FINAL RESEARCH PAPER

ON
ADOPTION OF DIGITAL PAYMENTS IN THE MIDDLE EAST

SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENT

FOR THE DEGREE OF

MASTER OF BUSINESS ADMINISTRATION

GRAPHIC ERA HILL UNIVERSITY, DEHRADUN

BATCH 2021-2023

SUBMITTED TO: SUBMITTED BY:

MR HARISH KUMAR AKANSHA BISHT

(Assistant professor) STUDENT ID 21552010

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 GUIDE CERTIFICATE

This is to certify that the master’s thesis entitled “ADOPTION OF DIGITAL PAYMENT IN
THE MIDDLE EAST (USING EXAMPLE OF STC PAY IN SAUDI ARABIA) is a record of
research work carried out by AKANSHA BISHT during the period of her study under my
guidance and supervision. The Research Project Report has reached the standard of fulfilling
the requirements of the regulation relating to the Masters of Business Administration (M.B.A.)
(Batch 21-23) degree at Graphic Era Hill University.

Signature (Guide)
Name: Mr. Harish Kumar
Designation: Professor

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ACKNOWLEDGEMENT

Preparing a project of this nature is an arduous task and I was fortunate enough to
get support from many people to whom I shall always remain grateful.

I take this opportunity to thank all the respondents for giving their precious time
and relevant information and experience, I require without which this project
would have been a different story.

In addition, I am thankful to my guide MR HARISH KUMAR & all the faculty of

the institute for their full-hearted co-operation & guidance. This project study is the
result of their right direction, motivation, and support.

I would like to express my special guidance to my Parents and my friends, who are
always a source of inspiration for me.

AKANSHA BISHT

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EXECUTIVE SUMMARY

Internet technology has influenced banking systems because of its capability to enhance the
performance of financial operations. Several factors influence the adoption of new technology
within the financial industry, namely the customers’ Perception of Benefit, Quality, Ease of Use,
Security, Self-Efficacy, and Trust. However, various cultures and geopolitical issues influence
technology adoption and are worth further study. This paper focuses on the factors that influence
the behaviors of Saudi Arabians and their adoption of e-payment systems. It reports new research
that distinguishes and investigates the key issues that impact the population in Saudi Arabia
regarding the use of electronic payment. Results show that perceived benefit, ease of use,
security, trust, and self-efficacy are associated with e-payment adoption. Quality is relatively not
crucial to Saudi Arabians. Furthermore, according to the stepwise regression, employment status
and self-efficacy are the best predictors for using e-payment systems

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 TABLE OF CONTENTS

Chapter No. Chapter Title Page No.

6
1.1 INTRODUCTION
CHAPTER 1 16
1.2 LITERATURE REVIEW

CHAPTER 2 RESEARCH METHDOLOGY 23

DATA ANALYSIS AND

CHAPTER 3 26
INTERPRETATION

CHAPTER 4 FINDINGS AND CONCLUSION 45

CHAP
RECOMMENDATION 50
TER 5

ANNEXURE: QUESTIONNAIRE 51
CHAPTER 6
BIBLIOGRAPHY 53

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INTRODUCTION

The payments landscape in the Middle East is heading for an inflection point. Despite the
region’s digitally savvy population—with smartphone penetration reaching 80 to 90 percent in
leading markets—the region has remained heavily dependent on cash. Only about a third of retail
transactions are conducted electronically, thanks to factors such as underdeveloped digital-
payments infrastructure and services, underbanked consumer and merchant segments, and a
cultural bias toward cash. However, new government and regulatory initiatives, coupled with the
entry of new local, regional, and global payment providers, are bringing rapid change. Moreover,
the COVID-19 pandemic has triggered an acceleration of digital adoption and a flight from cash,
as it has in other regions.

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To explore the new payments landscape and consider what it means for the future, McKinsey
asked payments practitioners operating in the Middle East about the key shifts they expect to see
in the next five years.1 The findings of this research shed light on industry pressures, potentially
disruptive forces, changing payment preferences, and the prospects for banks, tech players,
telecom companies, fintech’s, and others in a rapidly evolving environment.

Digital adoption is accelerating

Even before the pandemic, digital payments were growing rapidly. The number of consumer
digital payments transactions in the United Arab Emirates (UAE) grew at an annual rate of more
than 11 percent between 2021 and 2022, compared with Europe’s average annual growth of 4 to
5 percent. Even more starkly, Saudi Arabia observed astronomical growth in card payments:

6
over 70 percent between February 2021 and January 2022 and expected to grow by 14.6% in
2023.

These impressive growth rates have been boosted further by the pandemic. Among the payments
practitioners who took part in McKinsey’s survey, more than three-quarters (80 percent)
estimated that noncash payments had risen by more than 10 percent across the region as a result
of the pandemic, and 43 percent believed that the increase exceeded 20 percent. Data from some
countries indicate even higher rates of growth: Saudi Arabia’s digital point-of-sale (POS)
transactions doubled in the year to January 2022, for instance.

What’s more, payments practitioners expect the shift to digital to be permanent: in the survey, 90
percent predicted that at least half of new users will stick with digital payments rather than revert
to cash later. In addition, more than half of survey respondents said strong growth in noncash
payments will continue over the next five years, resulting in a cumulative increase in digital
transactions of more than 50 percent above 2022 levels across the region.

Preferences for payment methods are changing

The flight from cash is evident not only in the growth of digital payments but in consumers’
expressed preferences. In a McKinsey consumer survey, 58 percent of Middle East consumers
expressed a strong preference for digital payment methods, while only 10 percent strongly
preferred cash.

