Will Covid-19 containment measures accelerate the transition of Saudi Arabia into a cashless society?

As residents of Saudi Arabian cities adjust to life under curfew, the adoption of digital payment methods is being incentivised to sustain commercial activity during the coronavirus pandemic. 

In an effort to contain the spread of Covid-19, since April 6 citizens of Riyadh and other major urban centres have only been allowed to leave their homes between 6am and 3pm to purchase essential items within their residential area.    

The indefinite home curfew is one of several stringent preventative measures in force. Others include the suspension of local and international flights, and the closure of public and private sector offices until further notice.

As of April 13, Saudi Arabia had recorded 4934 Covid-19 cases and 65 deaths, out of a global total of 1.92m cases and 120,000 fatalities.

While the Covid-19 pandemic is curbing economic activity overall, containment efforts are forcing a shift in how Saudi businesses, consumers and financial intermediaries interact, which could have lasting implications for the Kingdom's payment ecosystem.

Towards a cashless society

Prior to the outbreak of Covid-19, Saudi Arabian policymakers and business leaders were focused on the realisation of the Vision 2030 agenda for economic diversification and modernisation.

One target of the wide-ranging economic blueprint was for non-cash transactions to constitute at least 70% of all payments in the Kingdom by the end of the decade, up from 36% in July 2019.

The announcement of this headline target underlined the need for investments in digital payment infrastructure and the development of innovative on-boarding strategies.

One of the main driving forces behind the transition towards digital payments is the Saudi Arabian Monetary Authority (SAMA), the central bank.

SAMA established its own payment infrastructure department – Saudi Payments – in 2018, which aims to ensure the interoperability and standardisation of payment systems for both banks and financial technology (fintech) firms. 

The following year, SAMA set up a sandbox that allows banks, regulators and fintech firms to collaborate on developing and scaling up new payment technology. 

As a result of such initiatives, the Kingdom was relatively well placed to adjust to the need for greater levels of digital transactions as a result of Covid-19 containment measures.

“A robust digital payment infrastructure is essential both to overcoming global financial challenges, such as those imposed by the current Covid-19 pandemic, and developing future opportunities for economic growth,” Matar Al Khateeb, general manager of AJIL Financial Services Company, told OBG.

Paying in a pandemic

As the Covid-19 pandemic began to impact daily life in Saudi Arabia, regulators took measures to further encourage the use of cashless payments.

SAMA raised the monthly transfer limit for e-wallets from SR10,000 ($2667) to SR20,000 ($5333), to help consumers meet their spending needs through this relatively new payment option.

The central bank only issued its first licences for non-bank financial institutions on January 30, when Saudi Digital Payments Company (STCPay) was licensed as a digital wallet, and GEIDEA Technology Company as a payment services company.

STCPay has since been joined in the digital wallet space by HalalaH and BayanPay, which received licences in late February after successful periods in the SAMA sandbox.

The nascent e-wallet market is expected to receive a boost from the increase in the monthly transfer limit. In turn, this should help to raise the volume of cashless transactions, as well as minimise physical contact between merchants, couriers and consumers during the lockdown period.

Elsewhere, SAMA has exempted customers from any fees associated with local currency transfers between banks using the Saudi Arabian Royal Interbank Express System, and raised the limit on contactless bank card payments via point-of-sale terminals from SR100 ($27) to SR300 ($80).  

Long-term benefits  

Although progress had been made towards the widespread adoption of digital payments prior to the Covid-19 outbreak, it seems likely that enforced social distancing will accelerate this transition, as increasing numbers of consumers and merchants will grow accustomed to cashless options.

As well as reducing the risk of financial crime, a more cashless economy should expand financial inclusion and foster greater economic integration for small and medium-sized enterprises, enabling them to tap into a wider pool of clients, suppliers and consumers through digital payment channels.  

Ultimately, the wider business ecosystem should benefit from transition. Faster and more secure methods of digital payment are generally associated with increased consumer spending in periods of normal supply and demand patterns. 

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