Cross-border Payments in the Middle East and beyond – Mehdi Manaa, BUNA [Season 2 | Episode #2]

Podcast Intro 00:00:00 Hello. Welcome to P.I.T. Exchange, a podcast by Currency Research. Join us as we discuss the latest in payments, innovation and technology with the industry’s most innovative thought leaders. Today’s payments are changing and moving around the world faster than ever before and P.I.T. Exchange gives you the knowledge and insights to keep up. Sit back and relax as we join currency research, exchanging ideas with today’s special guest.

Jens Seidl 00:00:33 Welcome to another episode of The P.I.T. Exchange. Everything about payments, innovation and technology. My name is Jens Seidl and I am your host for this episode. And this is going to be a special episode from my perspective, because we’re going to talk about a region that we really haven’t covered on the podcast yet, and we have a special guest from that region from the Middle East with Mehdi Manaa, who is the CEO of Buna. Mehdi, welcome to the episode.

Mehdi Manaa 00:01:01 Thank you very much. How are you?

Jens Seidl 00:01:04 Very well, thank you. How are you?

Mehdi Manaa 00:01:06 Fine, fine. Thank you very much.

Jens Seidl 00:01:08 It’s great to have you on. And as usual on my episodes, we’re going to start with a few, well, three semi personal questions just to get to know the person. Marijuana a bit better before we jump into the the work related stuff. So first question on a flight. Do you prefer aisle or window?

Mehdi Manaa 00:01:28 Always the maximum margin for manoeuvring. So I would say aisle if it comes with a window is even better.

Jens Seidl 00:01:38 That’s a very good answer I like that. another question, a book that you’ve read either recently or a long time ago. Doesn’t matter that you say this is really a book everybody should read.

Mehdi Manaa 00:01:51 I know, I, I, I cannot pick up, a best book. I like reading. I read a lot, not only work related aspect, a lot of fictions and, history related books. And generally I love all of them. So I will not single out a specific example here.

Jens Seidl 00:02:09 Okay. Fair enough. Equal chance for everybody. and maybe you’ll have a favorite there when it comes to food, is there a certain cuisine or a dish or something that you, like and always go back to?

Mehdi Manaa 00:02:25 for them? at the same time, very, open and very picky to some extent. I could enjoy almost everything from the basic sandwich to the most elaborated recipe. But, and from all origins, by the way. So I’m not, responding to a specific cuisine, but I’m very difficult with the quality. So I would say almost everything, under the condition that is, prepared with patience and with the very good ingredients.

Jens Seidl 00:02:58 That sounds good to me. All right. Great. Well, Mehdi, thank you for that. Now let’s talk a little bit more about, your professional background. Maybe if you want to introduce yourself what you’re currently doing and what path led you there?

Mehdi Manaa 00:03:14 Well, I’m, slowly getting to, close the third decade of, my career. It’s, it started with, security. Security settlement, more in particular, before extending to payment and now, being, mainly dedicated to payment only if I focus on the main organization with which I worked. So, there are also, three, so, started with the, the French security depository, which was, and then it was [unclear] at a later stage. Second being the European Central Bank spent more than 12 years with them and now with with Buna. As you said, in the Arab region and, dedicated to cross-border payment, considering, these experiences, maybe, there are three characteristic, unusual characteristic to highlight. The first one is that, all my career has been in, financial market infrastructure, the second, very specific characteristic that it was generally always on, implementing and delivering, sizable changes to this, financial market infrastructure. So, I did not have that much of operation or regulation, but maybe change management and transformation of financial market infrastructure and the third characteristic is that all these changes, where to support, integration, either between different organizations or between different countries and regions. I started, with, at the occasion of, the Grand Vitesse project, which was, aiming at integrating security settlement between, the stock exchange market.

