The past year and a half has seen the slow but steady march of bitcoin across the financial landscape, gaining market share and investor interest with each passing month. Yet, in the Middle East, digital currency remains a fringe prospect in the eyes of the region’s financial players.

A small group of startups and entrepreneurs are hoping to change this mindset with a new array of bitcoin platforms and tools that could deliver much-needed financial resources to an area where only 20% of the population has access to banking services. Before this can happen, however, cultural and technological challenges must be overcome.

Tarik Kaddoumi, co-founder of bitcoin retail payments service Umbrellab, told CoinDesk that he sees bitcoin’s success in the region arising from the financial barriers that currently exist, saying:

“Bitcoin will play a vital role in the Middle East mainly due to the very low credit card penetration in the region, and the difficulty of acquiring a credit card or sometimes even a bank account.”

Kaddoumi recently spoke at the ArabNet Digital Summit 2014 in Dubai, where he was joined by David El Achkar, founder of bitcoin payments provider Yellow. The panel, entitled “The State of Bitcoin”, was reportedly warmly received and has set the stage for future bitcoin developments in the region.

In conversations with CoinDesk, the two entrepreneurs agreed that the soil is fertile in the Middle East for bitcoin to rise to prominence.

ArabNet Digital Summit

El Achkar told CoinDesk that many participants expressed great interest in bitcoin at ArabNet. He noted that roughly half of the crowd was familiar with digital currencies, and that the bitcoin panel received a large number of questions both during the discussion and afterward.

On the other hand, he suggested that members of the tech community are still researching bitcoin and haven’t made up their minds about the technology, a fact that was on display at ArabNet:

“The tech and broader community in the Middle East is definitely still in the early learning phase about bitcoin. For example, I generally ask, at every event I participate in, ‘Who understands bitcoin?’ I’ve found the average to be at around 20%.”

Kaddoumi added that bitcoin remains in its “infancy” in the Middle East, and that more outreach is needed before conference attendees in the tech world – and the broader public – embrace digital currencies.

The path to bitcoin adoption

Both Kaddoumi and El Achkar are focused on the payments ecosystem in the Middle East, and both told CoinDesk that this area of finance represents one of the possible gateways for bitcoin adoption in the region.

Notably, most e-commerce transactions are cash-on-delivery (COD), meaning that consumers pay for goods upon receipt. According to El Achkar, this payment method accounts for roughly 80% of e-commerce sales in the Middle East:

“This greatly increases the cost and complexity of online purchases, not to mention it can regularly take three weeks for a merchant to receive payment. If that isn’t bad enough, a customer is far more likely to return a product unpaid for when it is ordered COD. Clearly, there is a lot of room for improvement in payments.”

Kaddoumi sees this as a reflection of the region’s large underbanked or unbanked population. Unable to access credit or banking services, most rely on cash as a means of payment. Bitcoin, he said, presents an “immediate solution” that enables merchants in the Middle East to gain access to revenue faster than traditional methods.

Opportunity for fintech startups

According to El Achkar, the Middle East is a challenging environment for fintech companies. He said that operational costs keep startups at bay, a problem that is exacerbated by the fragmented nature of the region’s market.

Digital currency, he continued, could make the environment more amenable for fintech startups, saying:

“The regulatory environment is not supportive enough of small business. Bitcoin can potentially address [these] issues by lowering the cost and complexity of innovation as well as eliminating the borders.”

El Achkar cautioned that, by and large, the tech community in the Middle East is still wary of bitcoin. Calling them “fairly skeptical on average”, he nonetheless declared that businesses in the ecosystem are actively exploring bitcoin. The question remains whether or not tech companies in the Middle East embrace the digital currency.

El Achkar explained:

“People will often point to the many ways in which the region lags behind technologically (eg: Internet penetration, credit card penetration), and say it simply is not the right time for bitcoin.”

Bitcoin in Islamic banking

Banks worldwide have begun to look at bitcoin and the possible integration of its underlying technology. While no bank in the Middle East has expressed openness in this regard, Kaddoumi sees bitcoin fitting into the broader institution of Islamic banking, which presents several key differences from Western-style banking.

Islamic banking is founded on key principles established in the Qur’an, most notably the abolishment of charging and receiving interest on loans. Additionally, investments made by Islamic banks must meet certain ethical and moral thresholds, with an emphasis on sound risk assessment and societal benefit.

Kaddoumi said:

“As bitcoin resembles a commodity with finite existence, transparency that promotes ethical use and the general similarities to precious metals as a commodity, there are a lot of reasons to believe that it will take a very comfortable seat in islamic banking, even more so that fiat currency.”

Kaddoumi said that Umbrellab is conducting a study to see exactly how bitcoin fits into this system, consulting with legal and Islamic banking experts.

Education key to bitcoin’s future

For Kaddoumi and El Achkar, as well as other bitcoin entrepreneurs in the Middle East, education and outreach remain top priorities. This includes appearances at events like ArabDigital, building contacts at other tech startups and reaching out to the region’s merchants and consumers.

From a technological standpoint, this process also means educating the populace about bitcoin tools like wallets and exchanges. Kaddoumi remarked that “lack of knowledge and skepticism are still the two main factors standing in the way of increased adoption”.

Additionally, El Achkar suggested that cultural distrust surrounding online payments could be assuaged with the broad integration if bitcoin, saying:

“There remains a lack of trust in online payments on average in the region leading to low credit card usage and a small (but growing) e-commerce sector. This, I believe, can be turned around with proper education as bitcoin addresses many of the concerns raised against conventional online payment options.”

Bitcoin, it seems, may come to play a prominent role in the Middle East, but only time will tell if long-standing cultural barriers and a lack of technological integration keeps digital currency from becoming more deeply rooted in the region.

Middle East image via Shutterstock

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