Kuwait sets the pace: Leads Gulf region in digital payment adoption

• In 2023, digital financial payment withdrawals totaled approximately 45.795 billion, marking a growth of 8.5% compared to the 42.181 billion recorded in 2022.

• Point-of-sale transactions hit 17.519B with 6.4% growth; website payments surged to 17.553B, up 18.9% from 2022.

• The black market accounted for 90% of exchange companies’ 2023 transactions, dominated by cash to evade legal accountability

• The value of digital payments worldwide is expected to reach $11.95 trillion by 2025, according to TradingPlatforms.

Kuwait leads the Gulf region in digital payment adoption among its population, with statistics confirming this significant advancement. However, the stringent measures against money laundering have prompted some individuals to evade accountability, despite the legitimacy of their transactions.

Despite the clear dominance of electronic payments in recent years in Kuwait, attributed to the significant growth in financial technology applications and e-commerce platforms, and despite the declining percentage of cash usage year by year, cash withdrawals continue to circulate significantly in the local market.

This raises confusion about the source of these transactions. Why haven’t cash withdrawals significantly decreased despite the surge in online and point-of-sale payments? Does the adage “cash is king” still hold sway for some individuals, and if so, who are these individuals?

In 2023, digital financial payment withdrawals totaled approximately 45.795 billion, marking a growth of 8.5% compared to the 42.181 billion recorded in 2022.

Ironically, despite a 2.1% decline in ATM withdrawals compared to 2022, they still constitute a significant portion of total transactions, accounting for approximately a quarter, or about 23.5%, with a balance reaching 10.722 billion.

Meanwhile, point-of-sale device transactions during the same period amounted to 17.519 billion, reflecting a growth of 6.4%. Additionally, payments via websites surged by 18.9% compared to 2022, reaching 17.553 billion.

Transaction balance

These figures emerge in the context of government and banking initiatives to diminish cash transactions in favor of electronic and plastic money. These efforts are part of broader measures undertaken to combat potential money laundering operations, involving the cessation of cash payments for real estate transactions where allowed. Instead, certified checks and bank transfers are encouraged to enhance the traceability of funds.

While preventive measures have progressed to the extent of prohibiting cash payments for pharmacy purchases exceeding 10 dinars, the concept of “digital payment” has emerged as a pivotal aspect shaping the future of the financial sector, distancing itself from traditional paper currency.

Despite cash liquidity being perceived as a virtual adversary by the central bank due to its divergence from the objectives of digital transformation, it remains prevalent and influential in financial transactions.

Even more perplexing is the fact that the substantial value of cash withdrawals, despite their decrease, is not closely correlated with the rise in employment, which has not experienced significant growth since the beginning of 2023. This observation also extends to the population increase, which has not resulted in any noticeable surge, as indicated by the latest data released by the Public Authority for Civil Information at the end of last December.

The total population of Kuwait has reached approximately 4.86 million people, reflecting a growth of around 2.6 percent compared to the end of 2022, when it was about 4.737 million. This represents an increase of approximately 122.7 thousand individuals.

Recorded growth

Analytically, there are several explanations for the continued strength of cash withdrawals despite the growth recorded in point-of-sale and electronic transactions, and despite the accelerating pace of financial digitization, along with all the efforts made by the government to minimize cash withdrawals.

These explanations range from attributing the matter to increased household spending due to rising inflation last year, to the presence of approximately 790,000 domestic workers and similar individuals in the “family sector,” the majority of whom do not possess bank accounts.

It’s worth noting that these workers constitute 27.3 percent of the total workforce in Kuwait as of the end of the third quarter of 2023, according to the Central Administration of Statistics.

An influential group added to this segment is the bulk of workers who are employed on a daily or contractual basis. While these individuals may possess bank cards, they often receive their wages in cash.

Regardless of the explanations, there is a fact that no one familiar with the occurrences in the money market can deny: the black market remains one of the most prominent drivers of cash withdrawals.

When discussing the black market, the conversation inevitably expands into various aspects, with one of the most prominent being the emergence of a black market for money transfers. This market saw significant expansion last year, particularly in its targeting of the two largest population groups: the Egyptian and Indian communities.

According to statements from officials to Al-Rai newspaper, this market accounted for about 90% of exchange companies’ transactions in 2023. These transactions are often dominated by cash payments to evade legal accountability.

Huge quantities

In addition to the aforementioned, there is the “contraband” market with all its components, encompassing all acts criminalized by law, where spending primarily relies on cash.

At the forefront of this market is the drug trade, which has seen a rise in activity over the past period. This is evidenced by the significant quantities that the Ministry of Interior periodically announces seizing, indicating the magnitude of this market.

It is noteworthy that, according to the response of the Minister of Health, Dr. Ahmed Al-Awadhi, to a parliamentary question, 81,072 cases visited the addiction treatment center during the period from 2015 until last September.

Additionally, during the first nine months of last year, 894 new files were opened, and the center received 2,081 cases for treatment within its wards. Furthermore, there were 9,537 outpatient cases. The response revealed that the number of deaths due to addiction reached 268 cases over the past eight years, with an average indicating more than 72 addiction-related deaths annually.

Control measures

An additional explanation for the strength of cash withdrawals relates to the recent regulatory and banking strictness in applying measures to combat money laundering operations.

Despite the importance and relevance of the measures applied, they have pushed a segment of the population to resort to official channels for their payments, such as financial link payments, out of fear of being questioned about the source of their funds.

This encompasses various financial transactions unrelated to money laundering operations, notably payments for private lessons and certain benefits for legally unregulated work, such as overtime pay, bulk labor wages, and more.

Responsible sources confirmed to Al-Rai the significance of Kuwait’s achievement in reaching current levels of electronic payments and their share, indicating Kuwait’s leadership in financial digitization within the Gulf region.

This superiority is evident in both implementation and comparison with targeted goals. They highlighted the challenge of decreasing the cash cycle at unprecedented rates, at least in the medium term, considering that the sustained strength of monetary transactions is not unique to Kuwait but rather prevalent in the majority of countries worldwide. Efforts are being made globally to reduce its pace.

$11.95 trillion in digital payments by 2025

According to TradingPlatforms, the value of digital payments worldwide is expected to reach $11.95 trillion by 2025.

Sweden is considered one of the countries that has reduced the use of cash currencies the most, opting instead for increased usage of cards and electronic payment methods. Meanwhile, China is regarded as one of the leading countries globally in consumer-oriented digital technologies.