Module 5:

Retail Banking Operations

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form
or by any means–electronic, mechanical, photocopying, recording or otherwise–without prior
permission of the Egyptian Banking Institute.
 Table of Contents
Module 5: Retail Banking Operations
Introduction...................................................................................................................1
Learning Objectives..................................................................................................1
First - What is Retail Banking?..................................................................................3
Exercise........................................................................................................................5
Exercise........................................................................................................................8
Task Steps................................................................................................................8
Second -Retail Banking Products.............................................................................9
Third -Definition of electronic banking operations..................................................16
Exercise......................................................................................................................28
Tasks..........................................................................................................................28
Task Steps..............................................................................................................28
Exercise......................................................................................................................33
Exercise: Debt Burden Calculation............................................................................45
Exercise: Collection & Recovery...............................................................................49
Summary.....................................................................................................................50

Participant Guide
 Principles of Banking Certificate/ Module 5: Retail
Banking Operations

Introduction

Retail banking has become one of the bank priorities throughout the world as
business has migrated from corporate to retail. Therefore, it has become essential to
improve the type and quality of retail banking services to match the growing retail
customer needs. Enabling participants to understand the true value added of retail
banking as per the new banking concept / approach for retail banking aiming to
achieve customer satisfaction, generate profit, stand the increasing competition and
run a successful retail operation business.

Importance
Retail banking is such a banking activities that has grown up so rapidly so widely
throughout the last 20 years and became point of focus in most of Mega international
banks.

Overview
 What is retail banking?
 Retail banking products.
 Definition of electronic banking operations.
 New retail products and services.
 Electronic payment methods.
 Banking by phone.
.

Learning Objectives
 Define retail banking and its products
 Explain the concept of electronic banking operations
 List new retail products and services

DD14-V2 5-
 Participant Guide

Introduction

The Bank’s Function started all over the world as a deposit takers “as a trustee” then
followed by lending money to finance their business and needs. Therefore they have
been able to pay interest to depositors and get interest from borrowers gradually the
banks expanded their activities to many other areas and services.

Main Banks Functions

The Main Banking Sectors / Activities?

 Retail Banking.
 Corporate Banking.
 Investment Banking.

The Major Changes Facing Banks Today

 Socio Economic Reforms.

 Banking industry is growing fast (E-Banking / E-Commerce).
 Acquisition / Merger for many Banks.
 Automation for major banking Sectors.
 Increased Marketing Culture for Clients.
 Infrastructure & advanced Telecommunications.

DD14-V2 5-
 Participant Guide

First - What is Retail Banking?

 “When bank addresses individual customers needs which normally are

smaller amounts compared to those that are dealt with in case of corporate
customers. Such type of business is called retail business. It is normally for
massive number of customers with smaller amounts.

 The Banks retail products and service are designed to be used as is “ready
made Package” for mass users (Customer can’t ask for tailoring or
customizing. It is a readymade product).

 The Corporate customer would need much less finance if finance is directly
given by banks to his retailers.

 Some reasons were a rushing force towards the change of focus towards The
Retail Banking such as:

 1- The globalization effects on the banking industry, especially with the continuous
increase in the multinational mega banks. While the indigenous banks would lose
part of their market share.
 2- The hard competition between banks had eroded the margin on commercial
lending, therefore the fee based services became of a greater value.
 
3- The flashing changes in the technology, has resulted in changing the way banks’
look at their services especially in retail banking.

4- The need to segment the retail accounts with the view to isolating special group of
customers particularly suited to specific products and services.

5- The proven experience that retail products are of low cost and high returns.

 6- The change in the distributions of the geographical market share due to change
in the banking technology and delivery channels using electronic media, plastic
cards, automatic tellers machines, telephones and internet.

 Customers’ behavior and needs have changed dramatically though out the
last decade. Also the appearance of the 3D virtual banking.

DD14-V2 5-
 Participant Guide

Why is Retail Banking is so important?

 EFG-HERMES research on the banking sector in Egypt for June 1999 shows
how important is the retail banking sector for the Egyptian market “The
commercial side of the business is saturated, but the retail sector is
underdeveloped offering significant opportunities.” “Large opportunities in
retail banking: Egypt is now considered over banked, but this is largely only
applicable to the wholesale and corporate sector. Retail banking in Egypt is
seriously underdeveloped and only in recent years Egyptian banks began to
focus on service as a mean of expanding their client base. It offers those
banks, primarily in the private sector, an opportunity to expand their scope of
activities and generate new source of revenue.”

 Higher Profitability (Interest & Commissions).

 Less Risk (within the overall portfolio).
 Great Potential for Growth.
 Eating up Market Share of Corporate Finance.
 Greater Opportunities of Cross Selling.
 Opens up doors for other Income (Insurance, Commissions on sales …
etc).
 Either you or other financial institutions.
 To cope with changes in human’s behavior and growing customer needs.
 Less cost due to saving in human salary, place & time.
 Reduce the country economic bill for payments.
 Quick economic turn over.
 Targeting a cashless society.

DD14-V2 5-
 Participant Guide

Exercise
Choose the correct answer:

1. Retail banking deals with:----------------

a. Tailored product per each customer.
b. Ready made products.

2. The retail banking has been possible due to development & growth in ________
a. Manual process
b. Automation

DD14-V2 5-
 Participant Guide

2. Transition to a Customer Service-oriented Organization developing a

Customer-oriented Retail Banking Culture

Retail banks learned how their organization can increase sales effectiveness by
motivating & providing their employees with relevant real-time customer information
to enable them up-sell and cross-sell opportunities and to convert them into sales,
capture new leads by targeting personalized offers to customers and automatically
generating referrals based on customer response and improve customer retention
and loyalty by enabling employees to understand customer needs with on-demand
intelligence and action alerts.

Cross Sell Technique

A Cross Sell Technique would require the following

 The bank should have a product mix that enable customer to get all that he
needs from one bank, one source.

 The marketing material for each product / service is very essential for both
customer and banker to understand full information about the product /
service. The marketing material help customer to remember all details, refer
to a missing point or tell a friend.

 Untrained employee would not be able to cross sell unless he has obtained
proper training on all different products & services. Also after training any
changes should be circulated in an informative way to all involved staff is the
selling process.

 The availability of customer details data base is an essential tool for the
selling team that is involved in cross selling process. Programs like "CRM"
would add to such requirement.

