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Perspective Ramez Shehadi
Lut Zakhour
Charles Habak
Leaving Cash BehindThe Rise of Electronic
Payments in theMENA Region
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Booz & Company
Contact Information
Abu Dhabi
Lutf ZakhourSenior Associate
+971-2-699-2400
Beirut
Ramez Shehadi
Partner
+961-1-985-655
Dubai
Charles Habak
Associate
+971-4-390-0260
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EXECUTIVESUMMARY
For too long, governments and businesses in the Middle East
and North Africa (MENA) region have relied on cash to pay
their employees, make or receive payments, and fulll othernancial obligations. As a result, their economies have been
slowed by the negative side effects of needing cash on hand—
long lines and wait times, instances of delayed or missed
payments, and paper-based record-keeping, to name a few.
In recent years, though, some MENA countries have started
to turn to electronic payments to alleviate these constraints
and boost the efciency and transparency of their operations.
Governments have beneted by enhancing their liquidity
and opening the nancial system to a larger portion of their population. Businesses have lowered their costs of doing
business, while creating more secure and reliable means of
conducting transactions. Consumers have gained greater insigh
into their nances, along with reclaiming some of their lost time
As governments and businesses in MENA countries seek to
replicate the success of e-payments’ early adopters, how well
they fare will depend on the extent to which they are able to
spread the benets to these diverse stakeholders, account for
their specic needs, and actively involve them in the design
and implementation of e-payments systems.
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Booz & Company22
channels, making use of a variety of
payment methods (see Exhibit 1).
Governments and businesses have
increasingly focused their efforts
on online and mobile channels as
a result of the global increase in
the penetration of information andcommunications technology (ICT).
However, several payment methods
continue to prevail among end users,
including credit cards, pre-paid cards,
and other point-to-point methods.
For governments, e-payments
expand the range of payment options
available within a country, which
often stimulates local consumption
and eases the ow of capital by
catering to a larger portion of the
population. Economies can benet
from greater foreign direct investment
and trade as it becomes easier to
do business with other countries.
Electronic payments also help
promote the use of ICT; this creates
spillover demand for other ICT-centric
products and services and promotes
Governments and businesses aroundthe world are increasingly turning to
electronic payment—or e-payment—
systems to capitalize on a wide variety
of benets. These payments can take
many forms, including bank-to-bank
transfers for large payments (e.g.,
real time gross settlements, check
clearinghouse), retail payments
(merchant payments, electronic
salary payments, tax payments),
foreign exchange settlements (trading
and settling foreign currencies),
remittances and other cross-border
payments, and securities settlement
systems (settlement for securities
markets).1 Retail payments in
particular require signicant
interaction between business and
consumers. As a result, they are
typically transmitted via an array of
THE CASE FORE-PAYMENTS
KEY HIGHLIGHTS
• Although adoption of e-payments
has grown at a strong pace in
the MENA region in recent years,
the region still has signicant
ground to make up in terms of total
penetration.
• E-payment systems’ service
offerings should not be generic,
but rather must take into account
environmental and infrastructure
factors—such as cultural aversion
to information technology—in order
to motivate stakeholders to migrate
from cash and check alternatives.
• Involvement of myriad key
stakeholders at the outset of an
e-payments strategy is critical to
ensuring a timely ramp-up phaseand avoiding potential future
conicts.
• Motivations and intentions vary
signicantly across the various
key stakeholders, and as such
governments and businesses
charged with establishing
e-payments systems should
effectively dene and align incentives
in a transparent manner so that the
benets can be shared by all.
Note: EFTPOS = Electronic Funds Transfer at Point of Sale; EBPP = Electronic Bill Presentation and Payment;
SWIFT = Society for Worldwide Interbank Financial Telecommunication; RTGS/ACH = Real Time Gross Settlement/
Automated Clearing House. 1 Refers solely to mobile data communication (not voice communication).
Source: Booz & Company
Exhibit 1Common Retail Payment Channels and Payment Methods
PAYMENT
METHODS
End Users
Consumers Businesses Government Banks
PAYMENT
CHANNELSOnline
1 2 3 4 5
PhoneMail Counter/
POS
ATM/Kiosk
6
Mobile
(Data)1
Payment Services
(e.g., merchant payments, salary payments, tax payments,
utility bill payments, telephone bill payments)
Credit/Debit/Charge Card
Cash/Checks
RTGS/ACH
Point-to-Point
SWIFT
Cash/Checks
POS/EFTPOS
EBPPEBPP
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Booz & Company
the growth of e-government services
and electronic services in general.
