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EGYPT’S BANKING SECTOR: INVESTING IN TECHNOLOGY

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EGYPT’S BANKING SECTOR: INVESTING IN TECHNOLOGY

Despite hugely challenging circumstances, the Egyptian banking sector has managed to succeed in growing its assets and maintaining profitability despite the national upheaval and the succession of four leaders and three constitutions in the past three years. However, more than half of the country remains unbanked and resorts to a financial system comprising almost entirely of cash transactions.

In order to modernise the national financial system and offer a greater range of services to its unbanked and underserved population, Egyptian banks are demonstrating a keenness to invest in financial technology and innovations. These include the implementation of internet and mobile banking, electronic payments systems and cybersecurity measures to protect consumers against financial fraud.

Current Technology Trends Shaping Egypt’s Banking Sector

Mobile and Internet Banking

“The mobile phone has emerged as an extremely effective tool to drive financial inclusion and advance cashless transactions in Egypt.” – Raghu Malhotra, MasterCard Division President, MENA region

As reliable broadband access and smartphone user percentages quickly increase across the Egypt, so does the importance of offering mobile and online banking options. Admittedly, both North Africa and the Middle East have been slow to join the emerging mobile banking market but that initial sluggishness is set to change into more dynamic growth as the regions’ banks recognise mobile’s potential to offer new services and reached unbanked populations.

That potential is easy to understand and hard to ignore as 70% of the worlds 82 million mobile banking users live nearby in Sub-Saharan Africa. There, the innovation of mobile banking solution providers such as M-Pesa has allowed people from every age and wealth demographic to transfer from a cash or card-based economy to one the purely involves online/mobile transactions.

The convenience, safety and security features offered by mobile banking cannot be ignored and already its influence is being felt on the Egyptian banking sector. Currently, 10 out of the 35 banks operating in Egypt provide their customers with mobile banking services. These include Banque Misr, Arab African International Bank (AAIB), National Bank of Egypt (NBE), Citi Bank, Arab Bank, HSBC, Commercial International Bank (CIB), United Bank and Arab Investment Bank (AIB).

Additionally, more Egyptian banks are investing in mobile banking technologies, producing their own mobile apps and endorsing the spread of apps produced by third parties. In June 2013, NBE launched Flous, the first ever Arabic mobile money implementation app in partnership with MasterCard and the wireless carrier Etisalat of Abu Dhabi. More recently, NBE launched Phone Cash; a mobile wallet that allows for person-to-person transfers, the payment of bills and the ordering of airline tickets with participating airlines.

Likewise, the Housing and Development Bank recently 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.

This may seem somewhat limited compared to the utility of major mobile wallets produced by the likes of Apple and PayPal, but it’s indicative of a sea-change currently occurring in Egypt as banks look to endorse mobile banking. With four phone wallets soon to be released by major banks and payments companies, Egyptian consumers and merchants are quickly becoming aware of the widening set of banking and payments options available to them.

The proliferation of mobile banking apps offers Egyptian consumers improved services and the chance to meet their preferences in ordering their finances the way they want. It also offers banks a chance to reach untapped markets, specifically the unbanked population of Egypt. Considering that only 35% of Egypt’s citizens have access to a bank account, but an estimated 98% own a mobile phone, the scale of the opportunity associated with this market becomes abundantly clear.

Payments Technologies

“The high use of mobile phones in these emerging markets also creates an opportunity to drive financial inclusion. We believe that a prepaid card linked to the mobile phone account can provide a simple entry point into the financial system and bridge the gap between the formal financial services sector and the millions of underserved or unbanked individuals, especially when combined with services such as bill payment and P2P capabilities.” – Raghu Malhotra, MasterCard Division President, MENA region

An estimated 94% of all transactions in Egypt are cash based, to the point where the wealthy send their drivers or other messengers to take their cash and queue up to pay their bills. For the less privileged, lengthy queuing awaits along with the inconvenience and security issues of always needing to carry cash. Money management is almost entirely cash dominated for a variety of reasons including cultural preferences for “Gam’eya” (social money pooling) as well as a lack of trust or familiarity with banking systems.

In a recently released report by MasterCard, 24% of surveyed respondents said that they neither need nor see the benefits of having a bank account. Respondents perceived banking services to have intimidating requirements and complex processes.

