The Egyptian Central Bank regulates payment service providers

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Kilian Bälz
Amereller Rechtsanwälte (Berlin) in association with Mena Associates (Cairo)
kb@amereller.com

Laila Rizk
Amereller Rechtsanwälte (Berlin) in association with Mena Associates (Cairo)
lailar@amereller.com

Payment service providers

A payment service provider (PSP) offers shops online services for accepting electronic payments by a variety of payment methods, including credit card, debit card and real-time bank transfer. Typically PSPs provide an IT platform for their clients (merchants) to use multiple payment methods. A PSP, for example, would be used by an online shopping portal to facilitate settlement of the transactions and would permit the consumer to select between different payment methods on one web page.

The new Central Bank Regulations

The new Central Bank of Egypt (CBE) Regulations (the ‘Regulations’), enacted in May, subject payment services to CBE regulation for the first time. Enactment of the Regulations is in line with the general tendency to subject the Fintech industry to regulation in Egypt.

Scope of application

The Regulations distinguish between technical payment aggregator services providers and payment facilitators. Both service providers offer technical platforms to collect payments on behalf of the merchants. The payment facilitator, in addition, would be involved in the settlement procedure (ie, by receiving payments in an account in its name and forwarding the proceeds to the merchant).

Interestingly, the Regulations have opted for a kind of indirect regulation, which would not subject the PSP to regulation^[1] but establishes rules for banks that intend to use PSPs. Section 10 provides that a bank may not contract with a PSP without CBE approval.

At the same time, this limits the territorial scope of application of the Regulations to financial institutions subject to its supervision. Traditionally the CBE follows a territorial approach, pursuant to which only financial institutions with a physical presence in Egypt are subject to its supervision. PSPs that target the Egyptian market from abroad without contracting with an Egyptian bank are not caught by the Regulations.

Regulatory obligations

Under the Regulations, banks are required to enter into formal contracts with PSPs that, inter alia, must cover the:

• determination of scope of contractual relationship and service level;

• non-disclosure obligation;

• possibility to suspend dealing with sub-merchants;

• implementation of risk management systems;

• possibility of regular audits, also from the CBE;

• remedies for events of default; and

• restrictions on subcontracting.

The banks are also required to actively control and supervise the activities of the PSPs, including the selection of the merchants that are included in the PSPs’ scope of services. This includes compliance with regulatory rules (in particular anti-money laundering regulations) by the parties dealing with the PSP, as well as controlling that the merchants listed with the PSP do not engage in any prohibited activities (such as dealing in virtual currencies, gambling and lottery as well as crowd funding).

For payment facilitators, which would also receive payments in their accounts, it would be required that they: (1) have a physical office in Egypt (which is in turn required to register a presence in the commercial register); (2) maintain an address in Egypt; and (iii) have a website. Additionally the payment facilitator, inter alia, is under the obligation to transfer amounts received within maximum three working days. The payment facilitator must operate a separate account for the funds received from the customers. The bank must request a guarantee from the payment facilitator in the amount equivalent to three daily collections. All transactions must be settled in the local currency, the Egyptian pound.

Outlook

The Regulations are welcome as they bring some clarity to a growing industry in Egypt that, so far, suffered from piecemeal regulation. As always, their implementation is still awaited. In addition, in light of the new banking law – a draft of which is being deliberated by the Parliament – the treatment of PSPs and other Fintechs is highly anticipated.

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