Going mobile: Egypt gears up for cellphone banking

Michael Gunn, Wednesday 22 Jun 2011

Cautious approval from the Central Bank clears the way for Egyptians to transfer up to LE3,000 per day by handset to friends and family. So how will it work and who benefits?

phone and money
Have mobile, will transfer (Photo: Mai Shaheen)

Hani swears his wages were under the satellite box.

They were just 400 Egyptian pounds (US$67) -- payment for a month of piecemeal work rigging TV dishes in the northern Cairo district of Shubra El-Kheima – but now they’d gone.

Sitting in his dank single room, located up a muddy alley a half-hour's walk from any major commercial enterprise, Hani toys with the broken padlock from his door and vows to find a safer place for his money.

At 36 years old Hani has never had a bank account, something he has in common with 85 per cent of his countrymen. In an economy that mainly runs on hard cash, he’s loath to waste time battling for a place at the bank counter.

"What's the use? The nearest bank is miles away. Any money I can afford to deposit I'll need back within a week," he says with a weary chuckle. 

But Hani has something else in common with most Egyptians -- a sleek, well-thumbed mobile phone that is his constant companion, used more often than his slender wallet. 

While less than a fifth of Egyptians use banking services, the overwhelming majority are mobile phone-users. The number of subscribers to the country’s three networks – Mobinil, Etisalat and Vodafone – reached nearly 74 million from a total population of 83 million in early 2011. Telecoms analysts say every Egyptian will have access to a mobile by 2013.

It’s this mismatch between bank and mobile use, say telecoms firms and anti-poverty campaigners, that can be key to revolutionising the way even the poorest Egyptians handle their money. 

If everything goes to plan, users of all three Egyptian networks will soon be able to make limited cash transactions via their mobile phones. Using a new 'mobile wallet' system, customers will be able to enter a mobile phone shop and pay cash in exchange for virtual credits that will be stored on their handset. They can then transfer funds to another mobile with just a few thumbclicks, the recipient changing the credits back to cash at another store.

Advocates say the system gives people a safe, uncomplicated way to temporarily bank money as well as a low-cost method for transferring funds to distant family.

"It will definitely have a positive impact on poorer families who don't normally make money transactions because of the banks and paperwork," says Ahmed Ghoneim, professor of economics at Cairo University. 

"Those working in urban areas can send funds to family in rural areas, while parents in villages can send money to their children studying in the cities."

In late May, Egypt's Minister of Communications Magued Osman announced the Central Bank of Egypt (CBE) had finally approved money transfers following more than two years of talks with mobile operators and the National Telecommunication Regulatory Authority (NTRA). Local banks will collaborate with individual networks to control the flow of cash.

Mobinil, whose partial-owner Orascom Telecom has introduced similar services via subsidiaries in Pakistan and Bangladesh, says it has a mobile wallet service ready and waiting. French bank BNP Paribas is providing the vital banking support. 

"This is something we've been planning for a long time," says Zeyad Mourad, head of media relations at Mobinil. "With this system the unbanked will become the banked -- it's directly aimed at those without normal access to the banking sector." 

Key to Mobinil's plans are its 170 retail branches across Egypt where subscribers will be able to 'cash in' (deposit) and 'cash-out' (withdraw) funds, much as they buy ordinary call credits. 

'Wallets' will be able to hold a maximum of LE5,000 ($840), with transfers limited to LE3,000 ($504) per day, each transaction costing no more than a few Egyptian pounds. Users will enter a personal identification number (PIN) to perform any financial operations.

Egypt's two other operators are planning similar services. Etisalat is awaiting confirmation on its partner bank and expects to make an official announcement next week. Vodafone Egypt's CEO announced last week that his company had gained approval to introduce mobile wallet features in July. Beyond a name -- 'Lend Me, Thanks' -- no further details have emerged.

July seems optimistic: at the moment Vodafone, Mobinil and Etisalat need final clearance from the NTRA, which has voiced concern over the security situation in Egypt.

It's the latest hold up for a system that has been a long time coming; industry insiders say mobile banking was first floated by telecoms firms back in 2007 but faced opposition from banks.

According to NRTA chairman Amr Badawi, the regulatory body has repeatedly delayed transfer services due to worries over money laundering and the perceived inability of Egypt’s mobile operators to secure their networks against hackers. Mobinil says weaknesses in its networks have now been corrected. 

Caution is likely to endure even if Egypt regains stability. The NTRA and CBE have agreed to introduce the service in three stages, says a report this week from investment bank CI Capital. The first stage will allow transfers between members of a single operator, before widening to include all three operators, possibly allowing customers to pay bills or buy goods at affiliated stores. 

Eventually transfers will be extended to international markets -- a service of obvious benefit to the millions of Egyptian labourers living abroad who face high fees wiring funds home via the likes of Western Union.

Operators understandably stress the social good but hard-headed, more commercial reasoning is also in play. Telecoms analysts say Egypt's mobile firms are likely using wallet and transfer capabilities as extra, competitive features to prise users from rival networks.

"Initially, the mobile operators will view this as more about customer retention and stickiness, and perhaps as driving data use, rather than making money as a standalone service," says Mike Millar, analyst at Naeem Holdings.

"If mobile operators do go into 'proper' banking services [like lending], this will have to be done carefully, to prevent balance sheet exposure." 

Egypt's tentative move follows a growing worldwide trend for mobile wallets and mobile banking. In countries like China and Brazil, the number of new users of such services has soared over 100 per cent in the last year, as banks leapfrog their traditional model and move straight to mobiles, says an April report from global market researchers TNS.

Kenya is the beacon. Its M-PESA money-transfer service, introduced in 2007 and operated by the country's mobile-leader Safaricom, is used by 9.5 million people -- 23 per cent of the population -- and transfers the equivalent of 11 per cent of Kenya's GDP each year. Around 17,600 small retailers work as mobile-money agents, trading physical money for the virtual sort, and vice versa.

Despite problems over liquidity -- something solved by having money-stuffed trucks shuttle through Kenya's muddy backroads -- the project has been widely acknowledged as a success, spurring broader economic development and consumer confidence. 

In short, exactly the kind of economic kick-start many think Egypt desperately needs.

"This kind of initiative can really help the poor and vulnerable, similar to introducing the internet to less developed areas," says Ahmed Ghoneim. He believes the clear benefits mobile wallet systems give to the marginalised means there's little opposition to the concept, despite growing cynicism about the practices of global banks.

"The sums are small peanuts, not large enough for serious businesses to take an interest.  But micro-enterprises are likely to benefit."

And so might Hani. At least once his next wage packet comes in.

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