There is great appetite for innovation and modernization in the Egyptian financial world right now and everybody is trying to get on board. Almost nonexistent eight years ago, the fintech startup scene is now becoming the darling of the Egyptian economy, with dozens of fintechs striving for hundreds of millions of dollars in capital.
While things are moving in the right direction, both fintech and traditional banks must continue expanding and improving their services in order to better respond to their clients’ novel needs. Adapting their practices to fit the demands of the digital world will allow banks not only to survive the paradigm shift, but actually thrive in the burgeoning market that awaits.
You can call it a miracle on the Nile, but in less than a decade, Egypt has experienced an astonishing digital transformation. In 2014, only a quarter of all Egyptians had regular access to the Internet, while in 2022 that percentage has risen to over 70%. Mobile phone, smartphone and personal computer ownership rates have also exploded, particularly among the country’s youth. This sudden abundance of digital opportunities has created a medium ripe for innovation, with plenty of forward-minded entrepreneurs eager to seize the day.
In 2014 there were a grand total of two fintech startups in the whole of Egypt, while in 2021 that figure reached 112. Investor interest has also been piqued, with venture capital putting only $1 million across three deals in the sector in 2017, but almost $160 million over 32 deals last year, with money pouring in both from within Egypt and from abroad. With 24 Egyptian fintech companies already making waves in international markets like North Africa, the Gulf States and Europe, investor trust is at an all time high, making fintech the ”it” industry in 2020s Egypt. That hallowed status was further consolidated in 2020 when e-payment company Fawry became Egypt’s first tech unicorn, showing just how high the standard can be set.
This remarkable growth made Egypt stand out in the region, with only established powerhouses like Nigeria and South Africa having a bigger fintech market in Africa. Similarly, only the United Arab Emirates attracts more fintech investments than Egypt among MENA countries. Egypt’s large and young population, its geographical position at the centre of the World Island and its apparent eagerness to grab the digital bull by the horns have turned it into a hot prospect, leading some to tout Egypt as the next fintech frontier.
As Egypt’s fintech ecosystem grows, its traditional banking sector is faced with both challenges and opportunities. On the one hand, banks are feeling the pressure and despite having almost 150 years of a head start, traditional banks are seeing modern competitors quickly catching up: Less than 30% of Egyptians have a bank account, but in just a few years the percentage of fintech users in Egypt reached almost 10%. Furthermore, the ease of use and flexibility of fintech raise user expectations across the board, with brick-and-mortar financial operations increasingly seen as time-consuming.
On the other hand, banks should be delighted to have so much attention drawn to their sector. Fintechs made personal finance hot and everyone in the industry stands to benefit from that. A sustained reduction in the number of unbanked Egyptians will expand the banking market, creating new vectors of growth for fintech and banks alike. In addition, while the process of digitization that banks are now accelerating as a response to fintech success does carry an initial cost, it also raises efficiency and lowers maintenance expenses in the long run.
The advantages brought by fintech to the banking table were not lost on Egypt’s highest institutions. The Central Bank quickly recognized the potential, launching a number of initiatives meant to facilitate the sector’s expansion. Perhaps the most important of these is the 2019 Fintech and Innovation Strategy, which lays out a roadmap meant to better identify, cultivate, fund, regulate and govern the burgeoning talent on the fintech scene. And while legislative progress could be faster, there are reasons to feel optimistic. A new banking law which was ratified back in 2020 and will allow the launch of digital banks for the first time finally came into effect in May of this year, with several of Egypt’s largest banks already applying for digital licences.
Commercial banks as well have taken notice and become more involved in the field of digital finance. Earlier this year Banque Misr, National Bank of Egypt and Banque du Caire, three of the country’s top national banks, partnered with Global Ventures, a leading firm in the realm of venture capital, to launch a new venture called “Nclude”. With $100 million in starting money, Nclude is aimed at accelerating fintech development and investing in young innovators. The fund already found its first four investment targets, including a fintech startup aimed at small-scale farmers, proving the sector’s influence beyond the immediate world of banking.
Egyptian banks must now continue this process of integration between fintech and traditional banking. They must figure out how to best navigate this new environment and focus on offering the best service for their clients. This can be achieved by streamlining access to financial services in a way that seems more familiar to young people, expanding their services to traditionally underbanked sections of the population and embracing digital solutions.
Full Steam Ahead
Across the world, from online shopping to ride-sharing apps, tech disruption of established industries changed the face of business. But when it comes to fintech in Egypt, the forces of disruption are not a one-way street. Through initiatives like Nclude, banks are already joining the fray and betting on the future of fintech, avoiding the familiar pitfalls of industry protectionism.
Banks need to leverage this opportunity ever further, working to develop a seamless environment in which the line separating banks and fintechs becomes so thin as to become almost indistinguishable to an average user. The fintech train is moving full steam ahead in Egypt and the surest way to maintain its momentum is to have both fintech and banks busy shovelling coal in the boiler room. The destination is worth it for everybody.