This is a situation that is set to change through the proliferation of contactless payments technology for credit cards and as well as mobile payments through NFC (Near Field Communication). As discussed, the growth of the mobile banking and payments sector is set to accelerate as both sides of the market wake up to its potential benefits, but there are other signs of Egypt’s banking sector modernising its payments environment.

Prepaid cards currently have a low usage in Egypt – approximately 5% across all markets – but when integrated with P2P and bill payment capabilities their utility makes them immensely attractive to Egyptians looking to manage their finances more effectively. In MasterCard’s recent survey, 44% of respondents cited “control on my spending” as a key benefit of owning a prepaid card and 18% said they would prefer not to have to carry cash around. In all, 51% said that they were highly likely to apply for a prepaid card once they were educated about the concept.

While current progress towards a “cashless society” through electronic payments remains slow, a factor that may hasten the process is the potential for Egyptian banks to work with financial technology providers. A recent example is Dopay, a FinTech startup that has launched a cloud-based payroll service that employers can use to pay staff even if they don’t have a bank account, as their Dopay account is linked to a debit card. Dopay was endorsed by the Central Bank of England to work through Barclays who are a prominent force in encouraging the modernisation of the Egyptian banking sector.

Cybersecurity/Anti-Fraud Technologies and Strategic Online Defence Development

“Cybersecurity is a growing concern for the nations of the African Union as more people come online. It is critical for the countries to adopt cybersecurity policies that better protect users while respecting their privacy and other human rights.” – Drew Mitnick, Junior Policy Counsel at Human Rights Organisation Access

Africa has a long history of hosting both the perpetrators of cybercrime as well as its victims. Security experts Kaspersky reported that more than 49 million cyber attacks occurred on the continent in the first quarter of 2014, with Egypt as the second biggest victim behind Algeria. Unfortunately, the sophistication of cybercrimes occurring in Egypt has increased along with its frequency.

Various types of “phishing” scams remain the most popular method of Egyptian cybercrime gangs in order to commit financial fraud. In 2009, the largest international phishing case ever conducted took place when US and Egyptian authorities charged 100 people (53 in the US, 47 in Egypt) with financial crimes involving the transference of $1.5 million into fake accounts.

More recently, in May 2013 an international gang of criminals stole $45 million by hacking their way into a database of prepaid debit cards and then stealing funds from ATMs in Egypt as well as a number of other countries. The hackers infiltrated bank databases and removed the withdrawal limits on a number of debit cards while creating access codes for them. Then other members of the gang used these codes to access Egyptian bank ATMs and drain them of all their available money.

The escalation of the threat landscape currently faced by Egyptian banks and their customers has encouraged heightened levels of investment in cyber security solutions designed to counter threats to point-of-sale (ATMs etc) as well as data theft attacks to banks’ central servers. In addition, the Central Bank of Egypt has been working with international institutions such as MasterCard to drive the use of safe electronic payments.

In December 2014, MasterCard launched a first-of-its-kind unified fraud service in Egypt that aims to protect MasterCard cardholders, financial institutions as well as merchants against criminal activity. It is used to monitor and evaluate all transactions processed on the MasterCard network and quickly detect high-risk transactions in real-time using state-of-the-art detection technology. As electronic payments, debit/credit card usage and mobile/internet banking increases in Egypt, we can expect to see further investments in advanced IT security technologies, including biometrics.

Regulatory Compliance

“For forward-looking banks, the Basel III requirements can be much more than a technical burden and a drag on growth and profitability. Rather, financial institutions should consider the new rules as a catalyst to upgrade their capabilities, as well as a clear call for thoughtful, balanced and better articulation of their risk-return profile and strategic choices. The new regulation, once implemented across the region, should benefit the regional banking system not just during times of financial crisis or market dislocation, but for decades to come.” – Jihad K. Khalil, Senior Associate with Strategy&

Egypt’s banking sector has been called a “beacon of stability” by international analysts as it continues to grow and secure profitability under challenging conditions. CBE Governor Hisham Ramez has repeatedly said he believes that the key to maintaining momentum is continued regulation, transparency and greater levels of financial inclusion.