When payments practitioners were asked about consumer payment preferences, 60 percent of
those surveyed said they expected pass-through digital wallets (or “e-wallets”) to be the most
influential digital payment method (Exhibit 1). Surprisingly, this vote of confidence in e-wallets
is higher than in Asia, where the digital-wallet ecosystem is more mature: just 38 percent of
Asian respondents to a similar McKinsey survey took the same view.2

Exhibit 1

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The two regions also differ in other respects. In the Middle East survey, 53 percent of
respondents predicted that contactless cards and pass-through wallets based on contactless/near-
field communication will dominate the market, compared with 30 percent of respondents in Asia
(Exhibit 2). Conversely, only 27 percent of Middle East respondents see QR codes as the likely
winner, as opposed to 54 percent in Asia. While in Asia, bank and nonbank experts seem united
in their favorable view of QRs (more than 50 percent), respondents in the Middle East disagree,
with less than 10 percent of bank experts favoring QR, versus 40 percent of nonbank experts.

Exhibit 2

While account-based wallets have high penetration in Asia and some European countries, parts
of the Middle East are seeing strong growth in cards and card-based wallets. In Saudi Arabia, for
example, POS contactless-card transactions have grown by 10 percent per month since the start
of the pandemic, and payments via pass-through card-based wallets by 18 percent per month. 3 In
time, nascent payment methods relying on QR may take a share of the Middle East market, but
in countries where the necessary infrastructure is well developed, growth in cards is likely to
continue as digital payments accelerate.

Nonbanks are poised to capture market share

The Middle East payments market has recently expanded to include fintech’s, tech companies,
and telecom companies alongside incumbent banks—a shift enabled by regulatory changes such
as those introduced in Saudi Arabia in late 2021 and the UAE in 2022 When we asked survey
respondents which institutions would have the greatest impact on the future of payments, about
40 percent ranked banks or bank-backed wallets number one; another 30 percent selected
telecom-company-backed wallets, and 17 percent big-tech companies (Exhibit 3). By contrast,

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the type of player most often ranked number two was tech companies, at 30 percent, followed by
banks (23 percent) and telecom-backed wallets (20 percent). If we take a deeper look at the
responses, the majority of respondents who predicted banks and bank-backed wallets would win
were from banks (62 percent of respondents). However, when respondents were forced to name
their second choice, more than 50 percent of those from banks indicated that big-tech players
were best positioned, which further emphasizes the threat of these players.

Exhibit 3

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As these findings indicate, payments practitioners in the Middle East regard tech and telecom
companies as strong contenders in payments, suggesting they are a threat to incumbent banks.
These companies’ broad reach and technological prowess give them a strong foundation for
competing in a field where the ability to rapidly develop, tailor, and refine customer propositions
confers advantage. By way of example, Saudi Arabia’s STC Pay capitalized on its dominant
position in telecoms, with more than 55 percent of mobile subscribers being STC customers, to
scale to 4.5 million active customers by November 2020, less than a year after exiting the
regulatory sandbox.4 By digitizing international remittances through its partnership with Western
Union, the company has managed to address key customer pain points and win a share of the
market.

When survey respondents were asked which partners merchants were likely to work with to
establish an e-commerce presence, the top choices were marketplaces and specialist fintech’s,
with each at 40 percent (Exhibit 4). Banks, local acquirers, and e-wallets trailed far behind, at 7
percent apiece. Interestingly, even banks themselves do not believe they are best suited to win in
this arena: more than half of respondents from banks believed e-commerce marketplaces would
win, while only 10 percent of those respondents believed the banks themselves were best
positioned. This reflects a belief that merchants, particularly small and medium-size enterprises
(SMEs), seek solutions that go beyond pure payments. Besides accepting digital payments,

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marketplaces can help merchants quickly set up their online sales, for instance. However, the
high costs of marketplaces—up to 35 percent of revenue—may drive a longer-term shift to
fintech solutions that enable merchants to set up and manage their own online presence.

Exhibit 4

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information about this content, we will be happy to work with you.

SME payments and online acquiring are likely to be important battlefields, given the promising
growth prospects of online merchant sales in the region. Forty-three percent of survey
respondents expect more than half of all small and medium-size merchants to start selling online
in the next five years.

However, changes in the environment may be needed to fuel wider adoption of digital payments
by merchants. A third of survey respondents (33 percent) said lower merchant discount rates
(MDRs) would be the most effective factor in supporting the move to digital payments. In the
UAE, for instance, the average MDR of 1.6 percent is high by comparison with those in Europe,
where regulations are in place.5 However, these fees also drive customer adoption of digital
payments by funding more generous customer rewards than in other regions, with some credit
cards offering as much as 5 percent cash back.

Other industry-level initiatives to support digital payments might include introducing tiered
MDRs based on sales volumes and launching alternative payment-processing platforms. Looking
beyond pricing, more than a fifth (23 percent) of respondents pointed to the need for financing
for merchants, while 20 percent identified ease of use and support, with merchant onboarding as
a key factor. In addition, value-added services (such as inventory and cash management) and
faster settlement each scored 10 percent of the sample.

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Open banking is looming large

Open banking or “open financial data”—a regulatory reform that requires banks to share
customers’ financial data (with their consent) with other banks or authorized financial services
providers—is under way in several Middle Eastern countries. Bahrain issued open-banking rules
in 2018, followed by a framework with guidelines on data sharing and governance in late 2020.
Saudi Arabia announced its plan to launch open banking in early 2022.

These reforms are expected to have broad ramifications for the payments business. When
respondents to the survey were asked what government- or regulator-driven action would be
most effective in steering customers to digital payments, 27 percent nominated regulatory
approval for open banking, followed by giving customers incentives to shift from cash to digital
payments at 20 percent. The next most frequently identified factors were allowing fully digital
know-your-customer processes and adopting cash-free transactions between citizens and
government—each selected by 17 percent of the sample.