 The need to motivate the selling teams would be required to introduce "staff
incentive schemes" that boost & motivate staff to cross sell bank's product &
services.

 It is also important to introduce "Customer incentive schemes" that has very

positive reaction on customer's desire & decision to enlarge his bundle of
needs from the bank as well as introducing other customers to the bank.

6-7 DD14-V.2
 Participant Guide

A Cross Sell Technique would require the following

 Product Mix with different variety to gain customer’s attraction & Cover their
at most needs.

 Proper training for all first liners staff & Managers on bank’s products details &
benefits. Also training on selling technique and presentation skills.

 Plan for Staff incentives on their selling achievements.

 Arrange for marketing materials, display signs & demos that deliver the full
information in an attracting way to be memorized & kept by the customers
when they go home / office to remember.

 Apply customer’s incentives programs to encourage them to have all their

required services from our bank.

 Availability of a CRM program to feed all customers data for 2 reasons:

o To understand customer’s information ahead before we start
approaching them for other products to avoid imbursements.
o To record all attempts of cross sell to enable all staff to coordinate &
manage the customer’s relation professionally.

Cross sell & Combined Exposure with Other Retail Products

 The Customer may have more than one or two or three … banking products
(such as Car loan, personal loan, Credit Cards, Prepaid Cards). However this
is an issue that is reflected by internal bank’s policies such as:

1- The promptness is payment for 6 or 12 months ahead to new credit

application.
2- No bad records in credit cards.
3- The customer’s debt burden including the new loan / credit matches the debt
burden ratio as per bank’s policies.
4- Use the available data base regarding customer information / investigation to
analyze the credibility of the borrower.
5- Check the CBE consolidated investigation report as well as the credit bureau.
6- Make sure that customer is not in the negative list.
7- If the customer had previous defaults you may refer to collection & follow up
department to get feedback about the customer.

7-7 DD14-V.2
 Participant Guide

Exercise
Choose the right words:

1- To Cross Sell you need:

…………………

Training, time, space

2- Cross sell requires:

…………………..

Many customers, Product Mix

Task Steps

Step Action
No.
1. Divide into several groups. Each group is responsible for
simulating a customer- banker selling conversation that
involves a cross selling. One should act as customer, one as
banker & other part of the group to watch as judges and note
down their remarks.

2. Each group discusses among themselves and suggests how

and what improvement could be done to improve cross sell
quality.

Second -Retail Banking Products

The Retail Products & Services in Egypt

8-7 DD14-V.2
 Participant Guide

As Egypt is a potential untapped retail market, most banks are giving much focus on
:developing variety of retail services. Such products are classified as follows

A. Assets Products Such as “Cards, Personal Loans, Car loans, education loans,
House loans .etc.

B. Liability products Such as Current, saving, time deposits, Certificates of deposits,

saving plans .etc.

9-7 DD14-V.2
 Participant Guide

Liability products are such as:

1- Current / Checking Accounts.

2- Call Accounts.

3- Saving Account.

4- Time Deposits.

5- Certificates of Deposits.

6- Prepaid Cards.

7- Any saving / investment schemes.

1- Current / Checking Account

Identification: An account that customer deposit and withdraw without any restriction
(On Call account). Normally it is a non-interest bearing account; however tough
competition among banks forced some cases of banks that pay interest on the daily
balance. In many banks the cash deposits are credited to the account with next
working day’s value. The account may be allowed upon bank’s credit approval to
turn into Overdraft.
Eligibility: Any Person of 21 years & above (for minors, it should be under operation
of their guardians) or establishment that has proper legal status. Some banks put a
minimum balance to open the account or minimum balance to be maintained in the
account.

10-7 DD14-V.2
 Participant Guide

Required Documentation: The National ID Number or Firearm License (for

Egyptians), or Passport (for foreigners) for the account holder and for the authorized
signatory of the establishment in case of a corporate account. The company’s official
documentation such as Commercial Registry, Taxation Card, etc.
Current account customers may have check book & ATM Cards or web enabled
services to facilitate their operation.

2- Saving Account
Identification: An interest paid account whereby customer deposits and withdraws
without any restriction (On Call account). However the interest payment is reflected
by withdrawals.(It may be restricted for one or two withdrawal during the month to be
eligible for interest). Normally the interest is calculated on the minimum balance
during the month while some banks due to competition pay on the daily balances. In
many banks the cash deposits are credited to the account with next working day’s
value. Some banks put a minimum balance to open the account or minimum balance
to be maintained in the account.

Eligibility: Any Person of 21 years & above (for minors, it should be under operation
of their guardians).
Documentation: The National ID Number or Firearm License (for Egyptians), or
Passport (for foreigners) for the account holder.
No Check books are given. Some banks due old traditional banking still carries a
pass book for such account while it is on the way of a rapid disappearance.
The account would not be permitted an overdrawn transaction.
Interest Payment varies from bank to bank between a monthly, Quarterly or half
yearly payment (crediting interest to the A/C).

3- Time Deposit Account

Identification: An interest paid account that has starting a date (Value Date) and an
ending date (Maturity Date) customer would not withdraw before maturity date,
unless he borrows against the deposit (to certain limit may be up to 90% the deposit
amount or what ever rules followed by each bank) or breaks it (liquidate the deposit).
In case customer breaks the deposit there would be a penalty changing from bank to
bank.
The duration: Varies from an on call deposit, overnight, 2 days, one week, month,
one year..etc. Some banks put a minimum balance for certain types or durations.
Eligibility and documentations
It resembles the current account.

4- Deposits Certificate
Identification: Same as time deposit it is an interest paid deposit that has a starting
date (Value Date) and an ending date (Maturity Date), however normally for longer
period than time deposits (the market now varies between 3-5 years, while it could
be one year ,7 or 10 years ..etc). Customer would not withdraw before maturity date,
unless he borrows against the deposit (to certain limit may be up to 90% the deposit
amount or whatever rules followed by each bank) or breaks it (liquidate the deposit).
In case customer breaks the deposit there would be some restriction like no
withdrawal before first 6 months plus some penalty changing from bank to bank.

11-7 DD14-V.2
 Participant Guide

Normally the Certificate is of certain fixed amount and its multiples.

5- Joint Account
Any deposit account could be a joint account. Such account is to be operated by
any of the joint members / partners of the account. Withdrawal would be any of the
partners for any amount or joint signature for each withdrawal or certain amount for
certain partners.etc. It all depends on partner’s agreement.

