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Will Covid-19 Containment Measures Accelerate SA’s Cashless Transition?

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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 and analysts are wondering to what extent COVID-19 containment measures would impact its match to a cashless society, writes the OXFORD BUSINESS GROUP.

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 per cent of all payments in the Kingdom by the end of the decade, up from 36 per cent 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,” general manager of AJIL Financial Services Company, Matar Al Khateeb 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 (US$2667) to SR20,000 (US$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 (US$27) to SR300 (US$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.

Sharjah’s 47-point stimulus plan to fight off Covid-19

As Covid-19 cases slowly rise across the UAE, Sharjah’s government has approved a comprehensive plan to shield its economy from the most negative consequences of the outbreak.

Sharjah, along with the other emirates, is undertaking an extensive testing programme for its population. As of April 13 the UAE as a whole had tested around 650,000 people, which is among the highest per capita rates globally. Drive-through testing centres have been set up in car parks across the country with the capacity to test 600 people per day at a cost of Dh375 (US$102) per person.

No statistics are available for individual emirates, but on a national level 4521 cases had been confirmed, with 25 deaths, as of April 13.

As part of wider social distancing measures, movement permits are now required for residents to travel for essential activities, with those violating stay-at-home orders liable for fines.

Travel restrictions also apply to international travelers. All passenger flights were suspended from midnight on March 23, a measure that is still in place for civil aviation operating out of Sharjah International Airport. Only cargo and charter flights for repatriation purposes are permitted.

Sharjah’s stimulus

While the restrictions on movement and public activities have been largely legislated nationally, the Sharjah government has also acted at the emirate level to protect its economy.

On March 31 the Sharjah Executive Council (SEC) announced a 47-point stimulus plan designed to support the emirate’s economy during the countrywide lockdown.

Measures applicable for businesses include a three-month exemption from business renewal fees this year. Tenants in buildings one and two of the Sharjah Chamber of Commerce and Industry (SCCI) complex have also been given a three-month exemption from rent payments starting in April, with the SCCI calling on other landlords in the emirate to adopt the same approach.

In addition, more specific measures have been introduced with a view to cutting bureaucracy while attempting to reduce overhead costs for firms in highly exposed sectors.

For companies in the transport sector, and in particular the air travel segment, a number of exemptions have been made.

Rental payments for airlines’ offices, warehouses and maintenance hangers have been reduced by 50 per cent, while Sharjah’s Air Arabia is exempt from paying the passenger facility charge, as well as aircraft landing fees, baggage check fees and airport entry permits for three months starting in April.

Similarly, a number of fees have been waived for companies in the logistics sector, as the need to facilitate deliveries and ensure consolidated supply chains is paramount for the health of both Sharjah’s economy and society.

Measures include removing inspection fees for all commercial companies, and excusing shipping and customs clearance firms from the bank guarantees required for them to operate legally. In addition, parking tariffs for trucks at Sharjah’s ports have been reduced by 50 per cent, while handling, shipping, unloading and marine fees pertaining to port operations have been reduced by 20 per cent.

Reworking essential business services

In the face of stringent social distancing measures, some entities integral to the emirate’s economy have implemented policies to ensure the continued operation of essential business services during the lockdown.

For instance, the SCCI has been able to provide its basic services online and, during the month of March, recorded 27 new membership applications and 440 membership renewals. The emirate’s free zones also increased their membership by 25 during the same month.

For other client needs, the chamber has launched the ‘You call, we arrive’ initiative. On request, the SCCI sends a van to carry out transactions with clients or members on an individual basis. It is capable of issuing memberships, certificates of origin and attestations – which all previously required an in-person visit to the SCCI.

Looking forward, the SEC has formed a committee to constantly monitor Sharjah’s public health and economic situation. It is headed by Sheikh Salem bin Abdul Rahman Al Qasimi, chairman of the Sharjah Ruler’s Office, and includes members from the Sharjah Finance Department and the Sharjah Economic Development Department, as well as three representatives from the private sector.

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