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By Andrew Bossone

Imagine a world without cash. No more rummaging through your wallet for dirty money. No more waiting in line for hours to pay your telephone bill. Every financial transaction occurs electronically. This is the dream of Giro-Nil, a partnership between industry giants CIB (bt100 number 13), Banque Misr, Egypt Post and the Dutch company inClusion Group.

The paperwork in today’s cash economy can be exhausting, says Ulbe Spaans, managing director of Giro-Nil. “Look at electricity — look at an electricity bill every month. Gas — every month. Telephone. Salary payment is a transaction too, it’s an incoming transaction,” Spaans says. “Then you pay rent, you have insurance, you might have installments on a car. So you could have a minimum of seven transactions per month. That’s 84 transactions per year, times 20 million people. That is a lot of transactions.”

“There has to be a drive to move from a cash-based society to a cashless society,” Spaans continues. “What we have found in the Netherlands is that it is a very fast system, a very cheap system.”

Essentially the Giro account system functions like this: Your employer pays you through a direct deposit to your bank account, so that you never receive cash disbursements. Your bank account is then linked to each of the companies you pay your bills to — water, gas, electricity, telephone, etc. Every bill you receive appears on a statement that looks almost identical to the others, except for the name of the recipient, the amount of the bill and a series of account numbers.

You sign the bill, stick it in a stamp-less envelope and the post office recognizes the special envelope with sorting machines. If you do not have a Giro account, you take the bill to the post office and pay at a special window. The bills arrive to Giro-Nil in about 12 hours, where they undergo high-speed scanning, and money is transferred directly from your bank account to the correct company. All for a small 50-piastre transaction fee. At over a billion transactions like this per year, everyone wins.

Eventually, like in the Netherlands, it may be possible to pay for anything with your Giro account, from a bottle of water to a hospital bill. Account-holders will be able to immediately transfer money to each other via the internet.

According to Spaans, every Dutch bank, government office, hospital and doctor collects money using Giro accounts. The total number of accounts in the Netherlands equals 125% of the population.

Spaans’ plan is to build a client base of about 20 million Egyptian customers over ten years, which, based on company research, is the approximate number of individuals who receive regular payments from the government or private entities. They will comprise the initial target demographic, because they will most easily take advantage of the system. Unlike those who work outside the formal economy, these people will have the opportunity to complete all of the standard monthly transactions in a Giro account.

inClusion group originally came to Egypt by invitation from Banque Misr. Asked to help the bank improve the profitability of Banque Misr’s ATM network, Spaans offered a simple solution: “Attract more clients.” And if Banque Misr wanted more customers, then, Spaans told them, they had to change the scope of their marketing activities to address the needs of the population. This meant a shift from primarily corporate banking to a portfolio of retail services.

“[Banks] all focus in Egypt on the top market. These are people who have a lot of money and rely upon financial systems. [Other] people have no entrance into the market,” Spaans says.

That is where the 20 million comes from. A-Class and B-Class may be the best customers, but they make up only a small percentage of the population. But in a retail system with Giro accounts, anyone who receives and makes consistent payments is a potential client, widening the consumer group to a much larger base.

“We look at Europe 40 years ago, what happened in the Netherlands around then and what is happening today,” says Spaans, who is also the managing partner of inClusion group. “And what we see is that there is a very strong comparison between what happened 40 years ago in the Netherlands and what is happening today in emerging markets.”

“Of course there are quite a few differences, but the mechanism actually works the same,” he says. “When they started there were no debit cards, no credit cards. Everything was paper based.”

Additionally, the drive behind Giro accounts in the Netherlands was an initiative on the part of the Dutch government to move away from a cash-and-paper system, which Spaans expects will also be the case here. Millions receive monthly government salaries or pensions. Should the government decide to convert from its current system to an electronic payment method, Giro-Nil hopes that it will win the contract, immediately resulting in a millions-strong customer base.

“[Dutch] banks understood quite well that they could use one central organization to act as their payment processor,” Spaans says. “In the Netherlands, we saw that in 10 years’ time, about 50% of the market changed to use this system. Today we see that in 40 years’ time, of all of the money that is in circulation, 95% is within that financial system.”

