We spend a large share of our time online, whether at work, at school, at home, or on the go. Commuting with Uber, grabbing lunch via Careem, or collaborating with colleagues on Teams — these are online interactions and transactions that are well-established in our daily routines.
Similarly, businesses have increasingly become reliant on digital connectivity. Engaging digitally with suppliers, customers, and employees seems to be the norm. And those absent from the online world risk being overlooked. In this context, banks and digital payment systems play a key role. They form the backbone of online transactions and hyperconnectivity.
Digital innovations
Fueled by digital technologies, the digital economy is distinct from the traditional economy and profoundly influences individuals and businesses. Though the pandemic accelerated its adoption, the digital shift began with the internet’s advent. Ensuing groundbreaking innovations across technology, networking infrastructure, and digital business models further pushed the digital economy’s complexity and growth.
Today, technologies like Artificial Intelligence (AI), the Internet of Things (IoT), and blockchain are increasingly being adopted, leveraging data to shape the digital landscape. Smartphones are mainstream, with over 95 percent mobile internet usage in the UAE, Bahrain, and Kuwait, according to Statista.
The expansion of high-speed internet and 5G networks — covering over 75 percent of the GCC population, according to GSMA data — has enhanced connectivity for both businesses and consumers. Platforms like Amazon and WhatsApp have created ecosystems that facilitate online interactions and transactions. According to GMI, over 85 percent of UAE residents use WhatsApp for personal and professional purposes.
Transforming GCC economies
The digital economy is inducing a significant transformation across GCC countries. It is reshaping industries, redefining labor markets and ways of working, and introducing new social norms. The impact on the regional economy is particularly striking.
E-commerce across GCC is on the rise and revenues totaled USD 30 billion in 2023, growing 12 percent per year since 2018, according to Statista. Traditional sectors, such as healthcare, are also being disrupted by telemedicine platforms (e.g., Vezeeta and Altibbi). These platforms are democratizing healthcare access, especially in remote areas.
The startup ecosystem in the GCC is increasingly able to attract funding. Saudi Arabia’s startup ecosystem alone raised close to USD 1.5 billion in funding in 2023, representing a 35 percent increase over the prior year, according to MAGNiTT. Moreover, programs, such as the Dubai Future Accelerators and KSA’s GenAI Accelerator, continue laying the foundations to scale the ecosystem. Several unicorns, such as the ride-hailing platform Careem (UAE) and the flexible payments provider Tamara (KSA), emerged across the region over the last few years.
However, challenges remain. These include digital talent scarcity, insufficient innovation, and cybersecurity threats. GCC countries are increasingly becoming more deliberate in creating the right strategies and frameworks to unlock the full potential of the Digital Economy. Take, for instance, the UAE’s Digital Economy Strategy which aims to capitalize on technological advancements to double the contribution of the digital economy to GDP to around 20 percent by 2032.
GCC banks at the forefront
Cash once reigned supreme as the backbone of most economic transactions. However, the move toward electronic and contactless payments has been gaining momentum on the back of the shift to a digital economy.
Digital payments are on an accelerated upward track. According to Statista, they are forecasted to reach a total transaction value of USD 11.55 trillion in 2024, hitting USD 16.62 trillion by 2028. This represents a compound annual growth rate (CAGR) of around 10 percent.
In GCC, the financial landscape is also swinging decisively toward digital. This comes as nations aim to achieve financial inclusion, bolster the small and medium-sized enterprise (SME) sector, and integrate advanced technologies into the economic framework.
GCC national agendas are compelling banks to transform as they push to develop digital economies. This has spawned a spate of programs and initiatives in all GCC countries. These aim to create more interconnected financial ecosystems in which funds and currencies move freely between various parts and players.
In recent developments, several central banks within the GCC have unveiled innovative financial initiatives, including instant payment platforms and domestic card schemes, alongside the exploration of Central Bank Digital Currencies (CBDCs). These advancements complement existing payment mechanisms like RTGS, cheque-clearing systems, payment gateways, and direct debit authorizations, enriching the region’s financial landscape.
Read more: Tech boom: MENA emerges as global digital economy hub
Shaping the digital finance ecosystem
In light of this, banks are not just implementing new ways of facilitating transactions; they are actively shaping the digital finance ecosystem. This places them at the heart of enabling the region’s broader economic diversification and digital transformation goals, which ultimately aim to reduce dependency on oil revenues and foster knowledge- and service-based economies.
As evidenced by a recent survey conducted by Kearney among banking executives across the GCC, 37 percent of respondents mentioned that the shift toward digital channels and online transactions was one of the three biggest changes in customer behavior affecting their organization. Almost one in three said that digital products and channels, such as payment solutions and online banking, were one of the top three technological influences. And 33 percent mentioned they are working on partnerships with fintechs to continue building up digital capabilities and meet customers’ expectations of a seamless and convenient digital experience.
The digital economy has become an essential component of everyday life in the GCC, reshaping the way we live and work. E-commerce is rising, traditional industries are being disrupted, and the digital start-up ecosystem is flourishing, indicating the momentum for a digitally-centered economy. Amid this structural shift, GCC banks are not adjusting to the transformation; they are leading it by shaping the financial landscape that is enabling the new economic model. Initiatives like open banking and digital payment infrastructure will contribute decisively toward an increasingly digital and connected future.
Mukund Bhatnagar is the global lead of Financial Services at Kearney, while Ather Marwat and Pedro Marques are partners in the Financial Services Practice at Kearney Middle East & Africa.
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