2020 was certainly an interesting year, especially for the payments sector and all kinds of digital products. How have you seen volumes at Visa change since 2020?
Saudi Arabia was making steady progress toward achieving a 70% cashless economy by 2030, as part of the goals for Vision 2030, and the pandemic has accelerated this shift toward digital commerce. As the pandemic began to impact daily life in Saudi Arabia, card payments (both face to face and online) saw double-digit growth while cash withdrawals declined. This trend is set to accelerate, as more consumers and merchants become used to these cashless options. International volumes have been hit, particularly due to travel restrictions, which has affected Saudi residents since April 2020. However, online shopping has increased sharply, and even the acceptance of digital payments has increased massively over all the different merchant sectors. Another trend is contactless payments, wherein nine out of 10 in-store transactions are tap to pay versus less than two out of 10 before the pandemic. Debit has been the biggest growth driver across all portfolios as opposed to credit and prepaid . That is another global trend we have seen in Saudi as more people spend their own money rather than tapping into credit lines. The pandemic has accelerated several years of change in a matter of months.
What have these new trends meant for Visa in Saudi Arabia?
From a volume perspective, today, face-to-face was a big chunk of our business and a main driver because of travel and high-ticket items. We are not seeing that growth of volumes because of travel restrictions; however, domestic spend across all categories has grown massively.
Will this shift be permanent, and is the drop in face-to-face volumes at risk of continuing?
The changes that we have seen definitely are long-lasting. The use of contactless payments was always in the best interest of public health, and we have no reason to believe things will return to the way they were. We see consumers demanding payment options that are more secure and do not necessarily require physical contact, and that was driving the preference for contactless. When it comes to in-person and high-ticket payments, there was definitely a drop. However, the transformation to digital payments created a new behavior in the market that will shift cash to digital in every sector. As part of the expansion, POS payments and financing platforms are each undergoing a huge transformation to make sure digital options are the first choice and digital wallets become the preferred method for consumers to make purchases. Sellers that still use cash on delivery as their primary method will need to quickly implement a contactless system to survive. Across even smaller sellers, the transformation is moving rapidly, and we have seen it across the board.
Did Visa see a huge uptick in business with STC Pay coming on to the market to provide these digital wallet services?
STC Pay, Hala Pay, and digital wallets in general serve a segment that was not served by financial institutions before. Now, there is a shift even from the financial institutions to serve these segments. The customer journey was different. Today, from home one can apply for a card from their phones, and within minutes everything will be on the mobile, and they can start purchasing. Wallets are sometimes serving specific use cases that were not catered to before. That is why the market is transforming quickly. The increase in transactions and volumes was significant, and STC Pay certainly played a part in that. In terms of our financial performance, Visa's revenue worldwide has not been immune to the pandemic. However, while other industries have struggled with financial decline, we are fortunate to operate in an area where the shift from cash to digital is still high, which helped us remain profitable in our fiscal year and definitely contributed to our global income of USD11 billion.
When we look at the regulatory changes and policy decisions over the past year, what have been key and will have a big impact on the future?
The Saudi government has always been progressive in its thinking; this was even driven by Vision 2030. It recognized the importance of cashless payments and the value they offer, whether in digital commerce or supporting economic recovery. This is evident by the Saudi Arabian goal of achieving a cashless economy and for 70% of transactions to be digital. While changing consumer behavior and the preference for contactless payments presents huge opportunities for the digital sector, we live in a region where cash culture is deeply entrenched. COVID-19 has pushed contactless payment adoption, but there is definitely room for greater growth. Fortunately, the government's incredibly progressive approach to creating an environment suitable for digital transformation also ensures that the acceptance of adoption of digital payments by merchants and consumers and continues to grow. Introducing the sandbox through the central bank to allow wallets and digital players to come in was also a key initiative. Another key initiative that has paved the way for rapid adoption was the mandatory acceptability of electronic payments for all commercial activity, including petrol stations, introducing digital mobile wallets, and even when it comes to tapping to pay and the increase in transactions from SAR100 to SAR300. Another major development was the framework that was introduced for open banking, a move that will change the way merchants, customers, and financial institutions can increase the value they drive from access to financial data. It will also open up opportunities beyond financial inclusion by placing more emphasis on increasing financial literacy and helping people be more in control of their finances, specifically Saudi Arabians across the different segments. All of this that was done by the government across the board has helped the sector. Yesterday, wallets were not able to be licensed or operated; today, everyone is welcome, there is a sandbox, and there are many layers in the government that support these developments through the different ministries, be it the Saudi Central Bank, the Ministry of Commerce, the Ministry of Telecommunication, and others.
How do you foresee the dynamics in the market changing, and what are your expectations for Visa for Saudi Arabia for 2021?
The shift of SMEs to digital commerce and changing consumer payments habits show strong signs of becoming permanent in 2021. In fact, according to our latest study on SMB recovery, two out three KSA merchants established digital presence in response to COVID-19 and 80% plan to invest in new digital payment technologies. As we reach the one-year mark of COVID-19, more consumers are opting to tap to pay with their cards in stores and clicking to pay online instead of paying cash on delivery, while the businesses that serve them are increasing digital payments faster than ever before. These changes in consumer behavior are expected to become the new normal as more consumers gain confidence in digital payments. 54% of consumers believe they will continue to use contactless payments in stores, and 44% said they would continue to choose online or digital wallet payments after COVID-19 according to a study we conducted recently. Furthermore, more than one-third of consumers have switched to e-commerce offerings as a direct result of COVID-19. Due to the high penetration rate for tech-savvy Saudis, there are many opportunities for online and e-commerce in the future. Building up on that, if we look at restaurants or shops that had never considered offering any online services before the pandemic, today more merchants see digital payments as necessary investment in recovery and critical to future proofing their business. We believe economies won't recover until SMBs recover – the swift adoption of digital payments by KSA businesses and recognition of what their customers want can only be a positive thing for the country's economic growth and return to normal.