“The wave of innovation sweeping through the world of financial technology promises nothing short of revolution … It will change the nature of money, shake the foundations of central banking, and deliver nothing less than a democratic revolution for all who use financial services,” said Mark Carney, the Governor of Bank of England announcing the bank’s aim to boost and support the fintech revolution. His words further accentuate financial inclusion fintech is preaching, especially in emerging markets.

Financial inclusion is critical in reducing poverty and achieving shared economic growth, as mentioned ‘The Global Findex Database 2014: Measuring Financial Inclusion around the World’: When people can participate in the financial system, they are better able to start and expand businesses, invest in their children’s education, and absorb financial shocks.

This approach is increasingly adopted in Egypt where fintech startups are proliferating and engaging citizens in a ‘neo’ formal financial system.

According to figures shared with Wamda by the World Bank Global Findex database, only 14 percent of adults in Egypt have an account as of 2014, and eight percent use an account to make digital financial payments. The Findex said that about 86 percent of adults in the country do not have an account and are therefore considered unbanked.

Government and banks are more supportive  

Last September, the Egyptian Ministry of Investment and International Cooperation in partnership with EFG Hermes and the UNDP, launched a new startup incubator, Fekretak Sherketak. It aims at catalyzing the country’s growing entrepreneurial scene through a four-month acceleration and mentorship program. Qualified startups will get a seed funding of up to $28,300 for an equity stake of four to eight percent. Fekretak Sherketak is financed through the support of Egypt Ventures, an investment company worth upwards of $25 million.

Last June, Governor of the Central Bank of Egypt (CBE) Tarek Amer and chairperson of the Egyptian Financial Supervisory Authority (EFSA) Sherif Samy signed an agreement to enhance cooperation between the two sides to support financial inclusion in Egypt.

Global initiatives are also supportive. Last July, the World Bank Group, the International Telecommunication Union (ITU) and the Committee on Payments and Market Infrastructures (CPMI) launched the ‘Financial Inclusion Global Initiative’, to advance research in digital finance and accelerate digital financial inclusion in developing countries. The three-year program picked Egypt, China, and Mexico as a pilot country. The World Bank Group’ analyses found that Egypt has the potential to bring over 44 million adults of people into the formal financial sector: The country has adequate laws, regulations, financial and ICT infrastructure, but a lack of funding to cover related reforms.

The private sector along with banks are also participating in the fintech’s boost. The 1864 Accelerator launched by Barclays Bank and Flat6Labs, is a 14-week program seeking to foster fintech innovation by enabling entrepreneurs to transform their disruptive ideas into commercially viable solutions. In the accelerator’s first cycle, which ended in December, 16 startups were chosen out of over 200 applicants for a five-day bootcamp. Eight finalists received training, mentoring, office space, technical support, legal consultation and $17,000 in seed funding in exchange for 10-15 percent equity.

In July 2016, the American University of Cairo and Commercial Bank partnered to create AUC Venture Lab Fintech Accelerator, powered by CIB. The program aims to develop and support fintech startups in Egypt in areas such as digital and mobile payments, peer-to-peer lending, and financial planning. Through a 12-week acceleration program, startups received support to grow and launch their businesses.

Hisham Ezz Al-Arab, chairman of Commercial International Bank (CIB), said that the bank is ‘ready’ for a growing wave of fintechs that are shaking up the financial services with new technologies. “We look at fintechs and mobile operators and payment companies as partners, we collaborate together.”

Global payments technology company Visa signed a Memorandum of Understanding with the Egyptian National Post Organisation (ENPO) and Banque Misr to popularize and regulate digital financial services. The agreement includes the provision of Banque Misr ATM machines at post offices.

PayFort, the online payments engine, launched  its fintech accelerator Fintech Factory at Wamda’s 2016 Mix N’ Mentor event in Cairo. To be eligible for the accelerator, startups need to be in fintech and relevant to PayFort’s merchant base. In return, startups can receive up to $100,000 during the first phase; with the opportunity to possible receive additional funds through Fintech Factory’s investment partners at later stages.

Startups are appealing to investors

The growing impact fintech startups are bringing is stimulating investors. According to Kennedy Kitheka, managing director Egypt - Seedstars, the “fintech space is one of the most prominent in the startup community in Egypt. Early entrants are gaining traction, and stronger, more structured concepts are popping up. The model of Fawry, has demonstrated the validity of such business models, and has driven several concepts to launch.” Fawry, which was launched in 2008, provides payment solutions through ATM machines, mobile wallets, and retail points.

