How is Egypt's private sector fuelling digital banking growth?

Egypt’s sizeable informal economy represents a significant challenge for the government. With between 40% and 60% of economic activity taking place out of sight of the Ministry of Finance, the government’s economic reform agenda faces a number of obstacles. Informal employment is generally characterised by low-wage, low-skill activity with limited potential for the kind of productivity increases that the government has deemed necessary for the nation’s long-term economic growth. Perhaps most importantly for a country with an ambitious development agenda, the existence of such a large informal sector outside the taxation system undermines the government’s fiscal position and its ability to invest in important, capital-intensive projects.

Going Cashless

Replacing cash transactions with digital ones makes it easier for the government to gain oversight of payment activity and encourages economic formalisation. For these reasons, the drive towards a cashless economy forms a central part of the nation’s economic development strategy. In November 2016 President Abdel Fattah El Sisi launched the National Council for Payments, a body charged with overseeing the country’s transition to a cashless society. President El Sisi chairs the organisation, while important council members include the prime minister, the governor of the Central Bank of Egypt (CBE) and a number of ministers, as well as the heads of the General Intelligence Service and the Financial Regulatory Authority.

Egypt has been moving towards digitalisation of the banking sector for more than a decade. The pioneering electronic payment network Fawry was founded in 2009 and currently offers financial services to consumers and businesses at more than 141,000 locations, including corner shops, pharmacies and post offices. Users are able to pay bills and services through pointof-sale machines at these locations, as well as online, through ATMs and via mobile wallets. In 2016 Mashreq Bank became one of the first banks in the country to partner with Fawry to enable its customers to pay their credit card bills. With other electronic payments networks entering the market, such as Bee Smart and Khadamaty, the opportunities for further collaboration between banks and new technology are multiplying.

Mobile Wallets

As the regulatory framework surrounding digital payments has evolved, however, Egypt’s banks have been able to move beyond cooperating with payment systems to developing their own. The first mobile payment wallet was introduced in 2013, the result of a collaboration between National Bank of Egypt (NBE), Mastercard and telecoms operator Etisalat. The service was the world’s first interoperable Arabic mobile money programme, and allowed participants to transfer money via mobile phone to other service users, load cash to their phones or withdraw cash from any of the NBE or Etisalat’s branches. In a second phase of development, the service was broadened to include bill payment, top-up of mobile pre-paid lines, payments for goods and services at domestic merchant locations, and e-commerce payments globally.

Over recent years, the CBE has moved to promote mobile wallet usage as part of the government’s longterm strategy to develop a cashless economy. A comprehensive regulatory framework for the provision of mobile wallets was introduced in 2016, in a bid to encourage licensed banks to develop products of their own. An August 2018 directive from the CBE, meanwhile, instructed banks to ensure that at least 10% of their e-wallet customers are active users. Banks were also required to grow their number of active e-wallet users by 30% annually, or explain to the regulator their strategy to increase their user base in the future.

Additional momentum in the digital payment sphere is coming from an increasingly dynamic domestic financial technology (fintech) segment. Egypt’s first specialised fintech development programme, the 1864 Accelerator, was launched in 2016 by Cairo-based Flat6Labs in partnership with Barclay’s Bank. It was quickly followed into the market by AUC Venture Lab Fintech Accelerator, developed jointly by the American University in Cairo and the private sector Commercial International Bank. Although current regulations prohibit fintech companies from providing e-wallets directly, they are able to collaborate with banks to provide the technology that underpins them.

“Demographic change will have an impact, as the younger generation has a greater digital literacy rate.” Amro Abouesh, chairman and CEO of Tanmeyah Micro Enterprises Services, told OBG. “However, this does not necessarily mean they are familiar with digital transactions, particularly in terms of accessing microfinance, so efforts to improve public awareness are still required.”

Domestic Alternative

For many Egyptians, the concept of card payments is a relatively unfamiliar one. For the segment of the population without a bank account, access to debit or credit cards has in the past been impossible. The government has sought to address this by providing an alternative to the card payment providers that dominate most banking markets, and to do so it has utilised one of the sector’s most important service providers. The Egyptian Banks Company was established in 1995 and tasked with providing the banking industry with shared infrastructure for electronic payment and clearing processes. Owned by the CBE, the Ministry of Finance and a group of national and commercial banks, in 2019 it launched Meeza, a new national e-payment card that offers Egyptians low-cost access to digital finance. Meeza was first rolled out by the NBE and Banque Misr, and took the form of a prepaid card available to any Egyptian over the age of 16 on presentation of a national ID card.

Meeza card holders do not need to have a bank account and can use their card to access the same services provided by Visa and MasterCard, while benefitting from low administrative fees. Business owners, meanwhile, can use the card to pay taxes and Customs duties at a similarly low administrative cost. The CBE plans to issue 20m Meeza cards by 2022, by which time the channel is expected to offer other services, such as handling government pension and subsidy payments. “Banking penetration grew three-fold since 2011 to reach 32% and digital technology will support further breakthroughs in financial inclusion,” Hussein Refaie, chairman and managing director of Suez Canal Bank, told OBG. “The majority of Egyptian banks have already implemented mobile banking, QR codes and e-wallets, and the Meeza card has been launched.”

Start-Up Ecosystem

Private sector initiatives, too, are developing new products to support the expansion of the digital economy. The emergence of a vibrant fintech ecosystem, spearheaded by organisations such as Flat6Labs, is providing banks with potentially interesting routes to increase financial inclusion among Egypt’s currently underbanked population. The artificial intelligence-enabled 7aweshly app, for example, targets Egyptians who do not have a bank account but wish to save money. Users are able to deposit money through the Fawry e-payment service – or a debit or credit card, if they possess one – and can save without charges.