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How money moves

How money moves in United Arab Emirates

Written by

George Davis

on

Aug 23, 2023

/

How money moves

How money moves in United Arab Emirates

Written by

George Davis

on

Aug 23, 2023

/

How money moves

How money moves in United Arab Emirates

Written by

George Davis

on

Dec 13, 2023

How money moves: UAE
How money moves: UAE
How money moves: UAE

The short version

We’re kicking off our How Money Moves in MENA series by examining the current state of play of payments in the UAE. As the largest international payment center in the Middle East, it's fitting to begin here. Keep reading for an overview on payments schemes, regulations and opportunities for payment companies and Fintechs in the country…

The long version

The United Arab Emirates (UAE) is one of the world’s fastest growing and most active payment hubs. In 2020, the market was the world’s second largest outbound remittance location, behind the United States, and has quickly become favoured as a payment clearing hub for funds on their journey around the Middle East. Used as a stop-over on remittance journeys to smaller locations in the region, such as Lebanon, Jordan, and Bahrain, the UAE has some of the most profitable payments arms of Commercial Banks in the world.

At the center of money movements in the UAE, lies its currency - the United Arab Emirates dirham (AED). It boasts one of the globe’s most stable currencies, pegged to the United States dollar (USD) since 1997. The going rate is 3.67 AED to the dollar.

So, what is the benefit of USD pegging? Historically, this decision was based on the fruits of the oil-rich market, where the USD is the standard currency for oil transactions, increasing the convenience and stability of local trade. This associated stability of the Dirham attracts foreign investment in the region. The vast majority of currencies native to the Middle East are pegged to the dollar for similar reasons, coming with the added benefit of global investor confidence.

The UAE has a number of physical and digital payment schemes that enable the movement of money around the country:

  1. UAE Funds Transfer System (FTS): As the name suggests, this system enables money to move across banks through the UAE Central Bank System. In essence, it is the UAE’S Real Time Gross Settlement System (RTGS) which has been in use since the early 2000s. Every commercial bank is a member of the FTS system and it’s one of the most efficient payment schemes in the world, with most payments settling immediately.

  2. Wage Protection System (WPS): An electronic payment system designed specifically for the transfer of wages across the UAE. Managed by the central bank, the primary purpose of the system is to safeguard the rights of workers across the country by ensuring they receive salary payments of the correct value at the right time. All employers are required to pay wages through WPS, and all payments are remitted via the Ministry of Human Resources & Emiratisation.

  3. Direct Debit: A recurring (mostly monthly) payment, think of it as a digital “signed cheque” that enables transactions to be triggered automatically and paperless. The ease and automation reduces the cost of collection for both parties which was introduced by the CBUAE in 2013. Due to its late arrival to the market, unlike direct debit schemes in other countries around the world, the Direct Debit System has had low adoption in the market.

  4. Cheques: Unlike western markets, cheques prove to be a popular payment method for many in the country for daily payments from car purchases to rental agreements. Culturally, there is a perceived sense of security associated with the physical nature of a cheque. According to CBUAE data, there were over 20 million cheques cleared for 2022, which is largely consistent with the data of 2021. In the UAE, there are four types of cheques that are used:

    1. Self cheque: The common use case is for cash withdrawal, written and presented by the individual.

    2. Cash/Bearer cheque: The individual in possession of the cheque may receive payment.

    3. Order cheque: The individual whose name is listed on the cheque may receive payment.

    4. Account payee cheque: A type of cheque which may only be deposited into the account of the named recipient.

  5. Card payments: Despite its origins as a cash-dominant market, the UAE has witnessed an uptick in card payments over the years. Card payments were shown as the leading online payment method in the region, at 48% of total payments, closely followed by digital wallets at 23%.

When we review the demographic landscape for these payment schemes, a unique picture for the UAE emerges. The region has some of the youngest population in the world, with technology focussed Millenials and Gen Zs driving the push for a more innovative and digital payments market in the UAE. Their propensity for online shopping and digital payments demands the once traditional market to adapt to the new generation of tech-savvy consumers.

The large numbers of expats living in popular emirates, such as Dubai and Abu Dhabi, has led to a highly banked society. A recent PPRO WECE Report indicated 88% of the population have bank accounts and a further subset of 45% own credit cards, leading to the country skipping evolutions often found in other emerging markets such as mobile money and consumer digital wallets.

