Fintech in Egypt
Fintech is now strongly emerging in Egypt as it is a potential country, that offers lots of opportunities to open the path to financial tech, nationally and across Africa.
With a number of 95 million people, Egypt ranks as the country with the highest population in the Middle East and North Africa. However, only 52% are aged about 25, and only 14% of the total number of adults in the country has a bank account, according to the World Bank Global Findex.
Egyptians stay away from the formal sector generally because of the lack of trust in banks, but also because of the lack of education, the hectic procedures to set up and keep an account and the complex taxation system.
On the other hand, there is a high rate of people who own a smartphone. Ironically, in comparison of the large pool of unbanked people, there is a large mobile penetration.
All in all, this landscape represents an opportunity for fintech companies to provide convenient, cheaper and digital financial and banking service.
The fact is that Egypt isn’t a digitize economy at the moment, and Fintech is not just about e-wallets, is about the actual process and the benefits that digitizing an economy brings to the country. So let’s walk through the current landscape and the potential benefits of introducing Fintech in Egypt.
Current top challenges for Fintech in Egypt
Creating a partnership with banks.
Fintech startups main challenge is to be able to develop partnerships with bank entities.
While these startups aim to keep their identity and autonomy when reaching out to banks, these still remain careful about committing to a partnership with this ‘new’ group of innovators.
Reaching the unbanked sector in Egypt.
According to Disrupt Africa report, over 200 Fintech innovators are currently operating across the continent. On the other hand, Fintech startups need to still escalate in order to provide affordable services to low-income groups.
At the current stage, compared to banks’ credibility and infrastructure, Fintech innovators lack the resources and background banks can provide to potential customers.
Transforming into an actual digital economy.
As mentioned earlier, technology is developing faster than we can adapt to. In this case, Egypt’s economy currently remains undigitized. Therefore, customer service and banking are, of course, still done in the traditional way.
There is a big step still to change Egypt’s economy to a digital one, and this situation leaves Fintech startups far behind. Helping Egypt’s society to learn about and adapt to a digitized economy will require time.
Funding.
Good news is that investors have turned their eye into Africa’s Fintech potential: according to Disrupt Africa’s African Tech Startups Funding Report, African fintech attracted an investment of $31.4 million in 2016.
On the other hand, global investors lack in-depth knowledge of the local markets. This linked to the current lack of capital leaves local startups and innovators short to be able to convince sponsors on funding their projects.
Current challenges in Egypt’s economy
What are the exact challenges that Egypt is facing now to fully integrate Fintech in its economy?
“It is an ancient world playing catch-up with the modern world. It is a third world economy seeking to establish itself as an African powerhouse and a power player in the global economy.” Albawaba Business.
During the past seven years, Egypt has undergone through a major political reform, from parliament and the dissolution of the Muslim Brotherhood to the rise of President Abdel Fattah Al-Sisi.
Egypt is currently ranked number 12 on the list of Middle Eastern countries that are actively seeking overseas business collaborations. Being the top three first countries UAE, Qatar and Israel. Meanwhile, Egypt is also strengthening business ties within the Middle East.
All in all, the Egyptian economy is broadly growing, though it is still on its early stages, and is currently holding an inflation rate of 26%, in comparison with western countries which despite being further developed, have an average of 2% inflation rate.
So, despite this fast growth, the main reason why Fintech is slowly being implemented, regardless of all the benefits it could bring to the country’s economy, is mainly because of the strict bank regulations.
Also, culture-wise, and mainly because of fear of big debts and as the figures show, people like to keep their money handy rather than in the bank as a result of lack of trust in banks.
Banks & Microfinance in Egypt
There are 40 different banks with over 4,000 branches operating in Egypt categorized as commercial, non-commercial, private and public sector. According to the law in Egypt, domestic banks are obliged to have a minimum of EGP 500 million as capital while foreign banks have to have $50 million.
The three public banks are the national bank of Egypt, the Bank Misr & the Bank Du Caire which all have over 40% of the market share.
Currently, many companies rely on services like ‘pay cash on delivery’. So startups with the initiative to introduce fintech in Egypt will encounter the struggle of collecting or transferring payments online. Even more, setting up an account for these startups may come in as an issue, as they dispose of a low budget when they are in their early stage.
The Egyptian law doesn’t allow the establishment of non-bank microfinance companies. These are only allowed to act as an agent that facilitates payments between banks and individuals.
NGOs have the highest market share in Egypt’s microfinance sphere with over 80% market share. The remaining 20% left are from banks.
Three NGOs operating in Egypt within the microfinance industry are Dakahlya Businessmen Association for Community Development, ASBA and Alexandria Business Association.
Other NGOs operating in the country within the funding industry are World Bank in Egypt, Mansour Foundation for Development and Life Foundation.
Fintech Landscape in Egypt
At the moment, according to the INVYO report, there are about 40 players in Egypt’s Fintech sector. The Egyptian Fintech history started 10 years ago with the inception of Fawry in 2007. Today, the country accounts roughly 9 million mobile money accounts.
Any national banking activities within Egypt require prior authorization from the Central Bank of Egypt, and when it comes to non-banking financial businesses like a fintech startup for cashless services is a slow, tough process.
“The Egyptian government and Central Bank (…) are supporting fintech startups to help make that move. Their efforts have even included running national TV commercials to encourage the use of mobile wallets.” Menabytes.