Mehdi Manaa 00:05:14 So at that time by, and all that is, monetary policy related and managed by Banco de France. So at that time, it was really the these two type of, very, different and specific type of business. Little by little it moved to, merger and acquisitions, between organization when euro clear and merged together and with the ECB it had the dimension of more regional financial integration first in Europe at that time and now more or less the same context with, Buna, in the Arab region. over time, I realized that this dimension has become more prominent. So, that also shows, the impact or the contribution of financial market infrastructure to the broader economy and, regional, constructions and collaboration between countries, between businesses. the, the knowledge or the skills that have, been required, while moving ahead were less and less related to, finances and more and more related to, managing dynamic and building consensus between, different interests and, different agendas to drive a common infrastructure that is proposed to support, either, a country or a region at a more larger scale.

Jens Seidl 00:06:45 Absolutely. And, look, you said a few words there. Transformational things, infrastructure bringing parties together. And I think that is everything that’s about right. But let’s let’s assume not everybody on this podcast now knows who Buna is. Can you tell us a little bit more about what Buna is, how it came about, and what the goals of the organization are?

Mehdi Manaa 00:07:09 So the underlying, mandate or objective is, exactly what I said. It’s about, building, or strengthening the financial integration between the Arab countries, and also, their relationship with their partners. So it’s not just about being, centered on the Arab region, but also about, having, more global perspective and better connecting this region to the rest of the globe. In terms of, core functions, it’s it’s, let’s say a traditional payment system like, an ArcGIS, type of payment system. So it’s a very common type of construction, but even more at a domestic, national level. So, most of the countries are well equipped with the refugees.

Mehdi Manaa 00:08:03 The novelty of Buna is to bring that model to the cross-border space because it’s it’s, based on the experience, it has proven to be very powerful and very efficient, to connect, the different stakeholders. So the financial institutions that are involved in payment directly, in, to, to, single, multilateral, infrastructure, and processing payment directly between them. So there is no simpler or more powerful model. So far it was not easy to bring it to the cross-border space because of differences of, jurisdictions. Because a lack of driver as well. So this is one of the reasons why, cross-border payment is still lagging a bit behind. what could be achieved with the domestic level because there is no real ownership, in a single country? Yes. Very often central banks are taking the lead and, pushing changes, driving changes and, implementing regulation to improve payment at national level. Cross-border space is a bit more difficult. So the ownership is is less clear, if ever it exists. And there is a need for, specific type of organization to, take initiatives in this context and the context of Buna.

Mehdi Manaa 00:09:26 It was the central banks from the Arab region which used one of their arms, which is the Arab Fund, and the Arab Monetary Fund is, our mother company, the our unique shareholders and with, this commitment, from, the policymakers in the region, Buna now exist and try to make cross-border payment in the region and beyond as efficient as domestic payment with the adoption of this RTGS model.

Jens Seidl 00:09:57 Okay, so, can you tell us a little bit more about the reach and size of Buna as well? So how many countries do you connect, and what kind of transactions do you actually then support in the cross-border space?

Mehdi Manaa 00:10:13 So Buna is what we call, use case agnostic, type of model. So, we process all type of payment, and we see it in our current traffic today. So we have, large value payment, linked to corporate or some sometimes to, government payment as well. And we have a much higher number as, as usual of, low value transactions, mainly driven by, person to person, payment and remittances.

Mehdi Manaa 00:10:45 It is worth noticing that in the region that we cover, we have some of the top ten, largest country in terms of, senders, of remittance flows. And also, some of the top ten receivers of, remittance flows, in and out region and within the region as well. So it’s, it’s a very vibrant environment. It’s a very diverse environment, where, these type of payment solutions were absolutely needed to make the, to make it more dynamic and much more efficient. For those who are in most of the most, the need for, for more efficient payment. Very often the poor workers or, blue colors that, require to transfer, payment back to their to their families. That, let’s say differences or, diversity, exist in other areas of payment in the region as well because the, the, the it’s not a uniform region. So we have different profiles of, of countries. some are the forefront of innovation and equipment in terms of, infrastructure, in terms of innovation, fintech companies, etc..

