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Infrastructure and regulations: Mobile banking gearing up in Egypt

Mobile banking is sweeping South Africa, and is poised to seize the Egyptian market, which has 55 million mobile phone users.

Lana Strydom, manager of the Mobile Portal section of the Digital Channels Retail Banking division for Absa -- a South African bank, part of the Barclay's Group -- spoke with Daily News Egypt about mobile banking and its potential integration into the fabric of Egypt's banking sector.

On the sidelines of the Lafferty Retail Banking conference, titled "Retail therapy for every bank," Strydom said mobile banking has the ability to bring swaths of low-income consumers in from the banking cold, ushering significant amounts of liquidity into the formal economy.

This service and technology, through which banks and mobile phone operators join together to offer a range of banking services -- from balance inquiry to transfers, as well as loan requests and even pay utility bills and traffic fines -- offers a solution toward financial inclusion. "Through it, more money is going through the economy and at a higher velocity; the result is that the economy gets stimulated," she said.

In South Africa, where Strydom has been an instrumental force in establishing mobile banking, out of a population of 48 million, Absa, which represents 32.11 percent of the local market, was the first bank in the country to reach 1 million customers.

For mobile banking to prosper in an emerging market several criteria must be present, such as a low internet penetration rate combined with a high mobile phone penetration rate, Strydom explained.

For one, payment alternatives, such as credit cards must not be well established, which is indeed the case in Egypt.

Furthermore, a significantly large segment of the population must be outside of the banking sector. In Egypt, where the population is 80 million, only around 10 million are banked.

The geography of the country must be rather large, with a substantial rural population. Again, although 20 plus million live in Cairo, the remaining 60 million lie beyond the capital's limits.

In terms of the regulatory environment, Strydom highlighted that one of two scenarios must be present: either regulatory support must exist, providing clarification of the legal boundaries between retail payments, e-money, and other types of stored value; or, interestingly, the opposite must be true, with a complete regulatory vacuum. There must also be an adequate literacy rate.

Styrdom indicated that it is insufficient for mobile banking to take off if only one or two of the criteria are present in the market. As such, it would seem that Egypt is well positioned to foster the development of mobile banking.

Beyond essentials

Having the right mix of market elements is not enough for the new service to realize its potential: impasses, found in several African countries, Strydom underscored, must be surmounted.

"Often the regulator is uneducated on digital transaction methods or electronic money," she said. When this occurs, they reject everything, because the risks of approving something that isn't understood are much higher, she explained.

To overcome this obstacle, working closely with the regulators is critical, achieved by bringing together all relevant actors and approaching the government to discuss the issue.

Security and interoperability of the systems surrounding the service leaves regulators uneasy, too.

As a result, phone operators must "open up" by letting other players, such as banks and financial institutions, into the environment. In the end, regulators are receptive so long as several organizations are involved, as it instills a greater sense of trust, she noted.

The Central Bank of Egypt should be issuing regulations for mobile banking in the coming three months. Strydom underscored that this development is imperative, as industry will have a guideline to follow, which will provide added confidence to the system.

Another key problem when sending funds from a bank account to a mobile phone is that the recipient of a transfer is unknown. "Fraud is a big concern and a huge resource cost," she said.

Yet it was mentioned that the identities of all mobile phone users is known for security purposes in efforts to thwart the threat of terrorism.

One danger Strydom mentioned was for the market to become monopolistic, which can likely occur when one mobile phone provider and one bank join forces to offer the service. This obviously leaves the consumer with little choice in selecting a company, as there is no competition, thus driving down quality in concert.

Into the fold

Asked whether mobile banking genuinely brings the poor into the banking sector, she asserted that it did, yet pointed out several caveats.

First, she distinguished between additive banking, a service outside of the banking realm, as no formal bank account exists in such a situation, which is distinct from the mobile banking service. Indeed, in additive banking, the service allows only customers to store and transfer funds.

Thus, a main issue in additive banking is to build the proper infrastructure to supply and distribute cash. Often kiosks that sell mobile phone credit play a key infrastructure role. Within this system, however, several underlying problems exist.

First, the infrastructure may be inexistent; further, even if the infrastructure does exist, proper regulation must also be in place. In such kiosks, the staff is independent of the bank and the mobile phone operator, and as such, the quality of service cannot be controlled.

Moreover, there can be lack of cash on hand, meaning that customers will unable to retrieve the funds they require, which can leave the customer in a state of panic, and thus, breaking an already shaky trust in the new system.

Such scenarios instantly tarnish a company's brand image, a highly protected element of any business, placing it in an undesired position. An alternative to working via independent kiosks would be to create electronic kiosks.

Yet, once again, obstacles are inherent, such as training customers to be able to use the kiosks and overcoming their lack of trust in such a system. It is an interesting challenge, "because you still have to reach those customers somehow," she concluded.

Asked whether the same products available in South Africa would be offered in Egypt, Strydom was unable to comment, however, she did explain how operators could decide which services would be viable in the nascent stages.

If there is a high WAP or USSD technology penetration, then a company should pursue these avenues first as the platform for introducing mobile banking. Essentially, "you choose the technology that customers already understand [and have], and then you build from there."

From that point, she continued, the first step would be to offer basic transaction services, such as balance inquiry. Moreover, the technology a bank chooses to use must be available among all operators otherwise you risk marginalizing a segment of customers.

SMS is the simplest and most widespread technology that is comprehended by consumers, and which virtually all operators offer.

Once this has been implemented, "you get people used to the idea," she continued, then when the focus begins to evolve toward the transaction services, secure channels are required.

By Christopher Le Coq

© Daily News Egypt 2010