The e-commerce market in the Middle East is booming. Triggered in part by pandemic lockdowns, consumers and businesses are shifting to digital channels, putting e-commerce sales on course to reach USD69.2 billion this year1, from USD4.3 billion2 just four years ago.
In some of the region’s markets, transformation is unfolding at a rapid pace. An Ernst & Young survey found that 92 per cent of consumers in the United Arab Emirates (UAE) and Saudi Arabia had changed their shopping habits in 2020. Meanwhile, a separate survey across six regional countries including Jordan, Lebanon and Egypt found that between one-third and half of people are shopping online more frequently.
Businesses that have embraced this change have been rewarded with a wave of growth. Majid Al-Futtaim Retail, which operates malls and retail brands across region, accelerated its online marketplace launch, expanded its network of fulfilment centres, “dark stores” and last-mile delivery operations, and began using advanced analytics to monitor and re-stock inventory. Online orders at its Carrefour grocery business jumped 800 per cent.
Mall developer Emaar, meanwhile, followed the lead of peers in Asia by establishing an online marketplace where shoppers could browse and buy the products of tenants forced to shut during lockdowns.
As digital channels widen, more people are swimming in. Almost half of the region’s consumers now prefer making online payments to using in-person cards or cash, a Standard Chartered survey found, marking a major shift from traditional transaction habits3. Close to three-quarters of respondents in the same poll said the pandemic had made them more positive about online shopping.
“One thing that we are seeing is the conversion of last mile transactions from cash to digital,” said Motasim Iqbal, Regional Head, Transaction Banking Sales, AME at Standard Chartered. “Immediate payments, for example. This is where small value payments up to 10,000 dirhams can actually be made instantaneously. I think that will help the B2B space quite a bit.”
B2B e-commerce, typically slower to take off than its retail counterpart, is expected to grow more than twice as fast as the B2C sector through 2030, according to Frost & Sullivan4. The rapid growth of digital payments is playing an important role in this growth.
“Even with e-commerce platforms, what was happening in the region was that a product was delivered to your house and the payment was still being made in cash,” said, Viplav Rathore, Head of Cash Products for Africa and the Middle East at Standard Chartered. “Now we are seeing a lot of adoption of cash less alternatives like mobile wallets – Bahrain and Jordan are leading this right now – and in instant payments, which will help the B2B space. All this is being further helped with plug and play connectivity being fostered using APIs.”
Indeed, the digital payments market in the Middle East and North Africa is forecast to grow at a compound annual rate of 5.6 per cent through 2025, driven by the growth of providers, platforms and payment tools5. Here, the use of APIs is becoming a critical factor for both B2C and B2B e-commerce players in the Middle East.
“We have an airline client, for example, that needs payment notification in order to release a ticket,” Rathore said. “That’s something that we’ve been able to address using APIs, implementing them such that the ticket is released once the payment goes through."
According to the Standard Chartered survey, nearly two-thirds of people in the UAE expect the country to be cashless by 2030.Despite this impressive growth, digital transformation in the region still faces formidable challenges.
While two-thirds of customers in the Middle East now expect access to digital services when shopping or doing business, 67 per cent of the region’s small and medium enterprises offer no online sales at all, according to a survey by logistics firm UPS6. Gartner, meanwhile, reported that only 15 per cent of businesses in the region have an online presence.
Trade barriers remain high in parts of the Middle East, and cross-border digital payments are still in the nascent stage, making the logistics of shipping goods difficult for online retailers and B2B operators in a region where 90 per cent7 of e-commerce demand is for overseas products. The EU reported that the largest number of new trade barriers were erected in the Middle East in 20198. High tariffs and complex regulatory regimes add to the challenge, making it more difficult for startups to get established, and existing businesses to compete with multinational e-commerce operators.
“Governments in the region also have an important role to play by building the necessary digital infrastructure and improving e-governance and digital services,” said Syed Khurrum Zaeem, MD and Head of Trade and Transaction Banking AME at Standard Chartered. “Many of the region’s countries still need to integrate offline services such as transport and utilities with online payment gateways. This would not only help build resilience and accelerate the digital transformation but also build trust in the machinery of e-commerce.”
Greater collaboration between banks and fintechs
Through banking-as-a-service, digital platforms and ecosystems such as e-commerce operators can offer their own branded financial services such as loans and credit cards to expand their businesses, backed by Standard Chartered’s banking technology and strong balance sheet.
The UAE has emerged as a regional trailblazer, and during the pandemic the country cemented its place as the Middle East’s leading e-commerce hub. The country’s first B2B e-commerce marketplace – DXBUY9 – launched during the crisis, aiming to fill supply-chain gaps, link suppliers with deliveries and reduce sales and logistics costs. UAE-based marketplace InstaShop10, meanwhile, onboarded 500 new sellers since the pandemic began, highlighting the value of adopting external partners who can solve multiple pain points at once.
“The priority for businesses in the Middle East must now be to ramp up their digital preparedness and take advantage of third-party solutions,” added Iqbal. “Reacting quickly in this fast-changing environment is essential, and if companies are decisive and choose the right partners, they will be well positioned to ride the region’s growing e-commerce wave.”
Produced by Bloomberg Media Studios in partnership with Standard Chartered.
This article is part of our ‘Digital Transformation’ series, exploring digitalisation trends to build resilience, efficiency and achieve transformative growth.