Special report:
Digital payment methods increase financial inclusiveness in Egypt
At the start of 2011 it was estimated that only 10% of Egyptians had bank accounts.The move towards digital payment methods, such as m-payments or the rechargeable cash-U card, may make limited banking product penetration less relevant. © Your Midde East / Apple / The Commons
Digital payment methods increase financial inclusiveness in Egypt
Eliot Benman
Last updated: September 17, 2012

Bridging the e-payment gap

Despite Egypt’s reliance on cash and check payments, banks and the government are working to expand electronic payment services. These efforts have been bolstered in recent years by massive growth in internet use.

Expansion of e-payment services are being fueled by a large tech-savvy youth population’s demand for services that are as simple as the click of the mouse or the press of a send button.

The emergence of a younger market segment opting for e-payments was made clear in a 2011 study by market research firm Synovate. The study reported an increasing use of credit cards in Egypt, especially among the younger demographic.

In light of growth in the telecommunications sector and lack of physical banking infrastructure, payment technology companies are looking to go beyond electronic payment methods, such as using a credit card at a point of sale machine, to include digital payment methods, such as using a mobile phone app.

Visa, the global payment technology company, and global telecom company Vodafone recently announced a worldwide partnership to offer mobile payment (m-payment) services. Visa sees huge potential for m-payments in the Egyptian market, which has a major consumer market but, like most developing economies, also has a largely unbanked population.

The government has also taken major strides towards tapping into the potential of e-payment methods. The Ministry of Finance recently introduced a service to make taxes and customs payable electronically for large enterprises. The service is part of a broader project to make all government transactions electronic. The Egyptian Tax Authority is currently working to implement a decree making tax payments through banks mandatory.

The increasing but still limited growth in banking products, credit and debit cards, online payment portals and other e-payment services has deprived the Egyptian economy of what many studies indicate is a major catalyst for economic growth.

A Moody’s Analytics study, which surveys 51 countries or 93% of the world’s GDP, shows electronic card usage added $1.1 trillion (LE 6.64 trillion) to private consumption and GDP from 2003 to 2008, an extra 0.2% year in GDP growth.

Cards, online portals and various other electronic transfer methods increase the speed of transactions from the several weeks required to process a check to several days. This acceleration produces numerous advantages, including lowering interest rates and reducing inflation, ultimately boosting investors' confidence.

Using electronic transactions also reduces costs for financial institutions. It reduces the cost of cash operations, training and counterfeit detection technology and also reduces the need for cash production and maintenance by the government.

The risks of transporting cash or using checks have also been a major concern recently, amidst a precarious security situation. E-payments eliminate the dangers of transporting funds, which also reduces insurance rates.

The introduction of e-payment methods has been fueled by the rapid growth of internet penetration since 2000, when asymmetric digital subscriber line (ADSL) was first introduced in Egypt.

Growth in internet penetration saw a dramatic jump following the January 25 Revolution. According to the Ministry of Communication and Information Technology, internet penetration rose to 32.2% by April 2011 from 24.9% during April of the previous year. This growth has been accompanied by increased interest in e-payment methods, including online bill payments and payment portals.

A growing consumer base and growing internet usage attracted online enterprises to the Egyptian market. These companies have been keen to tap into the potential of e-payments. However, the use of credit cards and other electronic payments have remained limited, with most companies continuing to rely on cash-on-delivery payments.

Online enterprises are working to provide customers with alternative payment methods. UAE-based Jabbar Internet Group, which brought online enterprise Souq.com to Egypt, also brought the online payment service cashU to Egypt.

Growth of the service was initially limited by the high cost, but CashU managed to reduce prices by partnering with Cairo-based Fawry, an electronic bill payment and presentment network. Launched in December 2009, the network allows customers to receive all their bills and pay them through a unified electronic network integrated with existing payment channels including ATM machines, online banking systems, mobile phones, call centers and Integrated Voice Response (IVR) systems.

Previously, the cashU system required customers to purchase a prepaid card, similar to prepaid phone cards, but are instead used to purchase items online. Customers can now go to any of the 3,100 retail outlets, banks and post offices in the Fawry network and can charge their cashU card to make online purchases.

Credit card ownership in Egypt is steadily rising. Synovate’s banking study showed that the number of credit card owners among the upper and middle class increased to 72% in 2010 from 66% in 2009.

Meanwhile, payment technology companies report dramatic growth in the use of their card payment and other e-payment services in the last several years.

Payment technology companies and banks continue looking to provide services that correspond with the growth in telecommunication use. Payment through mobile devices is seen as an important way forward. This is particularly true in developing economies, such as Egypt, in order to compensate for the lack of physical banking infrastructure such as ATMs.   

Analysts suggest that Egyptian consumers would be more inclined towards electronic payments if they were available via their mobile phones.

In many developing regions of the world, m-payments have brought insurance, banking, and microfinance and capital market services to even impoverished and isolated segments of societies.

Payment through a mobile device offers consumers the convenience of paying on the go, whether paying a bill or buying an item online. M-payments services have become increasingly viable in the Egyptian market due to a soaring mobile penetration rate which exceeded 90% at the beginning of 2012.

M-payments are set to become a more viable option for companies and consumers following the availability of services to be launched by Visa in partnership with Vodafone. The m-payment services will be based on the Visa prepaid account and offered to Visa issuers for mobile payments globally.

The biggest challenge to moving away from a cash-based system is consumers’ and enterprises’ lack of awareness and a lack of trust in an intangible transaction. Analysts and industry leaders see the move towards an electronic payment economy as a question of pace, but say it will require developing the trust of consumers and that companies develop risk management policies.

Increasing the number of Egyptians with banking products is an important element in the growth of electronic payment methods, say analysts. At the start of 2011 it was estimated that only 10% of Egyptians had bank accounts, though this figure is thought to have increased slightly over the past year.

However, the move towards digital payment methods, such as m-payments or the rechargeable cash-U card, may make limited banking product penetration less relevant. While banks continue to develop physical infrastructure for e-payments, digital payment methods will bridge the gap as that development continues. Digital methods will also increase financial inclusiveness to encompass more diverse segments of the Egyptian population.

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