Egypt Payments Landscape

1. Egypt Payments Landscape Dr. Nadia Abd Al-Aal Alexandria-Egypt 27-29 April, 2009

2. Agenda • Objectives of Payment Systems Project • Clearing House Statues • CBE’s Fin-Copy (T Shape) • Towards an RTGS • Current RTGS • The Cash-less Society - Cards in Egypt • Automation of Government Employee Payroll Distribution • Egyptian Laws and regulation

3. CBE Modernization Project Objectives • Proper execution of all types of payments • Reduce payment process delay • Transaction Security • Progressively applying the international standards • Restore confidence in the payment system • Promote the use of payment instruments • Implement the RTGS

4. The Clearing Houses Status • Cairo Clearing: Automated since June 2002 • 1/1/2006 the manual clearing house in Alexandria and Port Said were cancelled. • Build infrastructure between the head offices of banks and the Central bank.

5. Clearing Houses Activities

6. funds transfer system that is able to provide continuous intraday finality for individual transfers. (BIS) What is RTGS?

7. What is RTGS? • Final settlement continuously rather than periodically. • Real-time transfer of central bank money. • Transfers are settled individually, that is, without netting debits against credits. • Both processing and final settlement of funds transfer instructions can take place continuously.

8. Why RTGS? • Liquidity risk minimization. • Better liquidity management. • Faster and safer online settlement of transactions. • More effective achievement of Monetary Policy objectives. • Coping with worldwide modern economic changes and modernization.

9. T vs. Y

10. CBE’sFin-Copy (T) Netting System · ¸ ¶ Branch Branch Branch Branch Branch Branch Branch CBT Branch Branch Branch Head Branch Head CBT Office Office CBT Head CBT Office CBT, Several Branch BIC addresses CBT CBT, Single BIC address S.W.I.F.T. Network FIN- Copy system Real-time finality of payments guaranteed by the regulation of the system Deferred posting to banks’ accounts

11. Interday Liquidity ManagementTill Jan 2003 D Cover Period FIN-Copy System Exchanges of payment orders in the FIN-Copy system Impacts ofFIN-Copypayment orders Intraday Liquidity Management System 3:00 pm No Real-Time Monitoring and Updates for Central Bank operations D Opening Balance D Temporary Balance Closing Impacts ofClearingSystemsand Coverpayments Central Accounting System Daily Entries Batch Manual Entry of daily postings D-1 Balance D Balance 2:30 pm 4:00 pm 10:00 pm 2:30 pm 4:00 pm 10:00 pm

12. Towards RTGS • First stage: Grouping of all operations impacting the banks’ accounts with the Central Bank in one pool, Liquidity monitoring several times during the day • Second stage: Replacing the Netting FIN-Copy system (T) with a full-fledged RTGS software throught SWIFT ( Y)

13. Intraday Liquidity Management time-frame after Jan.2003 D Cover Period FIN-Copy System Exchanges of payment orders in the FIN-Copy system Impacts ofFIN-Copy Paymentorders Temporary Impacts of FIN-Copy payment orders Intraday Liquidity Management System 8:00 am 10:00 am 12:00 am 2:00 pm 3:00 pm Real-Time Monitoring and Updates for Central Bank operations D Opening Balance D Temporary Balance Closing Impacts ofClearing Systemsand Coverpayments Central Accounting System Daily Entries Batch Manual Entry of daily postings D-1 Balance D Balance 2:30 pm 4:00 pm 10:00 pm 2:30 pm 4:00 pm 10:00 pm

14. CBE CBE Participant Central Accounting System CASE Trading system End-of-Day postings Broker RTGS Book-Entry System RT RT RT Clearing Bank Book-keeper DT MCSD National Clearing System MCSD system DT DT DT Bank Book-keeper Bank Card Switch Primary Dealer Investor Target Real Time Gross Settlement System Principle: grouping of all payments executed on banks’ accounts at the Central Bank

15. CBE Target D Cover Period FIN-Copy System Exchanges of payment orders in the FIN-Copy system Impacts of FIN-Copy payment orders Real-Time Impacts of each FIN-Copy payment orders Intraday Liquidity Management System 3:00 pm Real-Time Monitoring and Updates for Central Bank operations Impacts of Clearing Systems and Cover payments D Opening Balance D Temporary Balance Closing Central Accounting System Daily Entries Batch Manual Entry of daily postings D-1 Balance D Balance 2:30 pm 4:00 pm 10:00 pm 2:30 pm 4:00 pm 10:00 pm

16. RTGS: Pilot Project The RTGS pilot project was conducted for two months Starting March-2003 and targeting the largest five banks in Egypt. The project provided the banks access to the CBE’s private network together via the SWIFT network.

17. RTGSStructure Today

18. RTGS Elements ACH FSC SSS Book Entry MCSD ATM/POS

19. Implicationsfor the CentralBank • Elimination of implicit settlement guarantee by central bank. • Better control of system liquidity. • More effective control by commercial banks of their exposures. • Greater confidence in national payment system. • Reduced risk (Credit, Liquidity, Systemic & Legal).

20. Operational Impact on CBE • Commercial bank settlement accounts operate throughout the day • Timing of monetary policy operations becomes important • Timing of settlement by other clearings becomes more important • Need for faster decision making and clear operational procedures

21. Business Model of RTGS • Single Settlement Account for each bank. • Usage of SWIFT message • Two concurrent networks (SWIFT, VPN). • SWIFT Fin-Copy Y topology. • Strong Security on VPN • Intra-day liquidity against Collaterals. • Queue Management is based on FIFO, if failed , based on FAFO. • Settlement of Government Securities is based on DVP. • Special Arrangements for Multilateral payments (ACH, FSC, ATM, MCSD). • Compliance with Standards of BIS core principles.

22. How does the Settlement work?

23. The Cash-less Society Cards in Egypt

24. Banking Habit in Egypt

25. Currency Circulation

26. Cards per 1000 inhabitants

27. Cards per 1000 inhabitants

28. Automated Teller Machines (ATMs) reached 3,000 and increasing annually by 40%. Points of Sale (POS) reached 28,000and increasing annually by 31%. Credit Cards reached 1,800,000 and increasing annually by 23%. Debit Cards reached 3,000,000 and increasing annually by 30%. (As per a study conducted on 2007/2008) Debit & Credit Cards in Egypt

29. Government Employee Card

30. The Need • Length of time in which money is in transit. • Need to achieve “Zero Balance” in ministry service outlets. • Need to achieve" Treasury Single Account”. • Need to activate tools to enable e-Governmental. • Need to create unified financial database for employees.

31. The Concept • Every employee receives a salary distribution card. • Issuing of the cards and servicing the employees in assigned to commercial banks. • Salary information is sent to the banks through a secure network. • Funds are sent to the banks through the Central Bank of Egypt.

32. Objectives & Benefits • Perform payroll process rapidly and powerfully. • Increase users of e-Government tools and outlets. • Build secure payroll database for government employees. • Increase the government’s role in developing electronic payment systems. • Move toward cash-less and more bankcards. • Build statistical and strategic planning tools as a base for decision making.

33. “Banking Law” Article (6) in the Law No.88 of 2003 stipulates that the CBE may exclusively perform the following tasks: “…Oversight of the National Payment Systems.” RTGS& Egyptian Laws • Feb-2002: CBE board approved the Supervisory Regulations • 2003: CBE approved regulations for anti-money laundry • Executive Regulations for electronic clearing • Digital Signature – Law #15 • RTGS Regulations

34. “To accomplish great things, we must not only act but also dream, not only plan but also believe”. Anatole France

35. Dr. Nadia Abd Al-Aal