Egypt issues digital payment, lending, saving rules for mobile wallets

Published 24 Apr,2021 via Daily News Egypt - Last week, the Central Bank of Egypt (CBE) approved the third edition of rules for payment services using mobile wallets.

This included its approval of the rules for lending and providing digital savings services through the mobile wallet.

The CBE specified the procedures for obtaining a licence to provide payment service via mobile phones.

It explained that banks wishing to provide payment services using mobile phones to their customers must submit a request to obtain the CBE’s approval. This includes banks that obtained a licence after the rules were issued and would like to add new services. The approval would ensure the completion of several documents in order to be allowed to provide these services.

These documents include a list of the services that the bank wishes to provide or add, and a statement indicating any cases of partial or total non-compliance with the rules issued by the CBE.

In addition, banks should provide a penetration test report on the actual operating environment before launching the service, provided that it was conducted within three months prior to the date of sending the request.

Presenting this report can be postponed until the CBE’s initial approval is obtained. In this case, the bank must not launch the service until the report is sent to the CBE and the permit is obtained.

The CBE stressed that those banks that have previously obtained a licence to provide payment services using mobile phones before the rules were issued must reconcile their situation with the rules. This should take place within a grace period of no more than six months from the date of their issuance.

The bank’s failure to reconcile its situation during the specified period of time may lead to the termination of the previously granted licence.

These banks must also inform the CBE and users of the system, in a publicised manner, of any modifications in the fees of that service.

Banks must also submit monthly reports to the CBE that indicate: the number of electronic money units issued; the number of system users who have balances; the number of system users who do not have balances; the number of service providers; and the volume of daily transactions of various types; and any other data requested by the CBE.

The CBE also revealed the detailed controls and terms for digital lending and saving service through mobile phone accounts. These will be introduced by banks working in the Egyptian market in the coming period, in cooperation with I-Score and mobile payment services providers.

The CBE explained that mobile loans are a short-term credit facility, of a maximum of one year, in the form of electronic money that clients submit.

They are granted by banks in an instant electronic form through the mobile payment service, without the need to go to the bank’s branches or one of its service providers.

The CBE’s rules have set a maximum limit for mobile loans of about EGP 5,000 for individuals, EGP 15,000 for category (A) companies, and EGP 10,000 for category (B) companies. They also grant the CBE’s Governor the right to amend these limits.

Category (A) includes companies and micro-establishments that have documents or headquarters, or whose activities are verified using any other means. They should have a mobile phone account with the bank or one of its service providers, according to the procedures issued by the Egyptian Money Laundering and Terrorist Financing Combating Unit in March 2020 and its amendments.

Category (B) is companies and micro-establishments or individuals with professions without any of the aforementioned points. These are listed under the name “economic activity” according to the explanatory memorandum that would later be issued later by the CBE.

They are entities that have opened a mobile phone account in the bank or one of its service providers in accordance with the procedures for the mobile phone payment service issued by the Egyptian Money Laundering and Terrorist Financing Combating Unit.

The CBE stressed that the rules for the maximum instalments of loans, compared to the total income, will not apply to digital lending products through mobile phone wallets.

The CBE allows banks to use alternative credit evaluation data through digital evaluation models. This is especially in the case of customers who do not have a credit history, meaning that they did not obtain loans or credit cards.

Customers will be able to make use of this provided that a strategy is developed to deal with the expected risks and losses, as well as the expected rate of the loan. In addition, procedures and standards must be developed for testing and evaluating the model and amending it periodically.

The CBE also stressed the importance of providing mobile loans in fixed instalments with fixed dates, with the amount and return specified in advance. The permitted limit must equal the amount used, and they could be reduced for the value of the paid instalments.

The bank must also enquire about customers at licenced credit classification companies, especially the total amount of existing digital facilities for that customer which were granted through the payment service using a mobile phone.

