In an attack which left two Nigeriens and six French nationals dead on 9 August in Kouré, the terrorists targeted a symbol: the country’s decision to prioritise developing tourism over investing in a full-fledged security apparatus.
Egypt’s fintech innovators pick up speed
There is new hope for Egypt’s large unbanked population thanks to recently formed financial technology (fintech) accelerators and the launch of services to bring people into the banking sector. Among recent developments, savings app Feloosy is matching savers with banking partners (see box). Also, in May, Cairo-based innovation hub Flat6Labs launched a fintech incubator called the 1864 Accelerator in partnership with Barclays Bank Egypt, whose year of establishment in Egypt gave the name to the new project. The American University in Cairo and Commercial International Bank started their own fintech accelerator in July. With just 10% of the Egyptian population having access to bank accounts, there is a lot of work to be done.
A burgeoning and diverse field across the globe, fintech has exploded over the past two years. According to a study by the World Economic Forum, equity investment into fintech companies rose from $4bn in 2013 to more than $12bn in 2014. Startups that provide tech-enabled financial solutions are out to disrupt existing and often stale financial systems with more agile solutions that facilitate purchases or offer innovative financial management platforms.
Local fintech already has some success stories. First among them is Fawry, an Egyptian electronic payment company founded in 2009, which sold a majority stake to a consortium of investors for $100m in November 2015. Fawry kiosks and point-of-sale (POS) devices allow consumers to pay their electricity bills and traffic violation fines. The company plans to operate 600,000 POS terminals by the end of the year and already processes more than 1m transactions per day.
Other firms are gaining speed. This year, London-based Dopay, which launched its payroll services for the unbanked in Egypt in 2015, raised $2.4m to expand services there and to launch in Ghana. MoneyFellows, an Egyptian startup incubated in London, marries technology with traditional money circles to help people save and borrow through their social networks. Like many other startups, MoneyFellows has to work with commercial banks because the Egyptian government has strict regulations about institutions that can look after customers’ deposits.
Abdelhameed Sharara, a co-founder of Egypt’s annual RiseUp summit, which is currently preparing for its fourth edition in December 2016, says fintech is “definitely an industry on the rise”. The country’s startup scene has been growing rapidly since the Egyptian revolution in 2011.
Sharara and his co-founders have built a multi-day summit that has become the most important regional event of the year for entrepreneurs, bringing investors, senior executives, experts, speakers and stakeholders from around the world to the heart of Cairo. “We are seeing more startups coming into this field and more investors interested in it,” he says, citing the 1864 Accelerator and others in the pipeline.
Solutions will boom
“Egypt needs fintech, specifically after the success story of Fawry, since our financial markets are not properly regulated at the level of payments and e-commerce – all of it is more informal, so any solutions would boom,” Sharara says. He adds: “In the startup scene, we say apps won’t work because people do not have credit cards to pay. But examples similar to Uber and Careem will tell you that this is untrue. There are ways around that with very simple technological solutions. When the market grows, the numbers grow,” Sharara says.
In Egypt, a fintech revolution is not expected overnight. The entrepreneurial ecosystem is still in the growth phase and is missing some vital links, including access to finance. Compounding this challenge are the complex dynamics of the country’s financial system and the laws that govern it, which could prove cumbersome to scalability and long-term growth.
But Egyptian startups in particular are no strangers to confronting myriad legal, bureaucratic, social and economic challenges. In fact, these obstacles are often the source of inspiration for many startups. Flat6Labs, which is running the 1864 fintech incubator with Barclays, is used to these sorts of challenges and was an early investor in the startup community.Launched on 30 May, the 1864 Accelerator is working on a broad range of ideas related to financial services, including payments, digital banking solutions, banking relationships, machine learning, lending, trading, cybersecurity, data analytics, cryptocurrency, insurance, wealth management, asset management and capital markets.