6- Dormant Account
The account that is not operated for long time (one year or 6 months based on
operating rules) are flagged by the computer as dormant account which means
frozen from operation unless authorized by high authority in the bank as per bank’s
regulations. The idea is to protect customer’s interest from any forgery is the
customer is not operating his account for a long time.

7- Frozen / Blocked Account

The bank would freeze or block the customer account (not to be allowed withdrawal)
as would be the case or the reason. It could be blocked as security against finance
or credit granted to the customer by the bank against his deposits. Some other legal
issues could reason for such blocking.

The Assets Products such as

 Credit Cards.
 Charge Cards.
 Overdraft / Cash facility.
 Personal Loan.
 Student Loan.
 Auto Loan.
 Mortgage/Real-estate loan.
 Durable goods Facilities. …many other …
 Retail Loans would be classified as per purpose
 Loans for non-specific Purpose such as “Personal Loan”, overdraft.
 Loans for specific purpose (Education Loan, Car loan, House loan, Travel
loan…Etc….)

Retail Loans Details

All Loans have same features which are as follows:

 Loan Amount.
 Tenor.
 Interest Rate.
 Installment Amount.
 Installment Periods.
 Disbursement Date.
 Maturity Date.
 Installment Date.
 Eligible Customers.
 The Loan Purpose: to cover personal needs (short or negative cash flow)

12-7 DD14-V.2
 Participant Guide

The Personal Loan

Loan Amount

Based on capability/resources of monthly payment, Credit scoring, Bank’s Credit

Policies, a minimum & Maximum amount. There are 3 Maximums:
 Maximum Ceiling referred to customer's income & capability of repayment.
 Maximum Ceiling per one customer in a product.
 Maximum Ceiling for the product portfolio.

Tenor

A minimum duration of the loan is considered by the banks that a bank can accept
such as 6 months or one year for which the cost elements are the deciding factor.
Also there is maximum duration that responds to risk study of the product.

Pricing

 Competitive Interest Rate, Administration Fees, Late payment commission,

any other.

 Installment Amount: Monthly payment payable fixed or changing.

 Installment Periods: No of Years
 Disbursement Date.
 Maturity Date: Date of Loan Expiry
 Installment Date: Which date of the month?
 Eligibility: the customer that is eligible to get the loan such as following
examples:
o Age (may be not less than 21 and not older than 59).
o Work (may be required to be working in one the admitted companies by
o the bank).
o Experience in the present work/job ( may be asked not to be less than one
o year in present job)
o Other items such as Nationality and level of income etc..

13-7 DD14-V.2
 Participant Guide

Documentation

 The Documents required as per retail banking personal loan policy such as:

o Application form.
o Authorization to investigate customer’s status.
o Bank’s Charge Documents & Order Note if any.
o Personal ID.
o Recent Utility Bill (Electricity, Gas, Telephone)
o Source of income proof (Work letter)
o Guarantor if applicable Or Life insurance…etc

Auto Loans

The Main Features

 The Loan Purpose: to Buy a Car.

 Loan Amount: Based on value of the car & the capability/resources of monthly
payment, Credit scoring, Bank’s Credit Policies. A minimum & maximum
amount.
 Tenor: a minimum & maximum duration.
 Pricing: Competitive Interest Rate, Administration Fees, and Late payment
commission, any other.
 Installment Amount: Monthly payment payable fixed or changing.
 Installment Periods: No of Years.
 Disbursement Date.
 Maturity Date: Date of Loan Expiry.
 Installment Date: Which date of the month.

Eligibility

 The customer that is eligible to get the loan such as following examples:
 Age (may be not less than 21 and not older than 59).
 Work (may be required to be working in one the admitted companies by the
bank. Experience in the present work/job (may be asked to not less than one
year in present job) Other items such as Nationality and level of income etc..

14-7 DD14-V.2
 Participant Guide

Documentation

The Documents required as per retail banking personal loan policy such as:
 Application form.
 Authorization to investigate customer’s status.
 Bank’s Charge Documents & Order Note if any.
 The Car deed duly marked lien at the traffic police Department favoring
the bank.
 The Car selling documentation from an approved card dealer (admitted
by the bank).
 A car insurance policy favoring the bank.
 Personal ID.
 Recent Utility Bill (Electricity, Gas, Telephone)
 Source of income proof (Work letter)
 Guarantor if applicable.

Automation Benefits for Banks

 Due to nature Of Business & Because Of Many Clients Receive retail

Services From the Bank, Therefore Automation is useful Due to the Following
Reasons:-
o Create New Opportunities By Cross Selling For Other Products.
o Minimize Cost.
o Maintain Complete Data Base For Clients.
o Enable Call Center Providing Hash quality Of Services.
o Control Work low.

 Internet Payment Gateway service that provides merchants and their clients a
secure online payment process by accepting Master Card, Visa, JCB and
other major credit cards.

15-7 DD14-V.2
 Participant Guide

 Benefits
o Supports MasterCard Secure Code and Verified by Visa (VbV) Protocol.
o Guarantees payment for merchants.
o Allows card holders to shop online safely.
o Supports a wide variety of merchant channels:
o E-Commerce.
o MOTO (Mail Order/Telephone Order).
o Mobile commerce.
o Commercial payments (e.g. prepaid cards, settlement and reloading)

Third -Definition of electronic banking operations

Electronic Payment and Cards Services

What is a Plastic Card

 Payment cards can be tailored to match every customer's needs, whatever his
or her spending power or financial history. Broadly speaking, all cards
conform to one of two distinct programmers -debit or credit.
 The plastic cards are payment cards issued by banks that can be used as an
alternative to cash. Each card carries the name and account number of its
owner.

What are Cards Types (from payment & technical point of view)?

 Cards Types (as per payment types)

o Prepaid Cards.
o Debit Cards.
o Charge Cards.
o Credit Cards.

16-7 DD14-V.2
 Participant Guide

Pay Before Pay Now Pay Later

Prepaid products draw Debit products draw funds Credit products draw
funds from a pre-loaded from a regular Current / funds from a credit line.
card access account; Saving or checking account.
these account loads can
be funded from a variety of
sources.