Open banking stands out from the other reforms identified, because it not only enables payments
to be digitized but also creates circumstances in which banks can be disintermediated by other
players. In fact, 80 percent of survey respondents expected open banking to drive the decoupling
of savings account balances and payments capabilities in the future. Under this scenario,
consumers would be free to move to payment services providers that offer a great customer
experience instead of continuing to rely on banks with less user-friendly payments offerings.

Payment fees continue to come under pressure

In recent years, payment fees have tended to be either flat (like MDRs) or declining (remittance
fees). Two-thirds of payments practitioners surveyed say they expect to see declines over the
next five years. Thirty-seven percent of respondents predict the expected decline in fees will be
up to 10 percent, 13 percent expect a decline of 10 to 20 percent, and 17 percent expect a decline
of more than 20 percent.

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Globally, MDRs cover a wide range, from 21 basis points in Germany to more than 200 basis
points in Mexico and Japan. A decline of 20 percent in the UAE’s MDR, as predicted by some
experts, would reduce it to approximately 130 basis points—near the middle of the global range.
If rising competition or regulatory changes exert further pressure on fees, as seen in other
markets, then banks, payments providers, and networks will need to look for other ways to create
value from payments in future.

A connected cross-border ecosystem is emerging

Cross-border payments are important in the Middle East, with two of the world’s three largest
remittance corridors located in the UAE and Saudi Arabia. They handled $78 billion in payments
in 2021,6 equating to 7 percent of the GDP of the two nations combined. Two-thirds of survey
respondents (67 percent) said bilateral arrangements between countries for real-time settlement
and the scaling up of digital money-transfer operators will be key drivers in cross-border
transactions over the next five years. Three major initiatives have already been launched: Project
Aber, a common digital currency between Saudi Arabia and the UAE; the Buna payment
platform supporting multicurrency payments among members of the Arab Monetary Fund; and
the AFAQ system connecting the real-time gross settlement (RTGS) systems of the six countries
in the Gulf Cooperation Council (GCC).

Other drivers of cross-border transactions that survey respondents identified as important are the
creation of regional hubs or trade agreements (57 percent), the offering of cross-border solutions
by regional ecosystem players (43 percent), and the adoption of cryptocurrency (10 percent).

Consolidation can be expected

The majority of payments practitioners who took part in the survey predicted some degree of
industry consolidation in the next five years. For two-thirds of the sample, integration across the
value chain—such as the purchase of merchant acquirers by networks—was the most likely
prospect, while 30 percent of respondents predicted consolidation within specific parts of the
value chain.

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M&A has been a driving force in payments globally for the past decade, and the Middle East
could be the next frontier for consolidation among regional providers. One likely area could be
payment gateways, as global players seeking a foothold in the market target regional players
with local solutions. Such global players may also seek to capture growth opportunities in the
Middle East and use it as a stepping-stone to Africa, as already seen in Network International’s
Acquisition of African e-commerce platform DPO Group.

All players have opportunities for growth

The survey findings outlined have different implications for different participants in the
payments industry.

Opportunities for banks

Although banks continue to lead the industry today, 60 percent of survey respondents predicted
that nonbank payments providers will win in the future. According to respondents, the most
important way to remain relevant in an evolving market, identified by 83 percent, is to digitize
customer journeys (Exhibit 5). Following closely, at 73 percent of respondents, is to acquire or
invest in fintech’s. Other actions banks could consider include launching new products such as e-
wallets and building an ecosystem (recommended by 47 percent of respondents), partnering with
large ecosystem players or conglomerates (also 47 percent), and carving out the payments
business to form a separate entity that can act like a fintech and compete more nimbly (37
percent). In the UAE, First Abu Dhabi Bank has already followed the latter strategy by
separating out Magnate as a stand-alone payments business.7

Exhibit 5

With transaction fees under pressure, another imperative for banks is to reduce costs and find
new ways to create value from payments. One option is for a bank to use advanced analytics to

13
mine the information it possesses to provide value-added services such as cross-selling and
lending, as Square does for merchants in the United States, for example.

As the era of open banking draws near, banks need to quickly formulate their strategy or risk
being disintermediated. Banks in Europe and elsewhere have proven that banks can remain net
winners in an open-banking ecosystem even as fintech’s and other attackers proliferate, as seen
in initiatives such as ING’s personal savings app Yolt and Goldman Sachs’s partnership with
Apple to launch Apple Card. Success will depend on nurturing an innovative mindset and skills
that go beyond banking, as well as on forming effective partnerships with fintech’s to harness
and scale cutting-edge technologies.

To capture emerging opportunities in the growing merchant digital-payments business,

incumbent banks and attackers alike will need to determine which merchant segments to target
with specific propositions. Then they must design a thoughtful strategy to reach the targeted
segments.

Opportunities for fintech’s, telecom companies, and others

For fintech’s, telecom companies, and other attackers, more opportunities are opening for them
to capture market share as regulatory changes allow new players to enter the payments business.
Whether by introducing payment-services licenses or issuing open-banking regulations, the
region’s regulators and governments are looking to attackers to help them achieve ambitious
digitization goals, such as Saudi Arabia’s target for 70 percent digital payments by 2030.

The main challenge for attackers will be building trust in their services and designing solutions
to address specific pain points in target use cases—peer-to-peer, merchant, or B2B payments—
all of which have their own characteristics and needs. Large merchants may seek solutions to
accept a wide array of payment wallets and schemes from international travelers, for instance,
while small merchants simply seek basic services to accept in-store digital payments. More
fundamentally, merchant needs center on moving online and obtaining support from adjacent
tools to manage and grow their business. For any payment’s provider, winning will depend on
developing the right value proposition and customer experience to meet the need of each target
segment.
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Finally, pure payments players must form business models that create value beyond payments
transactions alone. Regulations for payments entities restrict players’ activities to payments-
related activities, which prevents them from capitalizing on potentially more lucrative financial
services revenue streams such as lending. Thus, players will be forced to form strategies and
partnerships allowing them to create additional value.

