The Middle East banking sector is transforming, driven by advancements in technology, regulatory mandates, and changing customer expectations. Financial institutions must modernize their payment infrastructure to remain competitive in an increasingly digital world. Regulators and financial bodies across the region are actively promoting payments modernization initiatives.

According to a recent survey, 67% of banks report increased budgets for payment transformation, signaling a strong commitment to upgrading infrastructure. Additionally, 94% of banks plan to adopt Payments as a Service (PaaS) models, moving away from legacy systems that limit flexibility and scalability.

The demand for Payments as a Service, open banking, and seamless cross-border transactions is growing rapidly. Banks that fail to modernize risk losing market share as customers seek faster, more efficient, and cost-effective payment solutions. However, achieving full modernization requires overcoming regulatory compliance challenges, integration complexities, and legacy system dependencies. The key question is: are Middle East banks truly ready for payments modernization?

The state of payments modernization in Middle East banks

Middle East banks have made significant progress in domestic Payments as a Service, with 67% of banks rating their compliance with domestic PaaS systems at 6 or higher on a 7-point scale. This indicates strong alignment with regulatory requirements and growing adoption of faster payment solutions. The ability to process instant transactions is no longer a competitive advantage but a core expectation from both retail and corporate customers. Banks that fail to offer real-time services risk being sidelined by more agile competitors.

However, cross-border payments remain a challenge. While 39% of banks believe their real-time cross-border payment capabilities are strong, this lags behind domestic adoption. Cross-border transactions introduce higher compliance risks, longer settlement times, and greater operational complexity. Many banks still rely on traditional correspondent banking networks, which can be costly and inefficient. Expanding access to alternative payment networks and ensuring ISO 20022 compliance will be critical in modernizing international payments.

Open banking is another area where Middle East banks show growing readiness. Sixty-one percent of banks rate their open banking capabilities at 6 or higher, signaling strong API adoption and fintech collaboration. By integrating third-party financial services, banks can create more seamless payment experiences, improve customer engagement, and unlock new revenue streams. Despite progress, achieving full interoperability between banks, fintechs, and global payment networks remains an ongoing challenge.

Additionally, compliance with ISO 20022 messaging standards is crucial for payments modernization. While 67% of banks report compliance for domestic payments, only 44% have achieved compliance for cross-border transactions. This discrepancy highlights the need for greater investment in data standardization, transaction transparency, and interoperability between different payment systems. Without alignment with global standards, banks will struggle to meet regulatory expectations and improve payment efficiency.

While Middle East banks are well-positioned for domestic payment transformation, cross-border payment inefficiencies and regulatory gaps must be addressed. Strengthening global transaction capabilities, enhancing API-driven banking ecosystems, and fully aligning with ISO 20022 standards will be critical for success.

Cloud adoption is accelerating payments transformation

Cloud technology is reshaping the way Middle East banks approach payments modernization. The shift from on-premise infrastructure to cloud-based solutions is accelerating, providing scalability, security, and cost efficiency. Banks recognize that traditional payment systems are costly to maintain, difficult to scale, and vulnerable to cyber threats. As a result, financial institutions are increasingly migrating payment operations to the cloud.

Fifty percent of banks are choosing private cloud deployments, which offer greater control, security, and customization. Private cloud solutions are particularly appealing to banks dealing with strict data residency laws, as they allow financial institutions to maintain full oversight of sensitive payment data while leveraging cloud-based efficiencies. At the same time, some banks are moving towards multi-cloud environments to reduce dependency on a single provider. Thirty-three percent of banks are adopting a multi-cloud strategy, enabling them to diversify risk, optimize costs, and ensure redundancy.

A smaller but growing segment of banks is embracing hybrid cloud models. Seventeen percent of banks are integrating on-premise infrastructure with cloud solutions to maintain a balance of control and scalability. Hybrid environments allow financial institutions to modernize gradually, ensuring legacy systems remain functional while transitioning to cloud-native payments. This approach is particularly beneficial in regulatory environments where full cloud adoption may not yet be feasible.

Cloud adoption is also driving advancements in Payments as a Service and fraud detection. With cloud-based solutions, banks can process high volumes of transactions in real time, leverage AI-driven fraud prevention, and enhance disaster recovery capabilities. As PaaS continues to gain momentum, cloud adoption will be the foundation for future-ready payment infrastructure.

Investments in payments modernization are increasing

Middle Eastern banks are committing significant financial resources to modernization of payments. Fifty percent of banks plan to invest between $1 million and $5 million in payment transformation initiatives over the next year. This reflects a strategic shift away from incremental upgrades toward large-scale modernization projects.

Technology development remains a top priority, with 56% of banks focusing on innovative payment solutions to enhance efficiency and security. Additionally, 50% of banks are prioritizing customer experience enhancements, aiming to deliver faster, more transparent digital payment services. This highlights the growing recognition that seamless, Payments as a Service are essential for customer retention and business growth.

Surprisingly, only 6% of banks plan to spend less than $100,000 on modernization, underscoring a strong commitment to industry-wide transformation. Banks that fail to invest in next-generation payment technologies risk falling behind competitors that offer superior transaction processing, lower fees, and real-time transparency.

As budget allocations continue to rise, financial institutions must ensure their investments align with long-term modernization goals. This requires choosing scalable payment platforms, integrating API-ready banking ecosystems, and adopting cloud-based architectures.

Expanding global and domestic payment connectivity

Middle East banks are actively expanding their domestic and cross-border payment networks. Sixty-seven percent of banks are connected to multiple real-time domestic networks, and 83% plan further expansion within the next year. This reflects the region’s commitment to improving transaction speed, security, and accessibility for local markets.

Cross-border payments modernization is also gaining traction. Seventy-two percent of banks are connected to multiple global Payments as a Service networks, with 78% planning to expand further. This aligns with the increasing demand for faster, more transparent international transactions.

To enhance global connectivity, many banks are reducing reliance on SWIFT-only networks. Fifty-five percent of banks now access three or more cross-border payment systems, diversifying transaction channels and improving cost efficiency.

Emerging payment rails such as BUNA, AFAQ, and distributed ledger technologies (DLT) are becoming key enablers of modernized global payments. By adopting these alternative payment infrastructures, Middle East banks can reduce costs, improve settlement times, and enhance security for international transactions.

The path forward for Middle East banks

Middle East banks are making significant strides in payments modernization, driven by real-time transaction capabilities, cloud adoption, and global network expansion. However, critical challenges remain to address cross-border inefficiencies, enhance API-driven ecosystems, and fully align with ISO 20022 standards.

Banks need flexible, cloud-native solutions that integrate seamlessly with PaaS networks to accelerate transformation. Volante Technologies offers an API-driven Payments as a Service (PaaS) platform that supports Payments as a Service, ISO 20022 compliance, and seamless cross-border transactions.

Discover how Volante Technologies can power your bank’s payments modernization journey. Talk to us today and see how we can help jumpstart your innovation.