This post is written by Ahmed Jadallah, SBI SME Resident Advisor, and Andrew Lake, Director of Riskfrontier Consultants.
As it operates in a cash-dependent economy, the Palestine banking sector has been striving for the last two decades to reduce cash management costs and tackle cash movement obstacles resulting from a challenging political environment.
The banking sector is currently witnessing important shifts in Palestine, as banks started recognizing the growing viability of retail banking services due to having experienced growth in revenues and profitability. In turn, this led to the need for developing creative banking products, and adopting modern technologies for the delivery of such services to targeted existing and new consumers.
In Palestine, achieving this objective requires a joint effort to build the required infrastructure to strengthen the electronic payments industry. The mechanism proposed by SBI to achieve this strengthening is the formation of a jointly owned company, aimed at servicing the banking sector as a whole while leveraging economies of scale to reduce dependency on cash.
Over the past 5 months, SBI has been cooperating closely with the banks in Palestine, under the guidance of the Palestine Monetary Authority (PMA) and the Association of Banks in Palestine, to write the business plan and model the financial feasibility of a jointly held Banking Services Company (BSC). SBI found that it is indeed financially feasible for the Palestinian banking sector to build and operate the BSC.
The culmination of this effort was the presentation for this business plan and feasibility study to the PMA and banks in Palestine during early August 2011. The study addresses the market, technical and financial elements; however, it also defines a set of various benefits to consumers, merchants and banks.
The BSC envisioned as a standalone service provider to the banking sector, aimed specifically at providing the following services in the first phase of implementation:
- Interbank authorization and clearing of cash machine (ATM) transactions
- Interbank authorization and clearing of point of sale (PoS) transactions at merchants
- International transaction switching of ATM and PoS transactions
- Merchant management
The next steps in the process are for the banks to individually decide their participation in the initiative, and then commence with implementation of the initiative.
In SBI we believe it is necessary, indeed essential, at this stage to step forward with establishing the BSC to service all banks operating in Palestine based on neutrality, interoperability and cost-effectiveness.