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REVIEW OF LITERATURE

• 'Demonetization and its impact on adoption of digital payment: opportunities, issues and
challenges’ written by Dr. Dhani. Shanker Choubey and Mr. Piyush Kumar

This paper intended to know the importance of digital payment after Demonetization as
perceived by the people of India, to assess the people trust and confidence in digital
payment system after Demonetization, to assess the uses pattern and nature of transaction
done by the people after Demonetization and to identify the factors of digital payment
after Demonetization.

From this paper, the authors concluded that the digital payment had given relief and force
to learn digital transaction after demonetization. People adopted technology slowly, but
don’t want to pay extra for digital transaction. However, people of India faces money
problems during demonetization they suffer with no cash. In addition, for this medium
like Paytm helps them.

• ‘Impact of demonetization on cashless transaction’ written by Ananya Mitra, Sonali Rath

and Jayant Kumar Nayak

The paper aimed to study the usage of various mode of electronic payment, to study the
effect of demonetization on cashless transaction in India and to suggest measures to
successfully promote cashless India.

The findings of the study were that the decline in digital transactions in two successive
months goes against the government’s objective of a “less cash” economy. During the

16
 scarcity of funds people preferred to use debit and credit cards at point-of-sale terminals
and mobile banking but these are also the two to be disposed of quickly. RTGS and Paper
Vouchers usage fell drastically after demonetization when compared against pre
demonetization period. The value of digital transactions in January and February taken
together dropped below that of combined figure of September and October, before
demonetization was announced. To counter the negative effect and encourage digital
transactions, many private banks in the month of March, reintroduced charges on
transactions of cash deposits and withdrawals beyond the stipulated number of free
transactions. The step yielded positive result.

• 'Demonetization: impact on cashless payment system ' written by Mr. Manpreet Kaur,
Assistant Professor: SGTB Khalsa College, Anandpur Sahib

The paper intended to study Role of Demonetization and to Examine Status

of Electronic Payment System.

The study concludes that the cashless transaction system is reaching its growth day by
day , as soon as the market become globalized and the growth of banking sector more and
more the people moves from cash to cashless system. The cashless system is not only
requirement but also a need of today society. All the online market basically depends on
cashless transaction system. The cashless transition is not only safer than the cash
transaction but is less time consuming and not a trouble of carrying and trouble of wear
and tear like paper money. It also helps in record of the all the transaction done. So, it is
without doubt said that future transaction system is cashless transaction system.

• ‘Study of consumer' perception of digital payment mode', written by Mr. Shamsher Singh
and Mr. Ravish Rana

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 The objective of the study was to find out the customer perception and impact of
demographic factors on adoption of digital mode of payment. This study has made an
attempt to understand customer perception regarding digital payment.

It was found that demographic factor except education does not have much impact on the
adoption of the digital payment. Anova computation supported this finding as there was
no signification difference is perceived by the respondents based on gender age,
profession and annual income. It was only education level of the respondents where
signification difference is perceived by the respondents. It indicates that adoption of
digital payment is influenced by the education level of the customer. If a person has
studied beyond matriculation and internet savvy, he or she will be inclined to use the
digital payment mode. It was also found that in the areas/region where education level is
high such as Delhi NCR and other metropolitan area, the possibility of acceptance of
digital payment is much higher. The growth of users of Smartphone and internet
penetration in such area also facilitated the adoption of digital payment.
 ‘Digital payments for rural India - challenges and opportunities', written by Shakir Ali,
Wasim Akhtar, and S. K. Saifuddin

The paper aims to study the challenges and opportunities of digital payments in rural
India.

The findings of the study were to reduce the digital divide and increasing the awareness
in the rural public, to ease the complexities and enable end-of-day settlement process for
the merchants (As small retailers and merchants need rotation of cashflow in quick
turnaround time for their business operations), to reduce the transaction charges over the
digital payments and discourage cash transactions. ICT infrastructure plays a vital role in
successful adaptation of digital payments and hence there is intrinsic need to improve and
offer requisite infrastructure for digital payments.

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 'Black swan effect of demonetization on digital mode of payment in India ' written by
Professor Manisha Rajdhyaksha and Satyendra Jaiswal

The main purpose of this qualitative study is to study and position the concept of black
swan event like demonetization on the Indian digital mode of payment sector. This study
showed how a black swan event like the recent demonetization has far-reaching
repercussions and implications for an emerging sunrise sector like the Digital Payment.

The Indian Digital Payment sector has shown agility and dynamism in their
innovativeness and adaptability to survive and thrive in this black swan event. Moreover,
the Indian Digital payment sector adopted novel approaches on multiple parameters like
business processes, product and or service development, reaching hitherto untouched
markets, creating market niches, technological excellence, and creating world-class
services in this payment arena. The proactive approach of Government of India to
instigate this demonetization and create enabling environment through positive policies
will jump-start this sector exponentially and boost their competitiveness. With India
ready to take its place in world order as an economic superpower, Digital Payment sector
will bring in new business models with disruptive technologies. And black swan event of
demonetization can unexpectedly become a catalyst for the growth and sustainability of
this sector.

 A study on demonetization and its impact on cashless transactions, written by Mr. K. C.

Balaji

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 The Objectives of the Study were-

 To study the history of demonetization across the world and in

India.
 To study the impact of demonetization on cash less transactions.