Some metrics showing UAE banking feature adoption

The location of the UAE and its financial market makes the country a popular hub for cross border payments. A crucial pillar of the UAE’s payments and banking market are the Exchange Houses that facilitate over 80% of all transactions involving a foreign currency. Notable exchange houses include Al Ansari Exchange and BFC Group Holdings. In 2020, the UAE sent over $43 billion in outbound remittances, with the most popular corridors being India (18%), Pakistan (9.5%), the Philippines (7.2%), Egypt (5.3%), the US (3.9%) and the UK (3.7%). The hub is such a popular clearing route for the region that in 2020 the UAE accounted for over 26% of Lebanon’s total GDP. 

Graph showing the break down of popular UAE remittance corridors in 2020

Cross border payments form such a core part of the economy in the UAE that the Central Bank is making plans to launch a “Digital Dirham” to facilitate more efficient cross border transfers, as part of the Financial Infrastructure Transformation program. The UAE intends to become one of the first countries in the world to operate a digital form of Central Bank money.

In recent years, local regulators in the UAE have made way for new entrants into the financial markets to allow for accelerated innovation in Payments. Whilst centrally regulated banks are the only direct members of payment schemes, partnership with Fintechs and payment companies have become far more common.  

The UAE has three regulators that regulate financial activity:

  1. The Central Bank of the United Arab Emirates (CBUAE) - the federal regulator, based in Abu Dhabi, responsible for regulating banks and any financial services provider that serves customers resident to the UAE.

  2. The Dubai Financial Services Authority (DFSA) - an offshore regulator, based in the Dubai International Financial Centre (DIFC) freezone, responsible for regulating financial services providers that base their operations in the DIFC. The DFSA does not regulate onshore activities, and banks regulated by the DFSA are not permitted to hold or operate in AED.

  3. The Financial Services Regulatory Authority (FSRA) - an offshore regulator, based in the Abu Dhabi Global Market (ADGM) freezone, responsible for regulating financial services providers that base their operations in ADGM. The FSRA does not regulate onshore activities, and banks regulated by the FSRA are not permitted to hold or operate in AED.

The financial free zones, DIFC and ADGM, were set up to quickly allow for international financial businesses to base in the UAE and is home to many Investment Funds, International Investment Banks, and Fintechs providing cross border services. Payment Service Providers (PSPs) based in these free zones will often hold a Category 3c Money Services Business license. To operate in AED and serve UAE residents, these companies must partner with institutions that are regulated by the CBUAE. 

The principle regulator, CBUAE, has two licensing regimes that are relevant to payment companies:

  1. Retail Payment Services & Card Schemes (RPSCS) - a license for payment companies facilitating the collection and remittance of funds, including provisions for companies operating in cryptocurrency. Similar to Authorized Payment Institution licensing in the UK, EU and other Middle Eastern countries such as the Kingdom of Saudi Arabia (KSA).

  2. Stored Value Facilitator (SVF) - a license for holding funds, similar to E-Money in the UK, EU and other Middle Eastern countries such as KSA.

Unlike in Europe, providers looking to both accept payments and store value must achieve both licenses.

With a forward thinking regulator, a thriving payments market, and a rapidly growing economy, the UAE presents an exciting expansion opportunity for international payments businesses. If you’re considering the UAE as a future market, reach out to Fuse to support and partner with you on your journey to unlocking MENA.

The United Arab Emirates (UAE) is one of the world’s fastest growing and most active payment hubs. In 2020, the market was the world’s second largest outbound remittance location, behind the United States, and has quickly become favoured as a payment clearing hub for funds on their journey around the Middle East. Used as a stop-over on remittance journeys to smaller locations in the region, such as Lebanon, Jordan, and Bahrain, the UAE has some of the most profitable payments arms of Commercial Banks in the world.

At the center of money movements in the UAE, lies its currency - the United Arab Emirates dirham (AED). It boasts one of the globe’s most stable currencies, pegged to the United States dollar (USD) since 1997. The going rate is 3.67 AED to the dollar.

So, what is the benefit of USD pegging? Historically, this decision was based on the fruits of the oil-rich market, where the USD is the standard currency for oil transactions, increasing the convenience and stability of local trade. This associated stability of the Dirham attracts foreign investment in the region. The vast majority of currencies native to the Middle East are pegged to the dollar for similar reasons, coming with the added benefit of global investor confidence.