There are a number of forthcoming regulations being imposed on banks by both national and international regulators but the most pertinent are the implementation of the third and latest set of Basel requirements. Named after the Swiss town of Basel, the Basel regulations were first introduced in 1988, with a second set published in 2004 and banks will have to comply with the third set of rules within the next four years.

The core principle of Basel III is to help prevent international economic shocks of the magnitude that caused the Global Financial Crisis of 2008. One of its key tenets is that banks will have to maintain greater levels of capital reserves; between 15-18% depending on the additional requirements of the CBE. Fortunately, Egyptian banks are traditionally well capitalised and used to maintaining high reserves, but the jump from 4.5% under Basel II to more than three times that amount is expected to curtail some of the banks’ more rapid growth.

The new regulations will require a new mindset for Egyptian banks, as they will have to make strategic decisions about allocating capital towards risk-balanced and profitable activities while still encouraging growth through greater levels of financial inclusion. An enterprise-wide analytical approach will be necessary for banks to implement comprehensive data and risk management policies in order to comply with emerging regulations while also achieving their growth ambitions.

From Cash to Cashless: The Transformation of Egyptian Banking

Egypt’s banking sector currently stands in an enviable position of security coupled with significant opportunity for sustainable growth. Despite the slight curtailing of growth expected by the requirements of Basel III, investment in new banking technologies and innovations could see forward-thinking Egyptian banks connecting with the largely untapped market of unbanked but technologically capable Egyptians.

The conversion from a mostly cash-based society to a cashless one is likely to take many years still, as cultural norms and valid security concerns are overcome. However, the potential of the latest banking innovations to modernise Egypt’s monetary systems is undeniable and they are rapidly enjoying greater levels of interest from Egypt’s banks as well as its populace.

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Using payments to streamline everyday transport

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Using payments to streamline everyday transport 1

By Venceslas Cartier, Global Head of Transportation & Smart Mobility at Ingenico Enterprise Retail

Once upon a time the only way to get from A to B on public transport was with cash – and likely a pre-paid ticket bought from a physical office. Nowadays, thanks to technological developments, options range from contactless and mobile payments, to in-app tickets and more. As payment methods advance, consumers and merchants are naturally moving towards Mobility as a Service (MaaS) systems, integrating various forms of transport services into a single mobility service, accessible on demand.

This move towards MaaS does not only streamline the consumer experience, it has other positive impacts too. Incentivising public transport use reduces environmental pollution, improves mental wellbeing by reducing travel-related stress, and aids productivity by freeing up time otherwise spent driving. With this in mind, let’s take a look at the current trends affecting the transport sector, as well as how payments can optimise transportation for both operators and consumers alike.

Optimising transport with payments

The payment process is integral to any service. A payment service provider (PSP) can provide a range of key benefits to operators by proving a gateway to the transportation open payment ecosystem, and ensuring they meet objectives in 3 key areas.

  1. Environmentally, by reducing the use of personal cars and alleviating pollution and congestion.
  2. Societally, making urban mobility more inclusive in terms of improving access to all areas and for all socioeconomic classes.
  3. Economically, by optimising investment in eco-structure and fostering financial transactions, therefore improving the wealth of the city.

Payments professionals’ expertise and technological solutions can make payments easy again for transport operators. They can provide a range of options so that the customer can choose which one is right for them, leveraging the capabilities of the mobility services’ infrastructure (contactless, mobile wallets, P2P, closed-loop, QR code, and blockchain).

Furthermore, they can help promote inclusion and sustainable urban development. For example, methods such as prepaid virtual cards, or mobility accounts linked to a prepaid account can reduce the risks of excluding the unbanked. The environmental impact per kilometre can also be reduced, along with the use of vehicles with lower emissions per person per kilometre.

Finally, PSPs can put merchants’ minds at ease, providing payment liability, allowing aggregation of all due amounts from all mobility service providers, and collecting payments in one single transaction from users while dispatching revenue between mobility service providers.

Managing coronavirus

Venceslas Cartier

Venceslas Cartier

COVID-19’s disruption to the travel industry cannot be overlooked. In fact, research suggests that public transit ridership is down 70% across the globe since the onset of the virus, longer distance travel has seen reductions of up to 90%, and payment by cash has seen a 60% drop.

