Egypt: Switching To Cashless

The public and private sectors are pushing hard to boost the adoption of digital payments.

Fintech has become a buzzword on the streets of Cairo. In 2021, financial technology investments in Egypt reached an all-time high of over $159 million in 32 deals, a greater than 300% growth year-on-year, according to a report from the Central Bank of Egypt (CBE).

A few years ago, the Egyptian fintech scene had only a handful of players, specialized in payments and remittances. Today, more than 100 companies are tapping into new segments, such as insurtech, regtech, data analytics and wealth management.

Launched in 2020, Thndr is part of this fintech revolution. The digital investment platform raised $20 million in February from US investment firm Tiger Global, Emirati BECO Capital, Dutch Prosus Ventures and others.

“We pride ourselves on being agents of change in the investment sector,” says Seif Amr, co-founder and COO of Thndr. “We are making it easy for people to invest in stocks, bonds and funds through a mobile-based and low-commission digital stock brokerage. Thndr is creating investors out of a population who previously had limited equity market exposure. Eighty-seven percent of our user base are first time investors, and 40% come from rural areas.”

Alongside newcomers, the main drivers for this year’s exceptional growth were startups adding a fintech component to their existing activities.

“Change is happening at a considerable pace,” says Walid Hassouna, CEO at EFG Hermes Holding’s nonbank financial institutions platform EFG Hermes Finance and at its buy now, pay later platform provider valU. “It is vital, now more than ever, for businesses to offer digital financing solutions to enable their customers to purchase products and services and to try to leverage on the wealth of data they have.”

Microfinance, payments, e-commerce, transport and logistics firm MNT-Halan secured the biggest deal in 2021. The company raised $120 million in September, the largest fintech round in the Middle East and North Africa (MENA) region. Similarly, e-commerce platform provider Capiter raised $33 million to expand into digital finance; and online marketplace Wasla secured $9 million to boost buy now, pay later services. On a smaller scale, Fatura, which started by connecting manufacturers and wholesalers to retailers, also stepped into lending. Similarly, e-commerce Brimore sold a $1 million minority stake to Fawry to broaden cashless payment options.

“There are major advantages to being a startup in Egypt,” says Hassouna. “It’s a very big market with massive potential, as the fintech sector remains underpenetrated. A lot of emerging tech talent is available locally, and there is much room for startups to grow.”

Tapping into fintech is also a way to unlock funding. With more than 105 million people, Egypt is the biggest market in the Arab world and the second-largest economy in Africa. It is also notoriously underbanked, fueling ambitions of investors who hope to secure a front row seat as Egypt leapfrogs from cash to a digital economy. As a result, the levels of capital deployed in Egypt are unprecedented. Money comes from public institutions, the local private sector, Arab investors and international venture capital. In just five years, almost $250 million was injected into Egyptian fintechs, according to the CBE.

Top-Down Impulse

The Egyptian tech revolution follows global trends and reflects a strong state-level commitment to reinforcing the financial sector and promoting financial inclusion through digital means.

President Abdel Fattah el-Sisi created the National Payments Council in 2017 to supervise the transition to a cashless economy. Two years later, Egypt made digital payments mandatory for companies to pay salaries, social security contributions, dividends, taxes or loan repayments.

The fintech ecosystem is regulated mainly by the Financial Regulatory Authority (FRA). Although their prerogatives sometimes overlap, having a dual leadership creates flexibility for entrepreneurs to decide under which set of rules they want to fall, depending on which license they select to apply for.

Since 2019, both the CBE and the FRA have led major reforms on digital payments, personal data protection, instant payment networks, prepaid cards, contactless payments, mobile payments, e-wallets and QR codes. They also built up an ecosystem with a national Fintech Fund, several tech hubs and a regulatory sandbox.

“We are dealing with progressive regulators keen on enhancing the ecosystem,” says Amr from Thndr.

In January, Eygpt’s parliament approved a new law letting the FRA give out specific fintech licenses and included online electronic know-your-customer (KYC) verification and digital signature provisions.

