【Industry Observation】China's payment industry is in the United Arab Emirates

Ma Jinzhu works for UnionPay Commerce Co., Ltd

Editor-in-charge|Yang Qi

The United Arab Emirates (hereinafter referred to as "the United Arab Emirates") is located in the east of the Arabian Peninsula, bordering Saudi Arabia in the west and south, Oman in the east and northeast, the Persian Gulf in the north, and Iran across the sea. Since the establishment of diplomatic relations 40 years ago, China and the United Arab Emirates (UAE) have carried out practical cooperation in various fields, and established a comprehensive strategic partnership in 2018. Currently, the UAE is China's largest export market and second largest trading partner in the Arab world, as well as China's sixth largest source of crude oil imports. The UAE actively participates in the Belt and Road Initiative and joins the founding members of the Asian Infrastructure Investment Bank and the BRICS, which is a target market worthy of vigorous development of China's payment industry.

01

The UAE is entering the era of cashless payments

The UAE is one of the world's most open and wealthy economies, with two international financial centers in Abu Dhabi and Dubai, and extensive connections to business enterprises from Asian and African countries. According to 2022 data, the total population of the UAE exceeds 10 million, of which about 90% are foreigners, and the per capita GDP is as high as 77,000 US dollars, comparable to that of G7 countries. The UAE has a fast-growing payments industry and is a frontrunner in cashless payments in the Gulf region. According to the 2020 survey, 97% of SMEs surveyed in the UAE use digital payment systems, and 77% of consumers surveyed prefer cashless transactions, both of which are higher than the global average for that year. Bank cards are the most preferred non-cash payment method in the UAE, with 60% of the 13 million cards currently in circulation being debit cards and 40% credit cards, with major brands including UnionPay, Visa, MasterCard and American Express. E-wallets and mobile payment apps are popular among people in the UAE. A number of UAE-owned e-wallets are active, including Emirates NBD Pay under Emirates NBD, Mashreq Pay by Mashreq Bank, Payit by First Abu Dhabi Bank (FAB), Ewallet by Etisalat, Enocpay by ENOC, Carrefour Middle East brand users MAF's Share Wallet and Beam Wallet, and car service provider Careem's e-wallet Careem Pay. In addition, 16 Emirates commercial banks are involved in the development of the Emirates Digital Wallet led by the Emirates Federation of Banks, the Emirates Digital Wallet Limited develops and operates Klip, an app with multiple functions such as consumer transactions, money storage and remittance, and BOTIM, the largest instant messaging app in the UAE, has launched a mobile payment app with PayBy, Visa, MasterCard and UnionPay. These apps, along with payment brands such as Samsung Pay, Apple Pay, and UnionPass, form part of the UAE's diversified digital payment landscape.

The UAE's government departments and financial regulators are working together to build financial payment infrastructure and strive to improve the country's payment industry structure. In 2022, the UAE government set up the "Cashless Dubai Working Group" to develop a roadmap for building a cashless society, gradually transferring existing payment transactions in all walks of life in Dubai to a safer and more convenient cashless trading platform, and striving to achieve cashless for all transactions by 2030. In 2023, Al Etihad Payments, a subsidiary of the Central Bank of the UAE, launched Aani, an instant payment platform, to facilitate licensed financial institutions and payment service providers to provide consumers, businesses and government entities with seamless, secure and instant digital payment features such as domestic phone number transfers, payment requests, split bills, QR code payments, and more, in the future, real-time direct debit, e-check, cross-border instant payments, and more. Emirates National Bank of Dubai, Mashreg Bank, First Abu Dhabi Bank, Abu Dhabi Commercial Bank, Al Fardan Exchange, Finance House, Habib Bank AG Zurich and National Bank of Fujairah Fujairah) became one of the first commercial banks to be approved to provide Aani services. THE UAE FEDERAL AUTHORITY, CITIZENSHIP, CUSTOMS, AND PORT SECURITY AUTHORITY HAS LAUNCHED "ECHANNELS", A SMART SERVICE SYSTEM THAT SUPPORTS THE ACCESS OF EMERGING PAYMENT METHODS SUCH AS APPLE PAY, SAMSUNG PAY, AND GOOGLE PAY, SIMPLIFYING THE PAYMENT PROCESS AND DELIVERING A SECURE, CONVENIENT AND NO-EXTRA PAYMENT EXPERIENCE TO THE WORLD. The relevant departments of the UAE have also developed the Camel Payment system based on blockchain technology, taking advantage of the opportunity of domestic oil business management transformation to comprehensively upgrade and replace the traditional payment model, stimulate the growth of local technology enterprises, trigger global financial technology innovation competition, reduce the country's dependence on foreign financial institutions and the US dollar clearing system, and strengthen financial cooperation in the "Global South". The UAE Cabinet has passed a proposal to connect the payment systems of all GCC member states, further integrate the cashless transaction network in the Gulf region, and strengthen the UAE's central position in multilateral trade in the Gulf region. The UAE is committed to achieving regional financial connectivity, co-launching the digital currency project Aber with neighboring Saudi Arabia, participating in the construction of Buna, a multi-currency transaction payment platform between Arab Monetary Fund member countries, and connecting the Gulf countries AFAQ real-time general settlement system. The UAE has long been concerned about the development of central bank digital currency, and is committed to introducing blockchain technology into the cross-border payment and clearing and settlement business of central bank digital currency. The Multilateral Central Bank Digital Currency Bridge (Project mBridge) project initiated by the Central Bank of the United Arab Emirates and the Bank for International Settlements, the Hong Kong Monetary Authority, the Central Bank of Thailand and the Digital Currency Institute of the People's Bank of China is progressing well and will enter the stage of minimum feasibility product development and implementation in 2023. China's payment industry should cooperate with the UAE to build a cashless society, connect with the infrastructure and solutions of the Chinese and Arab payment industries, jointly expand the scale of the digital economy of the two countries, and enhance the international discourse power of China's payment standards and rules.