It was concluded that the growth of the cashless transaction system is reaching new
heights. People tend to move to cashless transactions. It is right to say that the cashless
system is not only a requirement but also a need for the society. But on the other hand,
the risk of cyber-crime is very much higher as almost all the cashless transactions are
done over internet. So proper and complete awareness must be made to the people to
keep their debit and credit cards safe and to use the internet banking and the digital wallet
in a most secure way. In order to punish the cyber criminals, the properly structured
cyber police force with high end forensic labs and technology must be created.
 'Impact and importance of cashless transaction in India', written by Ms. Pranjali A.
Shende, Mr. Bhushan G. Shelar and Asst.Prof. Smitaraja S. Kapase

The aim behind this Research was

· To know what a Cashless Transaction means.
· Impact and importance of Cashless Transaction System.
· Analyze the future trend of Cashless Transaction.

It was concluded that the benefits of this move have now started trickling in with more
and more people switching to digital modes of receiving and making payment. India is
gradually transitioning from a cash-centric to cashless economy. Digital transactions are
traceable, therefore easily taxable, leaving no room for the circulation of black money.
The whole country is undergoing the process of modernization in money transactions,

20
 with e-payment services gaining unprecedented momentum. A large number of
businesses, even street vendors, are now accepting electronic payments, prompting the
people to learn to transact the cashless way at a faster pace than ever before.
 'Opportunities and challenges of e- payment system in India', written by Mr. Sujith T S,
Julie C D

The Objectives of the study were:

· To know the different modes of e-payment.
· To know the opportunities and challenges of e- payment system in India.
· To identify the future of digital payment system in India.

It was concluded that electronic payment refers to the mode of payment which does not
include physical cash or cheques. It includes debit card, credit card, smart card, e-wallet
etc. E-commerce has its main link in its development on –line in the use of payment
methods, some of which we have analyzed in this work. The risk to the online payments
is theft of payments data, personal data and fraudulent rejection on the part of customers.
Therefore, and until the use of electronic signatures is wide spread, we must use the
technology available for the moment to guarantee a reasonable minimum level of security
on the network.
 'Emerging digital economy – a cashless perceptive in India', written by Mr. Parikshit
Agarwal
It aims to study the initiative taken by the government towards Digital Economy in India,
challenges that will affect the implementation of Digital Economy and the Impact of
Digital Economy on India’s GDP.

It was concluded that the Government initiative to promote digital economy has provided
the use of latest digital infrastructure for quick delivery of financial service thereby
reducing time span for consumption of goods and services which ultimately adds towards

21
GDP of the country. The mainstream of Indian economy lies in rural areas, where 70%
population is largely depended on agriculture. If they are digitally connected their socio-
economic conditions will improve through development of non-agricultural economic
activities which will be possible only by providing them digital infrastructure and
financial literacy. The government move towards digital economy is a dynamic move
which require working all factors simultaneously like literacy, infrastructure, overall
business environment, regulatory framework, etc.

22
 3. RESEARCH METHODOLOGY

OBJECTIVES OF THE STUDY

 To study of adoption of digital payment in the middle east

 Benefit of using this software through the use of Digital payment

3.1 RESEARCH PROBLEM

To understand and learn about the different digital payment platforms currently prevailing in
India and their position in the market. To study about the status of digital payment in rural India.
To study about the impact of demonetization on digital payment companies. To learn the
drawbacks and the challenges faced by the Indian digital payment sector.

3.1.1 SAMPLE SIZE:

Sample size determination is the act of choosing the number of observations or replicates to
include in a statistical sample. The sample size is an important feature of any empirical study in
which the goal is to make inferences about a population from a sample. In this project five digital
payment companies have been considered for the study. And hence the sample size is one.

3.1.2 QUANTITATIVE RESEARCH DESIGN

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Quantitative Research Design is a formal, objective, systematic process for obtaining
quantifiable information about the world, presented in numerical form, and analyzed through the
use of statistics. Quantitative research is concerned with numbers, statistics, and the relationships
between events/numbers.

24
3.1.3 DATA COLLECTION: Data collection is the process of gathering and measuring
information on variable of interest, in an established systematic way that enables one to answer
stated research questions, test hypotheses, and evaluate outcomes. The following data collection
methods have been used in this project

1. Primary data

2. Secondary data

Primary data: The data collected through various methods like surveys, observations, physical
testing, mailed questionnaires, questionnaire filled and sent by enumerators, personal interviews,
telephonic interviews, focus groups, case studies, etc.

Secondary data: Secondary data implies second-hand information which is already collected and
recorded by any person other than the user for a purpose, not relating to the current research
problem. It is the readily available form of data collected from various sources like censuses,
government publications, and internal records of the organization, reports, books, journal
articles, and websites and so on.

For this project, primary data as well as secondary data has been collected from the following
sources in order to study the current trends, opportunities, challenges in the Digital payment
sector -

1. Questionnaires

2. Published research reports, charts, research papers, journal and articles.

25
 CHAPTER 3

DATA ANALYSIS AND INTERPRETATION

DIGITAL PAYMENT MODES

I had carried out an online survey on ‘Consumer Perception towards Digital payment Modes’
through Google questionnaire forms, which received 87 respondents. Here is the list of the
questions asked in the questionnaire

1. Name
2. Age
3. Gender
4. Occupation
5. Which mode of payment do you frequently use?
6. If online banking, then why?
7. How often do you use digital payment modes to make online payment of bills and
purchases?
8. For which of the transactions mentioned below, do you prefer to use digital payment
modes.
9. How will you rate the convenience in the use of digital payment modes?
10. How much do you think are digital payment modes secured?
11. Do you think security is a major concern as some people are still using traditional
methods?
12. Has your usage of digital payment modes increased post-demonetization?
13. Do you think demonetization has helped in the promotion & acceptance of digital
payment modes?
14. Digital payment modes are still not preferred much in rural areas. Please comment on
this.
15. Comment on 'India taking a step on the road to cashless economy'.

