In this two part series, Michel Assaad, vice president of Europe, Middle East and Africa strategy at Citi Bank, outlines the trends that have emerged in Egypt's financial technology (fintech) space over the past year. The views expressed below belong solely to him and not his employer.
It is hard to find an original way to describe 2020. I think we can all agree that it was truly a unique year that has had, and will continue to have, immense and uneven consequences on most aspects of our lives.
Among the sectors that thrived last year, many would count fintech as one of them, after all, Covid-19 has helped leapfrog digital adoption, particularly in payments and e-commerce.
The story is, however, more nuanced and convoluted. It is true that several sub-sectors of fintech flourished and that startups with strong, adaptable business models thrived. The crisis, however, has also severely impacted people’s ability to spend, borrow and repay loans in a way that threatened a large number of companies with shorter cashflow runways. Fintechs that cater to heavily impacted industries (e.g., travel) struggled. Many fintechs that service small to medium-sized enterprises also struggled.
The true and multi-layered, impact of the crisis can only be assessed a year (or more) from now when we are well on a path to recovery. By then, the impact of policy initiatives and fiscal and monetary interventions will have started to wane off.
A closer look at Egypt
Fortunately, Egypt’s first Covid wave was milder than those in other countries. The country managed to get by without going into full lockdown and the country is now one of the few in the world with a positive gross domestic product (GDP) growth outlook for 2020. Despite the mild top-line hit, most startups still felt the impact of Covid-19, with a whopping 83.9 per cent indicating, in May, that they had been negatively impacted by the crisis. The same survey highlighted that 29 per cent of Egyptian startups had suspended operations – an alarming proportion that would have increased with the recent resurgence of the virus. It remains to be seen what the full impact of the second wave is.
Despite these crosswinds, Egypt remained one of the leading hubs of entrepreneurship in the Middle East in 2020. The country had the highest number of investment rounds in the first half of 2020 in Mena, according to Magnitt, despite having a lower average investment per deal compared to GCC countries. In addition, Cairo was listed among the world’s top “Ecosystems to watch” in 2020 in Start-up Genome’s recent report.
If we look back on 2020, the largest funding rounds for Egyptian startups were not in fintech but healthcare and transport, with Vezeeta raising more than $40 million and Swvl more than $20 million. Yet, fintech still managed to make headlines on several occasions, including new regulations, high profile investment rounds and exciting launches. It was an eventful and exhilarating year for the fintech ecosystem in Egypt.
Here is my attempt at summarising what 2020 meant for Egyptian fintech and what spaces I will personally be watching closely in 2021.
Despite the pandemic, we have seen several new fintech-focused funds and a decent investment pipeline for Egyptian fintechs that help solve post-Covid problems
The pandemic has undoubtedly had a negative impact on funding, with several investors waiting to see who would emerge victorious and what new ventures would start solving for post-Covid problems. Half of the startups surveyed by Wamda, in May, indicated that their funding rounds were impacted by Covid-19. Despite the pandemic, we still saw a decent number of funding deals in fintech in Egypt - although not at the same scale as Swvl or Vezeeta. It is worth noting that most startups that raised money are still in early stages and cater to a post-Covid world of accelerated digitisation.
Last year also brought to life new local funds that focus on fintech: Disrputech, a $25 million fund founded by Fawry’s co-founder, Central bank of Egypt’s (CBE) $55 million fintech fund, EFG-EV founding by EGF Hermes and others. In parallel, we have also witnessed a rise in angel investment in Egypt, with the likes of Alexandria Angels and Cairo Angels enriching the early stage startups funding ecosystem.
The regulatory framework is finally beginning to react to innovation
2020 has finally brought the much anticipated Banking and Central Bank law, replacing the one from 2003. The new law addressed for the very first time digital payments and the payments infrastructure, digital banks and digital currencies.
Throughout the year, the state has continued to promote financial inclusion and the digitisation of the financial sector. In March, the CBE announced the E-KYC pilot with participation of a few fintechs. Shortly after, in response to Covid-19, CBE organised the distribution of free point of sale (POS) terminals, eased fees and charges, and increased contactless payments limits. July saw the launch of the regulatory fintech sandbox and in November, the E-invoicing system was launched. There has also been news of a non-banking financial services law and regulations in planning.