The model in the Netherlands quickly gained currency as the model here. In January 2003, inClusion group brought the Netherlands case to the banking industry at the request of Banque Misr. The greatest interest came from CIB and Egypt Post. The three formed the crux of the new system: a public-sector bank, a private-sector bank and the post office.

“We found that there is a high need for such a system,” Spaans says. “We also found there is already some technology available in Egypt that we can use. We don’t have to start building new computer centers — we can use what is available in the market. And we have an alliance with an organization in the Netherlands. They were willing to cooperate and let us use their software. So that created a very easy starting point.”

The final piece, and probably the most important step towards completing the infrastructure, is to convince all the banks to use a unified account-number system. Even without a Giro system in place, this must happen if the banking system hopes to modernize. “You have to reach critical mass and inter-bank cooperation to allow this,” he says. “Because the core of the whole system is that you build one common infrastructure that all the banks can use for their system.”

It might not be too difficult to get banks to join the system since CIB and Banque Misr have signed on as partners at 30% each. Egypt Post also owns 30%, with the remaining 10% belonging to inClusion group. Misr International Bank (bt100 number 21), which has been the financial advisor for Giro-Nil from its inception, will also get a stake, as will the Dutch Bank for Development Finance. The exact recalculation has yet to be determined, but in the end it will probably be about 80% Egyptian-owned.

“Our objective is to have more banks connected to the system as soon as possible,” Spaans says. “In our last board meeting we discussed accelerating the processes we have already begun. The banks will join in to raise capital. We will see how many potential partners are knocking on our door.”

After the banks are committed, the next step is to get the utility companies on board. Telecom Egypt (bt100 number 3) is already participating in a test run.

“When Telecom Egypt switches over to use a Giro system they can go from a three-month to a one-month billing cycle,” Spaans says. “That will be very beneficial to their cash flow. It is also beneficial to the consumer by having a monthly bill that is smaller, so they spread their expenditures.”

“We are currently training people from Telecom Egypt,” he continues. “So, yes, we are making transactions, we are doing salary transactions. We are working in the Netherlands with Egyptian staff; we do salary payments in the system. So they are real, live transactions that go to the banks. There are some more companies we are doing pilots with to prepare for a massive roll out.”

Things could also speed along with Egypt Post as a bidder for the third mobile license. If it wins the bid, then Giro-Nil will have all those new subscribers as potential customers. Of course, anyone with a mobile phone is also a target for Giro-Nil.

But a number of questions are still lingering. How willing are people to accept such a system? Do companies and service providers want to abandon the use of cash? Will this sacrifice jobs? And how much will the system cost in the end?

Spaans expects time and convenience to alleviate worries among the population. The Giro system is relatively simple, and in the end it will be the time-saving factor that wins out, he suggests.

The concerns are not unlike those voiced years ago with the introduction of computers and other technology to the workplace: reliability, job loss, etc. But most people agree today that technology creates jobs to replace the ones that are lost. An electronic economy should, therefore, generate more positions for skilled labor to keep the system running. Banks, for example, will hire more people to manage the complex computer transactions to ensure that people’s money is being protected.

And if time is money, then the savings from not queuing up for hours will speak for itself. Although company representatives collect most utility bills in the country from residences, a missed visit means a tedious trek to the utility office to pay up.

The biggest worry, however, is that the cost of the system could be passed on to the consumer. For every transaction, Giro-Nil takes a cut of a little less than 50 piasters. Spaans says that some banks in the Netherlands charge this fee to the customer, and some do not.

He argues that banks are investing a lot of money into creating this system and running it. But, he continues, they will enjoy enormous benefits from it: first by the cost-saving measures in efficiency and operation on a large economy of scale, and then by the influx of capital that will result from a unified billing system, which banks can in turn invest. Finally, they may also collect normal fees associated with banking. This is why banks in America have been practically begging customers to sign up for free online bill payments.

Systems like Giro-Nil are cropping up all over the world, and their materialization in Egypt is a question of when, not if. With backing from the likes of Banque Misr, CIB and Egypt Post, that time may be sooner rather than later. bt