It was very recently, in 2016, when the Central Bank provided new regulations for payments completed through a smartphone to allow users to transfer money and pay bills online. Then in 2017, a National Payment Council was founded to encourage this initiative and to increase cashless services within the country.
Egypt also has now fintech accelerators: the American University of Cairo’s fintech venture lab.
Startupbootcamp and Pride Capital are bringing together the FinTech Cairo program, an accelerator aimed to support early-stage FinTech startups in Egypt. The program is currently running since January 15 and will last for 6 months.
Currently, the key players that make the majority of the fintech startups are creating smartphone’s e-wallets, widely adopted by banks and telecom services, that are mainly facilitating the user (consumers) to move their money around for different purposes: paying bills, making transfers, online shopping payments and cloud-based payroll services.
Here are some of the fintech startups that are providing these mobile-wallet services and that are currently available to use in Egypt: 7aweshly, Fawry, T-Pay, DCBEgypt, Dopay, Pay Me, Edfa3ly.com, Money Fellows, Valu, Paymob.
However, there are for sure many more possibilities and ideas where fintech can assist to upgrade Egypt’s economy. There is still to see how or when will blockchain and bitcoin be introduced and applied in Egypt, as it is still forbidden at the moment.
Also, the Retail Investment sector, Artificial Intelligence-driven fintech, digital banking, Real Estate Investment and Accounting.
So far these industries, despite being major global markets and key players for strong, modern economic growth, are far from being implemented in the country. For one reason or another, either for legal regulations or lack of resources.
“The emerging Fintech space in Egypt has the potential to transform the industry and expand access to financial services in one of the largest regional markets.” Sello Moloi, Startups editor.
In 2017, the World Bank Group created a three-year scheme with three pilot countries (Egypt, Mexico and China) for its Financial Inclusion Global Initiative: a scheme to accelerate the digital finance research.
“It’s likely that we’ll have more mobile wallets than bank accounts in 2019. Additionally, new fintech startups are innovating by offering use cases to automate services in different sectors, such as companies, government, sports clubs, syndicates, and NGOs.” Says Ayman Ismail, from the School of Business at the AUC.
According to him, mobile wallets are currently available in 12 national banks and three telecom operators. Currently, nine million wallets exist with figures rapidly growing, with about 300 million new wallets opened monthly.
Fintech in and from Egypt is clearly gaining traction, shaping finance from traditional ways to a more digitized economy and bringing banking to everyone who was lacking access to basic banking services.
Still, Egypt also has yet to fully release 4G services equally. At the moment, 64% of the country’s population does not have access to mobile Internet.
Key changes FinTech will introduce to the MENA & Egypt
First of all, corruption. The movement of high amounts of currency leads in consequence to corrupted usage of funding and money, and therefore limits or blocks the development of a country or region.
According to the World Bank’s data, Shadow Economy within Egypt accounts for 40 to 60% of GDP.
Besides, Egypt is home to thousands of rural villages, and microfinance companies find it very difficult to cover all these areas manually.
Introducing Fintech in Egypt will ensure a clean, straightforward control of expenses to everyone: from the government to every user. Moreover, it will reduce massively or stop the misuse of money to illegal activities such as drug trafficking, money laundering or financing terrorism.
All these will be available thanks to including the possibility for people to apply for loans or to receive their credit approval using Machine Learning technology; Financial Tech will also improve customer service with the use of chatbots and virtual banks for those excluded from the financial system or living away from major urban areas.
According to the Wamda Research Lab and the Payfort platform, over the past 10 years, regional Fintech startups have raised more than a hundred million dollars in funding.
Over a hundred Fintech startups have launched in the region since 2016 so far, and it is projected to grow up to 250 by 2020.
As mentioned earlier, Egypt’s is one of the fastest-growing business markets in Africa, and this growth rate of Fintech startups over the last couple of years has so far doubled, but there is much to be done yet, and the next moves and development will be key to define Egypt’s Fintech potential and to allow not only the country but maybe even the MENA region to become a digital economy and join the financial digital economies.
Fintech for women in Egypt
According to the World’s Women Banking, currently there are 23.2 million Egyptian women who remain excluded from the formal financial system, which makes 73% of the adult population in Egypt, while only 27% has a proper access to a personal bank account, making a gender gap of 12% (men make the 39%).
On the other hand, in the Q2 of 2018, microfinancing benefited almost 3 million adults in Egypt, out of which 70% were women. Microfinance allowed women to pay for their own bills, transfer money to their loved ones or start their own savings.
To sum up
Fintech will target corruption, gender gap differences in the country’s economy and employment and all in all, bring a balanced growth of society and Egypt as a leading country.
It will also benefit the inclusion of Egypt and open the path for the MENA to catch up with the current leading countries in the Fintech industry. Which not only improves the situation of Egypt but also brings in opportunities for the youth talent pool.
Currently, Egypt has some success cases with Fintech startups, like the two London-incubated Dopay and MoneyFellows, which facilitates users moving money within their networks.
“In Egypt, a fintech revolution is not expected overnight. The entrepreneurial ecosystem is still in the growth phase and is missing some vital links, including access to finance. Compounding these challenges are the complex dynamics of the country’s financial system and the laws that govern it, which could prove cumbersome to scalability and long-term growth.” Amira Salah-Ahmed, The Africa Report.