Businesses benet from e-payments
through lower costs by providing
secure, reliable, and efcient
alternatives to paper-based cash or
check payments. They can streamlinetheir collections processes and shorten
the time required to collect, resulting
in better working capital management
and greater visibility into provisioning
for bad debt. Businesses also enjoy
increased opportunities to better
target their sales and marketing, as
e-payments give them instant access
to data on customer segmentation.
E-payments enable nancial institu-
tions to better manage their loan
portfolios by giving them greater
insight into borrowing and spending
patterns. Furthermore, by encourag-
ing consumers to migrate to banking
services and channels, these institu-
tions increase their potential for
cross-selling or up-selling their prod-
ucts and services to new customers.
Finally, consumers enjoy greater con-
venience through multiple payment
channels, such as the Internet and
automated teller machines (ATMs).
These touch points give consumers
ready access to their account history
and fund transfers, and they reduce
the amount of cash consumers need
to keep on hand on a daily basis.
Such benets could substantially
change the way businesses and
governments operate in the Middle
East and North Africa (MENA)
region. MENA countries’ historical
reliance on paper-based nancial
systems has left them vulnerable to
a number of related inefciencies:
substantial numbers of employees
standing in line at month’s end
to receive their salaries in cash,
contractors issuing checks to pay their
suppliers, and residents traveling to
collection centers to pay their utility
bills through cash or check.
In recent years, though, the govern-
ment ofcials, business executives,
and consumers in these “cash and
check” environments have increas-
ingly been exposed to online paymen
channels, payment kiosks, and other
such e-payment options. As a result,
these countries are picking up the
pace of their e-payments investment
after a slow start (see Exhibit 2).
Moreover, the MENA region’s highmobile penetration can, if effectively
harnessed, help further accelerate
the movement toward e-payments.
Indeed, mobile payments (m-pay-
ments) make use of the e-payments
platform to offer access anytime, an
where, to a population that includes
unbanked, low-income people who
lack Internet access. M-payments ca
also be offered in a potentially more
customized fashion (e.g., location-
based e-payment services).
Still, signicant legwork remains
before the region’s governments and
businesses are able to successfully
establish e-payments or m-payment
as demonstrated by the MENA
region’s lag in e-payment penetratio
relative to other regions.
Source: Euromonitor International Consumer Finance, 2004–2009; Booz & Company analysis
Exhibit 2 MENA Countries Have Room to Grow on E-payments
E-payments as a Percentageof Total Payment Transactions, 20
CAGR of E-payment Transaction
Values, 2004–2009
7.3%7.5%
42.5%
47.0%
62.6%59.7%
32.7%
47.9%
2.2%
5.3%
7.6%
5.3%
Asia
Pacific
Eastern
Europe
Latin
America
MENA North
America
Western
Europe
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Booz & Company4
No single formula exists to establish
and sustain a healthy e-payments
ecosystem within any given country,
sector, or community. Ultimately, such
an ecosystem’s success depends on the
degree to which it caters to end users
and accommodates country-specic
factors. The optimal e-payments
ecosystem incorporates all of the
relevant players and considerations at
the various layers of engagement
(see Exhibit 3).
The outer layer represents the
end users—the beneciaries of
e-payments. Meeting users’ needs
is essential in e-payments, with
end users primarily consisting of
government entities, businesses,
consumers (e.g., citizens or residents),
THE E-PAYMENTSECOSYSTEM
Exhibit 3The E-payments Ecosystem
Source: Booz & Company
E-payment
Stakeholder
Partnership
Model
E-payment
Service
Offering
E-payment
Internal
Operating
Model
B u s i n e s s e s
Go vernme n t
C u l t u r a l / So c i a l T r a i t s
I C T I n
f r a
s t r u c t u
r e
L e g a l
F r a m
e w
o r k
C o nsume r s
End Users
Environment and Infrastructure
Business Model
F i n a n c
i a l
I
n s t
i t
u t i o
n s
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or nancial institutions that serve as
either recipients or payers.
The “environment and infrastructure”
layer reects the underlying
elements that either stimulate or
limit the adoption of e-payments.
These elements include the legal
framework governing the provision
and use of e-payments, cultural and
social traits that help to drive the
preferred e-payment channels, and
the ICT infrastructure for delivering
e-payments in a cost-effective manner.
Finally, the core represents the
e-payment business model, which
takes the other two layers into account
in building the e-payments foundation
through three primary means:
• E-payment service offering—i.e.,
services to be offered, payment
channels available to transmit
the payment (e.g., online, mobile
network, ATM switch, etc.), and
payment methods available for end
users to perform the payment (e.g.,
credit card, charge card, pre-paid,
or point-to-point)
• Stakeholder partnership model—
i.e., stakeholders to involve in
the provision of services, type of
partnership structures to select, and
fee structure
• E-payment service providers’
internal operating model required
to best provision the services
Governments and businesses seeking
to replicate this business model must
work to ensure that the e-payment
service offering fully aligns with
market demand, as well as environ-
ment and infrastructure factors.
