The way forward for collaborating with non-banks
By Farrah Brake
With over 53 million unbanked still transacting in cash, Egyptian banks are looking to target this potentially lucrative market through mobile or prepaid cards but uptake has been slow
The Egyptian retail banking sector is a largely untapped market, with over 53 million of the population unbanked and still transacting in cash. Its vast potential has attracted both local and regional players such as National Bank of Abu Dhabi, Abu Dhabi Islamic Bank, Emirates NBD and Qatar National Bank.
Regional and local banks in Egypt are looking at ways to grow their market share among existing retail consumers and by onboarding new clients from the unbanked population. In late 2014 the Central Bank of Egypt implemented regulations on security in e-commerce, internet banking and mobile banking. National Bank of Egypt, the largest retail bank in the market, introduced a mobile wallet and mobile payment platform in addition to prepaid cards in a bid to reach the unbanked. However, as in other parts of the world, only a very small segment of the unbanked population has a smartphone and in a society where almost 95% of transactions are performed in cash, mobile banking has had a slow adoption rate.
With the general reluctance in uptake of alternative channels and the lack of mobile solutions for non-smartphone users in the marketplace, customers are not likely to take to mobile wallets and mobile banking, except for basic transactions such as bill payments and remittances. Banks will have to market these value-added services which clients can only obtain by performing transaction via mobile such as discounted pricing. Once these products gain greater acceptance, banks can build on these relationships to introduce more sophisticated products through mobile. Alternatively, if a solution was available for SMS banking like M-PESA in Kenya, this would help grow mobile adoption, as non-smartphone users—largely the unbanked population—would be able to perform mobile transactions.
Most Egyptian bankers agree that the digital revolution in the banking industry is around three to five years away. The industry has been largely protected by regulators who have kept peer-to-peer platforms on the fringe, but banks can expect to start competing with them for customers soon as regulators begin to open up to non-industry providers. When that happens, banks can either compete with these institutions for customers or collaborate to leverage the institutions’ customer interaction capabilities and insights. The latter may be more appealing as banks know it would be hard to compete with telecommunication companies and P2P platforms on price. Egyptian banks realise the potential for technology but are also apprehensive because of upfront costs and low rate of acceptance among customers.
Today, banks still have the trust of their customers because of their traditional business structure and physical presence. Under the traditional banking model, customers went to the bank once every few days. Digitisation has led to a fundamental shift in this relationship and banks now need to seek opportunities to interact with the customer via their device at their convenience. However, digitisation is not just about channels, it is also about upgrading branches into smart branches that allow bankers to leverage technology to cater to customers at lower cost. Mobile banking is also likely to grow in Egypt particularly among the tech-savvy youth who are more comfortable with conducting transactions online.
The Egyptian banking sector is awakening to the shift from a traditional product focus to customer-centric focus, but challenges remain with regard to technology adoption from both banks and clients. Given client confidence and the current bank technology infrastructure in Egypt, collaboration with non-industry players may be the more sensible way forward for banks.
Keywords: Egypt, Retail Banks, National Bank Of Abu Dhabi, Abu Dhabi Islamic Bank, Emirates NBD, Qatar National Bank, Central Bank Of Egypt, Digitisation, Mobile Banking, Internet Banking, P2P, Technology