Being realistic, these behavioural shifts are unlikely to revert anytime soon, so it’s important for merchants to keep this in mind when thinking about payment methods. More than 70% of consumers and travellers say they are likely to avoid the use of cash over the next six months. As a result, more than 40 countries have already raised their contactless payment threshold, further helping consumers to avoid contact with frequently touched pin pads.

However, the pandemic has only accelerated the way things were heading already and highlighted the benefits. Within the context of the pandemic, transportation needs to reinvent itself and adapt its processes to suit the shift in commuter habits that we’ve already seen and will continue to see in the future.

Other trends to keep an eye on

Contactless has been steadily growing on the transport scene, as have mobile payments and in-app purchases. In fact, the recent move to mobile and online ticketing is the most promising method so far, having seen significant growth in the last few years and having been accelerated by COVID-19 as discussed above. Once consumers move to these easy, convenient, and seamless methods, it’s rare that they revert – so it’s a good idea for operators to think how they can cater to these preferences.

Speed and convenience are a must for busy travellers – but not at the expense of data security. Finding the right payments partner is therefore crucial so operators can safeguard their customers’ personal data, while also keeping on top of other security regulations/features such as P2P encryption, PCI certification, and tokenisation.

Next steps for operators

Public transport is essential for many peoples’ everyday lives – COVID-19 or no COVID-19. As such, mobility service providers can make a great difference to their service and operations by implementing the right solutions.

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Grey skies ahead – Malta prepares for a gloomy 2021 if they can’t tackle financial crime

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Grey skies ahead – Malta prepares for a gloomy 2021 if they can’t tackle financial crime 2

By Dhanum Nursigadoo, ComplyAdvantage

With the summer drawing to a close, many countries who rely significantly on warm weather tourism will be assessing the impact of Covid-19. Being a small island in the middle of the Mediterranean you would expect Malta to be taking a significant economical hit – just like we are seeing in other popular European holiday destinations – but this doesn’t take into account the strength of the Maltese economy.

Emerging from the eurozone crisis with one of the most dynamic economies strategically positioned between three continents, Malta has had one of the lowest unemployment rates in the EU and has recently seen its GDP growth expand year-on-year.  But perhaps the most important aspect of the Maltese economy has been its attraction for foreign businesses with only a 5% tax on profits. It is no secret that Malta is a tax haven, probably one of the most effective tax havens in the world.

But you can’t pick and choose who takes shelter, and it’s no secret that money launderers have been taking advantage of the regulatory landscape in this archipelago.

The conditions of a tax haven suit criminal enterprises, who can take advantage of the opaque environment and blend their illegal activities with the same operations enjoyed by high net worth individuals and corporations who are looking to reduce their tax bill. And last year Malta’s keenness for secrecy and avoidance resulted in a damning report by Moneyval – the Council of Europe’s Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) body – which found that while the nation had made some efforts to curb money laundering there was still much to be desired in order to bring the tax haven up to standard. Overall, they were of the opinion that Malta viewed combating money laundering as a non-priority and this resulted in branding Malta with low to partial ratings for 30 out of the 40 Financial Action Task Force (FATF) recommendations.

The findings of the report were stated to have the potential to “create within the wider public the perception that there may exist a culture of inactivity or impunity”. This follows on from a series of international high-profile stories regarding Malta and financial crime. Most shocking was the murder of journalist Daphne Caruana Galizia – who investigated corruption and money laundering in her native country – and was killed by a car-bomb three years ago leading to international outrage and condemnation.

Now Malta is in a race against time to turn their reputation around or they will suffer genuine consequences. The FATF have threatened to place Malta on a “greylist” of high-risk jurisdictions unless they have shown a genuine commitment to combatting financial crime and implemented the recommendations of the Moneyval report. If they fail, this would make Malta the first EU country to make the list and join others such as Panama, Syria and Zimbabwe.

The pandemic has actually given Malta more time to meet these obligations, and it has been widely reported that an initial summer deadline has now been moved to October due to the widespread disruption.

