National-level real-time interbank payment networks are increasingly recognized as one of the pillars of the modern economy, but the need to coordinate between banks, governments and industry means that rolling out such schemes is far from straightforward.
For this reason, while pioneers such as South Korea and Taiwan went live with the first such systems in the early years of the 20th century, today, several otherwise advanced economies have yet to implement equivalent interbank schemes.
For example, in the Gulf region, the United Arab Emirates (UAE) — which is home to two of the world’s leading financial centers and acts as a key regional hub for FinTech innovation — has yet to go live with any comprehensive nationwide instant settlement system.
However, that is set to change by the end of the year with the launch of the Instant Payments Platform (IPP), a cornerstone of the central bank’s (CBUAE) National Payment Systems Strategy.
Like similar systems around the world, the IPP will allow instant transfers between Dirham-denominated bank accounts, reflecting the hyperconnected nature of modern commerce and bringing the UAE’s interbank payment rails up to speed with consumers’ expectations.
While the IPP has been welcomed by the country’s financial services sector, the UAE is not the first Gulf country to roll out such a real-time payments network. Among the Gulf Cooperation Council (GCC) countries, Bahrain, Kuwait and the Kingdom of Saudi Arabia (KSA) have already implemented similar schemes.
Back in 2015, Bahrain became the first GCC country to launch a nationwide real-time system with Fawri+, which has set the bar for instant payments in the region and has already seen significant adoption.
According to data compiled by ACI Worldwide, Fawri+ grew from accounting for less than 1% of electronic transactions in 2017 to over 50% by 2021. That report projects the savings created by real-time payments in Bahrain to rise to $208 million by 2026, a figure that would in turn help to generate an additional $310 million of economic output.
Perhaps the most interesting aspect of the UAE’s IPP is that the scheme will enable interoperable fund transfers between bank accounts and eWallets, while enabling transfers using mobile phone numbers, email addresses and any other unique identifier.
The CBUAE’s decision to pursue a mobile-friendly real-time strategy reflects Emirati consumers’ high adoption of mobile wallets. The above report found that in 2021, 73.5% of adults in the country had a mobile wallet and had used it to make a payment in the previous year.
With the opportunities presented by the IPP, eWallet and mobile compatibility will ensure that it has use cases that reflect the way people in the UAE make transactions, including the way they shop. For the country’s retail sector, this has the potential to improve liquidity and act as a catalyst for economic growth.
When the IPP goes live later this year, the UAE will be making a major contribution to the overall health of the payment ecosystem across the GCC, where cultural, economic and commercial ties make faster and more streamlined cross-border payments a worthy goal for all members.
In the coming years, the GCC intends to further integrate their monetary systems by aligning the respective payment rails under the banner of the Gulf Payment Company (GPC), an initiative that will connect all payment systems in the GCC countries through an independent company owned and funded by central banks in the Gulf region.
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