Bethan Cowper, Head of Marketing & PR at Compass Plus
With more than 28% of the population in the region aged between 15 and 29, the Middle East is an exciting territory for payments. Young people are the fastest growing demographic, making this one of the most youthful regions in the world, with a median age of 22 compared to the global average of 28. However, local economies remain cash orientated, with an estimated 85-90% of retail transactions being carried out by cash and cheque. The cultural tradition of doing business face-to-face is hard to break, and whilst card usage is on the rise, the religious implications of using a credit card remain. Add on top the regional misconception that digital channels aren’t secure, changing the culturally ingrained behaviours in this geography won’t be easy.
The large young population, the rising popularity of internet shopping, and the surge in adoption of mobile phones, make the region the ideal environment for a digital revolution. In 2015, ecommerce sales are expected to exceed $15 billion, an increase of $6 billion since 2012. The region as a whole boasts over 95 million online shoppers whilst the UAE has one of the highest global mobile penetration rates with 78% of the population owning at least one smartphone.
Despite the rise in popularity of internet shopping, people are still paying for goods and services in cash. Cash on delivery is rife, with over 60% of all online purchases being paid for on the doorstep. This is a huge issue for merchants as there are high return rates (approximately 40%), a big time lag between the order and payment, and the need for delivery people to carry cash. Although card issuance has grown significantly, only 23.5% of online shoppers own a card and in many countries cards are mostly used to withdraw cash from ATMs. In Saudi Arabia, for example, 90% of card transactions are ATM withdrawals.
Cash on delivery is expected to decline as consumers become more confident in online security. The increased uptake of shopping over the internet helps solidify merchant trust, especially across more well-known and established brands and consumer education is a top priority for all ecommerce businesses. A small number of online merchants have removed cash on delivery from the payment options available to their customers, however this approach has not been well-received. Larger e-tailers are spending serious amounts of money on educating the public, whilst others either add charges for cash on delivery or offer incentives such as discounts to encourage their customers to pay online, hoping to establish this behaviour as a habit. Unfortunately, as soon as the incentive is removed, customers have been quick to revert back to like, making this option financially unviable in the long term.
So how can the Middle East move their ecommerce business away from a cash-first mentality towards a less-cash society? The obvious solution is to find a way to use electronic payment channels to provide consumers with a better experience than they get with cash, a compelling alternative that addresses any issues they may have.
The Middle East is stratified, with large areas of underbanked populations, for example in Egypt only 7% of the population has a bank account, to consumers with large spending powers and pockets of expatriate communities, for example the UAE. Whilst credit card issuance is growing in the UAE, other countries are turning to alternative payment methods to reach the underbanked. Banking products need to be tailored to meet consumers’ online needs in order to cater for such diversity.
In recent years the Gulf States have become some of the most progressive in terms of investing in payments infrastructure. In the UAE in particular, the combination of strong support from both the regulatory authorities and the government is laying the foundations for a significant increase in electronic payments in the years to come. As behaviours begin to shift, market opportunities for new products are emerging. One such solution-driven product that is increasingly becoming a consumer favourite is the prepaid card.
Prepaid as a term shouldn’t be solely assigned to cards; the mobile is another channel that can support the prepaid model whilst serving more remote geographies. Prepaid is a smart way for financial institutions to grow their business in what is largely an underbanked (80% of the population), cash-led environment. It is an ideal fit with the Sharia finance principles by not offering credit, and provides a more secure way to make payments online.
Popular across all age groups, prepaid has been heavily adopted in Saudi Arabia, where, according to Euromonitor International, the number of prepaid card transactions increased from 0.6 million in 2012 to 2.8 million in 2014. Kuwait has also been an early adopter of prepaid for online shopping, whilst it remains in it’s infancy in other countries across the region. The key drivers around prepaid circle around online security, no prerequisite to have a bank account, and the attractiveness of budget management tools.
In countries with more established payments infrastructure, prepaid can offer a short term solution to encourage the transition between cash and cards or cash and mobile payments to quell issues around online security; essentially using prepaid as a stepping stone to other banking products. In countries with less developed infrastructure, prepaid can be used as a longer term solution to reach the larger populations of unbanked and underbanked by instilling trust in financial systems. To ensure success, prepaid would need to be packaged differently for each market, and for different demographics within those markets.
As attitudes shift, market opportunities for new payment channels will emerge and solution-driven products will pave the way for a less cash-focused approach. The Middle East is set for change, however, change takes time and the challenges facing ecommerce continue to grow. Prepaid could be a smart way of addressing these issues as a flexible solution that can be tailored to anyone.
UK delays review of business rates tax until autumn
LONDON (Reuters) – Britain’s finance ministry said it would delay publication of its review of business rates – a tax paid by companies based on the value of the property they occupy – until the autumn when the economic outlook should be clearer.
Many companies are demanding reductions in their business rates to help them compete with online retailers.
“Due to the ongoing and wide-ranging impacts of the pandemic and economic uncertainty, the government said the review’s final report would be released later in the year when there is more clarity on the long-term state of the economy and the public finances,” the ministry said.
Finance minister Rishi Sunak has granted a temporary business rates exemption to companies in the retail, hospitality, and leisure sectors, costing over 10 billion pounds ($14 billion). Sunak is due to announce his next round of support measures for the economy on March 3.
($1 = 0.7152 pounds)
(Writing by William Schomberg, editing by David Milliken)
Discounter Pepco has all of Europe in its sights
By James Davey
LONDON (Reuters) – Pepco Group, which owns British discount retailer Poundland, has targeted 400 store openings across Europe in its 2020-21 financial year as it expands its PEPCO brand beyond central and eastern Europe, its boss said on Friday.
