Egypt: Fintech companies plan overseas expansion

Paymob, an Egyptian e-payment solutions provider, kicked off operations in Pakistan this month, a few days after securing $15m Series A funding from UAE’s Global Ventures, Dutch development bank FMO, and Cairo-based A15.

During the period from last year until early April 2022, Paymob was one of 15 Egyptian fintech companies that secured various rounds of funding worth in total $265.6m from multiple venture capital (VC) investors, according to investment bank Renaissance Capital.

Soaring VC funding

As one of the most robust sectors across Egypt’s start-up landscape, fintech has been thriving over the past six years in the North African country. However, what has primarily fuelled expansions abroad is the amount of funding funnelled by VC investors.

VC funding to Egypt-based startups amounted to $491m in 2021, skyrocketing 157% year on year, according to a recent report by Magnitt, a Dubai-based platform providing data on venture investments across emerging markets.

Egypt saw the highest number of funding deals in Africa (25% of the overall transactions on the continent). Nonetheless, it came third in terms of the total funding value, behind Nigeria and South Africa which drew $1.085bn and $652m, respectively.

We’ve reached a point in Egypt through start-ups where we have financial technology attributes that we can export.

“I think it’s not about fintech per se, but rather major VC investment in Egypt,” Mahmoud Hamouda, a strategy and operations consultant at Dell Technologies, tells The Africa Report.

Hamouda also notes that other sectors have also jumped on the bandwagon, including logistics. He cites B2B food and grocery start-up MaxAB that expanded beyond Egypt for the first time last year upon buying WaystoCap in Morocco, having earlier sealed a $40m Series A funding round.

Egypt’s attributes

VC investors have been pushing Egyptian start-ups to tap new markets, says Hamouda, highlighting two main factors stoking the trend:

• “Egypt … has the largest talent pool and tech capabilities compared with the likes of Jordan, Saudi Arabia or UAE,” as well as other African nations.
• What’s more, the average salaries in Egypt are relatively low compared with many of these countries, which encourages start-up founders to take the Arab nation as their headquarters and later expand into other countries.

Having built up a capable fintech sector, Egypt currently boasts the pole position in exporting technology, resources, and partnerships to countries in the MENA region, says another expert.

“We’ve reached a point in Egypt through start-ups where we have financial technology attributes that we can export,” Mohamed El-Feky, co-founder and CEO of Sympl, a buy-now-pay-later (BNPL) platform that was founded in Egypt last year, tells The Africa Report.

Not the only road to growth

Overseas expansions pose one way for start-ups to grow, but it’s not necessarily the quintessential journey to growth, says Feky, who is also the former CEO of ValU, the BNPL subsidiary of Egypt’s largest investment bank EFG Hermes.

Feky points out that the country’s leading fintech platform, Fawry, only started its offshore expansion 13 years after it was founded, following the acquisition of a strategic minority stake in digital market place alsoug.com in Sudan last year.

There are African nations that up until today have no [shopping] malls … these countries might have high online shopping penetration…

In order to tap a new market, a company would need to offer a suitable business model, he says, revealing that Sympl mulls expanding into Africa. “The intention and interest [is] there, but it’s only a question of when and how.”

“Our model is based on the retail industry, so in Africa, the first thing we look at are markets that are well-structured when it comes to retail products and services,” Feky says, adding that Sympl is keeping an eye on populous countries, such as Kenya and Nigeria.

“There are African nations that up until today have no [shopping] malls … these countries might have high online shopping penetration, so if I need to go there, I will have to do so with a business model that is a bit different.”

Few major players

With a myriad of fintech start-ups springing up in Egypt over the past years, the market remains far from saturated.

According to recent data released by the Central Bank of Egypt (CBE), over 56% of Egyptian adults (almost 37 million people above the age of 16) are holders of transactional accounts whether in traditional banks; the post office which targets smaller savers; e-wallet; or pre-paid card services.

This means the unbanked segment, which was for long estimated at nearly two thirds of Egypt’s over 100 million population, is shrinking, even though there is still a long way to go before Egypt can achieve comprehensive financial inclusion.

Most start-ups see [transferring money solutions] as the main entrance to financial technology…

Apart from two or three main players, the rest of fintech firms barely have any market share in Egypt, Feky says. “A company might just sign a deal to collect the subscription fees of some [sports] club and that’s it, and it might not even collect them all.”

Next to Fawry – the first Egyptian tech company to achieve a $1bn market cap with various e-payment, microfinancing, and banking services – Vodafone Egypt is expected to grow its sizable market share after buying 10% stakes in retail network Bee and payment facilitator Masary in April.

Meanwhile, state-controlled e-finance, which last October launched one of the most successful IPOs in Egypt to date, along with its subsidiaries exclusively manage and develop the government’s financial network.

From money transfer, e-payments to financing

The vast majority of fintech start-ups in Egypt start off with simple transfer services, moving money from one point to another in the hopes of diversifying into other banking and financial activities later on.

“Most start-ups see [transferring money solutions] as the main entrance to financial technology”, with the aim to branch out to paying bills and then to financing services, which is the most lucrative out of the three, says Feky.

Non-banking financial services, such as micro-financing, are licensed by the Financial Regulatory Authority (FRA) while the CBE regulates banking services.

So far, no non-banking institutions, except for those offering currency exchange services, have obtained a licence from the CBE to offer banking services independently without cooperating with a traditional bank, a source familiar with the matter tells The Africa Report.

Currently, fintech firms can only get the CBE approval to offer banking services through a traditional bank. The latest of such approvals was granted to Khazna, an Egyptian start-up that had recently landed $38m Series A funding, to launch pre-paid cards in cooperation with Abu Dhabi Islamic Bank-Egypt.

As of September 2020, a new banking law came into effect, allowing – on paper – the launch of digital banks for the first time in Egypt. However, regulating bylaws have not been drafted and ratified. It is yet to be seen whether Egypt will grant digital banking licences to fintech companies, which would theoretically allow them to further their contribution in the provision of banking services.