Digital wallets have emerged as a preferred payment method in the Middle East and Africa, and customers are willing to leave their wallets at home rather than their phones. Offering digital payment solutions and pursuing a digital transformation is key for banks to stay competitive.

On November 7, 2023, we hosted a webinar with Izabela Morriss, Vice President of Global Channel Sales & Tech Partnerships at CR2, and Andy Cease, Director of Product Marketing Financial Issuance at Entrust. During this engaging thought leadership discussion, we gained valuable insights into the payment preferences of cardholders in the Middle East and Africa, as well as the challenges financial institutions face in offering a digital-first customer experience.

Here is what we heard from them:

  1. Adoption of digital payments in the Middle East and Africa

Contactless payments are rapidly gaining popularity in the Middle East and Africa. People love the convenience and speed of making payments with contactless cards and digital wallets.

This drive for convenience is advancing the convergence of speed and simplicity, alongside elevated security measures. Contactless payments, appreciated for their convenience and speed, are quickly gaining popularity in the Middle East and Africa. Globally, demand is also increasing, but it’s particularly flourishing in this region.

In a 2022 McKinsey report, 60% of global respondents said they prefer to leverage mobile wallets for their digital payments. With an 80%-90% smartphone penetration, it’s no wonder customers in the Middle East are seeking out seamless digital payment experiences (McKinsey, The future of payments in the Middle East, 2022). Offering digital payment options is a way for banks and credit unions to answer this demand, differentiate themselves, and be perceived as modern and innovative leaders. If they don’t, they’ll be left behind and viewed as archaic and out of touch.

With quick and secure transactions, customers can easily pay anytime, anywhere, without the need for cash or physical cards. Digital cards are especially relevant for in-store use, but near field communication (NFC) payment from the banking app is a way of answering the need for instant and contactless digital payments.

Izabela from CR2 explained that they see a strong demand for customer-centric digital payment solutions. In both the Middle East and Africa, customers are showing an increasing interest in different payment solutions. They want innovative options and are looking at what is being proposed outside of the region. Customers are seeking secure, convenient, seamless digital payment experiences that align with their diverse requirements, be it for e-commerce, mobile apps, or in-store transactions. This shift highlights the urgency for banks to evolve and cater to these changing needs.

We see the rise of financial inclusion in Africa, characterized by its young population, is at the forefront of the continent’s mobile money transformation. This rise is underscored by a high penetration of mobile devices. Eighty four percent of internet users in Kenya used their mobile phones for payments, mirroring a similar trend where 60% of internet users in Nigeria and across Africa did the same. In 2021, East Africa reported 296 million registered mobile money accounts (2021 Statista Global Consumer Survey).

These statistics highlight the profound impact mobile payments have on driving financial inclusion, particularly in Africa where there’s a need to reach the unbanked. This trend also presents a significant marketing opportunity for financial institutions. The push toward digital payments in the Middle East and Africa is largely driven by the intent to support financial inclusion. Facilitating banking services through digital channels allows even the unbanked and underserved populations to actively participate in the financial landscape, paving the way for empowered communities and fostering economic growth. In a world where 1.4 billion individuals remain unbanked (World Bank Global Findex 2021 database), the need for a significant shift is necessary.

In Africa, Izabela observes a market dynamic driven by the goal of reaching the unbanked population. There’s a noticeable trend of transitioning directly from mobile phone operator/money transfer services to mobile wallets, bypassing traditional physical payment cards.

The digital-first transformation in the Middle East stems from a demand for convenience, security, and a desire for financial institutions to provide a seamless customer journey. Mobile banking enables them to do that.

  1. Why financial institutions want to offer contactless payments and digital card issuance

The innovation of tokenization has made digital card issuance possible. Banks want to innovate, keep their customers, and enhance convenience for their customers, ensuring satisfaction at every turn. Security is top of mind for cardholders as well as banks.

Izabela explains that banks in regions such as Ethiopia or Nigeria are particularly sensitive to questions of sustainability. Using tokenization for digital card issuance allows them to reduce their plastic usage, aligning with their sustainability goals.

The economy in Africa is still very cash-driven: 90% of transactions are made with cash (McKinsey, The future of payments in Africa, 2022). There is a huge opportunity for banks to shift from cash-based transactions and pave the way for digital transactions. Again, this will also allow them to promote financial inclusion and transparency. Many countries have not fully adopted the physical payment card, and they are expected to skip the issuance of physical cards and directly adopt digital cards. Banks must be ready for this change. Izabela expects that digital wallets will dominate the payment landscape within the next two years. Several African central banks, such as those in Rwanda and Nigeria, are driving a vision of a cashless economy.

Differences in demand can be observed across diverse age groups. However, banks recognize that to stay competitive, they must offer very targeted, personalized customer journeys that cater to the varying demands of all demographics. Offering more capabilities within the mobile banking app ensures that it is at the core of the bank-customer relationship.

Banks can expect increased usage of their card portfolio, earlier activations, and broader outreach to diverse demographics, ultimately leading to higher customer satisfaction. Additionally, cost-saving incentives serve as an important motivator compelling financial institutions to provide digital payment solutions.

