The world is getting smaller. In terms of reach at least. Thanks to the internet, cross-border commerce is growing fast and international payments are a whole lot easier and cheaper than they used to be. They are also faster. The international payment brands such as Visa, MasterCard, Discover and others, have helped fuel this growth and offer convenient and ubiquitous payment methods across the globe, make it easier for consumers to pay with confidence.
At the same time, we have witnessed, over the last decade or so (and even before), countries developing their own “national” payment schemes which, on the face of it, appear unnecessary if there already exist several global payment schemes offering both international and local payments. Prominent national payment schemes include China’s Union Pay, RuPay - the national payment scheme in India, and MIR the scheme in Russia. Union Pay, following in the footsteps of Chinese tourists, is now crossing borders, while others ‘co-badge’ with an international scheme partner for global acceptance.
Countries that have set-up national payment schemes argue there is no redundancy and national payment schemes, while providing healthy competition to their global counterparts at the domestic level, have very different objectives built around national economic and development needs.
One such market that has recently launched a national payment scheme is Egypt. The scheme called Meeza, which roughly means ‘merit” in Arabic, is directed at nudging the country’s economy away from cash towards digital payments with the ultimate aim of improving financial inclusion within the country. Though cash payments will continue to be dominant for some time to come, Meeza is expected to help grow as retailers realise the economic advantage of accepting card based electronic payments.
At a major payments and fintech event in Cairo in mid-June, the Seamless North Africa conference, focused on the future of banking, payments, and fintech, the Egyptian government and the Central Bank of Egypt, articulated the country’s fintech and financial inclusion strategies.
I was invited to host a discussion on the benefits and challenges of national payment schemes to local economies participated by C-level executives from Egyptian Banks Company who manage Meeza, MIR the Russian payment scheme, Saudi Arabia’s Mada, and Rupay from India. It would be difficult to summarise all the points made during the discussion, there were several, but I have jotted down three which from my personal point of view, stand out.
Though in some developed markets such as the United Kingdom, contactless card payments are increasingly replacing cash, in most parts of the world, our dependency on cash for small value payments is still significant. Many retailers or sellers of services do not accept cards. In Egypt the footprint of card acceptance is relatively small when one ventures outside urban areas. By structuring the national payment scheme in such a way that it is economically advantageous for even small retailers to accept cards, the central bank hopes to see an increase in consumers who utilise electronic means of payment and open and operate formal bank accounts. Following the well-known argument of network effects, when consumers realise they can pay with their cards across the country, they will begin to use them because they provide convenience and control (and of course rewards if available).
Government and central banks know that economic growth can only be spurred when the necessary economic infrastructure including an efficient payment infrastructure is made available to the private sector. By understanding user requirements and prioritising payment features, fintechs and start-ups and even large incumbents will be able to improvise and innovate for the benefit of both consumers and sellers. One must remember, that these are the two “users” of a payment system. The benefits of using the payment system must be clear to both users if the system is to grow and reach critical mass to reap economies of scale – an important factor as provider margins in payments are thin.
Apart from positioning a national payment system as central to their overall economic development agendas, governments can leverage national payment schemes for their own payment needs. In addition to making payments for government dues, benefits and subsidies can be disbursed using the scheme infrastructure. Egypt provides a whole bunch of benefits ranging from pensions to subsidies on bread and fuel. But there are also myriad systems that support these benefits. The national payment scheme will provide an opportunity, at some point, to support them with a common, national payment scheme.
The content of this article does not reflect the official opinion of Edgar, Dunn & Company. The information and views expressed in this publication belong solely to the author(s).