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All the above question were answered by the 87 respondents, results of the same are discussed
below-

As seen from the above graph, the most of the population makes use of cash. Debit/credit card,
online banking combinable. Only a 10% of the population makes use of online payment.

27
If you prefer online banking, then please state the reason.

Majority of the people use online banking to save their time, followed by faster transfer of funds.
Avoid standing in the queue is also one of the reasons. Half of the population is attracted towards
the discounts offered by the digital payment companies. Very use the same for recording their
transactions.

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Only 27 % of the population always uses digital payment modes, and it mostly younger age
group between 15 to 30 years, followed by 44% who uses it frequently. 24 % of the population
uses it only when they are in a hurry or fall short of money.

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As we can see most frequently it is used for recharge, fund transfer and online shopping.
Comparatively lesser people use it for payment of electricity and other bills.

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As we can see that 83% of the population feel s that digital payment modes are secured but there
are still 4% who feel that they are still not at all secured.

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Thus we can say that demonetization has impact of digital payment modes as 67% population
claims that their use of digital payment modes has increased post demonetization.

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Digital payment has surely been benefited by demonetization as claimed by 85 % of the
population.

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When asked to comment on ‘India taking a step ahead on the road of cashless economy, many
similar responds were received which are as follows-

 Cashless economy is not possible in India due to the dominance of traditional methods
 Completely not using cash will also not be possible as the same is required while making
payments to small vendors
 Many feel that India should review its infrastructure policies and adopt strong and
secured network connections
 Some of them give it a definite support and claim that it will be a great start for
transparent economy.
 Some of them like the concept of cashless society and claim that 20 years down the line,
India can become a cashless economy

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3.2.3 CHANGES IN PAYMENT METHODS FROM CASH TO ONLINE BANKING
POST DEMONETIZATION.

The adoption rate of online platforms was high during the demonetization period, but it
plateaued out as soon as cash became available in the system.

When the Modi government banned high denomination notes of Rs 500 and Rs 1,000 notes on
November 8 last year, removing an overwhelming amount of cash from the economy, people had
to willy-nilly fall back on plastic or online transactions. The fact that 86 per cent of the cash
available in the system was sucked out. But once cash was back in circulation, those who earlier
dealt mostly in cash went back to doing so.

The PCI was formed under the aegis of Internet and Mobile Association of India in 2013 to cater
to the needs of the digital payment industry. During November, December 2016 and January
2017, online transactions were at their peak. In October 2016, debit card transactions stood at Rs
21,941 crore and those of credit cards at Rs 29,942 crore. Post-demonetization, in December
2016, debit card transactions jumped to Rs 58,000 crore and those of credit card were at Rs
31,150 crore.

However, in August 2017, 10 months after the note ban, debit and credit card transaction stood at
Rs 36,000 crore each, having come down substantially from the heights they achieved, but not
falling back to the pre-demonetization lows.

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After the cash flow in the system eased, small Kirana shops stopped transacting through online
payment channels, because they did not want to take a tax number or a Goods and Services Tax
number. They do not have the wherewithal to pay taxes and the government needs to incentivize
merchants, otherwise small and medium enterprises are going to go back to cash mode.

Security and trust in payment systems was something all stakeholders need to work on together.
Online transactions are bound to grow over a period of time, but in a country which
overwhelmingly ran on cash; it may be difficult to do a quick digitization.

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3.2.4IMPACT OF DEMONETIZATION ON DIGITAL PAYMENT COMPANIES.

Over the past twelve months, demonetization has attracted mixed reviews, depending on the
analyst’s lens. While a few businesses may have been impacted in the short to medium term,
digital payments companies stand out as one of the most significant beneficiaries of the move.
Post demonetization, there has been a marked reduction in the resistance towards digital
payments, and this medium should continue to see sustained adoption going forward.

One of the talking points of the digital payments story has been the phenomenal growth
witnessed by new age instruments such as Unified Payments Interface (UPI), prepaid payment
instruments (PPIs), Aadhaar Enabled Payment System (AEPS), along with well-established
ones such as National Electronic Fund Transfer (NEFT), Real Time Gross Settlement (RTGS)
and cards.

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Digital payment companies have seen a substantial jump in their business as a result of the
government’s measures towards promoting cashless transactions post demonetization last year.
These firms are likely to further consolidate their business with more incentives for digital
transactions.

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In the year after demonetization, digital transactions have grown considerably. Indeed,
disruptions in the digital space have not only revolutionized the way we manage our finances,
they have also made contactless and cashless transactions the preferred choice of many among
us. And, with digital wallets, quick response (QR) codes, near field communication (NFC)
technology, sound wave systems, virtual cards, unified payment interface (UPI) and Aadhaar Pay
offering top-notch secure payments options, the smart phone has become the most sought after
all-in-one device

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FACTORS THAT HAVE DRIVEN THE RISE IN DIGITAL PAYMENTS OVER THE
LAST 12 MONTHS:

1. Embedding of offline space in the business growth strategy

Offline space has evolved into the most recent battlefield for payment service providers.
Acquiring banks have deployed almost 29 lakh POS terminals across the country, up by almost
95% from last year. 3 This space has also attracted the attention of UPI and PPI players, and
many of them have developed innovative solutions to assist large merchant outlets, micro-
merchants, cash on delivery payment facilitators of ecommerce firms, etc., in accepting
payments seamlessly over mobile phones. Customers facing issues with cash availability post
the note ban began to experiment with these digital payment modes.