MENA consumers’ lack of trust
in technology or limited access to
nancial institutions may signicantly
reduce their use of e-payment services
if those services are offered through
bank accounts, online channels, and
other delivery means that are simply
borrowed from more developed
regions, without any consideration
for local context.
Unlike typical business-to-business o
business-to-consumer services that ar
provided through common enterpris
applications or e-commerce solu-
tions—such as sales, order status, or
customer prole updates—the provi-
sioning of e-payments involves myria
stakeholders with differing incentive
and agendas. This complexity natu-
rally renders the level of engagement
and partnership across stakeholders a
one of the most sensitive and crucial
elements in the sustained success of
e-payments.
Key stakeholders generally consist
of a combination of governments,
businesses, service providers, and
consumers.
Government players typically include
central banks, departments of nanc
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Booz & Company6
and/or other government entities seek-
ing to streamline payments. Often,
these entities play the dual role of
collector and payer, making the use of
e-payments systems ideal for collecting
taxes and customs charges, transfer-
ring budgets, and paying suppliers.
These stakeholders are willing to
invest to move their customers to
e-payment channels, but they require
signicant increases in internal efcien-
cies to offset the up-front investment
in the e-payment systems and ongoing
transaction costs to various service
providers (e.g., nancial institutions).
Businesses use e-payments to pay
salaries and suppliers, and to col-
lect payments from end-customers
and downstream partners. Like their
government counterparts, busi-
nesses often have high expectations
for savings derived from e-payments
investments, and they face the same
challenges in recouping their costs.
Service providers such as nancial
institutions often play an enabling
role by offering consumers bank
accounts, which serve as the plat-
form to receive and send e-payments.
Telecom operators or stand-alone
e-payment providers support the
ecosystem by enabling transactions to
take place. Service providers normally
use e-payments to generate direct and
indirect revenues from transaction
fees or cross-selling opportunities.
Complicating matters further in
the MENA region is the fact that
electronic payment services com-
panies can be privately or publicly
owned—or a combination of the two.
In Egypt, for example, the e-payment
company was created through a
public–private partnership, though
it is was recently nationalized by the
government.
Finally, consumers turn to e-payments
to facilitate a variety of transactions,
ranging from retail purchases to util-
ity bill payments. The most important
factors for consumers are ease of use
and reasonably low transaction costs.
Businesses have high expectationsfor savings derived from e-payments
investments.
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pensioners to withdraw their pensions
through ATMs would create social
discontent due to their low levels of
technology familiarity, as well as the
limited availability of ATMs.
Rather, the Ministry chose to develop
a “halfway solution” whereby eachpensioner was issued a banking card
to withdraw pensions from manned
point-of-sales terminals. Pensioners
can visit any pension outlet, swipe
their card, and punch in their four-
digit code to view their balance
and withdraw funds. All the while,
the teller is there to support them,
answering any questions or simply
providing elderly pensioners with the
human interaction to which they had
grown accustomed.
Although ATMs are being deployed
with the hopes of slowly migrating
pensioners to purely electronic
channels, the near-term solution has
already reduced waiting times from
hours to minutes.
Actively Involve Key Stakeholders
Creating and maintaining an
e-payments system encompasses a
number of diverse stakeholders, andthe level of involvement of each can be
a sticking point if potential conicts
aren’t addressed at the outset.
One proven strategy is to formally
include key stakeholders in the
governance of the e-payments
provider, be it through shared
ownership (e.g., transaction or equit
based) or through participation as
members of the board or steering
committee. Stakeholders are often
disinterested at the outset of an
e-payments investment because it is
perceived as just another IT initiativEarly participation helps identify th
full scope of e-payments activities a
their benets up front, rather than
at an inconvenient point later in the
process. Areas that are often missed
include potential earnings from
cross-selling opportunities, as well a
the level of control that e-payments
systems allow, particularly when it
comes to collecting taxes and other
payments.
Involving stakeholders on the front
end also helps to ensure that the
benets of an e-payments system
reach the largest audience possible.
The government of Abu Dhabi’s
approach to modernizing customs
payments is a case in point. Abu
Dhabi, like many governments
in the MENA region, historically
mandated that customs payments b
made by cash or check. As a result,
importers had to carry large sums
of cash on hand, and either enduresignicant delays in withdrawing
cash onsite or perform payments at
a later date. This process resulted in
long delays before the government’s
customs or nance departments
received payments, while bad debt
accumulated on their books.
