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  1. Analysis
January 12, 2010

Country Survey: The Middle East

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

By Verdict Staff

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 off.


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 payment.

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 forces

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 campus.

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 percent.

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 opportunities

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 programme.


Prepaid in the Middle East

Market statistics


Population (m)

% of population unbanked

GDP % growth rate 2008

GDP per capita ($)

Saudi Arabia



































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

The remittance opportunity

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 phones.

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

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