 Cards Types (as per technical types)

o Magnetic Stripe Cards.
o Chip Cards (Smart Card).
o Magnetic Stripe & Chip Card.
o Virtual Cards.

17-7 DD14-V.2
 Participant Guide

ATM Card

 In today’s financial market, retailers that do not provide a cash-access point

for customers are working at a disadvantage. (Willoughby, Ohio-based WRG
Services Inc., ATM Marketplace).

 Around the world shop, dine, travel and manage their money, enabling
transactions that drive global commerce and improve peoples’ lives. Today,
payment cards offer more security, convenience, flexibility and control than
any other payment method.
 And as payment cards continue offering consumers and businesses more
choices and even greater benefits.

 Consumers can choose from three basic types of payment cards – with many
consumers choosing to use all three:

1- Credit cards: enable consumers to make purchases and pay for them at a later
date by accessing a line of credit. Credit cards are alternatives to cash or checks and
often used for routine purchases at the point of sale (POS), on the Internet, or via
telephone or mail order.
They can be particularly useful for large or unexpected expenses.

2- Debit cards: enable consumers to make purchases and pay for them immediately
by accessing the funds in their bank accounts, also called demand deposit accounts
(DDAs). Debit cards can be used to make purchases at POS, on the Internet, or via
telephone or mail order, or they can be used to withdraw cash at automated teller
machines (ATMs). Many consumers use debit as an alternative to cash or checks for
their everyday purchases. Prepaid cards, also called stored-value cards, can be
“loaded” with a specific dollar amount and used to make purchases up to the amount
“stored” on the card.

18-7 DD14-V.2
 Participant Guide

 Some can even be used to pay bills or withdraw cash at ATMs. The growing
variety of prepaid options includes:

1- Store-specific gift cards

2- Gift cards branded like credit and debit cards and usable wherever such cards are
accepted.
3- Payroll cards, with which some employers pay “unbanked” employees (those who
do not have a traditional bank account with a financial institution).
4- Electronic benefits transfer (EBT) cards that provide access to food Stamps and
similar programs.
5- Flexible spending account (FSA) cards that give employees easier access to
funds for medical bills, mass transit and other FSA-eligible purchases.

Convenience
Consumers can use payment cards to access their bank accounts or credit lines any
time of the day or night, from just about anywhere in the world.
Payment cards are the fastest, simplest and safest way to make purchases, whether
at the point of sale, on the Internet, or by mail or telephone. Automatic bill payments
save time and hassle by replacing checks for utilities, fitness clubs, subscriptions
and others.

Flexibility
The broad variety of cards available today means consumers have greater
choice over how and when they pay for goods and services. Payment cards are
accepted nearly everywhere in the world, providing consumers with secure and
convenient access to their funds and their credit lines whenever and wherever they
choose.

Control
Payment cards make it easy to track and manage expenses by offering instant
online access to information about recent transactions, as well as de tailed monthly
statements. Many cards also provide consumers with annual statements that
categorize all the previous year’s expenses. By offering access to a line of credit,
credit cards make it possible for consumers to meet emergency or other
extraordinary expenses and to pay for them on a timetable that suits their needs and
budgets. Credit cards also help consumers build and maintain a credit record that
can help them get jobs, rent homes, or qualify for mortgages or vehicle loans.

19-7 DD14-V.2
 Participant Guide

Security
Payment cards are safer than carrying cash or using checks. If a credit or debit card
is lost or stolen, it can be replaced quickly and easily, and federal law limits
consumers’ liability for the fraudulent use of their cards to $50 in most cases. In
addition, the MasterCard Zero Liability policy protects cardholders – credit, debit and
prepaid – from any liability for fraudulent charges made with their MasterCard
payment cards. An increasing number of prepaid cards can be registered so that
they, too, can be replaced if lost or stolen, a particular advantage for consumers
traveling abroad. Moreover, payment card issuers continually invest in state-of-the-
art security technology that can detect and prevent many fraudulent transactions
before they occur.
Using credit, debit or prepaid cards to pay bills – either with automatic bill payment or
individual online payments– reduces the likelihood of criminals intercepting mailed
statements or payments. Payroll cards eliminate the risk that unbanked employees
will be robbed after cashing their payroll checks.
Rewards many credit and debit cards offer incentive programs that enable
cardholders to earn cash back, airline tickets and other rewards.

What is an ATM

When Visa and MasterCard lifted their surcharge bans in 1996, the door opened for
independent sales organizations and retailers to add ATMs in the off-premises
space. But not every location is a financial drop in the bucket, which is why retailers
must carefully consider their ATM placements. Regulatory changes also are making
retail ATMs more cumbersome to deploy; however, with the right partnerships and
information, exceptional opportunities exists ATM placements, like the ATM industry
as a whole, have evolved over the past 10 years. In the United States in 2005, 68
percent of the country’s nearly 400,000 ATMs were in retail or off-premises locations,
according to the American Bankers Association. And some industry insiders expect
that number to increase as new sites for ATMs crop up over the next five years.

20-7 DD14-V.2
 Participant Guide

 With 10.5 billion ATM transactions conducted in the United States in 2005,
according to ABA, opportunity exists for retailers, ISOs and FIs to have pieces
of the ATM-revenue pie. But how profitable a retail ATM is depends on its
business model and location. It’s no secret that a customer will spend
between 20 percent and 25 percent more in a retail location when she uses a
location’s ATM. But if a location doesn’t generate the right amount of foot
traffic or facilitate a need for cash, the ATM may not be as profitable.

 “ATMs are where people are,” Stevenson said. “A lot of times they’re in the
right types of locations, and those certainly drive transactions; but in the
overall sense, it’s the number of people that walk by and need cash that
drives transactions. Retail ATMs are selling convenience.”

 According to ABA, more than half of all adults use ATMs regularly, with 40
percent of them visiting ATMs at least 10 times a month. That can equate to a
lot of foot traffic and revenue for retailers and ISOs that make good ATM-
placement decisions.
 “But most important, is the citation provided by independent sources.(i.e.
convenience stores) that claim increased average purchases in stores by
ATM users, and increased overall sales attributable to the ATM service,” he
said.

 For retailers, revenue opportunities also exist from interchange rates,

surcharge fees and branding deals.
 Dennis Baker is the owner of Ohio-based Supreme ATM, a WRG distributor.
His company has a portfolio of nearly 200 ATMs; about 148 of those
machines are located in Giant Eagle grocery and Get Go convenience stores
in Greater Pittsburgh.