02

Advantages and opportunities for China's payment industry to enter the UAE market

China's payment industry is gradually gaining a foothold in the UAE market. The UnionPay brand has been in the UAE market for more than 10 years. In 2011, UnionPay partnered with Network International, an acquirer controlled by the National Bank of Dubai, an emirate, and in 2012, half of the ATMs and POS terminals in the country accepted UnionPay cards, covering Dubai and Abu Dhabi. In 2012, Dubai Commercial Bank and UnionPay agreed to issue the first AED (UAE currency)/RMB dual-currency UnionPay branded debit card in the Gulf region. IN 2016, UNIONPAY COOPERATED WITH UAE SWITCH, A TRANSIT NETWORK UNDER THE CENTRAL BANK OF THE UAE EMIRATES, TO COMPLETE THE FULL ACCEPTANCE OF UNIONPAY CARDS IN THE LOCAL ATM NETWORK. In the same year, UnionPay cooperated with MINT, a financial services group in the United Arab Emirates, to issue the first UnionPay chip card and UnionPay brand payroll card in the UAE for daily consumption and cross-border payments. As of 2018, MINT has issued more than 550,000 UnionPay brand payroll cards, achieving the goal of full online and offline acceptance of UnionPay cards, and playing a good role as a model for other mainstream institutions in the Middle East to issue UnionPay cards. In 2019, UnionPay reached a QR code acceptance cooperation with Emirates Network International and Masrego Bank, adding 15,000 merchants supporting UnionPay QR code services that year, facilitating UnionPay users to use UnionPay brand mobile payment in the UAE. In 2021, UnionPay established a strategic partnership with PayTabs, a payment solutions giant in the Middle East, to enable UnionPay cardholders to access the PayTabs merchant network in the UAE and access booking services such as taxis, restaurants and hotels, improving the checkout experience and increasing the conversion rate of online sales. IN 2023, UNIONPAY WILL REACH AN AGREEMENT WITH RAK BANK TO ENABLE THE QUICKPASS FUNCTION FOR ALL MERCHANTS UNDER THE LATTER'S RANKS, HELPING THE UAE BECOME THE FIRST COUNTRY IN THE MIDDLE EAST TO SUPPORT THE UNIONPAY QUICKPASS FUNCTION AT ALL MERCHANT POS TERMINALS. UnionPay has also launched a variety of UnionPay standard wallets to provide more local residents with convenient payment services such as card tapping, QR code scanning, and "waving" machine flash pass, and released products such as UnionPay PaybyLink and SoftPOS to support local small and micro merchants to provide consumers with payment collection services through SMS links or smartphone terminals, reducing the cost of merchants accessing the UnionPay network and improving their digital service capabilities.

