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Do cash payments have a bright future after Covid-19 in emerging markets?

(Image credit: Future)

Concerns over the spread of the coronavirus along with the implementation of lockdown measures have significantly increased cashless payments during the first few months of this year.

The pandemic appears to be accelerating the transition towards cashless transactions in emerging markets and it is evident in surging online payments and e-commerce around the world.

In the UAE, figures from Ken Research found that online grocery orders had increased by 80-100% in the first few months of the year, owing to the virus, while in Saudi Arabia some online retailers had experienced a 200% increase in average sales in the early stages of the pandemic.

The shift in payment methods has also driven retailers and malls to improve their online offerings.

For example, in Dubai many larger malls have turned towards online platforms to stimulate retail activity during lockdowns and mall closures.

In mid-April, the Dubai Mall, the largest retail space in the UAE, launched its virtual store on the Gulf e-commerce platform noon.com. The Mall of the Emirates, Dubai’s second-largest mall, also established its online platform, called ‘Trends at Your Doorstep’, while hypermarket chain Carrefour UAE upgraded its portal into a full-scale online marketplace.

Even for firms with well-developed e-commerce platforms, adjustments were necessary to capitalise on changes in demand.

Isam Arshad, Research Analyst at Euromonitor International, said that online sales in the UAE are expected to grow by 40% year on year in the first quarter and continue the upward trend but the supply chain is not able to meet the demand as the delivery of online orders is getting delayed.

Pankaj Kumar, Head of Omnichannel Retail at Jumbo Electronics, said that their online business used to be only 10% of its total business but due to the closure of malls and shops, online sales have picked up to about 16%.

In March, Jumbo’s online sales have increased by more than 75% when compared to February.

In late March, Saudi online retailer BinDawood Holding told local media that its average sales on a 10-day basis had increased by 200%, since the escalation of the Covid-19 crisis, while its average order value rose by 50% and app installations by 400%.

The Financial Sector Development Programme in Saudi Arabia aims to increase the proportion of online payments in the Kingdom to 70% by 2030, up from 36% in 2019.

In support of this strategy, in October 2019 the Saudi government implemented the e-commerce Law, designed to regulate digital payments and improve transparency, while on January 31 the Ministry of Commerce adopted the Implementing Regulations of the e-commerce Law, which strengthened oversight in areas such as personal data protection, consumer rights and disclosure obligations.

Shifting gears

In Indonesia, for example, digital transactions rose by 102.5% year-on-year in the first four months of 2020, according to Bank Indonesia (BI), the central bank.

Meanwhile, in Kenya, one of the leaders in digital payments in Africa, the government has advised people to use online or mobile methods rather than cash as a precaution against the virus.

To help facilitate this, Safaricom, the largest telecoms company in the country and the owner of the market-leading M-Pesa mobile money platform, announced in mid-March that it would remove fees for all transactions under KSh1000 ($9.42), while also increasing the daily transaction limit for small and medium-sized businesses from KSh70,000 ($659) to KSh150,000 ($1410).

Given these trends, analytics software company Statistica has estimated that, notwithstanding the possibility of a worldwide recession, global digital payments will increase by 14.2% this year.

Speaking to Oxford Business Group, Juliet Anammah, chairwoman of online marketplace Jumia Nigeria, said: “We have had to adapt from a platform where at any time consumers can buy whatever they want to a platform that primarily makes sure consumers can access basic essentials, such as food, sanitary items and personal hygiene products.”

In response to rising online demand, e-commerce platforms were also compelled to improve or expand their delivery and payment services.

“One of the areas that were notably affected was payments, as there was concern about the cleanliness and safety of cash transactions,” she said.

“To address this, we migrated to contactless deliveries, and made sure that our deliverymen had hand sanitiser, wore masks and dropped items at the front doors.”

While the global percentage of people over the age of 15 who had a bank account stood at 68.5% in 2017, according to the World Bank’s most recent Global Financial Inclusion Index, the figure was just 34.9% in low-income countries.

The pandemic has undoubtedly accelerated the uptake of alternative payment methods and helped normalise their usage in emerging markets. However, Anammah believes many factors could determine whether such a shift will endure over the long term.

“The Covid-19 pandemic will encourage more people to move away from cash transactions to the extent that they have a choice,” she said.

“We have seen recently that many of our customers in Nigeria do not want to use cash if possible. This choice is based on multiple factors, such as access to devices with digital payments, and the cost of the transaction and payment solution. It is important to breakdown all these elements make sure the cost of digital transactions is sufficiently low to encourage more people to go digital,” she said.