 “They quickly realized the profitability of the program,” Baker said. “Because
they owned the ATM, they collected 100 percent of the surcharge, plus a
portion of the interchange fee. We had two ATMs that paid for themselves in a
two- to three-month period.”

21-7 DD14-V.2
 Participant Guide

 Interchange can play a critical role in an ATM deployment because it’s often
used to help ISOs cover fees associated with regulatory compliance. For the
retailer, building in additional profit-making opportunities is the name of the
game. To that end, many are leaning on advanced self-service functions.

 Since 1996, the number of ATMs in remote, off-premises locations has

skyrocketed,
From 51,597 ATMs to 266,000 ATMs in 2005,
(“According to the American Bankers Association)
 According to ABA, there were 10.5 billion U.S.-based transactions in 2005, a
5 percent decrease from the 11 billion ATM transactions conducted in 2004,
and a 30 percent decrease from the 13.6 billion transactions conducted in
2001.

 One way retailers have sought to combat the decline is through the
implementation of advanced- function.

ATM stand for “Automatic Teller Machine” that allows the card holder (the bank
customer) to operate his account without the need to visit the bank counter.

It is a debit card that is offers availability to customer’s account 24/7 on an on-line

connectivity that allows him to some functionality such as:

 Fast Cash (certain amounts pre-set to quickly withdraw).

 Cash withdrawal that is a selected amount of cash required by the customer.
 However such amount is based on the account balance with a minimum and a
maximum amount according each bank’s policy and machine capacity (The
cassette size).
 Balance inquiry: to get the recent account balances.
 Statement Account: Mini statement or request for full statement..
 Cash Deposit.
 Check Deposit.
 Pin Change.
 Account to account transfer.
 Check book request.
 Many other transactions would be added

 The Bank’s Local National Switch (ABC Company) that connects all banks’
ATMs to each other. Such connected machine and Cards would have to carry
the logo “123”, However when using such service of 123 a fees between 3-5
LE is charged.

22-7 DD14-V.2
 Participant Guide

What is a POS?

It is the machine that is maintained by a merchant to allow customers to use their

plastic cards within that machine to effect purchases. Such machine (POS) is given
by the banks (Acquiring banks) to the merchant and connected through a normal
telephone line (land line or Mobile line). The old style Zip Zap is on the going phase
to be replaced by the electronic POS’s.

What is a Visa Electron or MasterCard Electronics?

 It is a card that carries both ATM functionality as well as purchasing

functionality like other cards.
 It’s a debit Card that hits the bank account for every transaction based on the
availability of funds.
 The card is pin based card with a signature panel.

What is a Credit Card?

 Credit cards operate somewhat like a portable loan system. When you are
issued a credit card, your bank assigns you a credit limit, or a maximum value
that you can spend with your card. Credit limits are determined by a credit
scoring system that takes into account facts such as your age, banking
history, annual income and spending history.

 Once you have a credit card, you can simply present it at stores and to
service providers to make purchases with your card instead of cash. Your
purchases are recorded and-immediately paid by your bank. At the end of
each month, the bank sends you a statement listing your purchases. You then
have a set amount of time (usually between 45 and 55 days) within which you
can pay back the bank.
 If you pay back the full amount claimed in your statement within this period,
you pay no interest. If, on the other hand, you pay only a portion of the
statement (a minimum of 5-10% depending on the bank), then you must pay
interest on the remaining balance (just as you would for a loan).

23-7 DD14-V.2
 Participant Guide

Why do Banks issue Credit Cards?

1. Standardized application procedures for loans Electronic processing.

2. Minimize Risk and Financial Losses.
3. Enables staff to focus on service and sales.
4. Customer retention/Competitive threats.
5. Opens up other target markets.
6. Have much Profit –fees, interest, foreign exchange etc.
7. Lower cash holdings.
8. Account Management.
9. Enabling Re-occurrence of Payment.

What is a Debit Cards

 The debit card is the most widely issued payment card around the
world. A quarter of the world's adult population use debit cards,
bringing convenience, security and peace of mind to their users.
 Debit cards, like credit cards, are plastic cards bearing their owner's
name and bank account number, and are used to make cashless
payments.
 The difference between the two, however, can be found in the name:
while "credit" means to loan, "debit" means to deduct. Basically, credit
cards allow you to pay later, while with debit cards you pay now.
 Debit cards are linked directly to a user's bank account and it is directly
debits the linked accounts to the card (in which the cost of a purchase
is deducted from the bank account immediately).
 The debit card is a payment card for everyone -it can be safely offered
to anyone of legal age, regardless of his or her banking history or credit
status. Students, lower income groups and people without regular
monthly incomes can all enjoy the benefits that come with debit.

24-7 DD14-V.2
 Participant Guide

What are Charge Cards?

 It is a deferred payment card and known as charge card. When the total spent
in a given period is reflected on a claimed statement sent to the applicant /
client asking for payment within a given time limit normally a month or less
from the claimed statement date.
 American Express Charge Card is one of the most famous charge cards
worlds wide.

What is a smart card?

 It is a plastic card containing a microchip like a computer the chip contains

files and store data as well as perform processing functions.
 The chips are more secured than the magnetic stripe even if it is used Offline.
 Additionally it supports add-on services.
 Security features and Memory capacity would lead smart cards to play vital
role in future.

Chip Cards Benefits

A. Greatly Increased Information Capacity

 Chip technology allows payment and non-payment applications to be

combined on a single card, so providing cardholders with added convenience.
This means that, in addition to storing your name and account number, cards
can carry additional information including identification, loyalty programmers
such as user points, frequent flyer miles, cardholder insurance information.

B. Safety

 Smart cards contain enhanced security features such as data encryption to

prevent unauthorized use. As such, they are less vulnerable to fraud or
counterfeit, they are also protected via a personal identity number (PIN)
known only by the cardholder.

C. Speed

 Due to these inbuilt security features, many transactions can be authorized

offline without the need to call the bank -meaning faster transactions and
better customer service for you.

 The migration to smart cards is a gradual process, and until such time when
all payment cards worldwide have been converted to chip and Points of Sale
(POS) are chip-enabled, the original magnetic stripe will continue to feature
on the back of your card in addition to the chip added on the front.

