Payment delays affect UAE economy where Dh18.84 trillion changes hands annually

ADGM approves Trustin that could change the payment landscape

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Published: Thu 15 Aug 2024, 12:12 PM

Last updated: Sun 18 Aug 2024, 8:11 PM

The UAE last year processed more than Dh18.84 trillion worth of payments of which Dh17.16 trillion was through the Central Bank’s Fund Transfer System (UAEFTS), according to the UAE Central Bank. However, deferred and delayed payments to the tune of 6 months or more, are causing problems for micro and small businesses.

As much as 56 percent of the total business-to-business (B-2-B) payments towards products and services in the UAE in 2023 are late payments averaging about 70 days, according to Atradius Payment Practices Barometer 2023, up from 53 percent. On-time payment came down to 33 percent last year compared to 38 percent in 2022, while the extent of bad debt rose by 3 percentage points to 11 percent in 2023, from 8 percent in 2022, the report said.

Most business transactions in the UAE and GCC are done through cheques, instant payment system, direct debit system and fund transfer system. The UAE hosts more than 750,000 active businesses – that generate millions of invoices and process more than Dh1.31 trillion payment per year.

According to the Central Bank of the UAE (CBUAE), a total of 22.9 million cheques valued at Dh1.31 trillion processed through its Image Cheque Clearing System (ICCS), representing a 1.1 percent increase in volume and a 3.14 percent growth in value compared to 2022.

Most businesses in the GCC region suffer due to deferred payment, post-dated cheque payment with 3-6 months outstanding credit, lack of timely payment, non-payment of dues that affects businesses. These companies drain resources in recovering bills – a major issue in the private sector – due to lack of a proper regulated escrow eco-system, except for the real estate transactions in Dubai where payments for buying a property is channelled through escrow accounts.

As much as 64.1 million transactions valued at Dh164.7 billion payments took place through the UAE Central Bank’s Instant Payment System in 2023, compared to Dh101.2 billion through 38.3 million transactions in 2022, according to the Central Bank of the UAE (CBUAE). This is excluding the salary payment of 5.9 million in 2023.

The average number of employees registered in the UAE Wages Protection System (UAEWPS) rose from 5.2 million in 2022 to 5.9 million in 2023, with the value of paid salaries rising to Dh296 billion compared to Dh246 billion in 2022 – which are usually being paid monthly on a regular basis. The number of employers registered in the UAEWPS by the end of last year increased to 306,450 from 275,680, marking an 11 percent increase compared to 2022.

The Central Bank’s Fund Transfer System (UAEFTS) recorded 89.5 million transactions totalling Dh6.14 trillion for individual transfers in 2023, marking a 20 percent increase in volume and a 25 percent increase in value compared to 2022. Total institutional transfers reached 674,000 transactions amounting to Dh11 trillion by the end of last year, reflecting a yearly increase of 6.44 percent in volume and 41.3 percent in value.

As many as 17.8 million transactions totalling Dh106.9 billion were carried out through Direct Debit System in 2023, with transaction volume increasing by 34 percent compared to 2022, and transaction value rising by 23.7 percent annually. As many as 74.2 million transactions amounting to Dh120 billion were done through UAE Switch in 2023, representing a 4.7 percent increase in transaction volume and an 11 percent increase in value year-on-year. Additionally, the UAE Payment Gateway System (UAEPGS) processed 2.4 million transactions totalling Dh8.95 billion in 2023.

Momeen Ahmad and Parvez Akram Siddiqui

Most businesses in the region suffer due to deferred payment, post-dated cheque payment with 3-6 months outstanding credit, lack of timely payment, non-payment of dues that affects businesses. These companies drain resources in recovering bills – a major issue in the private sector. The delay ranges from three months to even six months, due to a lack of transparency, unified and regulated escrow system that could have changed the entire payment eco-system.

Trustin Limited, a UAE-built first Digital Escrow Platform in the region, has recently launched its operation after securing Financial Service Permission (FSP) from the Abu Dhabi Global Market (ADGM) Financial Services Regulatory Authority (FSRA). This licence is a significant milestone, solidifying its commitment to regulatory compliance and innovation in escrow Services space. Securing the FSP positions Trustin as first of its kind Digital Escrow Platform in the UAE and the greater Middle East region and will act as trusted partner for institutions and retail clients for safeguarding their buying and selling of goods and services.

Trustin aims to democratise and simplify escrow services, making them accessible through a convenient digital platform. This solution eliminates the time-consuming nature of traditional escrow banking.

Trustin operates within the regulatory regime of FSRA and offers real-time transparency and security for all parties involved, potentially leading to a smoother and more cost-effective transaction experience for consumers, small businesses, and enterprises. All the parties involved in the transaction are subject to highest level of Know Your Customer/Know Your Business process to ensure compliance adherence. Trustin provides enhanced protection and trust for business transactions, and financial dealings, making it a preferred choice for end users seeking reliable and transparent escrow solutions.

Momeen Ahmad, Co-Founder and SEO of Trustin Limited, said, “We are pleased to announce this important milestone for Trustin Limited. With our final regulatory approval from FSRA, ADGM, we aim to create a safe and transparent digital ecosystem for buying, selling, and payments for retail and corporates in the economy. Trustin will act as a regulated neutral party to facilitate complete trade transactions from origination to conclusion by all the parties involved. We thank the FSRA, and ADGM for their support and guidelines in achieving our regulatory milestone.”

Trustin addresses a major problem statement, which is the risk associated with open trade, particularly among SMEs and the retail market segment. These transactions often lack the security of traditional banking instruments like Letters of Credit (LC) and Bank Guarantees. Additionally, they can suffer from a lack of legal framework, transparency, and safety regarding payments and delivery of goods and services.

Trustin's digital escrow services provide enhanced security, compliance, and transparency, ensuring safe and efficient transactions for SMEs and retail businesses. With Trustin, businesses can mitigate risks and build trust in their trade activities.

Parvez Akram Siddiqui, Co-Founder and Chief Technology Officer of Trustin.ae, said, “We are happy to witness the successful launch of Trustin.ae as the region's first locally built digital escrow services platform.

“The platform is fully built in-house on cutting-edge technology and hosted on Amazon Web Service (AWS), UAE to ensure data protection guidelines. The seamless integration with one of the largest banks in UAE, regulated by Central Bank of the UAE, safeguards the client's money in a separate client money account.”