Egypt-based fintech startup Moneyfellows raised $600,000 from a group of investors led by Dubai Angel Investors and 500 Startups. This web and mobile-based platform founded in December 2014, allows users to create, manage, and track money circles (group money lending) online with members of their social networks. The startup makes money by charging users a small fee when they withdraw their payout from their money circle. So far, the startup has around 2,600 paying users and about 240 active circles.

Ahmad Wadi, the company’s founder told Wamda that with this cash, they will focus on acquiring more customers and boosting satisfaction rates, in addition to building the brand. “We’re also now quiet focused on building a start team and hiring top tier talents that would help take Moneyfellows to the next level,” he said. With this investment, the company has raised $800,000 since it was founded in 2015. In addition to this, the startup won $50,000 at the 2017 MIT Enterprise Forum Arab Startup Competition. Moneyfellows was also among the eight finalists of the 1864 Accelerator.

The startup has been improving its users’ experience based on early adopters’ feedback. “We’ve therefore revamped the whole experience (due to launch in Feb). We’ve also partnered with some banks and corporate partners that we’re just about to announce along with the public launch next month,” he added.  The startup is currently in talks with regulators in other countries in the region to launch in two additional countries, though it’s mainly focusing on Egypt.

Vapulus is another fintech startup that recently secured $250,000 from Shan Invest and Foras Masr. According to Abdelrahman Elsharawy, cofounder, fintech investments in the Middle East are expected to reach $29 billion by 2020. He explained in an interview with Wamda that this number is likely to continue to grow as more members of the unbanked MENA population are beginning to embrace banking and e-payments. He said that there is a big opportunity in Egypt for fintech which remains a not-enough tapped sector. “It’s a chicken-and-egg problem for many Egyptians, who don’t see a point in opening bank accounts when most transactions are cash-based, and continue to do cash-only transactions because they don’t have bank accounts,” he added. Thus, the country’s innovative startups have much to offer. “Given Egypt’s status as a prolific startup hub in the region, one can expect Egypt’s fintech offerings to expand along with others in MENA. Recent projections suggest 250 fintech companies will be launched in the region by the year 2020,” he told Wamda.

Vapulus, which launched in December 2017, partners so far with 400 retail and F&B merchants in the country, and aims to reach 16,000 within one year of operation. The startup is a mobile app and mobile POS service for both individuals and sellers. Users can turn to Vapulus to buy online, shop in stores, and pay their bills, all from their phones. Merchants use Vapulus as a web-based payment processor for online and in-store transactions coupled with custom marketing features, most of which make use of their powerful proprietary GPS technology. It takes 0.5 to one percent fee on each transaction it handles. So far, it partners with two banks: Arab African International Bank and Banque Misr, and deals with two additional banks are underway.  

“We are currently seeking up to $3 million to fund a Series A, which will be used to launch marketing campaigns and extend our merchant network and functionality,” Elsharawy said.

Challenges and opportunities

Despite the solution fintech startups promise, these ventures face several challenges. Kitheka believes that it is still early stage to assess the real impact these fintech startups have left on financial inclusion in general but one cannot disregard the major role they played as payment facilitators in addition to the compilation of valuable market data, which is core to any future fintech growth. Also, regulations and funding remain an omnipresent hurdle startups have to face, despite the several initiatives that try to solve them.

Elsharawy said that barriers to financial inclusion limit the overall market size of would-be users of fintech solutions. “Fintech entrepreneurs find themselves with smaller audiences if their services aren’t aimed specifically at improving financial inclusion. In addition, funding is a major challenge, just like any sector in the industry. With much of MENA’s large investments being directed at mega-startups like Souq and Careem, the flow of venture dollars is that much more restricted for everyone else.” He explained that the flipside of the financial inclusion problem is that it presents a sizable opportunity for fintech startups aimed specifically at finding solutions for the unbanked population. “In Egypt alone, that’s potential for over 80 million people without bank accounts to embrace new financial solutions. For instance, Vodafone Cash now has over two million active users in Egypt and the rise of other mobile-based solutions like DCB Egypt and Feloosy indicate that Egyptians are willing to embrace new fintech solutions and the nation’s 113 percent mobile penetration rate offers them ample opportunity to do so.”

To sum it up, fintech in Egypt is growing in the right direction, slowly, but evolving. According to Kitheka, leveraging existing platforms and adding new products would be a good way to grow and validate models. It is also a must that startups expand their partnerships and collaborations, as working in isolation is very difficult. “On the optimistic side, the growth curve in Egypt’s fintech would see startups grow more specialized in sub-fintech-segments. Soon, we will see more concepts that tackle saving, lending to B2Bs, SMEs, and B2Cs, and mico-insurance.”