Just how many of Egypt’s nearly 90m citizens remain outside the banking system is a matter of speculation. A recent report by accountancy firm EY suggests that only 10% of Egyptian adults hold an account at a formal institution, while other market observers have posited more generous estimates of up to 35% formalisation across the eligible population.
Whichever figure is used, however, it is clear that the country’s retail market is underbanked, and as Ihab Rafaat, general manager and COO of QNB Al Ahli, told OBG, “Retail banking continues to be one of the most powerful engines of growth for banks.”
Market Potential
Given the low lending opportunities in the corporate sector – due to recent political and economic uncertainty – this untapped potential is of great interest to banks looking to broaden their revenue sources. As is the case in virtually every emerging market, the challenges of making inroads in this end of the market are numerous and not unique to Egypt, ranging from a pervasive culture of mistrust with regard to formal institutions amongst much of the low-income population, to the daunting task of establishing an infrastructure capable of providing a point of contact with a vast and widely dispersed population.
E-Money
Egypt’s banks are thus expanding into alternative distribution models, including electronic services ranging from ATMs and point-of-sale terminals to mobile banking. The last year has seen four different mobile wallet products reach the market, as the nation catches up on a trend that has already swept much of sub-Saharan Africa, where a lack of banking infrastructure made the adoption of mobile technology inevitable. “Mobile banking has not taken off yet; however, with high mobile penetration levels, Egypt offers a lot of potential for such services,” Edward Marks, managing director of Barclays Egypt, told OBG.
Following the resolution of a number of regulatory issues, which centred on the National Telecom Regulatory Authority’s security concerns, banks and telecoms operators in the Egyptian market have been quick to seize the opportunity to reach out to the underbanked retail segment. Mobile operator Etisalat’s “Flous” was the first mobile payment option to come to the market, which it rolled out in partnership with the National Bank of Egypt (NBE) in June 2013. Since then the NBE has introduced its own mobile wallet, known as Phone Cash, which allows person-to-person transfers by those with or without a bank account, as well as other services such as bill payment. The Housing and Development Bank, meanwhile, has partnered with the UK’s Vodafone Group to introduce Vodafone Cash, while local telecoms operator Mobinil has teamed up with French telecoms giant Orange to introduce MobiCash in cooperation with Emirates NBD.
Solid Base
All of these services are in the early stages of deployment, and the slow take up of new technologies in other areas suggests that growth may be modest initially. For example, the switch from scratch cards to electronic top-ups for the purchase of internet access has been incremental.
However, the potential for growth in the mobile wallet arena is sizeable. In a recent study of mobile banking opportunities in Egypt, the International Finance Corporation highlighted the nation’s high IT literacy rate and openness to technology as an enabling factor, noting that internet usage rose from 17m in January 2011 to 25m just a month later, thanks to the galvanising effect of the revolution. A combination of a high mobile penetration rate (recorded as 115.9% in January 2013 by the Ministry of Communications and Information Technology) and a population increasingly aware of the advantage of formalised financial services is a potent mix in terms of expansion potential.
Regulation may still prove to be a hindrance to the growth of the concept going forward – according to the current government, no more than 5% of a bank’s issued capital or $8.3m, whichever is less, can be issued as e-money – but given Egypt’s promising demographic and market qualities the mobile wallet is likely to play a more prominent role in the future banking arena.
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