Egyptian fintech MNT-Halan recently secured US$120mn of investment. To put this number into perspective, Egypt fintechs attracted US$15mn funding in 2020, which is just 8% of total VC funding in the country (compared with 18% fintech share at the global level). This is yet another promising sign as to why Egypt offers a huge opportunity for fintechs.
There have been some notable deals so far in 2021, pointing to strong growth over the past year. Some big-ticket deals include Paymob (US$15mn), Telda (US$5mn) and Dayra (US$3mn). With Egypt among the top countries in small EM that is starting to generate increasing investor interest, in this report we look at the key factors for fintech success, top strategic priorities and the main hurdles to growth.
Key success factors
Based on comments from 23 Egyptian fintechs, we conclude that the top factors driving fintech success in Egypt include serving financially-excluded customers, forming effective strategic partnerships and innovation.
1. Targeting financially excluded individuals and businesses
Egypt has very low levels of financial penetration, which means that there is a large target market for firms that seek to serve underbanked customers. Some fintechs focusing on this segment include Dayra (Lending), Shahry (Lending) and Telda (Digital banking).
2. Strategic partnerships
Strategic partnerships can help fintechs in many ways, such as diversifying their product mix, improving their service quality and/or expanding their client base. For example, PayTabs (Payments) has partnered with Visa to offer a contactless payment acceptance solution known as Tap to Phone. Raseedy (Payments) has launched its digital wallet through a partnership with Societe Arabe Internationale de Banque (saib) and Mastercard. Valu (Lending) partnered with Saudi German Hospital to provide instalment payment programmes to boost healthcare affordability.
Innovation is a key pillar for fintech success. It can, for example, allow fintechs to improve their service offerings and hence enhance the consumer experience. Firms that are striving to innovate include Raseedy (Payments), Paymob (Payments) and Mozare3 (Agtech), which are focusing on streamlining the customer onboarding process and providing a seamless user experience.
Egyptian fintechs' plans
Based on comments from 15 Egyptian fintechs, top strategic priorities for sector participants include geographical expansion and introducing new products. Other strategic priorities include technology investments, improving user experience and entering strategic partnerships.
The presence of large, financially underserved populations elsewhere in Africa can prove attractive for fintechs exploring new growth drivers, particularly if firms have built up relevant, transferable expertise and have the necessary financial and management capacity. Therefore, geographical expansion is one of the top priorities for fintechs in Egypt. For example, CreditGo (Payments) is planning to expand to other African markets, while Liwwa (Lending) plans to launch its services in Turkey and Ethiopia.
Introducing new products and services
As highlighted previously, the fintech landscape in Egypt is heavily skewed towards payments. Introducing new products and services can help fintechs capture a greater share of their customers' wallets, potentially in segments with lower levels of competition. For example, MoneyFellows, a money management platform, intends to introduce a Buy Now Pay Later (BNPL) service. MerQ, an AI-based virtual assistant/chatbot provider, plans to expand its product offerings to raise financial inclusion levels in Egypt.
Investment in technology enables fintechs to maintain their competitive advantage. Examples of firms giving high priority to technology investment include Mozare3 (targeting improvements in agriculture-related financial services) and MoneyHash (which is developing a comprehensive payments infrastructure offering).
Other strategic priorities for Egypt’s fintechs include improving the user experience and entering strategic partnerships.
Key challenges for Egypt’s fintechs
Despite the huge opportunity, most fintechs in Egypt are still in the early stages of development. We think the key hurdles to their growth have been the large informal economy, a lack of financial literacy and an underdeveloped regulatory environment.
The large informal economy
Over half of Egypt’s labour force is employed informally; the informal economy also accounts for around half of GDP. This is a contributory factor to the high level of cash utilisation in the Egyptian economy. The situation is particularly acute for small- and medium-sized enterprises, which number around 2.5mn and employ three-quarters of the labour force. These businesses prefer to deal in cash for many reasons, including tax avoidance. These factors represent a significant challenge to digital finance providers.
Lack of financial literacy
According to an S&P survey, only 27% of Egypt's population is financially literate, which is defined as knowledge of one of these four concepts: i) risk diversification, ii) inflation, iii) simple interest and iv) compound interest. This literacy level is below most other emerging markets.
The regulatory framework is evolving but is still underdeveloped. The recent new CBE Law introduces a regulatory framework for digital banks and payments processors, but further changes are likely given the fast-changing environment. In addition, there are other areas of fintech activity (such as insurance and investments) that likely need more regulatory attention so that operators have a clear framework within which to work.