In the UAE, the domination of prepaid cards increased significantly in 2020. Cash remained the most preferred payment instrument in recent years. However, cash transactions are losing their momentum, primarily due to technological infrastructure development and security enhancement on the online transactions that allow consumers to make hassle-free transactions. Moreover, government push towards online transactions, popularity of gift card exchange in festivals, and payroll cards supported the prepaid card market to register strong growth. According to PayNXT360, despite near-term socio-economic challenges, the prepaid cards market growth is expected to remain strong from a medium to long-term perspective.
The number of online transactions increased many folds during the ongoing pandemic. Prolonged lockdown restrictions over people’s movement changed the usual buying pattern. Until 2019, the point-of-sale transactions made through cash was accounted for more than 60%; however, it was observed that the buying pattern transformed drastically during 2020. As consumers stayed at home and relied on e-commerce platforms for purchasing daily necessities, the volume of cash transactions declined subsequently. Additional factors such as hygiene and safety were also emerged as primary concerns for consumers to move towards digital payment systems. Consequently, it created a growth avenue for prepaid cards in the country.
The strong growth of the prepaid card market was also driven by the government-backed wage policy for migrant workers. Despite the fact that the country’s banking system is well spread, a large migrant population is out of the banking system. This was primarily due to the banking norms of maintaining a significant amount as average monthly balance. Therefore, government-backed wages policies allow corporates to transfer wages to employees’ payroll cards.
Increased mobile penetration also expanded the growth opportunity for prepaid card providers. A large tech-savvy population has shifted their preference towards mobile payment systems. Consequently, leading mobile wallet service providers such as Google Pay, Samsung Pay, and Apple Pay have established their presence in the UAE to capitalize on the trend. Moreover, conventional banking institutes are focusing on launching their mobile-based payment system. These banks are investing a considerable amount for their technology enhancement. The rising demand for mobile wallets has also encouraged fintech startups to enter the market.
The regulatory framework for the prepaid card market is quite structured and transparent in the country. With the government’s Vision 2021 program to make the country’s payment system more digital and transparent, fintech companies get extensive government support to enter the market and operate their businesses hustle-free. However, economic challenges in recent years affected the overall financial sector’s profitability. Additionally, the ongoing pandemic is creating financial uncertainties among consumers. Therefore, it is expected that prepaid card providers are likely to focus on their existing products and try to bring innovation to attract consumers in the short to medium term.
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