“We are all waiting to see the impact this will have on the market,” says EFG Hermes’ Hassouna. “This will be a game changer for businesses here in Egypt, which will be able to onboard customers faster, sign agreements and get funded remotely.”

“A lot of exciting business is currently in the pipeline,” says Mohamed El-Etreby, chairman of Banque Misr, Egypt’s second-largest bank, which plans to roll out the country’s first digital bank in 2022. “This will be a stand-alone organization with a clear value proposition that capitalizes on digital KYC onboarding, and all the services will be handled digitally.”

The CBE report expresses the hope that, following this new legislation, “Egypt will become the regional factory for fintechs, scalable to MENA and beyond,” as well as a “magnet for foreign investments in fintech.” In 2021, the CBE notes, Egypt was already receiving the second most fintech investment of the countries in the MENA region and the fourth most in Africa.

Mobile Money Is King

Although there is a strong push from the authorities to promote digital payments, financial illiteracy and mistrust of new technologies remain significant challenges for fintech adoption in Egypt.

“How to manage your finances is not taught in schools or by parents,” says Thndr’s Amr. “Therefore, less than 0.5% of the population invests in financial instruments.”

Although half of the population is younger than 25 years old, mobile internet penetration is only 57%. Everybody is familiar, however, with mobile phones.

As in other African countries, mobile money services are very popular in Egypt; and that trend has accelerated during the pandemic. According to FRA data, in 2021 the number of mobile wallets passed 25 million, with 227 million transactions amounting to more than 233 billion Egyptian pounds (about $12.6 billion), a 160% year-on-year increase.

To maximize their footprint in Egypt, telecom operators have turned to fintech. In November 2021, the British Vodafone Group consolidated its assets in Africa by selling 55% of Vodafone Egypt to South Africa’s Vodacom, of which Vodafone Group is the majority shareholder.

“This is an exciting and important step for Vodacom, as the purchase of Vodafone Egypt will allow us to transition from a telecommunications company to a technology company,” Vodacom Group CEO Shameel Joosub told the press at the time.

The deal, valued at about $2.7 billion in cash and new ordinary shares, will lead to the expansion of Vodafone Cash—currently the country’s largest e-wallet, with 65% market share—and products like Vodapay, Vodasure and Vodalend, as well as M-Pesa, Africa’s largest fintech platform.

Banks Adapt

In this fast-changing environment, banks are far from falling behind. Egyptian lenders are actively engaged with fintech, whether by creating entities, acquiring startups or funding them. RDBanque Misr, National Bank of Egypt and Banque du Caire announced a $85 million fintech fund. Industry sources also expect a new venture debt fund to launch, backed by Egyptian banks.

“We are confident that banks will never become obsolete,” says Banque Misr’s El-Etreby. The bank recently acquired an additional 65.3% stake in CI Capital Holding and a portfolio of microlending and buy now, pay later companies, bringing its overall stake to 90%. Instead, the bank looks to develop a nonbanking financial services platform.

Although figures remain below the global average, the CBE notes that 50% of Egyptians older than age 15 are now financially included. This compares to 9.7% in 2011, according to World Bank data. The Egyptian banking sector’s total assets more than doubled from $221 billion in 2010 to $540 billion by the third quarter of 2021.

Such market dynamics are attracting foreign lenders, which are stepping in via acquisitions or newly licensed entities. For example, Bahrain’s Arab Banking Corporation tripled its market share in Egypt through its acquisition of Lebanese Blom Bank’s Egyptian network for 6.7 billion Egyptian pounds (about $367 million) in early 2021. First Abu Dhabi Bank (FAB) completed its purchase of the Egyptian business of Bank Audi also for the same amount a few months later and is considering a majority stake in EFG Hermes.

The UK’s Standard Chartered was the first foreign bank permitted to set up its entire banking operation under a new license earlier this year.

After years of economic crisis, Egypt is stabilizing and deploying structural reforms to transform the financial sector domestically and attract foreign investment. The country can rely on strong economic activity to fuel its ambitions as the World Bank projects that the Egypt’s GDP growth will reach 5.5% in 2022.