In what will be welcome news to Egypt’s burgeoning fintech startups, the Central Bank of Egypt (CBE) is starting a bid to formalize the economy with lighter regulations on mobile money.

The ultimate goal is to move towards a “less-cash economy” and greater financial inclusion, the CBE said in a statement released Wednesday, as it opens the door to mobile financial services including payroll, bill payment, collection of microfinance installments, and even government payments.

First movers Paymob, which offers a mobile wallet of sorts, and DCB Egypt are likely to be the big beneficiaries of the central bank’s move to lighten regulations over this corner of the financial sector.

Looser regs

Banks will be able to employ agents to verify customer identities, and micro-enterprises, organizations and merchants will be able to pay or collect funds through their mobile accounts. Cross-border remittances can also to be sent and collected via mobile accounts, and then withdrawn via agents throughout the country.

The CBE introduced the mobile payment services three years ago, and subscriber numbers currently sit at 6.2 million. The bank said 60 percent of that growth came between December 2015 and October 2016.

The new regulations force telecommunications companies and banks to make their schemes interoperable, so a customer in one system can make a payment to a customer in another. For example, Orange customers using Orange Money could not previously use their mobile money accounts to pay someone using Vodafone Cash, and vice versa. Banks offering mobile money plans have six months to make their services interoperable.

Out of the black economy

Deputy CBE governor Lobna Helal said in the statement that mobile payments were the most efficient tool to bring people into the formal financial sector, as the country’s mobile phone penetration stands at about 112 percent (although smartphone penetration is lower).

“This mechanism will allow all socioeconomic strata to tap into the financial services market, including low-income individuals, youth and residents of remote locations, in a fast, affordable and around-the-clock manner,” she said.

One of Egypt’s biggest, yet hidden, economic problems is the size of the informal economy. It’s estimated at anywhere between 40-60 percent of the total economy and is partly due to the difficulty of bringing money out of the so-called black economy.

Less than 20 percent of Egyptians have access to simple financial services like bank accounts, and the paperwork (and bank balance) required to open one are prohibitive.

Over 90 percent of the country’s estimated 92 million people rely on cash transactions, according to the World Bank, and only six to eight million Egyptians have bank accounts.

Furthermore, customers moving just tens or hundreds of pounds a day are not profitable for banks, who’ve made little effort to attract these kinds of very small-scale clients.

Companies such as electronic bill presentment company Fawry, Egypt’s most successful fintech startup, and Dopay which provides bank accounts for employees of companies using its payroll software, have so far been at the forefront of services for the unbanked.

The most successful mobile money system in the world is M-Pesa, which started in Kenya. In 2013, 43 percent of the country’s economy went through the mobile money system.

Feature image via Dana Ballout.