Moreover, traditional banks are increasingly feeling the competitive pressure from emerging players like neobanks, which continue to obtain banking licenses, compelling traditional institutions to remain relevant.

  1. Challenges for banks to implement this

Answering the very diverse demands of cardholders has been made possible by innovations in the payment space during the last few years.

As mentioned above, security is top of mind, both for financial institutions and cardholders. Tokenized cards offer the highest level of security when it comes to payments. Andy from Entrust explained that tokenization enables the consumer to take control again, as the tokens are device-bound or market-bound, offering cardholders a very convenient experience. Tokenization technology, championed by major schemes like Visa and Mastercard, is a necessary prerequisite for the issuance of digital cards. To give a quick explanation: Tokenization substitutes sensitive card data with unique tokens tied to specific devices and use cases. This ensures secure transactions while enabling banks to minimize the risk of fraud. This article explains the functioning and value of tokenization more in detail.

And of course, digital card issuance allows financial institutions to offer a digital-first user and payment experience.

While banks in the Middle East and Africa now want to take active steps toward a digital transformation, they also realize that it is not as simple as it may seem. They want to be innovative, but do not know where to start. Most banks struggle to combine a seamless, digital-first, innovative payment experience with the highest level of security, while keeping integration and maintenance of such a solution lightweight.

Izabela notes that most banks are starting to have a good understanding of tokenization; current operational discussions are around identifying the correct next steps and implementing technology for the benefit of the cardholder. Addressing legacy technology and infrastructure presents a significant challenge for banks. How can they leverage their existing resources to enable a digital wallet effectively? What role does the card management system play? Which tokenization partner should they choose? How can the digital wallet be embedded within the existing banking application?

  1. Technology alliance partnership between CR2 and Entrust

We know that the digital revolution is here, and that banks need to transform their service model to meet the expectations for convenient banking that offers anywhere, anytime access. This is especially true in the Middle East and Africa. To resolve those challenges together, CR2 and Entrust have forged a partnership. The technology alliance between CR2 and Entrust gives CR2 customers confidence in the security of their digital payments while also providing user-friendly, seamless digital-first experiences.

By partnering with Entrust, CR2 leverages Entrust’s tokenization for NFC payment solutions, providing a fully comprehensive digital payments offering. Together, CR2 and Entrust empower banks to deliver secure digital payment experiences to their cardholders. This partnership delivers a solution that caters to both current and emerging needs of banks and their customers. The Entrust Digital Card Solution technology is embedded within the CR2 platform, simplifying the project implementation and maintenance. Learn more about the partnership here.

The CR2 solution empowers banks to provide secure digital payments across various channels, including mobile wallets, e-commerce platforms, and Xpays:

  • Digital Wallets: With the rising demand for digital wallets, CR2 ensures seamless integration into existing bank systems. The solution is available for both CR2 wallets and third-party mobile apps, providing a consistent experience for end-users. This includes CR2 cards or third-party card management system (CMS) cards.
  • Tokenization and its Benefits: Tokenization enables banks to mitigate risks by replacing sensitive card information with unique digital tokens. When customers use their digital cards for purchases, the token replaces their card information, creating a secure environment for transactions. Banks can easily manage tokens, allowing to view, deactivate, or delete tokens as needed.
  • Tap to Pay With Mobile Wallets: The CR2 mobile wallet allows customers to tap to pay using their mobile devices anywhere, accepted by both Visa and Mastercard, made possible using Entrust’s NFC Issuer Wallet solution. This solution caters to markets where options like Apple Pay and other Xpay alternatives might not be accessible. Whether it’s a cafe, a store, or an online platform, this innovation provides seamless and secure transaction experiences.
  • Smooth Transition and Compliance With PCI DSS Standards: CR2 and Entrust provide a smooth (pre-)integration of the Entrust solution within the CR2 BankWorld Digital Banking and Payments platform. Our technical expertise streamlines the project and certification process, removing complexities for the customer and ensuring compliance with PCI DSS standards.

By choosing CR2 and Entrust, banks gain access to a one-stop shop, where expertise meets to create a comprehensive solution.

The partnership between CR2 and Entrust allows us to provide comprehensive solutions to CR2 customers. Thanks to CR2 and Entrust joining forces, we can offer a robust and complete payment solution to banks in the Middle East and Africa regions. This partnership offers expertise and technology to implement contactless payments, allowing banks to move ahead with their digital payment transformation. By choosing our joint offering, financial institutions can overcome challenges, leverage industry best practices, and accelerate their adoption of contactless payments.

Entrust works very closely with Visa and Mastercard and is leveraging their technology for digital card issuance. We are a Mastercard Engage Digital First partner, with Mastercard Digital Enablement Service (MDES) certification. We are also a Visa Ready partner and certified as a Visa Ready Digital Payments Token Service Provider and Token Requestor. CR2 and Entrust work together to simplify implementation and offer comprehensive support to banks. This partnership leverages digital payment expertise from both sides.

Watch the full webinar with Izabela Morriss and Andy Cease about how this partnership allows banks to enable digital-first card issuance card management, delivering more value to the banking app.