Interview: Ashraf Sabry
To what extent have efforts to increase cashless transactions in Egypt been successful?
ASHRAF SABRY: The measures have so far been successful, but it still takes time to become a completely cashless society. The country has advanced a lot in expanding what we call “silent business”, the ratio of people carrying cards in their wallets. But this is not enough. You can only become a truly cashless society if cards are being used for everyday business.
The practical reality is different and there is a huge gap from that perspective. The number of cards may have increased – by now we probably have a total of 15m-20m debit cards and prepaid cards – but people mainly use those cards to get cash from the ATMs. This is still part of the old economic model. Additionally, the availability of facilities to take card payments and the willingness to accept them is not really maturing. This requires more innovation and better commercial business models.
We need different approaches to encourage people to accept the use of electronic money to do business. They have to start thinking about what the easiest ways to spend money are. Right now this is a challenge. It is simply not happening yet and a working commercial business model has not been achieved.
What are the biggest obstacles, aside from cultural habits, to reducing cash-based activity?
SABRY: At this moment, there is no commercial model to persuade people to switch to cashless activities. You see in other countries that the cost of cash handling is relatively high, while in Egypt this isn’t the case at all. In the past we had security issues with carrying cash but that is not a problem anymore. People are used to walking around with money and don’t feel threatened. This is different from a country like Kenya, where mobile payments are used because it is safer. For this reason, in Egypt it needs to become more attractive in other ways. The costs of electronic payments are high. If you go to a small or medium-sized business merchant and ask him to accept an electronic payment, he has to give up 2% of his margin, meaning he has no reason to do so. In Europe they decreased the merchant fees to make electronic payments less disadvantageous for merchants. With a fee of 0.2%, the costs are not high. This kind of practice took years and years to develop and it was directed by the big merchants.
Regardless, you still have to consider that a large part of the Egyptian economy is informal. Electronic payments are being recorded, which could draw merchants into the formal economy where they have to pay taxes. The more of an institutional framework a country has, the more hesitant people will become.
How can mobile, agency and online payment solutions help to improve financial inclusion?
SABRY: More electronic payments would allow banks and microfinance organisations to monitor the cash flows of business activities. One of the biggest problems for small and medium-sized enterprises (SMEs) is that they don’t have standard forms of reporting. A lack of financial statements means that you don’t know what they are doing. One way to improve lending to SMEs is to monitor cash flows. This would make lenders more eager to finance SMEs.
The impact of electronic payments is visible all around the world. In China, for example, you can find advanced merchant payments. Banks are offering credit to small merchants because they know the amount of merchandise they are selling. It may seem strange but electronic payments improve the inclusion of both SMEs and lower-income households.
The importance of inclusion is not only about having a bank account but also having the ability to lend and insure. Electronic payments can help people to record their cash flows, understand their meaning and help them access financial organisations.
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