Other Chinese fintech companies are also entering the UAE payment market. Huawei is involved in the development of the UAE payment market. In 2017, Huawei signed a global strategic cooperation agreement with Dubai Tourism Authority to enable Huawei Skyline users to access products and services in Dubai, such as cardless Internet access, hotel reservations, car rentals, guidebook recommendations, and customized tours. In 2023, Huawei signed a 5.5G strategic cooperation memorandum with DU in the UAE to discuss end-to-end network evolution, help DU continue to enhance user experience, and lead the construction of a 5.5G ecosystem in the UAE market. In the same year, Huawei signed a letter of intent with 24 leading business partners in the Middle East and Africa, including Emirates, to cooperate with Petal Ads. In 2023, OneConnect, China's leading fintech company, will cooperate with the Abu Dhabi International Financial Centre to launch Numou, a digital platform for SME financing, attracting a series of partners including Ras Al Khaimah National Bank, Al Maryah Community Bank, International Commercial Bank (CBI), CredibleX, Khalifa Fund and Mastercard. Inclusive marketplace for community and government partners and SMEs.

The UAE government supports the development of the country's and region's digital economy. Currently, the UAE's digital economy contributes 9.7% to GDP. In April 2022, the UAE adopted a digital economy strategy that aims to double the contribution of the digital economy to GDP over the next 10 years. The strategy proposes more than 30 initiatives and plans for six sectors and five new growth areas, with the aim of regularly assessing the development of the UAE's digital economy through a unified mechanism, ensuring that other sectors support the development of the digital economy, and establishing the UAE as a digital economy hub in the Middle East and the world. The Central Bank of the UAE has formulated the "Financial Infrastructure Transformation Plan (FIT Plan)", which includes the launch of the instant payment platform Aani, the domestic credit card solution, the eKYC platform, the central bank digital currency, open finance, surveillance technology, innovation center, financial cloud, and excellence and customer experience, a total of nine key initiatives. The UAE government has also continued to develop and improve a series of rules and regulations applicable to the digital economy, including the Consumer Protection Law, the Personal Data Protection Law and the Commerce (Electronic Commerce) Law through Modern Technological Means. The Central Bank of the UAE has specifically legislated for the Buy Now Pay Later (BNPL) to specify that licensed banks or nominee entities of financial institutions may engage in BNPL business, while unlicensed entities engaged in BNPL business should apply for a license from the Central Bank of the UAE to become a financial company with a restricted licence or to cooperate with a licensed bank to conduct business. The UAE Financial Services Regulatory Authority has responded to the significant changes made by the Financial Action Task Force (FATF) on Money Laundering in the field of digital asset trading, revising the Anti-Money Laundering Rules and Guidelines to formally define digital assets as a recognized payment method. The UAE is also working with China and other countries in the Middle East to advance digital economy and cybersecurity governance. The UAE government is adept at bringing together regional and global forces to build a digital economy. In December 2017, the UAE, China, Saudi Arabia and other countries jointly launched the Belt and Road Initiative for International Cooperation on Digital Economy, providing guidance for strengthening cooperation in the digital economy and jointly building the Digital Silk Road. In March 2021, the League of Arab States (UAE), to which the UAE is a member, and China launched the China-Arab States Cooperation Initiative on Data Security, contributing wisdom and strength to global digital governance. China's payment industry should make good use of the digital economy policy dividends released by the UAE, bring the practice of China's payment industry to the local market of the UAE, and help the digital economy of China and UAE go hand in hand.

03

Key issues for China's payment industry to develop the UAE market

Promote payment products and services with Chinese standards and rules. China's payment industry can facilitate payments for Chinese consumers traveling to or transiting in the UAE. According to the "2023 China Outbound Travel Trends and Digitalization Survey" released by Nanyang Technological University in Singapore, 94% of Chinese tourists have a stronger willingness to spend when they arrive at destinations where mobile payment is available, 84% of Chinese tourists prefer mobile payment for outbound travel, and the mobile payment checkout rate for popular tourist scenarios such as shopping, tax refund, restaurants, and ticket purchases exceeds 60%. From 2012 to 2022, China has consistently ranked among the top five source markets for Dubai, with 177,000 Chinese tourists visiting Dubai in 2022, an increase of 131% over 2021. Dubai Airports predicts that the number of Chinese tourists arriving at Dubai Airport will grow at a compound annual growth rate of nearly 10% over the next 10 years, far outpacing the growth rate of tourists from other countries and regions around the world. Building on the existing partnerships between financial institutions and payment service providers in the UAE, China's payment industry should expand the acceptance of Chinese payment products and services at airports, hotels and tourist attractions, and introduce new payment methods that are efficient and convenient to speed up the checkout of consumption in these high-traffic areas. For example, UnionPay has cooperated with Huawei to "HarmonyOS" service capabilities, fully launched HarmonyOS native adaptations such as the "UnionPay SDK", UnionPay SDK, and Ride Code SDK, loaded basic user functions such as registration, login, card binding, and card management, added payment functions such as QR codes and online controls, and launched value-added services such as transfers, repayments, and rides. Once mature, the service will be piloted in major airports, hotels and tourist attractions in the UAE, and will be rolled out throughout the UAE and gradually extended to other countries in the Middle East. China's payment industry can also cooperate with airlines operating flights between China and the UAE to embed payment products and services in the process of waiting, boarding, flying and arriving for passengers, so as to provide smooth payment services for Chinese passengers throughout their travel to the UAE.