Mehdi Manaa 00:12:10 Some others are still underequipped, but, we see certain dynamic and certain, initiatives being taken to, to catch up and to, to, to make use of the strength, and knowledge that could exist in the different areas. And unfortunately, there are also, a few countries that are still facing some, lack of stability or tensions that, keep them underequipped. But here again, Buna is supposed to contribute to, helping, a bit in that direction, especially with the help with, of the our mother company, the Arab Monetary Fund. We are particularly active in, supporting, the country that do not have yet, an instant payment solution to, to to have their own infrastructure and, at the second stage, possibly, integrating, these different, national infrastructure together to get closer to a common, market.

Jens Seidl 00:13:13 And and I guess from, from my perspective, technology is not really the problem anymore. These days, I think technology is there’s many solutions out there. Yes, it needs a bit of coordination, but that that’s easier done than actually aligning regulatory frameworks, aligning the legal, frameworks in different countries and also dealing with the the compliance aspects of cross-border payments. Have you got some some special sauce there or is it just hard work and perspiration to to get this done?

Mehdi Manaa 00:13:48 Yeah. First, you are absolutely right. The technology is not it’s not a problem. I think technology has always been a, an enabler. We, you know, I very often have this debate in my different organization had the same one when I was the ECB, about to, to what extent we should, disclose our, design, our technical documents, whether we, make them fully public or we keep them secret because we might be copied or, see others using them in another context or in the wrong context. I have always been in favor of full transparency, because the real value added that we bring is not that one. It’s not. The technology is, as you rightly say, the ability of, putting the right stakeholders around the table and then the ability of driving them towards a common purpose and the common objective, it’s not always easy. So the dynamic, or let me say it’s always difficult.

Mehdi Manaa 00:14:51 It’s always difficult to align interest and to, to have different type of stakeholders with possibly different background, different histories, collaborating towards the common objectives. It takes a bit of time, but, when the, the interest becomes more visible and more tangible, we see that the force is managed to align, more, more easily. I would say, special recipe. No, it’s apart from being perseverant and also, a lot of, let’s say, diplomacy and, listening and Understanding. trying to, building, consensus. That’s a key word. we can never have a better solution, but, I mean, we cannot have aim for a best solution, let’s say. But so consensus means that we need to, to, favor collaboration first, and put forward the common interest, before the specific ones. It takes a bit of time, but, the success or the perspective of the success is the biggest supporter. So many of these initiatives, remain at the drawing, stage at the drawing board. So it’s it’s very important to keep the momentum and to show some results. That is the key for the success of these initiatives.

Jens Seidl 00:16:22 Okay, great.

Mehdi Manaa 00:16:24 Can you ask the question maybe, if you allow me to, also elaborate more on that. On, on on the compliance aspect. So, because, this is, very sensitive in the cross-border space. and Buna as I said, it’s, we are dedicated to that. So we do only cross-border payment. We do not manage the national flows. We had to be creative there. we had to be creative because, as I mentioned, we are we have opted for a centralized model. So the nodes kind of model, and in that context, we, thought that it was also important to build the central element of trust, traditionally or, by strict, lower obligations, financial market infrastructure are not involved in compliance aspect. All the ML, CFT, processes, lies with the participants in the infrastructure and not the infrastructure itself.

Mehdi Manaa 00:17:27 That works very well in an environment that is purely homogenous in a national space. When you try to follow the same approach, at the cross-border level, with a centralised infrastructure like Buna, there is a kind of mismatch. So the payments and the pure operation, the business is centralized, but the responsibility of ensuring compliance is decentralized. So we try to resolve that, that mismatch by by changing or by being more creative, not in terms of technology but in terms of models. So we, we built in, in our system, all the framework and the processes and the tools that are required to also manage compliance centrally. So we do not discharge our participant from their obligation. But we added this additional layer to precisely, build a single centralized reference to be the central element of trust. That was key in our construction, specifically to onboard the possible institution from outside the Arab region, which has started now, and also currency from the outside the Arab region. So we have the dollar and the euro in particular today live on our platform. And to give the appropriate reassurance to the authorities of these currencies, bringing a single, strong response for the compliance was instrumental in that context.

