Cross-border payments in the Middle East become more inclusive

Rapid advancements in cross-border payments are emerging in the Middle East, led by regional payment platforms such as BUNA, developed by the Arab Monetary Fund (AMF), and AFAQ, an initiative by the Gulf Cooperation Council (GCC). These platforms reduce reliance on traditional banking systems by offering faster, more secure, and cost-efficient methods of transferring money.

Economies in the Middle East are fast developing as businesses expand operations across the region. Serving as gateway for trade and investment connecting Europe, Asia and Africa, the region is home to multinational companies and financial centres like Dubai, Abu Dhabi, and Riyadh. Many countries are diversifying their economies to reduce reliance on oil, increasing the movement of capital and workers in and out of the region. These developments necessitate faster and cheaper ways of transferring money in major global and local currencies.

Before real-time payment systems, regional transfers via correspondent banking took up to three days to clear due to differing country rules and complex compliance checks. With advancements in technology, smartphone usage and high-speed internet connectivity, consumers and businesses are adopting digital payment solutions to streamline the process.

While still connected to correspondent banking networks to access domestic clearing and settlement systems, platforms like BUNA and AFAQ lessen reliance on traditional banking.  Use of application programming interface (API) enable them to offer overlay services that cuts the time and cost of clearing and settlement of foreign exchange transactions. By supporting multiple currencies in real-time, these systems encourage economic integration by enhancing trade, remittances, and investment flows in the Middle East

Other regional instant payment initiatives such as UAE's Aani instant payment platform and Saudi Arabia's Saudi Payments Network streamline local transfers, making cashless transactions available to more people. These networks enable licensed financial institutions and payment services providers to offer individual and batch money transfers, merchant payments, and business billing solutions within secure, centralised networks.

BUNA multi-currency platform reduces reliance on costly correspondent banking

BUNA, developed by the Arab Monetary Fund (AMF), is a multi-currency payment platform that supports real-time cross-border payments between Arab countries in multiple currencies.

The system was officially launched by the AMF in February 2020, operating under the framework of the Arab Regional Payments Clearing and Settlement Organization (ARPCSO), which was established to oversee BUNA’s operations.

BUNA was designed to lessen reliance on slow and costly correspondent banking systems by enabling payments in six currencies: US dollar (USD), euro (EUR), Saudi riyal (SAR), Egyptian pound (EGP), Jordanian dinar (JOD), and Emirati dirham (AED). With over 110 financial institutions onboard, Buna processes around 15,000 transactions per month, with a growth rate of 15% month-on-month.

BUNA operates as a real-time gross settlement (RTGS) platform six days a week, Sunday to Friday. Financial institutions participating in the platform can choose the currencies they want to engage with and open accounts accordingly.

Its microservices-based architecture and flexible APIs allow financial institutions to easily integrate with the platform. These APIs enable real-time connectivity for overlay services, ensuring smoother and more efficient transactions across different currencies and jurisdictions.

BUNA enables direct settlement between banks, eliminating intermediaries, making the payment process faster and more cost-effective. It’s 24-hour availability also ensures that payments or foreign exchange are processed regardless of geographical boundaries or time zones.

Mehdi Manaa, CEO of Buna said, “We offer real-time settlement between banks, allowing them to conduct cross-border transactions faster and more efficiently compared to traditional systems. This flexibility is crucial as the world increasingly demands faster, more secure transactions.”

BUNA also provides participants with tools for liquidity management and foreign exchange management, enabling them to better control currency conversions and mitigate risks.

To conform with international security standards, BUNA also incorporates robust anti-money laundering (AML) and combating the financing of terrorism (CFT) mechanisms.

BUNA plays a huge role in economic integration in the Arab region which has over $28 billion in remittances, $271 billion in trade flows and $127 billion in foreign direct investments. Additionally, payments and trade flows with global partners exceed $134 billion and $1.28 trillion, respectively, underscoring the need for efficient cross-border payment solutions.

Manaa explained that contrary to some misconceptions, Buna’s mission is not to reduce reliance on USD but to offer flexibility for financial institutions to choose their preferred currency. This aligns with Buna’s four strategic objectives: enhancing cross-border efficiency, empowering Arab economies, promoting the use of regional currencies, and streamlining trade relationships with key global partners.

AFAQ drives real-time payments in the GCC

AFAQ is a regional payment system that enables real-time, low-cost financial transfers between Gulf Cooperation Council (GCC) countries, using local currencies and key currencies such as USD and euro. To date, more than 50 commercial banks in the GCC are connected to AFAQ.

The system, which went live in 2021, is managed by the Gulf Payments Company (GPC) owned by the central banks of Saudi Arabia, UAE, Bahrain, Kuwait, Oman, and Qatar.

According to the GPC, the AFAQ payments system connects the RTGS systems of each GCC member state through a private network. Data transmitted via AFAQ are secured and authenticated by digital certificates.

A unified payment system across the Gulf region supports trade growth and investment flow between GCC member states, thereby promoting economic diversification.

The system currently offers transfer services between the local currency of the originating country to the local currency of the receiving country at low cost and in real-time. Six currencies are currently covered by AFAQ: United Arab Emirates dirham (AED), Bahraini dinar (BHD), Kuwaiti dinar (KWD), Omani rial (OMR), Qatari riyal (QAR), and Saudi riyal (SAR).

UAE’s Aani and Saudi Payments Network streamline local transfers

Other platforms like UAE’s Aani and Saudi Arabia’s Saudi Payments Network contribute to the modernisation of cross-border payments in the region.