The group opened a net 327 new stores in its 2019-20 year, taking the total to 3,021 in 15 countries. The PEPCO brand entered western Europe for the first time with openings in Italy and it plans its first foray into Spain in April or May.
Chief Executive Andy Bond said its five stores in Italy have traded “super well” so far.
“That’s given us a lot of confidence that we can now start building PEPCO into western Europe and that expands our market opportunity from roughly 100 million people (in central and eastern Europe) to roughly 500 million people,” he told Reuters.
To further illustrate the brand’s potential he noted that the group has more than 1,000 PEPCO shops in Poland, which has a significantly smaller population and gross domestic product than Italy or Spain.
The company, which also owns the Dealz brand in Europe but does not trade online, has already opened more than 100 of the targeted 400 new stores this financial year.
Pepco Group is part of South African conglomerate Steinhoff, which is still battling the fallout of a 2017 accounting scandal.
Since 2019 Steinhoff and its creditors have been evaluating a range of strategic options for Pepco Group, including a potential public listing, private equity sale or trade sale.
That process was delayed by the pandemic, but Steinhoff said last month that it had resumed.
“The business will be up for sale at the right time. It’s a case of when, rather than if,” said Bond, a former boss of British supermarket chain Asda.
Pepco Group on Friday reported a 31% drop in full-year core earnings, citing temporary coronavirus-related store closures.
Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) were 229 million euros ($277 million) for the year to Sept. 30, against 331 million euros the previous year.
Sales rose 3% to 3.5 billion euros, reflecting new store openings.
($1 = 0.8279 euros)
(Reporting by James Davey; Editing by David Goodman)
Fashion-focused livery launch reveals new colours for Gasly, Tsunoda in 2021
Scuderia AlphaTauri debuted their colours for the 2021 Formula 1 season as drivers Pierre Gasly and Yuki Tsunoda unveiled the team’s new look with the livery for their AT02 racecars. The setting was a fashion-forward launch in the all-new showroom of AlphaTauri, Red Bull’s premium fashion brand.
Salzburg (AUSTRIA) – Formula 1 team Scuderia AlphaTauri served up a stylish preview of the new F1 season with a presentation of its 2021 livery alongside key looks from the upcoming Autumn/Winter 2021 collection of Red Bull’s premium fashion brand, AlphaTauri. The launch – held at AlphaTauri’s new showroom in Salzburg, Austria and presented digitally – marked the first time that drivers Pierre Gasly of France and Yuki Tsunoda of Japan have appeared together as teammates.
After a successful first season racing in AlphaTauri colours, the Italian outfit is looking to challenge the top of the ultra-competitive midfield in 2021, and the two young drivers have been assigned clear-cut roles. Gasly is Team Leader. The 25-year-old, who made his Formula One debut with the team in 2017 under its former name, Scuderia Toro Rosso, has earned two F1 podiums. During the 2020 campaign, Gasly’s maiden win at Monza was a defining moment for him and the team under its new name.
Tsunoda, 20, is the first Japanese driver to race in F1 since 2014, his promotion coming off the back of a fast, four-season trajectory from winning the 2018 F4 Japanese Championship and finishing third in the 2020 FIA F2 Championship to entering the top-level ranks this year. Expectations are high for his rapid style of learning to complement the experience of Gasly.
“The decision to go for Pierre and Yuki in 2021 was taken because Scuderia AlphaTauri’s philosophy is still to give talented young drivers from the Red Bull Junior Program the opportunity to step up to F1 and to educate them – this is why Yuki now gets his chance,” explained Team Principal Franz Tost. “With Pierre on Yuki’s side we have an experienced driver, who can help our Japanese rookie to develop faster, but at the same time we can aim for good results. I think this pair is the best possible scenario to achieve both our targets, and I’m also confident this will be a successful one.”
In 2020, Scuderia AlphaTauri won best livery by a landslide, and the team’s all-new, matte blue and white racecar livery took center stage with the drivers at the fashion event, anticipating the 2021 model that will debut at pre-season testing in Bahrain on 12 March. The test is the precursor to an unprecedented 23-race schedule, and in preparation for the demanding calendar both drivers have spent time at Red Bull’s Athlete Performance Center for intense fitness testing.
“I’m ready to take on the role of team leader. Yuki is a very quick driver, and he will help us move the team forward – we will work together to achieve that,” said Gasly, the team’s all-time top points scorer. “I really believe last year was the team’s best in terms of the way it worked, the development, the performance and the way it managed the race weekends. I’m always hungry for more, and I’m sure we can achieve great things in 2021.”
Tsunoda, who was honored with the Anthoine Hubert Award for best Formula 2 rookie in 2020, added, “I’ve been lucky enough to spend some time with Scuderia AlphaTauri ahead of the season, so I’m already developing strong relationships and learning a lot from them – including Pierre, who is an incredible talent. My main goal is to learn quickly and deliver results as soon as possible, and I’m really excited to get started.”
The launch at the AlphaTauri Showroom not only gave Gasly and Tsunoda a preview of the AlphaTauri Autumn/Winter 2021 fashion collection, but the drivers had the chance to select their new off-grid looks ahead of the season start.
Ahmet Mercan, CEO AlphaTauri, summarized: “This is a triple reveal at a unique point of time: a new AlphaTauri Showroom where fashion meets F1, a first look at the AW21 AlphaTauri collection and the unveiling of the new Scuderia AlphaTauri F1 livery and driver pairing.”
Scuderia AlphaTauri fans don’t have long to wait for racing action: The FIA Formula 1 season kicks off at the Bahrain Test on 12-14 March, in preparation for the Bahrain Grand Prix on 28 March.
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