Why is the UAE looking to become a cashless economy?

No-one can accuse the UAE of not being bold. By 2020 the country aims to be a cashless economy. As financial goals go, this is probably up there with building the world’s biggest tower or the planet’s largest mall, but since those have already been achieved, why not?

Standing in the way of this achievement is the fact that 75 per cent of payments in the UAE are still made using cash.So, why is there a push to work towards such a tough deadline?

The conditions are in place

Firstly, it’s important to note that this isn’t as outlandish a goal as it might seem on first glance. While three quarters of transactions might well take place in cash, there is no country in the world that has a greater smartphone penetration – with 81 of the population having access to such a device. There’s no need to encourage the population to equip themselves with the necessary tools to go cashless – or to urge them to develop a tech-friendly mindset - it’s just up to financial providers and retailers to catch up. The launch of a series of digital wallets has helped to establish the infrastructure required, as has a Government drive to change the way workers are paid. Internet access is widespread – as is the existence of POS systems that are equipped for contactless transactions.

It’s also worth pointing out what cashless means in this context. This isn’t about eliminating coins and notes completely. Instead, this refers to tipping the balance firmly in favour of card and mobile payments to make the UAE among the best in class in the world. Norway, where five per cent of payments are made in cash, and South Korea (20 per cent) have a similar goal. The UAE’s aim is to match or beat those countries, despite their significant head start.

It’s still clearly an ambitious aim – especially in the time scale - but the fact it isn’t impossible is important to stress. However, “just because we can” doesn’t sum up the contactless push.

The cost of cash

There are push and pull factors at play here. The ‘push’ comes from the ‘cost’ of running a cash-based economy. The cost is monetary – the sheer amount of cash paid out to print and distribute physical money – and in terms of security, with cash used and abused by criminals or those in the ‘grey market’.

It’s estimated that this cost could amount to as much as two percent of the GDP of the nation – making the move worth about US$7 billion.

Reputation and vision

Saving moving and improving the efficiency of the economy are serious practical reasons to make the move to cashless payments – but there’s a much wider benefit to be had from this, namely the reputational effect.

The aim is one part of Vision 2021 – launched by Sheikh Mohammed bin Rashid Al Maktoum in 2010 to make the UAE one of the best countries in the world in time for its golden jubilee.

Adopting cashless payments shows overseas investors and visitors that the UAE is at the forefront of technology – and creates confidence that it is a great place to do business. Any financial investor – whether they be a seasoned watcher of the Dax market or a more casual observer – will know the crucial role that confidence plays in terms of underpinning economics.

The stage is set for UAE to go cashless – and the financial and reputational reward is large. It’s now time for the hard work required to come good on the promise.