The 1864 Accelerator training will have a 14-week cycle accompanied by seed funding of up to E£150,000 ($16,900) in exchange for 10-15% equity. It offers a mentorship programme that includes a wide network of experts and potential investors. The accelerator solicited applications in early August and is now choosing its first intake.
Willie Elamien, managing director of the 1864 Accelerator, says the partnership will use each outfit’s expertise: “Barclays have the fostering of internal and external innovation as a strategic pillar […]. They are bringing in the financial knowhow and we bring the accelerator knowhow.” He adds:”They [Barclays] have engaged us as a way of speeding up their innovation cycle. They’re not built for innovation,” as is the case with many established institutions and corporations. Elamien has experience in running fintech accelerators in New York, London and Cape Town.
Flat6Labs, meanwhile, has been operating in Egypt since 2011 and has graduated more than 45 companies. In 2013, it shifted focus from opening new cycles in Cairo toward expansion in the Middle East and North Africa region, opening offices in Jeddah and Abu Dhabi, with Beirut and Tunis in the pipeline. Now, however, “we have shifted focus back to Cairo given the improvement in investment sentiment and outlook,” Elamien says.
The coming training cycle will be solely for the 1864 Accelerator. He plans to run the fintech accelerator programme in parallel with Flat6Labs’ regular accelerator cycles in the future.
Although the 1864 initiative has the backing of Barclays, the fintech startups do not have to work with the bank. Elamien explains: “The area of focus for us is pretty much any startup or idea that would end up working in the fintech space, so it is not limited to Barclays applications or startups that may result in a Barclays acquisition. It is peer-to-peer lending, an accounting solution, a crowdfunding solution, something that benefits small enterprises, something that benefits the unbanked.”
The American University in Cairo (AUC) and Commercial International Bank have similar goals. They are offering a 12-week training programme through the newly created AUC Venture Lab FinTech Accelerator. This is a partnership between the bank and AUC’s business school, which already runs a business incubator at the AUC Venture Lab. The lab has mentored 55 startups since its founding in 2013 and provides training and access to facilities and seed capital.
One fintech firm that has already been through the AUC Venture Lab process is startup PayMe, which works on digitising payments. It offers an app that allows companies to accept payments made by cards through the use of quick response matrix barcodes on smartphones and other devices. This eliminates the need for POS terminals.
In terms of areas of potential in the fintech space, Flat6Labs’s Elamien says data collection should facilitate access to finance for many more people by creating credit histories for customers. “With this data, you can have a credit ranking system so people can get functions like an overdraft or mortgage,” he cites as an example – services which, right now, only the banked can enjoy.
Mobile money hurdles
Mobile money has been slower to take off in Egypt than in many sub-Saharan African countries. Credit card company MasterCard, the National Bank of Egypt and mobile operator Etisalat launched the Flous mobile-money platform in 2013. It had 200,000 customers by early 2015. Vodaphone Egypt launched a similar service in 2013 and reported one million customers in mid-2015.
Egypt has a population of more than 90 million people. The mobile-money market is split up among many mobile operators and their banking partners, and the government has not required systems to be interoperable. Interoperability was due to be implemented by the middle of this year, and analysts say that such a change should lead to more growth and competition for the sector.
Another layer is growing the very network that supports and fosters this kind of innovation. While the foundation already exists and supports Egypt’s ecosystem, this community has mainly focused on tech-heavy, consumer-end applications.
The number of startups continue to grow by the day, despite the challenges of the Egyptian business environment. Savings app Feloosy’s founder Karim Beltaji explains that the regulatory structures are often unclear in the financial sector: “Regulations are a challenge, and the central bank in general is quite a volatile institution. The kind of decisions they make are quite sudden and rapid – changes happen quickly and without context.”
Still, if the trends in Egypt’s entrepreneurship community of the past few years are anything to go by, unpredictable economic conditions and regulations will do little to stifle this new trend that is confidently gaining momentum.