AFAQ: A promising future for GCC unified banking
Since the founding of the Gulf Cooperation Council (GCC) in 1981, efforts have been made to unify and bring the banking systems of the six member states (Saudi Arabia, the UAE, Bahrain, Oman, Qatar and Kuwait) closer together.
To facilitate such moves, leaders of the six countries approved the Monetary Union Agreement in 2008 and a joint technical committee was formed for that reason.
Further, the Gulf Payments Company (GPC) was founded in 2016 to support such ambitious goals through developing and building system that connects all GCC payment systems. The GPC’s main objective is to create an integrated business system that provides safe, effective and economical systems for cross-border payments by using state-of-the-art technology, best practices and internationally recognized standards.
It is worth mentioning that the Saudi Cabinet recently approved the GCC agreement for setting up a unified payment system.
One of the most important services that the GPC provides is AFAQ, a regional payment system that aims to implement remittances in GCC local and other currencies in a short time and at low costs in a safe and stable environment.
AFAQ is also a joint regional payments platform linking real-time gross settlement systems for each GCC country, where the immediate processing of inter-GCC transfers is carried out at the end of the day, including total settlements.
Its business operational model includes in its first phase multiple transfer services in GCC currencies, and in the second phase other currencies will be included such as the US dollar and euro. Also, it will enable the processing of a large proportion of cross-border payments in addition to the same-day adjustment features of central and commercial bank balances and financial positions.
AFAQ is also a joint regional payments platform linking real-time gross settlement systems for each GCC country.
Talat Zaki Hafiz
As a unified payment system across the GCC countries, AFAQ contributes many economic benefits, such as supporting the growth of trade and investment among GCC member states, strengthening confidence in the economic cooperation and supporting the chances of a future unified Gulf currency.
It is worth noting that remittances between the GCC countries are currently implemented through offshore bank payment systems that rely on external service providers. This causes delay in processing the remittances and exposes the remittances to multiple other risks related to technical problems, reliability and safety.
Therefore, the AFAQ payment system will overcome these problems by providing more sophisticated benefits such as: Instant conversion and deposits, low service charges, better liquidity management and operational enhancement by reducing both expenses and the size of different risks.
To date, there are only 12 banks in Saudi Arabia and Bahrain — including the central banks of the two countries — that have joined the AFAQ system as of July 12. The rest of the commercial and central banks of the Gulf countries will join according to an agreed program, which will be hopefully completed soon.
The strengthening of the GCC countries’ electronic payment systems is becoming a must in order to speed up the movement of funds and remittances between the six member states of the GCC. Also, this would allow for banking transactions between the member state of GCC to be processed and executed at low costs within a safe and stable ecosystem.
Without any doubt, the AFAQ system is a breakthrough achievement of the GPC, since it allows for processing and completing financial transactions within moments, at a cost-efficient rate. Additionally, it provides a highly secure ecosystem that is shielded against cybersecurity threats and information security risks by incorporating modern innovations, while reducing reliance on external financial systems and networks.
Last but not least, I believe that the AFAQ system is an extension of previous successes achieved by the GCC, such as other payment connections of the six countries of the council in a single unified network, including the Gulf network that connected the ATM networks of the GCC.
• Talat Zaki Hafiz is an economist and financial analyst. Twitter: @TalatHafiz