As we head into the autumn, there are signs that Malta has begun to take action. The Malta Financial Services Authority (MFSA) has created and established an empowered AML now headed up by Anthony Eddington, formerly of the UK’s Financial Conduct Authority and who has previous experience of tackling anti-financial crime at Deutsche Bank. This team has already begun working closely with international experts, specifically partners in the US through the US embassy in Malta and the United States Commodities Futures Trading Commission (CFTC). In May this collaboration led to 25 new cases focused on money laundering in particular, and with plans to increase standard inspections and on-site investigations into businesses in Malta, it appears there is a change to the country’s priorities.

Importantly, the report highlighted a problem for countries that choose to become tax havens. In some cases it was not that the Maltese authorities deliberately turned a blind-eye, but simply that they did not have the necessary knowledge to effectively tackle financial crime in the first place. Law enforcement appeared unable to even recognise when crime was occurring.

But this blurring of financial compliance will not help businesses if Malta does indeed become “greylisted” this year. While not as devastating as being blacklisted (the two occupants of this list are Iran and North Korea) there are significant detrimental effects to being put on the FATF greylist. Although this signals that the country is committed to developing AML/CFT plans (unlike the blacklist) it still sends out a warning signal to the world that this is a high-risk area, with the country in question subject to increased monitoring and potential sanctions from the IMF and the World Bank. Make no mistake, being put on the greylist will be catastrophic for Malta’s economy.

It remains to be seen how the work to avoid such a calamity will affect Malta’s tax haven status. Perhaps with an increased fight against financial crime there will be less ability to defend one of Europe’s most competitive tax regimes. But if Malta does not show they are genuinely committed to tackling this problem, then the pandemic disruption to the island’s tourism may be minor in comparison to the grey clouds that now approach their shores.

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How will the UK prepare a supply chain for the distribution of the Covid-19 vaccines?

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How will the UK prepare a supply chain for the distribution of the Covid-19 vaccines? 3

By Don Marshall, Marketing role at Exporta.

The challenge of mobilising a supply chain for the introduction of a global and nationwide vaccine will be enormously complex. The process will be costly, and it’s likely the figures will stretch to the hundreds of millions for both the production of the vaccine itself and its distribution across the UK. We must prepare and plan a supply chain strategy to ensure it reaches those most in need in a timely and safe manner.

The task of immunising a whole population is something that has never been planned or likely imagined by anyone within a standard supply chain. A supply chain that goes directly from the manufacturer to the end consumer, or user/ patient in this case, is complex and goes beyond the scope of any single logistics company. It would have to be conceived and delivered via a large joint effort and collaboration between multiple organisations. Effectively distributing the vaccine will depend on the source of manufacture, its storage requirements, and protection of the vaccines from manufacture through to patient administration.

The majority of vaccines require storage within a specific temperature range and need to be handled safely and in hygienic conditions. Depending on where the vaccines are manufactured, the transport legs will vary; if they are coming from overseas, air freight will increase cost and complexity. In addition to supplying the vaccine, syringes, needles and containers also need to be taken into account when preparing the supply chain.

Securing the specific types of boxes or containers i.e. the lidded containers normally used for transporting pharmaceutical products will mean acquiring them from all available stockists and manufacturers. Delivery vehicles would then need to be considered, with temperature-control factored in. The medical supply chain can inform their approach to distribution by assessing data from previous supply chains, and how large quantities of vaccines have been sent out in the past. Collating successful vaccine delivery examples from other parts of the world would be advantageous here, the more we can do to prepare for a logistical challenge of this magnitude, the better.

The distribution of this COVID vaccine will be unique in its scale and for that reason, additional supply chains will need to be mobilised. Apart from medical supply chains, those best suited for this type of transportation are the fresh/frozen food industries and supermarkets. I would mobilise these businesses to assist with the vaccine’s distribution wherever possible and use their car parks and facilities for the temporary medical centres needed to administer the vaccine to the public.

Using the food industry and supermarket networks would leave the current pharmaceutical supply chains intact for health services, pharmacies and the NHS. It would protect those vital services and continue to serve communities across the UK. Inevitably, it would place a short term strain on food supply chains, but these are supply chains that are well-equipped and versed in coping with excess demand i.e. the spike endured from the brief spell of public panic buying at the start of the crisis. With adequate resourcing and planning, I believe the UK supply chain can and will handle this challenge.

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