Jens Seidl 00:19:05 It’s a really interesting point you’re making there because it’s, and I think you’re you’re right. That’s also my perception, at least in the past, that FMI is don’t get involved with compliance. FMI typically don’t get involved with fraud monitoring either. And that’s also something that’s changing. We just have been discussing last year how in Malaysia, for instance, there’s a project running where the FMI is very much helping with fraud detection now. So it’s I think that’s also something that’s happening in our world that with new technology, being available and new capabilities, there’s more of an opportunity for FMIs to provide these added services, which is, game changing ultimately.

Mehdi Manaa 00:19:46 Absolutely. Absolutely, yes.

Jens Seidl 00:19:49 Okay. Well, maybe before we talk a bit more about new technology, and what’s happening in that space, I said at the beginning of the podcast, this is the first time that we have a guest from the Middle East actually on, on, the P.I.T. Exchange. And can you, from your perspective, maybe tell us a little bit what what’s special about the Middle East when it comes to payments? You were just mentioning before, there’s the top ten sending countries, for instance, but also the top ten receiving. So can you describe some of these dynamics that really make the Middle East special and different, maybe from other parts of the world.

Mehdi Manaa 00:20:29 Yeah, there are different groups of, or profiles of countries, I would say as as I mentioned earlier, if I take the countries of the GCC, so the, the Gulf region, they are a kind of homogenous group, where, funds and capital exist and it’s a sufficient amount. So there is generally very, good, level of equipment, in terms of, national infrastructure with TJ systems with also strong and good regulation, to, to support, the different initiatives, with the public sector, and the private sector, working together and taking initiatives either jointly or separately. A lot of innovation and a lot of investment in innovation.

Mehdi Manaa 00:21:27 So, the if I take the example of artificial intelligence, for example, I’m already jumping to the, the, the technology space, but, it’s, it’s a lot of, of countries in the region are, they aiming at being leaders in artificial intelligence. If I take the example of the UAE, they have implemented or defined and implemented the very, strong and comprehensive strategy for artificial intelligence in 2017 already. So it’s it’s not that far ago, but, before the, the current buzz and, the changes that are occurring in artificial intelligence is also the first country globally that has, nominated a minister for artificial intelligence. So you see to just to show to the type of commitment to embrace and to develop these initiatives. If I, move to the investment and also to the framework that, is being developed to, embrace new type of instrument like stablecoins, also, virtual currencies, so that there is a lot that is being done, in this region. Other countries we see, despite the fact that, maybe the, the means are, less but the innovation is equally important.

Mehdi Manaa 00:23:01 So there are different countries like, Jordan, Egypt, North African countries as well, where we see a number of fintechs being developed, emerging and, delivering services to the whole ecosystem, with very good results. We see the progress of instant payment being very positive in many, many countries, with, very important success stories like, here in the UAE, in Saudi Arabia, in Egypt as well. So the boom that the, instant payments have experienced in this country is really amazing compared to other regions as well. And as I mentioned earlier some other countries that are not equipped yet are being supported by the Arab Monetary Fund and by other organizations, to meet the same expectation and to be better equipped in the near future, hopefully. What else to say about the region, maybe also, regarding the use of cash. So this is also an interesting aspect, like, other regions around the globe. The pandemic situation had an influence on the extent of use of cash.