The UAE has a number of physical and digital payment schemes that enable the movement of money around the country:

  1. UAE Funds Transfer System (FTS): As the name suggests, this system enables money to move across banks through the UAE Central Bank System. In essence, it is the UAE’S Real Time Gross Settlement System (RTGS) which has been in use since the early 2000s. Every commercial bank is a member of the FTS system and it’s one of the most efficient payment schemes in the world, with most payments settling immediately.

  2. Wage Protection System (WPS): An electronic payment system designed specifically for the transfer of wages across the UAE. Managed by the central bank, the primary purpose of the system is to safeguard the rights of workers across the country by ensuring they receive salary payments of the correct value at the right time. All employers are required to pay wages through WPS, and all payments are remitted via the Ministry of Human Resources & Emiratisation.

  3. Direct Debit: A recurring (mostly monthly) payment, think of it as a digital “signed cheque” that enables transactions to be triggered automatically and paperless. The ease and automation reduces the cost of collection for both parties which was introduced by the CBUAE in 2013. Due to its late arrival to the market, unlike direct debit schemes in other countries around the world, the Direct Debit System has had low adoption in the market.

  4. Cheques: Unlike western markets, cheques prove to be a popular payment method for many in the country for daily payments from car purchases to rental agreements. Culturally, there is a perceived sense of security associated with the physical nature of a cheque. According to CBUAE data, there were over 20 million cheques cleared for 2022, which is largely consistent with the data of 2021. In the UAE, there are four types of cheques that are used:

    1. Self cheque: The common use case is for cash withdrawal, written and presented by the individual.

    2. Cash/Bearer cheque: The individual in possession of the cheque may receive payment.

    3. Order cheque: The individual whose name is listed on the cheque may receive payment.

    4. Account payee cheque: A type of cheque which may only be deposited into the account of the named recipient.

  5. Card payments: Despite its origins as a cash-dominant market, the UAE has witnessed an uptick in card payments over the years. Card payments were shown as the leading online payment method in the region, at 48% of total payments, closely followed by digital wallets at 23%.

When we review the demographic landscape for these payment schemes, a unique picture for the UAE emerges. The region has some of the youngest population in the world, with technology focussed Millenials and Gen Zs driving the push for a more innovative and digital payments market in the UAE. Their propensity for online shopping and digital payments demands the once traditional market to adapt to the new generation of tech-savvy consumers.

The large numbers of expats living in popular emirates, such as Dubai and Abu Dhabi, has led to a highly banked society. A recent PPRO WECE Report indicated 88% of the population have bank accounts and a further subset of 45% own credit cards, leading to the country skipping evolutions often found in other emerging markets such as mobile money and consumer digital wallets.

Some metrics showing UAE banking feature adoption

The location of the UAE and its financial market makes the country a popular hub for cross border payments. A crucial pillar of the UAE’s payments and banking market are the Exchange Houses that facilitate over 80% of all transactions involving a foreign currency. Notable exchange houses include Al Ansari Exchange and BFC Group Holdings. In 2020, the UAE sent over $43 billion in outbound remittances, with the most popular corridors being India (18%), Pakistan (9.5%), the Philippines (7.2%), Egypt (5.3%), the US (3.9%) and the UK (3.7%). The hub is such a popular clearing route for the region that in 2020 the UAE accounted for over 26% of Lebanon’s total GDP. 

Graph showing the break down of popular UAE remittance corridors in 2020

Cross border payments form such a core part of the economy in the UAE that the Central Bank is making plans to launch a “Digital Dirham” to facilitate more efficient cross border transfers, as part of the Financial Infrastructure Transformation program. The UAE intends to become one of the first countries in the world to operate a digital form of Central Bank money.

In recent years, local regulators in the UAE have made way for new entrants into the financial markets to allow for accelerated innovation in Payments. Whilst centrally regulated banks are the only direct members of payment schemes, partnership with Fintechs and payment companies have become far more common.  

The UAE has three regulators that regulate financial activity:

  1. The Central Bank of the United Arab Emirates (CBUAE) - the federal regulator, based in Abu Dhabi, responsible for regulating banks and any financial services provider that serves customers resident to the UAE.

  2. The Dubai Financial Services Authority (DFSA) - an offshore regulator, based in the Dubai International Financial Centre (DIFC) freezone, responsible for regulating financial services providers that base their operations in the DIFC. The DFSA does not regulate onshore activities, and banks regulated by the DFSA are not permitted to hold or operate in AED.