25-7 DD14-V.2
 Participant Guide

 While there is no doubt that magnetic stripe technology has brought the
convenience of electronic payment to consumers all over the world, chip
technology will bring many more exciting opportunities to consumers

What is the Prepaid Card?

 It's a card that adds Value to money

 It fits a wide Range Of Occasions.
 It is Easy & Convenient to use.
 It is Acceptable with Most of the Merchants.
 Payments are Limited to Card Balance.

1. Gift Card

 It's cash wrapped in a thoughtful card.

 It comes in a variety of designs and patterns to suit all occasions.
 It's just perfect for all your gift-giving occasions, all year round.

2. Teen Card

 Manages your day-to-day budget conveniently.

 Makes it easier to plan and budget, Safer than cash.
 Maximizes security, since the cash withdrawal option is activated only upon
request.

3. Household Card

 Ideal to keep your household spending separate from 'our personal finances.
 Safe and convenient to use.

4. Virtual Internet Card

 Maximize your security and privacy by separating your virtual spending from
your other spending.
 Shop with confidence at any Website that displays the Visa logo.

5. Travel Card

 Manages your travel spending safely and conveniently.

 Keeps your holiday spending separate from your other finances.

26-7 DD14-V.2
 Participant Guide

Who is involved in The Cards Process?

1. The consumer-which is the cardholder -who wishes to buy something with

his/her payment card.
2. The consumer's bank is The Issuing Bank -which issued the payment card to
the consumer.
3. The merchant-which is the store or service company that accepts card
payments.
4. The merchant's bank is The Acquirer Bank -which provides the retail
acceptance tools to merchants and holds the merchant's bank account.
5. The Portal Organization such as Visa, MasterCard, Euro Card or Diners …

The Supplementary Cards

 It is a card that is issued upon request of the card holder to issue other card
(supplementary) that is a supplement of such original card.
 Therefore the supplementary card is issued on the bases and credibility and
responsibility of the original card holder.
 The uses of such card is for a wife or husband, son or daughter, brother or
sister..etc.
 The supplementary card carries same limit of the main card or sub-limit as
part of the original limit.
 The full legal & credit responsibility of the supplementary card is on the main
card holder.

Establish a Consumer Credit strategy within the Bank credit cards strategy

 Credit Card are key to developing Retail Consumer Credit Portfolio

 Use of existing Card infrastructure is vital to long term 'mass market' growth.
 Minimizes cash and checks handling costs.
 Introduces new revenue stream to banks.
 Control Risk.
 Spending linked to account balance.
 Liberate the cardholder from cash phobia.
 Increases bank's clients.
 Elevate Customer Satisfaction and loyalty.

27-7 DD14-V.2
 Participant Guide

Exercise
Choose the right words:
1- The Charge Card is …………. (Pre-Paid, Pay Now, Pay later) Card.
2- The higher commission & fees among retail products is ………….…..
(Personal Loan, Credit Cards, Per-paid Card).
The card that has the pin number stored on it is ………………. (Chip Card,
Magnetic Strip)

Tasks
Task Steps

Task Action
#
1. Dividing into groups try to think of a personal loan in your bank,
write down suggestion of improvement in criteria main features &
documentation.

2. Each group to present his finding and discuss it with all presences
at the class

28-7 DD14-V.2
 Participant Guide

Interest Calculation Methodology

A. The interest either fixed or changing as per the economic market forces.
The Calculation Formula is as follows:

Total of daily closing balances of all number of days of the month X interest rate /
36500 (or 36000 depending on the bank's policy).

29-7 DD14-V.2
 Participant Guide

Example
A loan amount for 10000, with monthly installment of 300 due on 25 of the month at
rate of 20% This means that the amount of 10,000 remained till 24 and the reduced
to 9,700 on 25 of the month in the month of April (as per assumption).

((10,000 X 24) + (9,700 X 6)) X 20

= 163.40
365 X 100

Installment types

A. The most common Installment type are either fixed installment or changing
installment based on reducing scale according to monthly, quarterly or yearly
payment.

B. The type of facility reflects on installment such the revolving credit.(will be

explained)

C. Are there Balloon payment installment?

D. Is it Reducing.. Floating..

E. Are there "Grace Periods"..

30-7 DD14-V.2
 Participant Guide

Sample of loan Installment Schedule Fixed Installment

Loan Amount Interest @ Tenor  

10,000 12% 12 833.33 888.5
Loan
Month Balance @ Interest Principle Installment
1 10,000 12% 100.00 788.50 888.50
2 9,212 12% 92.12 796.39 888.50
3 8,415 12% 84.15 804.35 888.50
4 7,611 12% 76.11 812.39 888.50
5 6,798 12% 67.98 820.52 888.50
6 5,978 12% 59.78 828.72 888.50
7 5,149 12% 51.49 837.01 888.50
8 4,312 12% 43.12 845.38 888.50
9 3,467 12% 34.67 853.83 888.50
10 2,613 12% 26.13 862.37 888.50
11 1,751 12% 17.51 870.99 888.50
12 880 12% 8.80 879.70 888.50
6.6% 662 10,000 10,662

31-7 DD14-V.2
 Participant Guide

Sample of loan Installment Schedule Reducing Installment

Loan Amount Interest @ Tenor  

10,000 12% 12 833.33 888.5

Loan
Month Balance @ Interest Principle Installment

1 10,000 12% 100.00 833.33 933.33

2 9,167 12% 91.67 833.33 925.00

3 8,333 12% 83.33 833.33 916.67

4 7,500 12% 75.00 833.33 908.33

5 6,667 12% 66.67 833.33 900.00

6 5,833 12% 58.33 833.33 891.67

7 5,000 12% 50.00 833.33 883.33

8 4,167 12% 41.67 833.33 875.00

9 3,333 12% 33.33 833.33 866.67

10 2,500 12% 25.00 833.33 858.33

11 1,667 12% 16.67 833.33 850.00

12 833 12% 8.33 833.33 841.67

6.5% 650 10,000 10,650

32-7 DD14-V.2
 Participant Guide

Exercise
Instructions:

A Customer has credit card limit of LE 50.000.00. He purchased throughout the

month goods for LE 15.000.00. He paid LE 5.000.00 on 10 th of next month (the
month that He received the statement showing his purchases).The bank has a grace
period up to 25 of the month.
The interest rate is 20%.

Please calculate the interest that has to be paid during that month by the customer.