2. Building of ecosystem around digital payments

Quite a few players rolled out multiple solutions allied with digital payments, which further
helped in their adoption. A notable few were:

 Integration of enterprise resource planning (ERP) of corporates with the UPI solution for
real-time management information system (MIS) updates

 Disbursement of instant loans based on the footprint generated by digital payments

3. Boost to interoperability

One of the most significant changes in the payments landscape is the push towards
interoperability, with instruments such as UPI allowing transfers between 55 banks,
independent of the acquirer payment service provider mobile app. The increasing adoption

40
of the Bharat Bill Payment System (BBPS), Bharat QR and interoperability guidelines for PPI
players will lend a further push to seamless, secure and interoperable payments.

4. Promotional efforts by players

Several payment processing firms and FinTech companies leveraged demonetization to

penetrate the market. In an effort to expand their market share, quite a few of them offered
loyalty points, instant cashbacks, and referral rewards to users. While some may have doubts
about the long-term sustainability of such offers, the promotional efforts provided an impetus to
users considering a switch to digital payments.

The way forward

The growth streak of digital payments is likely to continue in the future. The next push to the
adoption of digital payments could come from relatively slow adopters such as the rural
economy and the small and medium-sized enterprises (SME) sector. Government incentives
such as discounts on digital GST payments and set-up of accelerator programs will provide an
added boost. A few specific use cases may emerge in the space of business to business (B2B)
payments, Electronic Clearance Service (ECS) mandates, equated monthly instalments (EMIs),
person to government payments (P2G) in smart cities, etc. These are likely to have a positive
impact on transaction volume size going forward.

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An upshot of demonetization was that the digital modes of payments picked up sharply. After
demonetization, there has been a significant emphasis on digital modes of payment. The
Government of India and the Reserve Bank have initiated a series of measures, some of which
are temporary, to promote movement from cash to non-cash modes of transactions. They include,

(i) Reduction in the merchant discount rate (MDR) and point of sale (POS) fees;

(ii) Monetary incentives in the form of discounts and prizes;

(iii) Service tax relief on MDR for small transactions;

(iv) Waiver of charges for small value transactions under Immediate Payment Service (IMPS),
Unified Payment Interface (UPI) and Unstructured Supplementary Service Data (USSD) based
*99# platform;

(v) Broadening Prepaid Payment Instrument (PPI) reach by enhancement of limits;

(vi) Introduction of a new category of ppis;

(vii) Permitting banks to issue ppis to a larger set of entities; and

(viii) Permitting National Payments Corporation of India (NPCI) to launch

(a) the common app for UPI; and

(b) National Electronic Toll Collection (NETC) system.

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43
 CHAPTER 4

CONCLUSION

Digital payment is extremely useful for the people who belong to the class where cash is
considered the most suitable medium. If this technology grows to the point that every store
accepts exchange of money through wallets, then it would remove the need to carry cash or
cards. The three most popular digital Wallets available in Indian market
are MobiKwik, Paytm and PayU.

Besides private actors like Paytm, Mobikwik, and FreeCharge, the Indian government has been
aggressively pushing several digital payment applications, including the Aadhaar Payment app,
the UPI app, and the Bharat Interface for Money (BHIM) app developed by the National
Payments Corporation of India (NPCI).

The new apps aim to ease the transfer of funds across India, especially in rural communities, and
more importantly, seek to facilitate a behavioral change towards the greater adoption of cashless
services. As such, the digital payments industry is fast becoming a highly attractive destination
for foreign investors keen to establish a foothold in India.

Multiple factors and parallel institutional and behavioral trends seem to be powering India’s
transition towards a less-cash economy. The rapid penetration of smartphones and spread of
internet connectivity on mobiles, digital payment services provided by non-banking
institutions and the rise of the fintech sector, consumer expectations of one-touch payments,
and progress in regulatory governance and tax breaks, have altogether shaped India’s payments
landscape in favor of digital solutions.

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EXAMPLE OF STC

The results of Analysys Mason’s consumer survey in Kuwait, Oman, Saudi Arabia and the UAE
show that nearly one-third of smartphone users in Saudi Arabia use stc pay mobile wallet (m-
wallet). This is the most penetrated, operator-led mobile financial service (MFS) in these
countries.

stc pay’s popularity has been driven by the favourable regulatory environment and the large,
young tech-savvy population in Saudi Arabia as well as the accelerated shift to contactless
payment during COVID-19. Other groups in the region, such as e&, Ooredoo and Zain can adapt
stc pay’s start-up model, emphasis on customer experience and incremental feature development
to scale up their m-wallet propositions and accelerate their adoption.

stc has been successful in growing its active user base but has yet to report positive cash flows

stc launched the stc pay m-wallet as part of its revenue growth and diversification strategy and to
contribute to Saudi’s development plan to increase the share of digital financial transactions to
70% by 2030. It has grown from a basic m-wallet app to a sophisticated B2C and B2B payment
services platform as well as a marketplace. It also acquired a digital banking licence in Saudi
Arabia in 2Q 2021.

stc pay had more than 8 million active users in Saudi Arabia and Bahrain by the end of 2022, up
from 500 000 in 2019. It also issued 3.7 million stc pay-branded payment cards by February
2022 (up from over 1 million in May 2021). This rapid rise of stc pay was confirmed by our
consumer survey (Figure 1). stc pay is the top operator-led m-wallet used by smartphone users.
The penetration peaked in 2021, likely related to the onset of COVID-19 and the surge in
contactless payment and ecommerce, but the adoption remained strong in 2022. STC became the
first fintech unicorn company (USD1.3 billion valuation) in Saudi Arabia after Western Union
acquired a 15% stake for USD200 million. Its revenue reached SAR834 million (USD222
million) in 2021, but it is not yet profitable: it reported SR440 million (USD117 million) in

45
losses as it continues to invest in developing its payment infrastructure and growing its network
of merchants.1

Figure 1: Reported penetration of stc pay by surveyed smartphone users, Saudi Arabia, 2019–
2022

Question: "Do you have a mobile money or wallet service provided by any of the following
providers?"; n = 750

stc pay benefited from favourable conditions that accelerated the switch to digital payments

46
 stc pay benefited from external factors that acted as a catalyst to drive its app adoption, more so
than for other operator-run MFS in the region such as Etisalat’s eWallet, Ooredoo Money and
ZainCash.