There is a long way to go to create a dynamic regulatory environment that truly enables a thriving fintech ecosystem but recent developments are positive and welcomed.
The digital payments infrastructure in Egypt had been improving for some time prior to Covid-19. This trend was massively accelerated by the strong tailwind from the pandemic, causing a boom in e-commerce and awareness of e-payments. Moreover, Fawry’s success story has undoubtedly encouraged investments in other e-payments venture that will help dynamise this space in coming years. The industry is still massively underpenetrated as cash remains king but will remain as one of the more active areas within fintech in coming years.
Fawry has become the first Egyptian unicorn
A moment to celebrate and remember; we finally have an Egyptian unicorn!
Fawry’s market cap exceeded $1 billion in August, a year after its initial public offering (IPO), and is currently valued at more than $1.5 billion. The fintech giant is the largest e-payment platform in Egypt, with potential to grow, but there are also several other e-payments players that have been doing very well.
The number of mobile wallets has jumped to more than 14 million in October, surging by 17 per cent since March
The pandemic has clearly helped the adoption of e-wallets as the numbers clearly show. In the absence of GooglePay and ApplePay, the competitive landscape in Egypt is currently dominated by telcos and banks. Vodafone is currently leading the ranks, operating 65 per cent of e-wallets in Egypt, followed by its telco competitors and several large banks (e.g., CIB, NBE, Alexbank, and Banque Misr).
In November, we got our first independent, licensed e-wallet provider, Raseedy, which partnered with the Saudi Investment Bank (SAIB) and Mastercard.
Covid-19 and the rise of e-commerce helped popularise buy-now-pay-later (BNPL)
BNPL has spread in the US and Western Europe with the rise of e-commerce. Globally, players like Klarna and, most recently Paypal, have been at the forefront of this trend. From a local perspective, 2020 has been the year when BNPL has really taken off in Egypt, catalysed by the rise of e-commerce and Covid-induced financial struggles.
ValU, by EFG Hermes, has been leading the BNPL effort in Egypt. The innovative startup, which you might have seen on Cairo’s billboards, has partnered with Payfort and Al-Futtaim and continues to grow. Another exciting player, Shahry, raised $650,000 in pre-seed funding in May. I expect several others to follow suit and that BNPL surges in popularity in 2021.
The surge in e-commerce and digital payments has benefited a series of related sub-sectors including loyalty, discounts and offers and rewards apps. In December alone, we witnessed two investment rounds in this space. Zeal, loyalty and rewards app founded in 2009, raised a seed round while Lucky app, rewards and cashback app, raised capital, as part of an investment in its parent company, DSQ group.
Have you heard of Robinhood? You might want to start paying attention to Thndr, Egypt’s newest stock trading platform
In August, Thndr, the Y Combinator-backed startup, received its brokerage licence from the Financial Regulatory Authority (FRA). The company is the first to announce commission-free trading on the Egyptian stock Exchange, with no account minimum required – à la Robinhood.
Wealth management startups and robo-advisers have been very popular in many parts of the world during the pandemic and are expected to remain popular in a low-interest rate environment. It will be very interesting to watch this space in Egypt and Mena in 2021.
A year of partnerships
Fintech has become much more than just financial services. We have seen, and will continue to see, a large number of tech and telco players using partnerships (and acquisitions) as a way get into fintech or expand their footprint. Large banks have also been partnering with tech firms, telcos and even startups. From the startups’ perspective, partnerships can allow them to access new markets and geographies, to accelerate customer acquisition and to navigate complex regulatory environments.
2020 was a year of partnerships in the Egyptian fintech space. Examples include Paynas, Visa, and Banque Misr partnering to launch a digital platform for micro and small to medium-sized enterprises and contractors. The National Bank of Egypt (NBE) signed an agreement with Ripple that will see the state-owned bank using the company’s blockchain technology for remittance payments made through NBE. TPay partnered with Vodafone Egypt and China’s Huawei to expand its footprint. And in late December, Mastercard and Carticard partnered to drive financial inclusion in Egypt. I would expect this trend to continue in the new year.