At the dawn of the 20th century, Bahrain’s pearl trade reigned supreme, yet formal banking was yet to find its footing in the country. Savvy merchants took deposits from pearl traders, amassing considerable wealth estimated at 2 million rupees in 1919. These merchants extended their influence to Bombay, establishing branches where local pearl traders could deposit their earnings and transmit them to Bahrain. This early form of proto-banking marked the prelude to a historic event that took place exactly 100 years ago: the birth of the GCC banking industry in Bahrain.
Since then, the GCC banking sector has surged forward, with Bahrain, the region’s oldest and most established financial hub, leading the way. Today, nearly 400 financial institutions call Bahrain home, contributing significantly to the nation’s GDP. Banking and financial services have taken center stage in the region’s economic diversification efforts, constituting around 17 percent of Bahrain’s GDP, making it the largest non-oil contributor.
A report from KPMG notes that in the GCC, “shopping malls are the main driver of the retail industry, while in the US and Europe, for example, online shopping plays a much larger role. In fact, in the Middle East cash has long been the preferred method of payment even for online purchases, with cash on delivery accounting for a staggering 76 per cent of the region’s ecommerce orders as recently as 2017.”
Yet, a transformation was underway. Point of sale (POS) transactions involving debit and credit cards showed steady growth, with the number of such transactions increasing by 14.3 percent in 2019. E-wallets like Fawri, Fawri+, and Fawateer saw a 13.4 percent rise in total amounts transferred, reaching BHD 12.7 billion in 2019, according to data from the Central Bank of Bahrain. This shift in consumer behavior prompted Bahrain’s banks to embark on a digital revolution.
This digital transformation isn’t unique to Bahrain; it has swept across the entire GCC region. Online payments have gained significant ground, with a rapid rise in penetration. E-commerce is set to soar from $8.3 billion in 2017 to $28.5 billion in 2022 across the Middle East and North Africa (MENA).
But what propelled this digital revolution into high gear? The Covid-19 pandemic prompted swift and stringent responses from GCC governments, leading to lockdowns and the temporary closure of non-essential businesses. Consumer behavior in Bahrain underwent a remarkable transformation, with a surge in digital transactions.
In March 2020 alone, EFTS witnessed a staggering 1257 percent increase in remittances through its Fawri+ service, amounting to approximately BHD 103 million ($273 million). Bahrain’s BenefitPay is on track to facilitate over $4 billion worth of transactions by the end of 2020. These new consumer habits, driven by safety concerns during the pandemic, appear to be here to stay. According to a Mastercard survey, 70 percent of respondents in the Middle East and Africa now use some form of contactless payment, with 81 percent planning to continue post-pandemic.
The GCC, with its shared language, similar consumption habits, and high internet and smartphone penetration, is poised to become a digital payments hub. From traditional banking to innovative platforms like Careem, Talabat, BENEFIT, Apple, and Android, all see the GCC as a promising frontier for digital payments.
Bahrain’s historical journey from pearl trade to digital payments mirrors the evolution of the entire GCC region. As digital payments continue to reshape economies and consumer behavior, the future looks promising for innovation in the digital financial landscape.