China's payment industry can use next-generation information technology to provide customized payment solutions for UAE business enterprises. For example, China's payment industry already has a mature biometric authentication payment system and practice, and in accordance with the requirements of the UAE's Consumer Protection Law, Personal Data Protection Law and Commerce (E-commerce) Law through Modern Technological Means, it can follow the example of Carrefour's cooperation with Network International and PopID to jointly promote face payment in Carrefour supermarkets in the United Arab Emirates. Fingerprint payment and other biometric authentication payment methods provide merchants with relevant fund settlement and management, as well as consumer overseas data processing and management. The relevant experience can be extended to other commercial enterprises and places in the UAE with the gradual growth of the flow of materials, capital, information and personnel between China and the UAE. China's payment industry can also work with local enterprises to launch mature enterprise-level digital solutions within the China-Arab Production Capacity Cooperation Demonstration Park in Abu Dhabi and the China-Arab cooperation projects in Dubai's 45 free trade zones. In 2023, Etisalat and Network International Partnership launched uTap, a payment solution that delivers omni-channel seamless payment management and business automation solutions to businesses. China's payment industry can cooperate with local payment institutions such as Etisalat and Network International to provide innovative products and services, and expand the scale of direct conversion between RMB and dirhams. China's payment industry can also explore and practice AI applications in the UAE, and embed AI products and services with Chinese standards and rules into the UAE business community as soon as possible. Relevant institutions and enterprises can refer to Mastercard's "Advanced Artificial Intelligence and Network Technology Center" launched in Dubai to build a Chinese version of the AI service system in the UAE, focusing on combating financial crime, maintaining the digital ecosystem, expanding the investment of Chinese enterprises in the UAE, cultivating AI talents for the local area, and strengthening technology and personnel exchanges between China and UAE.

With cross-border e-commerce as the entry point, we will comprehensively create a payment ecological environment with Chinese standards and rules. The UAE e-commerce market is growing day by day. In 2023, the UAE will become the 27th largest e-commerce market in the world, with a size of more than $10 billion, a penetration rate of 79.2%, and an average revenue per user (ARPU) of $1,355, ahead of Saudi Arabia. The UAE e-commerce market is expected to grow at a CAGR of 7.7% by 2027, reach a market size of $13.7 billion, and grow to 82% penetration, with active market players including Amazon, AliExpress, JD.com, Shein, Fordeal, Ajmall, TikTok, Noon, Namshi, Jumbo Electronics, as well as Carrefour and Lulu The online shopping sites launched by the groups have huge market potential.

The Chinese payments industry can significantly promote online payments in the UAE. E-commerce platforms in the Middle East have been using cash on delivery to enhance people's trust in online shopping. The cash on delivery model has problems such as high operating costs, frequent delayed payments, high probability of returns, high cash handling prices, increased risk of fraud, and limited scale development. Online payments can circumvent these problems and have made significant progress in the UAE. In 2020, cash on delivery payment transactions in the UAE fell by 75%, while online payment usage increased by 98% and will rise further. The Chinese payment industry can work with licensed financial institutions that already have partnerships in the UAE to deliver Chinese-branded payment solutions to Chinese-backed e-commerce platforms and local e-commerce platforms that Chinese sellers prefer to settle in. For example, Noon, the second largest online shopping site in the United Arab Emirates, set up a transit warehouse in Shenzhen in 2018, and has gradually become an important platform for the flow of goods, information and capital between China and Argentina. China's payment industry can provide payment options for platforms represented by Noon, smooth the online shopping and payment process for local people, create a safe and reliable online shopping payment environment, upgrade the online shopping experience of UnionPay cardholders, expand the acceptance scenarios and scope of UnionPay cards in the local area, and increase the number of local UnionPay cards. China's payment industry may cooperate with leading "buy now, pay later" companies in the Middle East such as Tamara and Tabby to provide installment payment services for the UAE people to purchase larger amounts of goods and services, attract more local people to use Chinese brand payment services, and guide the full transition from cash to payment in the Middle East countries with the popularity of online payment in the UAE, and accelerate the construction of a cashless society in the UAE.