  3. The Financial Services Regulatory Authority (FSRA) - an offshore regulator, based in the Abu Dhabi Global Market (ADGM) freezone, responsible for regulating financial services providers that base their operations in ADGM. The FSRA does not regulate onshore activities, and banks regulated by the FSRA are not permitted to hold or operate in AED.

The financial free zones, DIFC and ADGM, were set up to quickly allow for international financial businesses to base in the UAE and is home to many Investment Funds, International Investment Banks, and Fintechs providing cross border services. Payment Service Providers (PSPs) based in these free zones will often hold a Category 3c Money Services Business license. To operate in AED and serve UAE residents, these companies must partner with institutions that are regulated by the CBUAE. 

The principle regulator, CBUAE, has two licensing regimes that are relevant to payment companies:

  1. Retail Payment Services & Card Schemes (RPSCS) - a license for payment companies facilitating the collection and remittance of funds, including provisions for companies operating in cryptocurrency. Similar to Authorized Payment Institution licensing in the UK, EU and other Middle Eastern countries such as the Kingdom of Saudi Arabia (KSA).

  2. Stored Value Facilitator (SVF) - a license for holding funds, similar to E-Money in the UK, EU and other Middle Eastern countries such as KSA.

Unlike in Europe, providers looking to both accept payments and store value must achieve both licenses.

With a forward thinking regulator, a thriving payments market, and a rapidly growing economy, the UAE presents an exciting expansion opportunity for international payments businesses. If you’re considering the UAE as a future market, reach out to Fuse to support and partner with you on your journey to unlocking MENA.

The United Arab Emirates (UAE) is one of the world’s fastest growing and most active payment hubs. In 2020, the market was the world’s second largest outbound remittance location, behind the United States, and has quickly become favoured as a payment clearing hub for funds on their journey around the Middle East. Used as a stop-over on remittance journeys to smaller locations in the region, such as Lebanon, Jordan, and Bahrain, the UAE has some of the most profitable payments arms of Commercial Banks in the world.

At the center of money movements in the UAE, lies its currency - the United Arab Emirates dirham (AED). It boasts one of the globe’s most stable currencies, pegged to the United States dollar (USD) since 1997. The going rate is 3.67 AED to the dollar.

So, what is the benefit of USD pegging? Historically, this decision was based on the fruits of the oil-rich market, where the USD is the standard currency for oil transactions, increasing the convenience and stability of local trade. This associated stability of the Dirham attracts foreign investment in the region. The vast majority of currencies native to the Middle East are pegged to the dollar for similar reasons, coming with the added benefit of global investor confidence.

The UAE has a number of physical and digital payment schemes that enable the movement of money around the country:

  1. UAE Funds Transfer System (FTS): As the name suggests, this system enables money to move across banks through the UAE Central Bank System. In essence, it is the UAE’S Real Time Gross Settlement System (RTGS) which has been in use since the early 2000s. Every commercial bank is a member of the FTS system and it’s one of the most efficient payment schemes in the world, with most payments settling immediately.

  2. Wage Protection System (WPS): An electronic payment system designed specifically for the transfer of wages across the UAE. Managed by the central bank, the primary purpose of the system is to safeguard the rights of workers across the country by ensuring they receive salary payments of the correct value at the right time. All employers are required to pay wages through WPS, and all payments are remitted via the Ministry of Human Resources & Emiratisation.

  3. Direct Debit: A recurring (mostly monthly) payment, think of it as a digital “signed cheque” that enables transactions to be triggered automatically and paperless. The ease and automation reduces the cost of collection for both parties which was introduced by the CBUAE in 2013. Due to its late arrival to the market, unlike direct debit schemes in other countries around the world, the Direct Debit System has had low adoption in the market.

  4. Cheques: Unlike western markets, cheques prove to be a popular payment method for many in the country for daily payments from car purchases to rental agreements. Culturally, there is a perceived sense of security associated with the physical nature of a cheque. According to CBUAE data, there were over 20 million cheques cleared for 2022, which is largely consistent with the data of 2021. In the UAE, there are four types of cheques that are used:

    1. Self cheque: The common use case is for cash withdrawal, written and presented by the individual.

    2. Cash/Bearer cheque: The individual in possession of the cheque may receive payment.

    3. Order cheque: The individual whose name is listed on the cheque may receive payment.

    4. Account payee cheque: A type of cheque which may only be deposited into the account of the named recipient.

  5. Card payments: Despite its origins as a cash-dominant market, the UAE has witnessed an uptick in card payments over the years. Card payments were shown as the leading online payment method in the region, at 48% of total payments, closely followed by digital wallets at 23%.

