The term “digital wallet” has managed to creep into our language without being properly defined. If they are intended to replace a physical wallet, how many of them actually do, and what do people really think of them? And what about people who still carry cash in their pockets and use a wallet for credit cards, ID cards and so on?
The digital wallet concept has grown so big now there are conferences about them – Cashless Middle East and Seamless Middle East being two which are happening in Dubai every year.
In the research carried out to create klip we looked at people’s spending habits, and in particular how they use cash. We wanted to know if, as we suspect, people (especially those with little or no alternative) would jump at the chance to use less of it. We were not disappointed.
We spoke to a broad spectrum of residents of the UAE. Given that the whole purpose of klip is to replace physical cash, our research targeted those who use it most in their daily lives. A quarter of them were people who do not have bank accounts, because they do not earn enough to qualify for them. A majority of our respondents (over two thirds) were Asian and Arab expats.
We came up with a number of fascinating, and sometimes startling, findings. They showed where cash, as opposed to cards, is usually spent. And they also helped us identify how a digital wallet – one that really can substitute physical cash – would actually work in practice.
This information helps us to ensure that klip gives people what they need to stop using physical cash in most circumstances. This is something that the banks who own Emirates Digital Wallet, the company that operates klip, want to see happen. It reduces their costs in managing cash, and it keeps cash in the financial system where it can be used productively rather than sitting inertly in our pockets and at home.
The real benefit of klip will be for those who do not have access to banking services. But even the people we spoke to who do have bank accounts use cash more often than debit and credit cards, as well as cheques. Interestingly cheques – once the ubiquitous non-cash payment method in the UAE – now seem to have almost disappeared, with only 5% of the banked respondents saying that they still use them.
One other very interesting outcome from the research was that credit cards are used almost 50% more than current accounts. This seems to chime in with a trend towards growth in personal indebtedness in the UAE.
However, the core of our research was to find out how people use physical cash, and where.
It turns out the answer to this differs between the two groups. Top of the list for the unbanked is – by some margin – groceries, followed by remittances, travel and rent. The reason groceries come above remittances is because of frequency rather than value of payment. But the banked use their cash more in other ways. Transport comes top for them, and combined with money used while travelling abroad, this makes up their favourite use of bank notes and coins. Remittances, groceries and rent are their other main categories for cash payment, but at a much lower level than their unbanked counterparts.
Generally, we all use cash in small shops and kiosks, the petrol station and car wash, in taxis and travelling abroad. One surprising category here was also cash paid for items ordered for delivery online.
Of course, what we also wanted to know was whether these people would use a digital wallet like klip, as a replacement for physical cash. The answer was a resounding yes (four out of five) from the unbanked. Why wouldn’t they want something that avoids queues to get cash, and yet more queues to remit a large part of it home, with no safe place to keep the rest for the remainder of the month?
On the other hand it was a conditional yes from the banked (3 out of 5). The issue here is that those who have a whole range of non-cash payment options from their banks already are less likely to immediately go for something that just gives them another option, unless it also gives them something new and special.
Overall this is a very strong endorsement of our strategy for klip, and of our expectations from the research.
klip has been designed to reflect global best practice. The experience of other countries with successful payment options that are termed “digital wallets” has been that a tipping point emerges when the solution shows it can deliver something that doesn’t already exist. In Kenya, for instance, M-Pesa (first introduced to distribute micro-finance in rural areas) is used as much for keeping money safe while travelling or overnight as it is for making payments (though the fact that government has adopted it for payment of government fees has also helped a lot). In India, Paytm has morphed from a mobile top-up mechanism to a massive online shopping platform, and solutions in China (especially Alipay and WeChat) and the US have also followed a similar route.
The issue – and the defining feature for klip in the UAE – is that nowhere has the single intention of any of these solutions been to replace the use of physical cash in society. More significantly, nowhere has the driving force for such a process come from the financial sector itself, namely the majority of the national banks. This in our view makes klip a real digital wallet.
Maki Vekinis is CEO of Emirates Digital Wallet LLC, which owns and operates klip