In October 2023, the Central Bank of the United Arab Emirates (CBUAE) launched Aani, an instant payments platform for digital transactions.

Developed by CBUAE subsidiary Al Etihad Payments (AEP), Aani is a key initiative under the central bank’s Financial Infrastructure Transformation (FIT) programme.

Aani enables licensed financial institutions (LFIs) and payment service providers to offer instant payment services round-the-clock using only the recipient’s phone number. Aani has features that streamline transfers between individuals such as “Request Money” and “Split Bills” and also supports QR codes to ease cashless payments with merchants.

Eight LFIs are currently on Aani: Abu Dhabi Commercial Bank, Al Fardan Exchange, Emirates NBD, Finance House, First Abu Dhabi Bank, Habib Bank AG Zurich, Mashreq Bank and National Bank of Fujairah. More are expected to be part of the system by the end of 2024.

Aani can be accessed through the existing channels of participating LFIs or through AEP’s Aani mobile app. To onboard more merchants, AEP tied up with payment service providers Magnati, Mashreq/Neo Pay, and Network International to enable Aani QR-based payments.

AEP chairman Saif Humaid Al Dhaheri has said the platform serves as a catalyst for economic growth, innovation and financial inclusion in the UAE.

The Saudi Payments Network, meanwhile, is the secure national payment infrastructure of Saudi Arabia that allows electronic payments through various channels including point-of-sale (POS) terminals, SoftPOS, automated teller machines (ATMs) and e-commerce websites.

Saudi Payments, a wholly-owned subsidiary of the Saudi Central Bank (SAMA), operates the network that comprises the payment platforms mada, SADAD, Esal, and Sarie.

The mada platform connects automated teller machines (ATMs) and point-of-sale terminals in the country to a central payment switch that re-routes the financial transactions between a merchant’s bank and the card issuer bank.

SADAD is a centralised system for paying bills through SADAD Bills and making online purchases through SADAD Account.

Esal is an integrated solution for business invoices and payments that allows buyers and suppliers to complete transactions instantly. It covers the entire billing lifecycle, from bill raising, presenting, payment and settlement.

Sarie, meanwhile, is an instant batch payments system across local banks.

Potential use of CBDCs for cross-border payments

As Middle East countries improve their cross-border payment systems, many central banks in the region are studying the use of central bank digital currencies (CBDCs) to promote financial inclusion and improve payment efficiency.

In an April 2024 paper by the International Monetary Fund (IMF) titled Central Bank Digital Currencies in the Middle East and Central Asia, central banks of Bahrain, Georgia, Saudi Arabia, and UAE are already at the proof-of-concept stage in their research. Kazakhstan, meanwhile, has completed two pilot programmes for the Digital Tenge Project.

IMF said the use of CBDCs will be especially beneficial for oil exporters because it can significantly cut transaction costs.

CBDCs can advance financial inclusion by fostering competition in the payments market. As players compete for customers, payments will be settled at lower cost and with less intermediation. Central banks can also keep transfer costs low since they are not profit-driven.

The IMF said, however, that there is still a long way to go before CBDCs can be rolled out in the region. Countries must first determine whether adoption is essential or if improving existing digital payment systems would be more practical.

Recently, controversy has arisen over the use of CBDCs due to concerns that these could be used to evade sanctions.

At the BRICS summit held from 22-24 October, Russian president Vladimir Putin proposed the creation of BRICS Bridge using technology similar to the Multiple CBDC Bridge (mBridge) Project. This would allow the economic bloc— named after its earliest members Brazil, Russia, India, China and South Africa— to become independent from the US-dominated global financial system.

Putin's statement sparked speculations that mBridge could serve as a foundation for a BRICS initiative aimed at de-dollarisation and circumventing economic sanctions. On 31 October, Bank for International Settlements (BIS) general manager Augustin Carstens said BIS is withdrawing from mBridge after four years of involvement to distance the project from political discussions. He stressed that “mBridge was not created to cater to the needs of BRICS.” He also emphasised that BIS does not operate in countries subject to sanctions and its products "should not be a conduit to violate sanctions."

Launched in 2021, mBridge is one of the most advanced cross-border CBDC initiatives. It was developed as a joint project between the BIS Innovation Hub and the central banks of Thailand, United Arab Emirates, China, and Hong Kong. The Saudi Central Bank joined in June, and 31 central banks across Asia, Europe, and Latin America are observing members.

Concerns stem from the fact that China, an original member of BRICS, developed the technological foundation for the platform. Several participants of mBridge are also BRICS member countries. After exiting the project, BIS would hand over control to the participating central banks.

Transforming cross-border payments in the Middle East

Amid these developments, cross-border payments in the Middle East are evolving rapidly, becoming more inclusive and efficient. Platforms like BUNA and AFAQ support real-time payments in multiple currencies, reducing reliance on traditional banking. These enhance economic integration by facilitating trade, remittances, and investments. Other initiatives like UAE's Aani and Saudi Arabia's Saudi Payments Network further streamline local transfers, making cashless transactions more accessible and secure.

These systems also play a huge role in the economic diversification of Middle East countries. As businesses and governments continue to invest in digital payments infrastructure, the region stands to become a leading player in the cross-border payments market, attracting more foreign investments in the process.

For continued success, regulators and financial institutions must work together to address compliance challenges and unlock the full potential of these platforms.