When we review the demographic landscape for these payment schemes, a unique picture for the UAE emerges. The region has some of the youngest population in the world, with technology focussed Millenials and Gen Zs driving the push for a more innovative and digital payments market in the UAE. Their propensity for online shopping and digital payments demands the once traditional market to adapt to the new generation of tech-savvy consumers.

The large numbers of expats living in popular emirates, such as Dubai and Abu Dhabi, has led to a highly banked society. A recent PPRO WECE Report indicated 88% of the population have bank accounts and a further subset of 45% own credit cards, leading to the country skipping evolutions often found in other emerging markets such as mobile money and consumer digital wallets.

Some metrics showing UAE banking feature adoption

The location of the UAE and its financial market makes the country a popular hub for cross border payments. A crucial pillar of the UAE’s payments and banking market are the Exchange Houses that facilitate over 80% of all transactions involving a foreign currency. Notable exchange houses include Al Ansari Exchange and BFC Group Holdings. In 2020, the UAE sent over $43 billion in outbound remittances, with the most popular corridors being India (18%), Pakistan (9.5%), the Philippines (7.2%), Egypt (5.3%), the US (3.9%) and the UK (3.7%). The hub is such a popular clearing route for the region that in 2020 the UAE accounted for over 26% of Lebanon’s total GDP. 

Graph showing the break down of popular UAE remittance corridors in 2020

Cross border payments form such a core part of the economy in the UAE that the Central Bank is making plans to launch a “Digital Dirham” to facilitate more efficient cross border transfers, as part of the Financial Infrastructure Transformation program. The UAE intends to become one of the first countries in the world to operate a digital form of Central Bank money.

In recent years, local regulators in the UAE have made way for new entrants into the financial markets to allow for accelerated innovation in Payments. Whilst centrally regulated banks are the only direct members of payment schemes, partnership with Fintechs and payment companies have become far more common.  

The UAE has three regulators that regulate financial activity:

  1. The Central Bank of the United Arab Emirates (CBUAE) - the federal regulator, based in Abu Dhabi, responsible for regulating banks and any financial services provider that serves customers resident to the UAE.

  2. The Dubai Financial Services Authority (DFSA) - an offshore regulator, based in the Dubai International Financial Centre (DIFC) freezone, responsible for regulating financial services providers that base their operations in the DIFC. The DFSA does not regulate onshore activities, and banks regulated by the DFSA are not permitted to hold or operate in AED.

  3. The Financial Services Regulatory Authority (FSRA) - an offshore regulator, based in the Abu Dhabi Global Market (ADGM) freezone, responsible for regulating financial services providers that base their operations in ADGM. The FSRA does not regulate onshore activities, and banks regulated by the FSRA are not permitted to hold or operate in AED.

The financial free zones, DIFC and ADGM, were set up to quickly allow for international financial businesses to base in the UAE and is home to many Investment Funds, International Investment Banks, and Fintechs providing cross border services. Payment Service Providers (PSPs) based in these free zones will often hold a Category 3c Money Services Business license. To operate in AED and serve UAE residents, these companies must partner with institutions that are regulated by the CBUAE. 

The principle regulator, CBUAE, has two licensing regimes that are relevant to payment companies:

  1. Retail Payment Services & Card Schemes (RPSCS) - a license for payment companies facilitating the collection and remittance of funds, including provisions for companies operating in cryptocurrency. Similar to Authorized Payment Institution licensing in the UK, EU and other Middle Eastern countries such as the Kingdom of Saudi Arabia (KSA).

  2. Stored Value Facilitator (SVF) - a license for holding funds, similar to E-Money in the UK, EU and other Middle Eastern countries such as KSA.

Unlike in Europe, providers looking to both accept payments and store value must achieve both licenses.

With a forward thinking regulator, a thriving payments market, and a rapidly growing economy, the UAE presents an exciting expansion opportunity for international payments businesses. If you’re considering the UAE as a future market, reach out to Fuse to support and partner with you on your journey to unlocking MENA.

George Davis, Fuse Co-Founder & CEO
George Davis, Fuse Co-Founder & CEO

George Davis

, Co-Founder & CEO

at Fuse

George Davis

, Co-Founder & CEO

Co-Founder & CEO

at Fuse

Fuse

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