Creating an e-payments system that
incorporates country-specic factors
and appeals to diverse end users can
be a difcult task, but select cases
from the MENA region illustrate
how governments and businesses
can achieve this necessary balance.
These examples illustrate three best
practices: rationalize service offerings,
actively involve key stakeholders, and
align stakeholder incentives.
Rationalize Service Offerings
The design of e-payments service
offerings must account for the
country’s specic supply and demand
landscapes; failure to do so often leads
to the creation of new services that go
largely unused.
For example, until recently, up to 7million people in Egypt received their
pensions in cash on a monthly basis.
This process involved withdrawing
large bundles of cash, paper-based
record keeping, and long lines. The
Egyptian government, via the Ministry
of Finance, realized that forcing
BESTPRACTICES INIMPLEMENTINGE-PAYMENTS
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Rather than tackle the customs
payment issue alone, the government
of Abu Dhabi in 2007 launched
a government-wide e-payments
platform in partnership with a local
telecom operator, Etisalat. The
Department of Finance dened the
business needs that the e-payment
system would have to meet, thus
helping to determine the platform’s
service offerings; Etisalat designed,
implemented, and hosted the
platform; and the overall strategy for
the e-payment platform was aligned
with the larger e-government agenda.
The government involved its partners
early in the planning process in orderto ensure that problems would be
avoided or addressed quickly rather
than cropping up in later stages.
The customs department was the rst
government entity to use the system,
which quickly extended to other
areas of the government’s operations.
For example, the e-payments system
paved the way in 2008 for the
government to launch its gold card
program, which provides importers
and exporters with more convenienttracking and enhanced security of
their shipments.
The Abu Dhabi government is
also exploring future payments
through mobile, bill aggregators,
and additional counter-channels
to further leverage its single,
centralized e-payments platform.
Align Stakeholder Incentives
E-payments systems rarely succeed
when they are structured in such a way
that only a minority of stakeholders
sees the benets. Governments and
businesses charged with establishing an
e-payments platform should therefore
consider what motivates each stake-
holder and structure the system so that
the benets can be shared by all. This
can be done by quantifying the value
of e-payments and developing a fee
structure or revenue-sharing split in a
transparent and win-win fashion. But
it can also be accomplished by ensur-
ing that each stakeholder shares in thevalue proposition of participating in
an e-payments network.
When the Saudi government, via the
central bank (Saudi Arabian Monetary
Agency, or SAMA), was developing
the value proposition for SADAD, its
e-payment platform, it used stakehold-
ers’ current transaction costs to deter-
mine its pricing. By consulting with
billers (i.e., utility providers, telecom
operators, and insurance companies)
and banks about what it would costto implement payment systems and
services, SAMA was able to reach out
to these critical participants and assure
them that adopting the e-payment
platform would actually reduce their
overall transactions costs. It would
also offer the network scale advantages
of a national payment platform
accessible to all.
Governments and businesses in the
MENA region are increasingly turn-
ing to e-payments to better manage
their working capital and operate
more efciently. In due course, the
shortcomings of cash-based socie-
ties—long lines, missed payments,
and lost time—will be replaced by the
efciencies and increased transpar-ency of the digital age.
For e-payments systems to truly
gain traction, however, the benets
must extend beyond those making
the investment. Service providers,
nancial intermediaries, government
agencies, and consumers all have
something to gain as long as an e-pay-
ments platform actively involves them
from the start. The region has already
seen its fair share of e-payment con-
versions. With a continued focus on
serving the needs of key stakeholders
and customizing e-payments offerings
to local conditions, these stories will
be the rule, and not the exception.
CONCLUSION
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About the Authors
Ramez Shehadi is a partner
with Booz & Company inBeirut. He leads the information
technology practice in the
Middle East. He specializes
in e-government, e-business,
and IT-enabled transformation,
helping private corporations
and government organizations
leverage technology, achieve
operational efciencies, and
improve governance.
Lutf Zakhour is a senior asso-
ciate with Booz & Company in
Abu Dhabi. He specializes in
e-payment strategy and imple-
mentation, IT services strategy,
and technology-enabled trans-
formation for governments and
enterprises.
Charles Habak is an associate
with Booz & Company inDubai. He specializes in sector
development strategy, public–
private partnership launch
strategy, and technology-
enabled transformation for
governments and enterprises.
Endnotes
1 The World Bank Group, “Payment Systems Worldwide:
Outcomes of the Global Payment Systems Survey 2008.”