Mehdi Manaa 00:24:22 Because, the need for more electronic, touchless payment, has become a, a must during that period. And actions have been taken, in most of the countries and in the very, offensive and ambitious way in, in many countries. so there is certainly a decline of, use of cash for most of the transaction, or I would say that, there were cases where, cash was the only options. It is, not the case anymore. So we can use non-cash for, different means of non-cash payment, in all contexts in the region now but the use of the cash remains there, less and less. But, it’s definitely not disappearing, for possible small transactions, but sometimes also for, more sizable transactions as well. So it’s still a common means of payment nevertheless.

Jens Seidl 00:25:24 Mobile payments now are quite prevalent as well across the region?

Mehdi Manaa 00:25:27 Yes, yes. So here again with some disparity. But, the mobile payment is is the developing. We see also emergence more and more of, QR payment options so that is not existing everywhere yet, but, there are many initiatives that are in the pipeline if not delivered already.

Jens Seidl 00:25:48 Okay. Great. Thank you for that. Maybe let’s talk a little bit about new technologies then. And I’m conscious of time. That’s probably going to be the last topic we can we can manage between us and maybe start with, with stablecoins and, and maybe even more so, CBDCs, because CBDCs are often now described as a as a potential solution to make cross-border payments more frictionless and more affordable, cheaper as well, at the end of the day. How do you see that? Is that something that Buna is excited about? Might become part of Buna? Is it something that could be a competitor? What’s what’s your view on on CBDCs?

Mehdi Manaa 00:26:34 Yeah. I will respond from different perspectives Jens if you allow me. First off, first of all, I should say that the, I’m a supporter of CBDC. So as a former central banker, it’s a topic that is, close to my heart. And, I don’t think that, in an environment where, more and more things are becoming, digital and dematerialized that the cash will remain the only, instrument that will always be, physical, instruments. So, a CBDC will happen sooner or later and we need to prepare for that. Regarding the possible impact for, CBDC, on the cross-border payment, I have personally a different view. I still don’t see how CBDC could be a game changer for cross-border payment. but, most of what we do today, if all what we do today, Buna is purely digital. So, so the CBDC will not bring a different degree of digitalization and most of the cross-border payment, at least the formal channels, it’s also based on, on digital payment, not on cash, not on cash. So the CBDC dimension for cross-border payment. Personally, I’m not convinced yet, despite the fact that, again, I’m a supporter of of, CBDC. When I take it from the Buna perspective, we are the infrastructure. We are the financial market infrastructure.

Mehdi Manaa 00:28:12 So we are not an issuer of CBDC. So the question on, on, on our side is more what if what if one of our central bank, one of the currencies that, we, use now as settlement currency on the platform, we have six, four Arab currencies and, the two, international ones that I mentioned. Do you run the dollar? What if one of them moves to a CBDC, form of money to to what extent will be affected? what will we need to, can to cope with that change as it is today? do we need a second Buna next to the current one or, possibly, through the current one and build the new one from scratch for the CBDC? the so far, fortunately, our analysis lead to a reassuring conclusion that and most of the possible options of use of CBDC. what we have today, with what we have today, we can still scope of it. The impact should be limited on on Buna, and we will be able to deliver the same service.

Jens Seidl 00:29:22 That makes perfect sense. And yeah, when it comes to cross-border and CBDC, I can see again some technology advantages there potentially. But you’re still not resolving the same problems that we talked about earlier. There’s still the legal, the compliance, the regulatory frameworks to resolve. And that’s not something that CBDC, at least at the moment, does. I know there’s some initiatives underway to see how that might help with overcoming some of these hurdles. Do you agree with that?

Mehdi Manaa 00:29:50 I agree with that. The question is, why would it be more, why would it be easier to resolve it with CBDC than with the current, technology available? So we could do to some extent fear the opposite that, combining the the problem that we have on the table with, the problem that would come with adoption of new technology that might make the complex the problem even more complex, at least initially. I again, I’m not, opposing to or neglecting the potential of CBDC. On the contrary, that that, it’s part of the future.