33-7 DD14-V.2
 Participant Guide

Risk Assessment & Credit Scoring

 Credit Scoring

 Different Credit Scoring Modules will consider major applicants' information

which to be categorized under the following characteristics:

1. Financial Characteristics.
2. Employment Characteristics.
3. Personal Characteristics.

 Characteristics for Assessing Personal Credit Risks

 Personal Characteristics

1. age
2. marital status
3. sex

 Financial situation

1. Gross income
2. Regular commitments as a % of net income
3. Salary or installment transfer to the bank?
4. Balance on bank account when applying for retail-loan.

 Occupation status
o Job status -time in current job -time in previous job -pension status of job.

 Residence status
o Type of residence (house, flat, etc).
o Residence status (owner, tenant, etc).
o Time in current residence.
o Time in previous residence.

34-7 DD14-V2
 Participant Guide

Credit Limit Strategy

 Scoring system automatically assigns initial credit limits during the

scoring process.
 The credit limit that is applied to each applicant is determined by the
level of their credit score OR Based on The Credit Policy Terms &
Conditions.

Behavioral Scoring

 Behavioral scoring uses a customer's usage and payment history (usually the
previous three or four months) within the organization, without the need for
outside information from credit bureau.
 Its purpose is to predict if and when a customer is likely to go" bad" (to default
on repayment or to write off an outstanding balance).
 Behavioral scoring will most likely have an effect on an bank's bad debt rate.

Credit Scoring Importance

 Proper use of risk management tools allow the lenders to plan for
economic cycle activity and to mitigate risk associated with new credit
users.
 Consequently, financial institutions need to find a way to balance
portfolio growth and risk management on a day-to-day basis.

 The trend continues for enhanced data sharing. Improved data

scenarios offer the opportunity for banks to graduate the risk
management concept from demographic information-based
underwriting to a concept based on bureau scores.
 The first step in this direction is to build judgmental models that make
use of the positive and negative data available.

 The reporting and sharing of positive data appears to help financial

institutions allocate credit in a more equal and open fashion, and is
being actively encouraged by a variety of governments and by
organizations such as the World Bank.

35-7 DD14-V2
 Participant Guide

Examples for uses of "Credit Scoring"

 Deciding to whom credit should be granted.

 Cutting the cost of credit checks whilst maintaining desired credit quality.
 Controlling the profitability of loan portfolio before and after bad debts.
 Relating loan prices to risk.
 Measuring the effect of different advertising schemes on loan applicant
quality.
 Determining optimum credit limits Training credit officers.

36-7 DD14-V2
 Participant Guide

How Credit Score works?

Age   21-25 26-29 30-40 41-49 50-55 56-60 60 +  

10 1 3 10 8 7 6 3
Salary/ from from 2-
from 4- from 6- from from 21- from 36-
Income 1-2 3 5 10 11-20 35 75 from 76 +
(In 000) 60 5 15 40 50 60 45 30 5
from from 2-
from 4- from 6- from from 16- from 21-
Experience 1-2 3 5 10 11-15 20 30 30+
25 2 5 10 15 20 25 20 10
Grade Grade Grade Grade
Employer 1 2 3 Grade 4 5 Grade 6 Grade 7
10 10 8 6 4 3 2 1
S. Supervis Dept. G.
Job Helper Clerk Clerk or Head Manager Manager Chairman
15 1 3 5 10 14 15 10 5
Mediu
Education Low m High S. High
5 1 2 4 5
Res.
Address Area 1 Area 2 Area 3 Area 4 Area 5 Area 6 Area 7 Area 8
8 1 2 3 4 5 6 7 8
Twin-
Res. Type Other Apprt. house Villa
10 2 6 8 10
Res. New Old
Status Other Rent Rent Owner
40 5 10 20 40
Salary Full
Transfer Sal. Instl. No Trs.
10 10 5 Nil
Utility
Consumpti fr 31- fr 81- fr 151- fr 251-
on To 30 80 150 250 500 500+
30 2 10 20 22 25 30
Debt
Burden Nil 10 % 11-15% 16-25% 26-34% 35-44% 45-55% 56% +
40 40 35 30 25 20 15 5 Nil
Depositor Yes No
20 20 0
Guarantor Yes No
  25 25 0

37-7 DD14-V2
 Participant Guide

Granting Limits based on Evaluation Percentage

The Evaluation The Allowed The Evaluation The Allowed

Percentage Credit Limit in Percentage Credit Limit in
Thousands Thousands

Below 20 55% 100 - 150 75% - 80%

From 20 to 30 60% - 65% 150 - 200 80% - 85%

Above 30 – 50 Above 65% - 70% 200 - 250 Above 85% - 90%

Above 50 – 100 Above 70% - 75% 250 - 300 Above 90% - 95%

300 - 350 Above 95%

38-7 DD14-V2
 Participant Guide

The success of credit scoring can be attributed to five key factors

1. Unbiased assessment
Scoring remove the subjectivity traditionally associated with credit decisions.

2. Consistency
Scoring allow organizations to standardize all credit decisions.

3. Capacity for automation

As scorecards involve the simple addition of points they can be easily implemented
on to computers.

4. Management control
As scorecards are consistent, organizations c closely control and monitor the effect
of policy decision.

5. Increased profitability
Efficient use of resources leads to increases in sales and interest payments through
targeted actions.

Necessary Information for HR Letter

In Case of Applicant requests an Unsecured Loan / Credit Card the hereunder

Information is necessary to be obtained in the HR Letter issued by his Employer:

1. HR Letter to be addressed to the Bank.

2. Dated.
3. Complete Applicant Name.
4. Hiring Date, (not less than the provided by policy).
5. Contract Type.
6. Applicant Job.
7. Detailed Monthly Salary / Income.
8. Details of Bonuses, Profit Sharing and Incentives – If any.
9. Signore Name & Title.
10. Company Stamp.

39-7 DD14-V2
 Participant Guide

Credit Limit Calculation for Unsecured Loans / Credit Cards

 Income Type.
 Income value.
 Minimum Loan Amount.
 Maximum Loan Amount per Customer.
 Maximum Credit Limit based on Credit Policy.
 Maximum Loans portfolio per product.

Credit Limit Calculation for Secured Loans / Credit Cards

 Collateral Type (T/D, Saving, Eurobonds…etc).