 Access to a large addressable market. It has a large, young population (24 million are under
34) with a high level of smartphone penetration and a sizeable proportion of adults that are
considered ‘unbanked’.

 Proactive and innovative regulatory support. stc pay benefitted from a supportive regulatory
regime in Bahrain and Saudi Arabia which encouraged the emergence of fintech companies in
2019 and 2020 respectively, ahead of other countries in the region. For example, the Qatar
Central Bank only issued the first digital payment licences to Ooredoo and Vodafone in
September 2022.

 Accelerated shift to cashless transactions during the pandemic-related lockdown. The

growth of stc pay’s user base coincided with the pandemic which sped up the switch to
contactless payment. It also took advantage of the shift to online shopping.

Other operator groups that aspire to scale up their m-wallet propositions can still learn from stc
pay’s initiatives and approach

The m-wallets of e&, Ooredoo and Zain offer similar core services (such as support for local and
money transfers and bill payments) to stc pay. However, their apps have not yet achieved the
same scale. stc pay had a first-mover advantage in Saudi Arabia and benefited from a favourable
environment. These conditions may not be present in other countries, but other operators can still
learn from stc pay’s approach to make their apps more attractive and trusted.

 Run the fintech venture as a separate business. stc pay is positioned as a separate product
from stc’s connectivity offerings and available to non-subscribers. It also runs as an independent
entity while maintaining close ties with the parent company; this gives it autonomy while
benefiting from stc’s resources and brand. In contrast, Ooredoo Money is still presented as a
value-added service that targets mostly Ooredoo’s customers.

47
 Raise visibility and instil confidence through partnerships. stc pay quickly integrated local
and international payment systems (mada in Saudi Arabia and Visa globally). It has also signed
MoUs with payment solution providers (such as Checkout, Paylink and Tap) and regional online
retailers (such as Cartlow) to grow its partner ecosystem and raise its profile among consumers
and merchants.

 Deliver good customer experience. stc emphasises the ease of use of its app to reduce friction
and encourages customers to engage with its functions. The app has a cleaner, more intuitive and
more engaging user interface than that of other banks or m-wallets providers in the region.

 Focus on features that address consumers’ pain points. The stc pay app is not cluttered with
third party non-financial services. It implements simple and clear use cases that offer
convenience to its customers, such as Qattah, introduced in 2022, to split the bill or buy a joint
gift, and an integrated marketplace to purchase goods and services directly from the app.

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 CHAPTER 5

RECOMMENDATION

The adoption of digital technology in the banking industry has transformed the financial
landscape across the globe. The customers are increasingly becoming confident in doing online
banking transactions through various digital platforms. This study evaluated the determinants of
digital banking adoption among customers using extended TAM. Firstly, the study attempted to
analyse the association between the demographic characteristics of respondents and digital
banking adoption. All demographic variables such as gender, age, education level, occupation
and income showed significant association with digital banking adoption. Secondly, the marginal
effect through logistics regression has been estimated to identify the determinants of digital
banking adoption. The empirical findings of this study support the theoretical model that
embraces TAM with trust as an additional variable and age and education as control variables.
Both the components of TAM i.e. perceived ease of use (PEOU) and perceived usefulness (PU)
along with trust, showed a significant marginal effect on the adoption of digital banking in Saudi
Arabia. Trust in banking has emerged as an important factor influencing the adoption of digital
banking, which the banking institutions and regulators may take up for strengthening the security
and privacy of the customers.

This study is based on data from a global survey of the World Bank, and the responses of the
surveyed respondents have been recorded in discrete form, which provides limited opportunity to
apply any sophisticated analysis technique. This study is also limited to the inclusion of only
trust and demographic variables in the Technology Acceptance Model. More variables can be
added to the model to test their influence on digital banking adoption in Saudi Arabia, such as
psychological, cultural and religious factors. Therefore, there is ample opportunity to undertake a
comprehensive primary survey using a scale-based structured instrument, which would allow to
apply sophisticated techniques such as Structural Equation Modelling with extended use of the
Technology Acceptance Model (TAM). This study is based on cross-sectional data, which
captured the insight of a given time period. Therefore, there is a need to conduct an in-depth
longitudinal study to assess the trends in the adoption of changing digital technologies in the
banking sector.

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 Annexure

1. Which mode of payment do you frequently use?

a. Cash
b. Debit/Credit Card
c. Online Bank
d. Paytm
e. e-Vault
f. Wallet payment
g. UPI App

2. If you prefer online banking, then press state the reason

a. Saves Time
b. Avoid standing
c. Fast transfer
d. Discounts/offers
e. Record Transaction

3. How often do you use digital payment modes to make online payment of bills and
purchases?
a. Rarely
b. Frequently
c. Always
d. Only when I fall short of cash
e. Only when I am in a hurry

4. For which of the transactions mentioned below, do you prefer to use digital payment
modes.
a. Recharge
b. Fund transfer
c. Online shopping
d. Payment of electricity
e. Payment of others

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5. How much do you think are digital payment modes secured?
a. Higly Secured
b. Secured
c. Not at all secured

6. Has your usage of digital payment modes increased post-demonetisation?

a. Yes
b. No

7. Do you think demonetization has helped in the promotion of digital payment modes?

a. Yes

b. no

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 6. Bibliography

https://paytm.com/

https://www.mobikwik.com/

https://razorpay.com

https://www.wikipedia.org/

www.freecharge.com

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