Digital payments are rapidly expanding in Egypt and the market environment is ripe for growth

By Islam Shawky, Co-founder and CEO at Paymob

Egypt’s journey to a cashless society is beginning to get very exciting, and the momentum stems from the energy and collaboration of different stakeholder groups.

At a regulatory level, many initiatives have been issued and frameworks put in place. Egypt’s central bank has issued two regulations in the last six months – removing the constraint of physical KYC documentation. Previously, a visit to a physical branch was required to open a mobile wallet, which was a major challenge to consumers during a pandemic. Now, digital onboarding is permitted.

Regulation which will double the number of card readers in the market has also been issued. Previously there were 90,000 digital POS (Points of Sale) in Egypt. The country’s central bank aims for another 100,000 POS devices to be distributed by the end of 2020.

These two significant initiatives have been complemented by a significant above-the-line advertising campaign – advocating the move to cashless methods and educating the public about going digital.

Consumers are responding to this and paying using cards and mobile wallets. On the merchant side, many sectors who previously refrained from using card-based acceptance tools are onboarding onto digital payments platforms. The industry players are collectively onboarding tens of thousands of merchants monthly which is set to more than double the existing number of merchants within the coming few months.

This is a great start, but momentum must be sustained. Set in context, Egypt has three million merchants who could make use of a POS device or an online acceptance gateway. Plotting a path to reaching the three million figure is crucial. It is unrealistic to expect the central bank to do it all. The private sector must play a role, but that needs a comprehensive financial inclusion plan targeting consumers and merchants, and the support of the country’s banks.

EKYC (“Electronic Know Your Customer”) regulation is another much needed tactic. The logistical and financial cost of acquiring a digital customer is significant, although Egypt’s regulatory sandbox is making this process easier. Hopefully by the end of the year EKYC regulations will cover both individuals and merchants.

A path to achieving these goals needs dialogue between stakeholders and fortunately that dialogue has started. As the regulatory and physical infrastructure gradually falls into place, the activation phase is set to follow – and that suits local FinTech providers.

It creates a very opportune time for FinTech companies in Egypt. Local FinTechs have an important role to play in the digital payments’ growth Egypt needs, but what role do the larger international FinTech companies play?

The major international players tend to deal with the larger Egyptian companies. As with most countries, approximately 85% of the Egyptian economy is local SMEs. These SMEs prefer localized solutions and Egypt’s local FinTechs are best positioned to fulfil this.

The wider market context – relevant for the local FinTech providers – includes enabling market participants. This includes the main banks in Egypt (the likes of the National Bank of Egypt and Commercial International Bank) who issue cards, and Mobile Network Operators who enable the use of mobile wallets.

Whilst card use is still far greater than mobile wallets, wallet use – pushed by the MNOs – is growing exponentially. If you strip out government payroll, the gap closes further. Egypt now has more than 16 Million Mobile Users and growing with transactions growth happening at a double digit percent increase month-over-month. The race is on, and the competition between the two is intense, but the combined effect – the move to a cashless society – is clear and undeniable. Again, this all bodes well for the local Egyptian FinTech provider.

There is also a rapidly growing interest in BNPL (“Buy Now Pay Later”) schemes, that consumer finance providers fuse with digital payment provider platforms. Both banked and underbanked consumers can benefit from this. Another tailwind for the local FinTechs.

This momentum, knowledge and local scale creates opportunities for local FinTechs to expand regionally. Potential target markets will need to demonstrate momentum on financial inclusion, card/mobile issuance, regulatory sandboxes, and available licenses for digital payment facilitators. No regional expansion for an Egyptian FinTech would be a simple ‘plug and play’ – but some of the heavy lifting has already been done. Countries and regions have their own regulatory nuances and that requires local knowledge and of course, regulatory engagement.

But the opportunity for Egypt’s FinTechs to expand regionally is there.

Regional expansion naturally lends itself to the prospect of consolidation and M&A. FinTechs who are kindred spirits in terms of local knowledge, digital payments product offerings and expansion strategies can achieve more rapid scale and growth via mergers.

The energy among FinTechs in Egypt is palpable. The digital payments revolution has different stakeholders and enablers, and the regional opportunity for digital payment platform consolidators looms large.

Whatever happens, two things are not in doubt. The only way is up, and the journey will be exciting.