Mehdi Manaa 00:30:29 Whether it will be in the next decade or in 50 years from now. I don’t know, but it’s part of the future. Definitely. I don’t think that we need to, justify that the necessary change to some extent by possibly weak arguments. It might support, cross-border payment. It might make it more complex at the first stage in the short term before getting some efficiencies. But this is part of the usual transformation. So any transformation that we had to experience in the past. We went through the same process, some complexity and people until people getting, used to the novelty, or to the, innovation and technology, until gaining, some efficiency at a certain stage.

Jens Seidl 00:31:20 Yes. No, I think that’s fair. I guess one one other thing where there’s, much less uncertainty. What might happen is AI, I mean, that’s already very clear. AI is going to change so many things. It’s it’s not something for the future. It is happening right now. Is AI something that you’re closely looking at? Also, how you can apply that in Buna? And where do you see potentially some of these, these game changing applications of AI in the payment space?

Mehdi Manaa 00:31:50 So we so here is very interesting AI, very interesting because my, my view on the future of financial market infrastructure is more in terms of efficiency gain. So, historically financial market infrastructure were, very monolithic, type of unstructured, structure, very difficult to change, very difficult to move. That is not sustainable anymore. So we need to be nimble, we need to be agile, flexible, and to gain a lot in terms of efficiency at all levels, not only in processing payment, but also in learning processes and managing the organization. So AI has a place everywhere in this context, has a place. So it’s a, it’s an amazing tool to gain efficiency, within an organization and, to support an industry like payment. We mentioned, compliance earlier, so compliance, still relies to a large degree on human intervention and human judgment. How that could be improved, with the use of AI, especially in the context where the amount of payment is increasing and the amount of data is increasing even more. Where indeed, we have a lot of hope, when it comes to the use of, standard like ISO 2022 to, to improve the processes. But at the same time, while we are pushing for more structured data, we know that the data is less and less structured for different reasons. So the AI, in combining all these trends of, more data, less structured data, more payment, more thread diversity, will very quickly become a must.

Jens Seidl 00:33:39 Absolutely agree. And I guess AI has been used in the payment space for years already. It’s just now that acceleration of how AI evolves, which opens these new opportunities. Right?

Mehdi Manaa 00:33:56 Yeah, absolutely. You know, originally I’m an engineer, and AI has been one of my patients since the start. So, all the project when I did, when I was a student, were about AI, ao, that was in the, in the 90s. And at that time already it was possible to achieve a lot with AI. So for me, it’s, an astonishing moment to, to see that what was available at that time, just between the hands of a few students, is becoming the mainstream.

Jens Seidl 00:34:31 Yes, absolutely. Mehdi, I’m afraid we’re running out of time. This was a really interesting conversation. Thank you for taking the time. I really appreciate that.

Mehdi Manaa 00:34:42 Also, thank you very much.

Jens Seidl 00:34:44 To continue this conversation. in a couple of weeks time when I’m going to be in Abu Dhabi for the Arab Payments Week, and then a couple of weeks after that in Paris for the Paris Payments Week. So we’ve, we’ve we’re going to see each other quite a lot in the next month. And I really look forward to it.

Mehdi Manaa 00:35:02 Thank you, Jens. This is excellent news. And, yes. So, when you will join us for the Arab Payment Week, you know, even we will know even more about the region in that case.

Jens Seidl 00:35:11 Look forward to it. Mehdi, thank you so much again. Thank you. And see you soon.

Mehdi Manaa 00:35:16 See you soon. Bye bye, Jens.

Jens Seidl 00:35:18 All right. That concludes our episode for today. I hope you were having a good time listening in and please do, like, follow. Do what you need to do on your podcast platform to make sure you don’t miss any of the future episodes.

Podcast Outro 00:35:36 Thank you for listening to The P.I.T. Exchange, a podcast by Currency Research. Check out our upcoming events and publications at currencyresearch.com, and join us for our next episode to hear what’s trending in payments, innovation and technology.