Mobile Banking in Egypt
By M. Evans, L. Hammes, W. Herberger, B. Berg, T. El Wahsh, D. Rassloff
Banking in Post-Revolution Egypt Gets Upwardly “Mobile”
Without mobile phones, the Mubarak regime might still be thriving today. But political reform and social change are not the only ripple effects of widespread mobile usage. Mobile banking stands to create a dramatic new stimulus to the Egyptian economy. In a country where remittances from foreign workers contribute US$9.5 billion annually to the economy (Bloomberg News, 2010) and transfers between relatives within the country are common, one might think that transferring funds would be easy and convenient. Transferring funds should be an accessible service in a banking system that is well regulated and thrives on the competition between 39 banks. But for most Egyptians, these basic, common transactions are far from straightforward.
Instead, transfers are primarily made by taking cash to an Egypt Post outlet and arranging a transfer to be picked up by the recipient at their closest branch. While Egypt Post is popular and reliable, lines can be long, and business hours or service shutdowns can be an inconvenience, according to 30-year-old Alaa El-Masri. Alaa grew up in Aswan, a city in the south of Egypt, and moved to Cairo for work. Like many Egyptians, Alaa routinely sends money home to his family in Aswan—primarily through Egypt Post. During the revolution, Alaa’s father needed money, but Egypt Post had shut down, as had the railroad. Alaa shared with us: “I spent several days trying to figure out what to do, and finally I had to ask an acquaintance in a nearby town to physically travel to Aswan by car to provide my father with some money to make ends meet.”
Alaa and his father may soon have a new option: Mobile money transfer service for the unbanked. In February 2010 the Central Bank of Egypt approved the regulations allowing telecom companies to offer payment orders, transfer of funds and other transactions via mobile phones (Central Bank of Egypt, 15). While only 10% of Egyptians have bank accounts, most have mobile phones. In fact, mobile phone penetration rates are approaching 100% (Business Monitor International, 2011). And Egypt’s Telecommunications Regulatory Authority is expected to give their go ahead to launch the service once the situation stabilizes following the revolution. This would allow Alaa to transfer funds as easily as sending an SMS. With a potential market of 85 million though the nation’s poorest may primarily only be recipients, mobile banking has telecom and banking industries scrambling to set up a business model that can best accommodate these high-volume, low-cost services in Egypt as it has in other developing countries.
While Egypt’s banking industry is considered one of the strongest in the region, boasting high security of deposits, effective regulation and healthy competition, only 10% of Egyptians have bank accounts (Sheline, 2010).With 20% of the population below the poverty line (Central Intelligence Agency, 2011), many citizens are simply too poor for a bank account to add much value. But as in many developing countries, many citizens simply operate largely in the informal sector working for cash wages and paying in cash or trade. Consumers are historically comfortable with cash, but they are also affected by a scarcity of brick-and-mortar branches and credit card terminalization. Few transactions are done with credit cards and even many merchants do not hold bank accounts. Some Merchants focus on cash for tax reasons. Many consumers simply don’t trust banks while some eschew banks because interest-bearing accounts may not be halal.
By contrast, Egyptians have embraced the role of mobile phones in their lives. Use of mobile phones, text messaging and social media is popular and, after its crucial role in mobilizing the revolution this past spring, even glorified. Mobile phones play an important role in the daily lives of Egyptians in a way that banks do not. Moreover, while bank branches and ATMs have a very limited presence, Egypt’s telecommunications infrastructure has 100% coverage in all of Egypt’s cities and towns, as well as much of the nation’s rural regions. It, too, is well regulated and has healthy competition between the three major providers. The familiarity and sheer ubiquity of mobile technology holds promise for a more accessible way of transmitting funds to the average Egyptian. With near market saturation, telecom providers are looking for ways to differentiate their service from the competition.
The Value Add
Mobile Payment (MP) services will bring retail banking to the underserved population while leapfrogging the traditional need for local bank branches or ATM’s. Initial products will be limited to simple cash transactions and wallet-to-wallet transfers. In essence, customers will be able to transfer funds to relatives or pay for merchandise after they set up the phone with a linked account.
In the future, regulatory authorities are expected to pass approval on a wider array of MP services such as goods purchasing, bill payment, micro-financing payment, loan repayment, pension payment, salary payment, etc. Mobile banking offers something to everyone:
- For the country’s consumers, the service offers convenience.
- Merchants benefit with increased volume, tracking and reconciliation that enables fine tuning business to best meet customer demands.
- For the nation’s 39 banks, mobile banking offers a way to differentiate in order to hold onto existing customers, and expand to reach the 90% of Egyptians without bank accounts.
- For Egypt’s increasingly saturated mobile network providers, mobile banking is a differentiator that increases use of smart phones and other devices that bring in more revenue from the network.
- Both banks and mobile providers will benefit from global economies of scale and expand their customer base—provided that they are able to customize their services to local demands.
- Finally, for Egypt’s soon to be formed government, the mobile banking will provide enhanced financial management as a result of the automated tracking and reconciliation as transactions move from cash to electronic transfer which are instrumental in applying tax systems.
