[This is the first post in a two-part series on the state of Bitcoin in the Middle East and North Africa]

What Is MENA?

MENA, which stands for Middle East and North Africa, is home to a population similar in size and land area to the US (350 million people spread over about 9 million square kilometers). But demographically it is moving much faster than the US. The population is growing at 2% per year, 10 times higher than developed countries (Euro at 0.2%)
Young people are the fastest growing segment, age 15 to 24 account for roughly a 1/3 of the population. And some 60% of the population is under 25 years old, making this one of the most youthful regions in the world, with a median age of 22 years compared to a global average of 28.

And it's also a generally well educated population with high educational enrollment rates: a nearly universal access at the primary level and nearly 70% enrollment at the secondary level.

All told, and although MENA is often portrayed in the media as an economically struggling region, the rapid population growth and high education paints a much more positive forward looking picture.

A Severely Lacking Financial Infrastructure

What’s holding back much of the region’s economic growth is a troubled financial infrastructure. The 350 million people live in about 15 different countries and use about 15 different currencies and banking systems (depending on the definition of MENA used). 

Financial inclusion is amongst the worst worldwide. Only 18% of individuals aged 15 and above have accounts at a formal financial institution. This varies wildly from region to region, with the UAE, for example, having an obviously higher financial inclusion rate (closer to 60%).

Similarly, credit and debit card penetration varies wildly between countries (97% in kuwait, 9% in Egypt) but on average remains very low compared to the rest of the world, and highly skewed towards debit cards (3x-4x more than credit).

The poor financial inclusion, low online payments, and fragmented financial infrastructure makes cross-border trade difficult and has delayed a lot of the eCommerce growth seen in other areas of the world.

Broken online payments, and the reign of COD

This leads us to the biggest payment pain point: 80% of online transactions are still made with cash-on-delivery. The majority of online transactions are done with an offline mode of payment. A payment option that we could almost call a lose-lose-lose situation:

For merchants that deal with cash-on-delivery, costs can range from $10 to $30 per shipment due to high product returns, re-stocking and re-shelving of undelivered products, cash-handling costs, thefts, and customers abandoning payments on delivery. More importantly, merchants often wait weeks before they are able to settle their cash-on-delivery funds into their bank accounts.

Customers, while often choose to pay with cash-on-delivery, take on additional costs that they may be unaware of. Often times merchants will increase the cost of delivery to account for their cash-on-delivery costs. Customers also need to make sure to have enough cash-on-hand and be present at time of delivery, and are thus sometimes unable to receive their products. 

Finally, cash-on-delivery is a nightmare for logistic companies that now have to double as a financial institution of sorts, handling cash and accounts for their merchants in addition to their core business of logistics.

The remaining 20% of online transactions are made with credit cards and alternative online payment options. Even then, available options are fragmented and expensive. Only a couple payments companies are able to cover the entire region - with most online payments going through single-country players. This further raises the cost and complexity for any sort of cross-border trade. Merchant fees vary between 3% and 10%. (examples include: PayPal, Gate2Play, Telr, Cashi, Cashu, Skrill, Faturah, 2checkout, onecard, and more)

And there's a host of other random regional factors making matters worse: in some countries, banks often dissuade their users from using their credit cards online, even disabling that functionality, and requiring that they purchase a special "internet credit card". Also, credit cards issued in the region tend to have a lower acceptance rate meaning more rejections at checkout, and so on.

The light at the end of the tunnel

Far from trying to paint a bleak picture, this is in fact an opportunity.

For one, the region has one of the highest mobile penetration rates in the world and leads when it comes to smartphone adoption. The United Arab Emirates and Saudi Arabia both make it to the top 3 countries with the highest smartphone penetration rate in the world (with almost 3/4 of their population using smartphone devices). For comparison smartphone penetration in the US is 56%. Even better, if you look at "anyphone" penetration: fully 95% of the population owns a mobile phone of some sort.

And, mobile money is becoming popular fast, here are just 3 examples to give you an idea:

• Fawry in Egypt, one of the most popular payment services with $500bn in volume per year, launched the “Phone Cash” mobile payment wallet available to banked and unbanked customers across Egypt. Individuals can now use the service to send money, pay bills, make donations, reserve airline tickets, and more
• Lebanon, a country of only 4 million, already has 5 different companies competing to provide mobile wallets and mobile money (HeyPay, PinPay, ViaMobile, CSC group, Tap2Pay)
• The Central bank of Jordan just released a mobile "cash" framework for the country (JoMoPay)

Ecommerce growth rates have reached 45% yearly, the fastest growing in the world (compared to USA at 15%). And total eCommerce sales are projected to hit $15bn by next year.

And finally, MENA also happens to be one of the biggest sending and receiving corridors for remittances, with $40-50bn in inflows per year, and close to $100bn in outflows

What Bitcoin can do

As you may have already guessed, all of these point to great opportunities for Bitcoin to augment or disrupt. I won't dive into much of the details of how Bitcoin can achieve this in this post, but suffice it to say, that with Bitcoin, anyone that has access to a phone, which is more than 90% of the population in the region, can, and soon will, have access to the same sophisticated financials tools as someone living in downtown manhattan, in the palm of their hands.

[In the second post we'll look at what Bitcoin has achieved in 2014]