China's payment industry can actively participate in the development of social e-commerce in the UAE. Data shows that in 2022, the number of social media users in the UAE is close to 10 million, each person spends more than 2 hours a day on social media, and 70% of users are men with purchasing power. According to Research and Markets, the total value of social e-commerce transactions in the UAE will increase from US$975.2 million in 2023 to US$2,898.7 million in 2028, with a CAGR of 19.9%. China's payment industry can prioritize the acceptance of UnionPay cards, UnionPay and other Chinese brand payment options for Chinese-backed social e-commerce platforms such as TikTok, so as to cultivate the habit of using Chinese payment methods in the social e-commerce process and make other social e-commerce platforms compatible with China's digital payment solutions. The rise of social media in China can also be promoted to the UAE through the use of local Chinese businessmen, effectively expanding the international user base, attracting various brands to settle in, facilitating digital advertising, fully tapping the e-commerce function of social media, promoting the wide acceptance of Chinese payment methods in the UAE, and promoting the direct exchange of RMB and dirhams.

China's payment industry also needs to rely on the new generation of information technology to help the UAE build a modern logistics and transportation system. The UAE is mainly composed of deserts, mountains and depressions, with deserts above 200 meters above sea level accounting for 65% of the total area of the UAE, most of the population is mainly concentrated in urban areas, and some remote areas have slow logistics timeliness and high costs. For example, China has listed the low-altitude economy as one of the strategic emerging industries, and the industry is expected to enter a golden period of development. Unmanned aerial vehicle (UAV) delivery is likely to become the earliest large-scale application of the low-altitude economy. In 2022, the average delivery time of drones in China is about 12 minutes, which is about 150% more efficient than the traditional model. According to Meituan data, as of November 2023, Meituan drones have landed 22 routes in eight business districts in Shenzhen, Shanghai and other cities, and have completed more than 210,000 user orders. China's payment industry can cooperate with Huawei, Etisalat and other institutions to gradually introduce low-altitude economic applications such as drone delivery into the UAE's e-commerce delivery scenarios, empower local platforms to solve the "last mile" problem, and carry out low-altitude economic cooperation with the UAE to strengthen the landing and development of China's new quality productivity in the UAE and even the Middle East.

Strengthen the digital currency cooperation between the central bank of China and the Arab States and accelerate the internationalization of the RMB. China and the UAE continue to work closely together in the field of digital currency. In November 2023, the People's Bank of China and the Central Bank of the United Arab Emirates signed a Memorandum of Understanding on Strengthening Central Bank Digital Currency Cooperation under the Multilateral Central Bank Digital Currency Bridge Project. The Central Bank of the UAE and the Hong Kong Monetary Authority (HKMA) have agreed to strengthen co-operation in three areas: financial infrastructure, mutual access of financial markets between the two places, and virtual asset regulation and development, with a view to facilitating discussions and knowledge sharing on fintech development co-operation programmes in their respective innovation hubs. The Central Bank of the UAE and the Hong Kong Monetary Authority (HKMA) discussed the feasibility of facilitating better cross-border trade settlements, how UAE companies can more effectively access Asian and Mainland markets through the financial infrastructure platform of Hong Kong, China, various financial and investment solutions, and capital market opportunities in the Guangdong-Hong Kong-Macao Greater Bay Area. China's payment industry needs to follow the pace of financial cooperation between China and Argentina and actively participate in the development of central bank digital currency scenarios. For example, in September 2023, Tencent officially participated in the multilateral central bank digital currency bridge project. With the help of the multilateral central bank digital currency bridge, Tencent will explore pilot application projects in the direction of exit and entry, improve the cross-border payment service experience, significantly reduce the cost of cross-border payment, shorten the existing settlement time, and facilitate the cross-border payment and payment of small and medium-sized enterprises, marketing, financing, multi-currency fund management and other financial activities. China's payment industry can also refer to the precedent of China and Singapore allowing tourists from the two countries to use digital yuan for tourism consumption in each other's countries, based on the Hong Kong market, develop and update the application of central bank digital currency, and cooperate with major banks involved in the research and development of central bank digital currency in China and Argentina, including First Abu Dhabi Bank, Abu Dhabi Islamic Bank, Emirates National Bank of Dubai, Industrial and Commercial Bank of China, Bank of China, HSBC, Standard Chartered Bank, etc., to take the lead in connecting Hong Kong and Abu Dhabi. When the time is ripe, the local consumption, cross-border payment and remittance channels of central bank digital currencies between Dubai's two UAE international financial centers will gradually promote the interconnection of central bank digital currencies between China and Hong Kong with the help of fintech companies in the mainland and Hong Kong.