cash-based fares.

Fahd Al Awadi, general manager of the
Kuwait-based KGL Company, which is franchised to run public buses
in the emirate, said: “We have received numerous complaints from
passengers about not receiving the proper change. This is why we
want passengers to purchase the cards. Their payment will be
deducted electronically from the card and they will not have to
worry about not getting their change back.”

Other initiatives being rolled out include an
e-money solution launched in Oman, which is being built into
national identity and resident cards. Both citizens and residents
can store and load money onto their identity cards and use them as
a mode of payment besides credit and debit cards. All banks in Oman
are expected to participate in the initiative during 2010.

One of the first multi-application prepaid
schemes in the world was launched in Saudi Arabia in 2002, when the
King Fahd University of Petroleum and Minerals (KFUPM) adopted a
multifunctional smart-card system. The KFUPM Smart ID Card held the
first electronic purse in Saudi Arabia, and is being used not only
for electronic payment but also for access control as well as a
means of identification throughout the campus. Since the roll-out
started in 2002, KFUPM has issued over 15,000 cards to students,
staff and visitors including KFUPM alumni. All cards have a MIFARE
contactless chip, including a digital fingerprint from the
cardholder for verification of the cardholder’s identity and for
access control to specific highly secured areas. The MIFARE
contactless card allows up to 16 different applications to sit on
the card. The chip contains e-purse functionality for electronic
payments to be used in cafeterias and restaurants throughout the

The internet has also become a key engine for
economic growth in Saudi Arabia and in recent years there has been
strong growth in e-commerce, particularly in the usage of
e-government systems. As of 2009 there were around 7.7 million
internet users in Saudi Arabia, the largest number among Arab
countries. But the internet penetration rate is only 26.8 percent,
ranking Saudi Arabia fourth in the Arab world after the United Arab
Emirates, Kuwait and Bahrain. It is also well below the developed
countries average internet penetration rate of around 60

However, the regulatory situation across the
region around prepaid and e-money is not harmonised. While progress
is being made, much still needs to be done to clarify what prepaid
constitutes and how banks and other players can integrate it
alongside their existing debit and credit offerings. In many Middle
Eastern markets, banks are restricted to offering prepaid solutions
to existing customers or those who have an existing relationship
with the issuer.

Given that unbanked migrant workers have
difficulty establishing banking relationships, many banks are
navigating their way around know-your-customer (KYC) requirements
using non-resident worker visas as a form of formal identification.
But there are other barriers, such as minimum income levels which
deny many the chance to access financial services.

In the UAE, most banks require a monthly
salary of AED2,000-AED3,000 ($544-$816)per month to qualify for a
current account while most low-wage earners earn only between
AED800-AED1,000 per month. And because these customers are regarded
as unprofitable by banks, they remain ‘invisible’ to the banking
system as they are not actively targeted.

Challenges and

Over the past five years, there has
been considerable improvement in underlying payment, telecom and IT
networks, all of which are vital to foster both consumer and
business confidence in prepaid solutions. Banks and government
agencies have co-operated to increase the number of POS and ATM
terminals available and tap into the growing demands of the
region’s relatively young and affluent consumer segment.

It is perhaps the expansion of telecom
services that will foster growing usage of prepaid in the short
term, given the fact that there are well-established synergies
between mobile phone usage and prepaid solutions, and that many
expat workers in the region rely on their mobile phones as a
transactional and remittance channel.

In Saudi Arabia, liberalisation of the fixed
and mobile phone sectors has ushered in a wave of new entrants and
an expansion in the range of services available to consumers, and
the mobile penetration rate has jumped from just 12 percent in 2001
to 144 percent in 2008. While fixed line penetration has remained
relatively flat at around 16 percent of Saudi Arabia’s total
population (or around 70 percent of households) since 2001, the
fixed-to-mobile migration trend indicates that Saudi Arabia has
made far more progress than neighbouring countries in encouraging
mobile adoption.

Saudi Arabia’s National Communications and
Information Technology Plan (NCITP) was passed in June 2008 and has
already resulted in new regulations including an e-transaction law,
an anti-cyber crime law and an e-government transactions


Prepaid in the Middle

Market statistics


Population (m)

% of population

GDP % growth rate 2008

GDP per capita ($)

Saudi Arabia



































n/d = no data available Source: Central
banks, World Bank, International Monetary Fund

The remittance

Across the Middle East, there is
further deregulation of the telecoms sector planned. This could
usher in telecom companies beginning to provide mobile-based
remittance services, leapfrogging banks which have done relatively
little in this sector so far. It would certainly make sense for
telcos to tap into this niche, as they already have established
customer bases and recognition. And remitting customers already use
their phones to check whether funds have been sent, as do
recipients, so using the phone as the actual transfer mechanism
would make business sense.

A study carried out by consultancy Evaluserve
among the migrant worker segments in Saudi Arabia, the UAE and
Kuwait found that 80 percent of migrant workers own a mobile phone,
and that 15 million migrant workers in those countries remit an
average of 50 percent of their salary back to their home country,
totalling $3.39 billion each month.

Of the workers surveyed, 80 percent did not
have a bank account. All this means that there is a vast untapped
segment which could be served by prepaid, and most likely through a
combination of offering prepaid remittance services through mobile

It is the remittance opportunity that could
prove to be a big boon to prepaid in the Middle East region.

In July 2008, the population of the UAE was
estimated to be 4.6 million, but the local population of 1.4
million is dwarfed by the 3.2 million expatriate migrant workers,
attracted to the region by high tax-free salaries.

To illustrate prepaid’s potential in the UAE,
MasterCard Worldwide – in conjunction with payment consultancy
Edgar Dunn & Co – estimated that prepaid gross dollar volume in
the UAE would rise from $0.7 billion in 2007 to $4.4 billion in
2010, and $18.4 billion by 2015.

But despite factors which augur well for
prepaid, the market is yet to take off, mainly because the legal
and regulatory environment for prepaid has not yet been clearly
defined. For the time being, prepaid growth is likely to come from
the closed-loop payroll and transit sectors.

With a population of 24.8 million as of 2008,
Saudi Arabia is by far the largest economy in the Middle East
region, thanks to its huge oil reserves.

Like the UAE, it is a destination for
expatriate workers, who numbered 25 percent of the population in
2008. But the population as a whole has increased eight-fold over
the last two decades and is expected to continue to grow in tandem
with the development of real estate and construction projects.

There are around 12 million payment cards in
issue in Saudi Arabia, with debit cards comprising around 90
percent of all cards issued, making Saudi Arabia a natural habitat
for prepaid.

Aside from payroll, the main opportunity for
prepaid in Saudi Arabia is remittances – around $14 billion is
remitted per year from Saudi Arabia, compared to $5.4 billion from
the UAE. MasterCard Worldwide estimates that prepaid GDV in Saudi
Arabia amounted to $3 billion in 2007, which will rise to $7.2
billion in 2010 and $17.1 billion in 2015.

prepaid in the middle east


Ratio of nationals