According to the regulations and instructions issued by the CBE, the daily maximum limit for withdrawals, transfers, and any deductions from the mobile phone account has been increased to EGP 30,000 for individuals and category (B) companies, and EGP 40,000 for category (A) companies.

The instructions also include the monthly maximum limit for withdrawals, transfers, and deductions from the private mobile phone account. These should not exceed EGP 100,000 for individuals and category (B) companies, and EGP 200,000 for category (A) companies.

The bank must also set proper maximum limits for the balance of customers’ mobile phone accounts in light of its assessment of the risks involving money laundering and terrorist financing. This also includes any other risks related to the service and users of the system. The governor of the CBE has the right to amend these maximum limits.

Meanwhile, the CBE exempted system users who had undergone the procedures of ID verification from the aforementioned limits. These fall under the rules for identifying customers in banks issued by the Egyptian Money Laundering and Terrorist Financing Combating Unit in March 2020 and their amendments.

The bank must assess the risks associated with the service and users system, and set a maximum limit for the balance, value and number of the daily and monthly operations carried out on the mobile phone account.

The CBE indicated that the bank must apply intensive measures towards system users and make sure that electronic money is not concentrated in the accounts of a limited number of customers.

This comes with a special focus on suspicious money laundering or terrorist financing cases.

The CBE also obliges banks to obtain a written declaration from parties authorised to sign on behalf of companies that the transfers made on these accounts involve business relations or a contractual relation. The declarations should also come with an indication of the nature of this relationship.

Banks must notify their customers of any high-risk financial transactions on their accounts, unless they request otherwise. This can be done via automated means, such as via SMS or emails.

The CBE allows system users to receive transfers from abroad in foreign currencies and add them to the mobile phone account in Egyptian pound.

This service is limited to individuals, with special attention given to monitoring incoming transfers on a regular basis to ensure that there is no suspicion related to money laundering or terrorist financing.

The CBE also stressed that the bank must take proper measures to ensure that the transfer belongs to the same user of the system and that the value has been added in Egyptian pounds to their mobile phone account.

The values ​​of incoming transfers from abroad must not be added to the phone account before these transfers are examined if insufficient information were provided regarding the transfer.

The bank must also ensure that neither parties of the transfer, whether sender or receiver, are on local or international blacklists.

Banking expert Mohamed Abdel-Aal said that Egypt is taking swift steps to implement the National Council for Payments strategy aimed at financial inclusion, digital transformation, and creating a society that is less dependent on cash.

He said that the availability of mobile banking services can help achieve this, because they provide a simple application “e-wallet” or “smart wallet”, which provides wallet owners with distinct banking services.

They include making withdrawals, deposits, payments and transfers. He also said that the importance of this service is increasing, as there are over 100 million mobile users in Egypt, whilst the number of internet users exceeds 43 million.

He added that the CBE’s announcement of the third edition of the rules for mobile wallets payment services is a bold move that supports the spread of that service and increases the demand for it.

The latest version has provided two new banking services. The first is digital lending and saving service where customers are given financing on the spot without going back to the traditional methods. The second includes allowing complete transfers between customers’ accounts and e-wallets over the phone.

He stressed that this distinct step will have multiple positive effects, as it is expected to bring about a cultural change in the arts of credit analysis in funding small and micro enterprises.

Behavioural evaluation methods of clients are relied upon to determine their financial solvency. They include following their electricity consumption rate and how regularly they pay their bills.

He added that this step would also lead paying transactions into wallets over the phone, in terms of number, value and quality.

Abdel-Aal noted that the available numbers indicate that mobile wallet accounts exceeded 20 million in Egypt in 2020, whilst the total annual transactions made through phone wallets were worth EGP 100bn.

“On the other hand, this paradigm shift will help attract an increasing number of young people and citizens with limited income to the banking system,” he said.

This allows them to benefit from various banking services, and gives them more ways to make a living, as well as reducing the unemployment rate, increasing income, and reducing poverty rates, he added.

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