J.K. Khalil, Country Manager for Saudi Arabia, Bahrain & Levant, Mastercard • Interview

Awareness of the benefits of electronic payments versus cash exploded during the pandemic, and firms like Mastercard are at the forefront of new payment solutions.

What did 2020 mean for you, and what changed in terms of volumes and patterns?

The biggest impact for us was the acceleration of awareness at the consumer, corporate, and merchant levels. Awareness of the benefits of electronic payments versus cash has exploded. Many businesses realized their current setups were unsuitable for a zero-contact economy, while consumers realized how convenient, quick, and, more importantly, hygienic it was not to handle cash and to use electronic payments instead. We did a survey in Saudi in 2Q2020, and 90% of respondents had already used contactless in April and May 2020, many of them for the first time. Around 80% also said they would continue to use electronic payment features such as contactless as much as possible, regardless of COVID-19. From the merchant perspective, it was more a case of survival as they had to accept payments through a secure, seamless, and safe way online so they could deliver goods to customers. Interestingly, these are solutions that Mastercard has been working on for the last 10 years. The biggest win for the digital economy was the crucial need at this point in time to change behavior. This will have far-reaching implications.

Has the volume of individual transactions risen while the amount of money spent in each transaction has fallen, and what other trends have you seen?

This pattern is what we call cash displacement. When cash moves from bank notes to electronic, you see vastly increased transactions, but lower individual amounts because small purchases are being converted to digital from cash. While cross-border spend plummeted in 2020, actually electronic spend on domestic categories shot through the roof. All the volumes that we lost in 1Q2020 because of the systemic shock to the system started coming back. We definitely saw a massive boost that will continue because consumer behavior will not return to where it was, and all indicators say it will continue to be the way it is now. This cash displacement has set up a new baseline, so once the second recovery starts to take place, and economic activity returns to 2019 levels, this new baseline will be set to the new level of spending and will take into account new behaviors that will no longer happen at cash points going forward.

What is your strategy in a market that is so innovative and changing so quickly in terms of regulations and new products?

In Saudi Arabia today, we have cashless payments, cross-border remittances, account-to-account transfers, QR payments, which are quick response code payments, and e-commerce. We have done about 85% of all e-commerce flows in the market across all schemes. These are all different payment rails that we have brought to life in these markets in the Middle East and the GCC specifically. When regulators like the Saudi Central Bank (SAMA) open up to embrace the future and bring all these multi-rails, they are so hungry to unlock the digital economy across all levels and provide choice to consumers. It makes us excited because this is the ecosystem that we have contributed to globally. In terms of regulatory change, when we look at the upcoming open banking regulations that have already been announced, those will bring a new layer that will enable many use cases that will fit with other innovations, such as QR and real-time payments, which we are rolling out in Saudi with Saudi Payments. We will have a market that has so much to offer and we will be up there with the likes of Singapore and London in being at the forefront of pioneering new technology. We shed our legacy skin many years ago as a company, and we are really embracing change. Instead of being afraid of the future or betting only on one technology or rail, you have to bet on a future that has choice.