Egypt ready for change in a cash economy

Mobiles are emerging as a substitute for traditional banks in Egypt, where almost two-thirds of inhabitants do not have a bank account. The race is on to see who can profit most from converting Egyptians to cashless payments.

Cash still dominates the Egyptian consumer economy. It accounts for an estimated 94 per cent of financial transactions in the country. Dana Smillie for The National

Financial services companies are targeting millions of Egyptians one mobile at a time in a race to grab a slice of one of the world’s largest unbanked populations.

Planning a trip to the Great Pyramids in Giza? Cash is necessary to pay the entrance fee into the only existing wonder of the ancient world. Forgot to stop by the bank on your way to the Egyptian Museum? Then you will not be walking through the halls filled with pharaonic artefacts.

Most of Egypt’s businesses are cash-only operations, including much of the multibillion-dollar tourism industry.

It is estimated that about 94 per cent of financial transactions in Egypt are done using cash. And only about 35 per cent of the 82 million Egyptians have access to a bank account, according to MasterCard.

Despite more than half of the population being without access to any form of traditional banking, nearly 98 per cent of Egyptians have a mobile phone – a ripe climate for mobile banking. This has resulted in various payment methods being offered.

“The mobile phone has emerged as an extremely effective tool to drive financial inclusion and advance cashless transactions in Egypt,” says Raghu Malhotra, the division president of the Mena region for MasterCard.

For nearly two years, MasterCard has been reaching out to local vendors and the Egyptian government to incorporate cashless payments through mobiles.

MasterCard partnered with the National Bank of Egypt (NBE) and Etisalat to launch Flous (Arabic for money) in July 2013. The mobile payment wallet’s first phase allowed Etisalat Egypt subscribers to go to any Etisalat or NBE branch across the country, totalling about 405 locations, and use traditional banking options without an actual account.

Users can go into one of the compliant branches and give a cashier physical cash, which then credits the subscriber’s mobile phone app. The person could then use other traditional banking services such as transferring funds to other participants or later withdrawing cash – all through their cellular device.

“Our system is live with 200,000 users in Egypt,” says Mohammed Qadadeh, MasterCard’s vice president of government services.

“As we move to electronic payments through mobile solutions, this pool of money will reside within the formal banking system where the banks can reuse this money [to finance projects or lend to small businesses],” he says.

The second phase of the project launched two months later in September and included new participants and services.

The banking and payment technology company Fawry and Egyptian Banks Company joined the initiative, helping “phone cash” expand into paying bills, loading credit to prepaid phones, making donations and reserving airline tickets. The platform also enables payment for goods and services at several retail stores across Egypt, according to the companies.

MasterCard signed an initial agreement with the Egyptian government earlier this month. The programme is targeting government employees, but the collaboration is also trying to reach the general population through the Egyptian post. That segment includes 20 million subscribers and most are unbanked, according to Mr Qadadeh. He says ultimately the agreement will help the cashless system to reach millions of Egyptians.

Another cashless operation, which is literally driving into Egypt, is also hoping to reach the unbanked masses in the capital.

After the smartphone transport app Uber launched in Cairo this month, its viability in a mostly cash-driven society will force it to look for alternative payment options, as locals testify.

One such is the Cairo resident Heba Azzam, 25, who downloaded the taxi app to test it out after Uber’s launch. She faced an issue when she did not have a credit card to complete the app’s registration.

“I have neither [a debit or credit card] at the moment, so I just deleted the app,” she says.

Uber’s platform requires a credit or debit card for registration but, according to the company, only about 3 per cent of the city’s 24 million people are cardholders. Company executives said at its launch there were 15 million plastic card holders in the Greater Cairo area, with about 73 per cent of that total being debit cards. Since many of the cards belong to the same individuals, actual figures of cardholders in Cairo probably amount to 700,000 to 800,000.

Ms Azzam says she had not considered getting a bank account in the past. “I never needed one until recently,” she says.

Uber executives acknowledge the need to incorporate non-traditional cashless methods other than credit or debit cards. “We have to expand payment options,” says Jambu Palaniappan, Uber’s regional general manager.

Uber is looking to introduce alternatives similar to those the company offers in India. Bank partnerships in Egypt could make seamless transactions available or even establish prepaid cards much like those bought at local kiosks for mobile phone usage.

In India, the company has partnered with Paytm, a mobile wallet service. The mobile commerce company offers charge cards for payments at select vendors such as mobile operators and power utilities. This alternative form of payment has helped the firm to reach many customers who did not have access to plastic or online banking.

“There’s clearly an opportunity for us to do more [in Egypt] and try to innovate with payment opportunities,” Mr Palaniappan says. “I think the success in Cairo has huge potential.”

The company says early returns for its app are already showing a strong performance, with the number of people who have shown interest, or signed up for the app, “in the thousands”.

However, there remains the issue of educating individuals on the benefits of going cashless.

“Cash costs a lot,” Mr Qadadeh says, adding that MasterCard estimates it drags the economy down by 1.5 per cent. “If you think about the black market, bribery and corruption – it all occurs when there’s cash.” He says by migrating cash flows towards electronic methods these issues are eliminated.

Ms Azzam, a US passport holder who has never lived outside of Egypt, also says she was concerned that she would owe taxes after opening a traditional bank account. But those concerns proved unfounded.

Shifting from paper to cards or even mobile wallets may be slow to take root because of issues such as Ms Azzam’s initial tax concerns and educating the public will be key, but Mr Qadadeh says so far MasterCard’s scheme has been met with enthusiasm.

He says once people take the time to try the services, the learning curve is not a huge difficulty. “We’re seeing that after they sign up and use the application, they never go back to cash.”

For Uber, Mr Palaniappan says it is looking to increase its own cashless network, offering alternative forms of payment by partnering with more banks in the next six to eight weeks.

Mr Qadadeh says the network is ripe for more partners, including banks and companies such as Uber. “If there’s anything that can help the Egyptian government achieve its goals with a cashless society, we’re open to discussions,” he says.

“We welcome Uber coming into the Egyptian market and if there are ways that we can cooperate with them, then absolutely.”

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