Egypt’s fintech boom is fueled by supportive regulations, incubators, and increased investment

The fintech buzz in Egypt is so loud that even those without access to the internet cannot miss it — advertisements of digital banks and mobile payment firms adorn the shops and billboards in Cairo and other smaller cities. Investment has been flowing in, too, despite the grim state of the economy.

According to FinTech Egypt’s 2023 FinTech Landscape Report, investments in the sector soared to $796.5 million in 2022. Capital investments have surged by a staggering 28.7 times over the past three years.

The report’s insights unveil a remarkable fivefold increase over the last half-decade. There are about 177 startups and PSPs across over 14 innovative fintech sub-sectors.

FACTORS DRIVING THE GROWTH

According to Ahmed Osman, VP of Commercial at Money Fellows, the ever-changing entrepreneurial landscape, marked by the emergence of startup incubators and more accessible funding avenues, has cultivated the environment for fintech startups to rise.

“This has sparked the launch of numerous ventures targeting niche fintech services and addressing the varied financial challenges consumers face.”

Gillan Shaaban, CCO of Paymob, points to the high numbers of unbanked individuals in Egypt and even higher mobile and internet penetration rates (94% and 72%, respectively) as major drivers of fintech growth. “This presents a vast opportunity for fintech companies to offer financial services that are more accessible than traditional banking methods.”

“We see a tremendous demand for consumer finance solutions in particular. New consumer finance regulations that proactively promote fintech innovation enable these solutions.”

Shaaban says another key driver is the disparity in the digitization of B2B payments and operations, creating fertile ground for fintech ventures. The divide between the issuance and acceptance stages also propels innovation within the sector.

“While there is a proliferation of cards and wallets in the market, the limited availability of point of sale (POS) terminals created a massive market opportunity for innovative and affordable acceptance solutions like soft POS mobile apps to flourish.”

Osman echoes that fintech has catered to the substantial population of underbanked individuals in Egypt, emphasizing the sector’s pivotal role in advancing financial inclusivity. “Mobile payment solutions, digital wallets, and microfinance platforms have empowered individuals and small businesses to participate in the formal financial system, enabling greater economic participation and growth.”

GOVERNMENT’S PROACTIVE  ROLE

Shaaban highlights the government’s proactive support as crucial to the sector’s rapid expansion. “Initiatives aimed at digitizing the economy and integrating the informal sector into the formal banking system have created the right conditions for fintech growth.”

She refers to the Central Bank of Egypt’s Financial Inclusion Strategy 2022-2025, which focuses on broadening financial service access and enhancing financial education and has acted as a catalyst in this progression.

Aly El Shalakany, Managing Partner of Acasia Ventures, shares the same sentiment, saying initiatives introduced by the Central Bank of Egypt, such as the Instant Payment Network, have accelerated the growth of new fintech products.

Despite often being characterized as strict, El Shalakany views government regulations, legislative reform, and active involvement from regulators as instrumental in bolstering the sector’s success.

He highlights that the support from regulators grants Fintech startups an advantage over other sectors, making them more likely to succeed.

Osman has a similarly positive view of regulation in the country, saying it plays a crucial role in shaping the development of the Egyptian fintech industry. “Not only does it provide the necessary oversight and consumer protection, but it also assures financial inclusion and avails access to the latest financial technologies for all.”

He further acknowledges the government’s endeavors through supportive initiatives like implementing regulatory sandboxes, which enables his organization to create and test new financial products within a structured regulatory environment.

INTEGRATION OF AI

Osman says AI has had a “revolutionary impact” on fintech. AI-driven chatbots, virtual assistants, and algorithms employed for credit scoring, fraud detection, and risk assessment have significantly boosted the precision and effectiveness of financial operations. “By leveraging machine learning, fintech companies have come to analyze user behaviors and predict their needs more efficiently, leading to customized and tailored user experiences and journeys.”

Paymob’s Co-Founder and CTO, Mostafa Menessy, outlines AI’s transformative effect on fintech firms’ operations and service delivery — from fraud detection, remediation, and targeted end-user campaigns to streamlining merchant onboarding processes.

Menessy highlights how AI is crucial in enhancing customer support and experience by integrating AI-powered chatbots, virtual assistants, personalized financial planning, and predictive analysis for investments, which have become standard in the industry.

“The integration of AI enhances overall customer experiences and positions fintechs for sustainable growth in an increasingly digital financial landscape. As such, we should focus on leveraging these technologies to create value for customers while navigating the complexities of a rapidly evolving market.”

SCALING UP

There’s also been a surge in scaling among fintech companies, backed by a significant influx of regional and international investments.

Whereas the three big successes enable online payments, a crop of newer fintechs offers products directly to consumers.

The long-run potential is vast. And savvy fintechs are looking beyond Egypt. Paymob recently expanded its operations into Saudi Arabia. Sharing insights into strategies for startup scaling, Omar El Gammal, EVP of Global Business Development, underscores the necessity of a meticulously planned localization approach.

“It involves a blend of market research, local partnerships, investing in local talent, user experience customization, and technological integration, all aimed at creating a seamless and culturally resonant experience for customers in each new market.”

El Gammal further emphasizes the significance of comprehending and adapting to diverse cultural and market landscapes.

Establishing robust relationships with local partners also emerges as imperative. These alliances offer invaluable insights into local market dynamics and nuanced cultural aspects, which vary even within GCC countries.

“Local partners can guide fintechs in navigating the local business environment, helping them to avoid potential pitfalls and to capitalize on the unique opportunities specific to each market.”

Moreover, recruiting local talent and adapting user experiences to align with local preferences are deemed pivotal. This includes customizing fintech platforms to suit local user interfaces and adhering to specific regulatory requisites.

WHAT THE FUTURE HOLDS

Shalakany offers an investor’s perspective, highlighting that despite the sector’s rapid growth, it remains in its early phases. He highlights how these startups have thrived despite facing formidable macroeconomic conditions. “The biggest challenge is providing the necessary funding and support for nurturing talent in Egypt.”

Menessy says the fintech sector will be marked by increasing innovation. “As payment options diversify, there’s a rising demand for fintech solutions that streamline these methods into a unified,

“Amidst heightened competition, future fintech trends in Egypt will witness an upsurge in sophisticated loyalty solutions, driven by AI and data-centric schemes, tailored to individual behavior and preferences,” he adds.

This article was originally published on Fast Company Middle East >