 Collateral Value.
 Collateral Currency.
 Lending ratio based on the Bank Lending Policy.
 Minimum Loan Amount.
 Maximum Loan Amount.

40-7 DD14-V2
 Participant Guide

Debt Burden Calculation

Monthly Debt Burden for Client to be calculated as follow:

 Other Credit Cards

Bank Limit Min. Pay. Monthly Payment

A 10.000 LE 10 % 1.000 LE
B 7.000 LE 5% 350 LE

 Other Loans

Bank Loan Amount Type Monthly Payment

C 75.000 LE Car Loan 650 LE
D 7.000 LE Personal Loan 550 LE

 Net Monthly Income

Net 5.000 LE (After all deductions).

Total Monthly Liabilities

LE 1000 for Bank A

+ LE 350 for Bank B
+ LE 650 for Bank C
+ LE 550 for Bank D
------------------------------
= LE 2550 Monthly

41-7 DD14-V2
 Participant Guide

Debt Burden

Total Monthly Liabilities ÷ Net Monthly Income = LE 2550 ÷ LE 5000 = 51%

Top up Existing loan / Credit

 The Customer may request to raise his credit limit or the loan amount
provided that he qualifies of the following:

o He is prompt in his payments.

o His source of income matches the increased limit required.
o His debt burden after the increase matches the bank’s policies.
o He qualifies with the granting criteria within the new required amount including
the maximum ceiling of the product, maximum per customer, maximum
related to his securities or source of income…etc.

 Some of the reasons customers' application to issue credit card is rejected,

While receiving credit investigation (CBE or Credit Bureau) some reasons
cause rejection of the credit:

o Having marginalized income.

o Having legal process /cases.
o Having settlement with banks.
o Negative list.
o Protesto.
o Bankruptcy.

42-7 DD14-V2
 Participant Guide

Statistical Reports

Card Type Contribution to

Uns ecured - A, 8 5%
Total Non-Performing Balances

Unsecured - C
Unsecured - B
12 % 3%

Branches Contribution to Total Non performing Issued

Cards

Branch 1; 105 ; 10%

Branch 2; 76 ; 7%
Branch 3; 123 ; 11%

Branch 4; 68 ; 6%
Branch 5; 91 ; 8%

Others; 640 ; 58%

43-7 DD14-V2
 Participant Guide

Percentage of Non-Performing Cards to Total Issued Credit Cards Per Branch (By ORR)

20%

16%

12%
12% 11%
10%
Percentage

9% 9%
9%
8% 7% 7%
7%

5%
4% 4%
4%
4% 3% 3% 3%
2% 3% 2%
2% 2%
1% 1%

0%
Branch 1 Branch 2 Branch 3 Branch 4 Branch 5 O thers
Branch
ORR 8 ORR 9 ORR 10 Total
Closed To Issued Credit Cards

1200

1051
1000

800 787
699
675
631
600 593
535
485 496
424 429
400 386

200

99 87 77 88 95
65 63 57 74 59 74
39
0
Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06
Mo nths
Issued Credit Cards Closed Credit Cards

44-7 DD14-V2
 Participant Guide

Exercise: Debt Burden Calculation

Instructions:

A customer works as an accountant at ABC Company with a monthly salary of

15000.00. He has a personal loan for 50.000.00 (paying monthly fixed installment of
1000.00). He has applied for auto loan in the amount of 40.000.00 whereby he
would pay monthly installments of 700.00.

What is his debt burden before and after the personal loan?

DBR (before)………………………..,

DBR (after)..…………………………

45-7 DD14-V2
 Participant Guide

Collections Policy

The collections policy is one of the most important policies, to ensure the hard
earned profit from Consumer Credit Portfolio is realized.

Three types of Collections policy

 Conservative: low risk customers where there is a very good track record of
timely repayments.
 Average: the customer is unable to pay regularly.
 Aggressive: high risk customers who have a history of bad debts and regularly
default on payment.

Delinquency Accounts

 The effective follow up & Quality performance of the Retail collection &
Recovery department is a true indicator for a successful Retail Credit
Operations.

 The uncollected amount out the retail credit portfolio could turn into bad debts
that reflect negatively on the profit & loss statement.

 The credit account could turn to be Delinquent Account in case of defaults in

payment of the monthly installment or minimum payment of credit cards within
the stated payment frame of the credit (on certain date or before end of the
month.).

46-7 DD14-V2
 Participant Guide

 The best way to identify the account status of being prompt in payment or not
prompt by defaulting in payment of installment or minimum balance required
to be paid. The following are the categories:

The Good Account

 "The Good Account is that account that has not defaulted in payment
throughout the loan / credit period."

Or

 "The account that has defaulted in payment for one or two times throughout
the loan / credit period ". Such Account is the banks’ targeted account and
likes to maintain and continue relationship.

The Bad Account

 The bad account is the account that has defaulted in payment of the
installment of the loan or minimum of credit card debt balance for 3
consecutive months throughout the loan / credit period...

 The bad account is either a reflection of incapability of loan / credit repayment

or undesired to repay back bank’s funds. In both cases wither customer in
unable to pay or able but does not want to pay the treat them as bad account.

 The bank would not be interested to deal again with such customers in future.
However such accounts are loss making to the bank as interest is taken into
Profit but in marginalized account. Also the bank is threatened by possibilities
of bad debt loss. Moreover the cost of follow-up and legal process if any
would be added to the losses.

47-7 DD14-V2
 Participant Guide

Delinquencies Reasons

There are many reasons for defaults of payment turning to be a bad debt such as:

1. Loss of monthly income (loss of a job)

2. A loss of source of income from a husband of parent.
3. A high debt burden allowed by banks and financial institutions.
4. Travelling outside the country without making necessary arrangements of
repayment in his absence.
5. An objection on correctness of the debt balance specially cases of credit
cards.

48-7 DD14-V2
 Participant Guide

Exercise: Collection & Recovery

Instructions:
Fill in the missing words.

Choose the right words:

1- The ……….. account is the account that has defaulted in payment of the
installment of the loan or minimum of credit card debt balance For 3 consecutive
months throughout the loan / credit period.

2- The ……….. account is that account that has not defaulted in payment
throughout the loan / credit period.

49-7 DD14-V2
 Participant Guide

Summary
We have been able to:

 Define retail banking and its products.

 Explain the concept of electronic banking operations.
 List new retail products and services.

50-7 DD14-V2