With the post-revolution political climate uncertain and a falling sovereign bond rating, why would any business look to expand in Egypt right now? First, Egypt’s banking system is sound. Egypt played a pioneering role for banking in the region since the mid-seventies when foreign banks were allowed to enter. Throughout the nineties, the industry was further liberalized under the umbrella of country wide economic and financial reform, and today is regulated according to internationally accepted standards (The Banking Sector in Egypt). During the worldwide financial crisis of 2009, the Egyptian banking industry was able to maintain stability and consumer banking was even able to grow (Egypt Banking Sector Analysis, 2011).
During the revolution, many of the nation’s youth cited lack of job prospects and economic problems as the factors that motivated them to take to the streets. These youth are educated, technically savvy, not to mention enterprising and clever enough to organize the overthrow of a tyrant most believed would hold onto power. As the country stabilizes, these youth are likely to put their talents toward job creation making them likely to grow as an economic power. A strong banking system will contribute to economic stabilization and job creation that is so crucial to Egypt’s future. Simplified payment transfers and electronic tracking will enable businesses to grow, and manage loans or other financial instruments, ultimately generating jobs and incomes. Further, bringing Egyptians into the formal economy will create stimulus for much-needed tax revenues.
The Opportunity—and the Competition
Mobile banking in Egypt requires an alliance between mobile phone network operators, which provide the mobile network infrastructure and hardware, and financial institutions which provide the payment network infrastructure. Banks will have responsibility for monitoring transactions to ensure compliance with the Central Bank of Egypt’s regulations to counter money laundering, fraud, and terrorism financing. The mobile phone service provider is expected to work closely with the bank on creating control measures and conducting audits of infractions. For information regarding how the system works, see Exhibit 1. The Mobile Payment (MP) system will be governed jointly with the two parties sharing costs and revenues.
Intense competition is brewing between the three major mobile telecom providers: Vodafone Egypt, Etisalat Egypt and Mobinil, all of which are entering into strategic alliances with global financial companies.
- Vodafone, the second largest mobile operator in the country with 43% market share, has partnered with HSBC Bank Egypt. With its “Vodafone Cash” service, the alliance made an early entrance through Vodafone shops and Radio Shack Egypt, but they ultimately failed due to limited outlets, and focusing only on customers with bank accounts. Thus, this service failed to meet the needs of the masses of average Egyptians. Now, Vodafone learned from this failure and is exploring the introduction of the “M-Pesa” service, which was already launched in several African nations and in Afghanistan to target consumers particularly in rural areas. Vodafone is expected to offer the mobile banking service in partnership with not only HSBC but also other partnering banks to extend the distribution network’s outreach.
- Mobinil / BNP Paribas - Mobinil is the pioneer mobile network operator and the only Egyptian owned service provider. In partnership with BNP Paribas, Mobinil has developed the Mobile Payment service, expected to be offered under the brand name “M-Wallet”. BNP Paribas will offer experience partnering with mobile operators in other developing countries, such as Cote D’Ivoire, where its partnership with Orange was the first in West Africa to offer consumers the ability to use prepaid phone accounts for transactions rather than bank accounts.
- Etisalat , a United Arab Emirates-based mobile operator with the third highest market share in Egypt, has entered into a strategic partnership with the National Post Authority, to tap into the extensive network of Postal Offices. This will allow Etisalat to reach a larger customer base than any single mobile provider and roll out basic payment and transfer services relatively easily. Egypt Post’s advantages include decades of local knowledge, a strong brand name in the country, and the ability to reach millions of customers through its ubiquitous physical presence (Egypt Post Homepage).
All three alliances are seeking ways to differentiate their value proposition in a way that can be scaled globally. All three will be challenged to find the right way to leverage the strengths of Egypt’s telecommunications infrastructure and appeal over Egyptians’ skepticism of banks. As Vodafone’s CEO Arun Sarin noted in 2007, “Mobile banking, if successfully managed, could provide banking services to millions of people who otherwise have no access to conventional banking. It is also of benefit to the banking industry as it offers a cost-effective mechanism to access a new marketplace” (Timewell 2007).
Growth in mobile banking has been increasing significantly in Africa any many developing nations around the globe. Mark Pickens, with the Consultative Group to Assist the Poor (CGAP) at the World Bank indicated that mobile banking represents a promising opportunity for developing nations. (Timewell, 2007) Serving the underserved Egyptian population not only holds promise as a business prospect for banks and mobile carriers, but to improve the country’s economic outlook. Customers like Alaa are out there and need a more reliable, safer, and accessible method for conducting their day to day transactions. Mobile banking has the tremendous potential to be that vehicle.
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Timewell, Stephen. “Mobiles Begin Calling Shots On Banking And Payments - The Use Of Mobile Phones For Banking And Payments Is Growing Worldwide, Nowhere More So Than In The Rural Areas Of Countries Untouched By Traditional Banking Channels” The Banker (Feb. 2007). LexisNexis.IBIC, Glendale, AZ. http://www.lexisnexis.com.ezproxy.t-bird.edu/hottopics/lnacademic/? Web. 9 Mar. 2011
This report was a group project for the Global Strategy class of Thunderbird School of Global Management Professor Nathan Washburn, Ph.D.