The Central Bank of Egypt (CBE) has stated that the financial technology sector is one of the main pillars relied upon in the development of the banking and financial sector in Egypt.
Various solutions are presented in the Egyptian financial technology market every year, making Egypt a fertile environment that is ready for developing this important sector, in addition to acting as a catalyst for current and future innovation. Consequently, the Egyptian market is deemed a promising and attractive market in this field, which qualifies it to become a pioneer at the regional level.
Supporting and encouraging innovation in financial technology
In the recently issued Financial Technology Egypt 2023 Perspective Report, CBE said that Egypt is striving to support and encourage innovation in the field of financial technology. It added that this can contribute to reshaping the economy and transforming into one that is less dependent on banknotes. This is part of the state’s relentless endeavors towards transforming the economy into a digital one. It is also an important aspect of the economic reform program that the Egyptian state has been pursuing for years. Moreover, it is line with the sustainable development strategy, which aims to achieve a diversified competitive economy and higher rates of financial inclusion, under the umbrella of Egypt’s National Vision 2030 led by President Abdel Fattah El-Sisi.
According to CBE, financial technology in Egypt has witnessed unprecedented leaps over the past year, as a result of the participation of more stakeholders in this field. The joint efforts between a group of regulatory and supervisory government agencies have clearly contributed to regulating the private work environment.
CBE also highlighted other vital roles for all partners in the financial technology field, including startups as well as payment service providers, venture capitalists, angel investment networks, business incubators and accelerators, banks operating in Egypt, and financial infrastructure providers. All these agencies played an important and pivotal role in developing this ecosystem in Egypt, especially recently.
Cashless and contactless payment
CBE affirmed that the financial technology ecosystem in Egypt continues to move swiftly towards a world of infinite capabilities across all sectors and various aspects of daily life. From relying on cashless and contactless payment methods, to providing banking and financial services in an easy and simple digital way, these services are mostly available around the clock. They are also in line with the successive technological changes witnessed on the one hand, and the requirements and expectations of customers on the other.
According to CBE, the year 2022 witnessed a remarkable development in the financial technology system. CBE stressed that it will continue to support and enhance innovation, encourage innovative entrepreneurs in startups operating in the field of financial technology, and build bridges of trust with customers. It will also keep empowering the ecosystem of financial technology. Through that, it aims to achieve the targeted sustainable development, which will positively affect the growth rates in the field of financial technology, and help transform the economy into a digital one.
CBE also indicated that given Egypt’s leading position in the financial technology system in MENA, the recent rapid growth in financial technology did not happen by coincidence.
Egyptian startups
CBE emphasized that the rise of Egyptian startups and the increase in their exports across the world was a catalyst that helped attract local, regional and international investors. This is only the beginning of a new era in the financial technology system in Egypt, according to CBE.
The Bank also said that innovative solutions are currently launched in the Egyptian market through 177 startups operating in the field of financial technology, the sectors feeding it, as well as payment service providers. This includes 139 startups that provide financial technology solutions, and about 38 companies providing solutions.
It added that over the past five years, the number of startups operating in the field of financial technology and innovative payment service providers has grown by 5.5 times. This came as the result of the increased demand for solutions launched by financial technology companies and the sectors that feed them.
CBE indicated that 67% of startups in Egypt are based in Cairo (113 out of 168 companies). The percentage of companies that are based in Giza is about 30% (50 companies). The number of companies headquartered outside Cairo and Giza reached 3% or five companies. It is worth noting that 17 out of the 113 startups and payment service providers headquartered in Cairo have additional offices in other governorates.
58% of these companies have additional offices in the United Arab Emirates, followed by Saudi Arabia 36%. 18% have offices outside the Middle East and North Africa region, specifically in the United States of America.
The top two countries on that list of 52 startups and payment service providers are Egypt and the United Arab Emirates with a rate of 57%, followed by the Kingdom of Saudi Arabia with a rate of 47%.
3 sub-sectors dominate fintech ecosystem
CBE said that there are three sub-sectors that dominate the financial technology system in Egypt so far, at a rate of about 60% of the total number of startups in the field. The payments and transfers sector makes up 36% of the financial technology ecosystem. This is followed by the lending and alternative financing sector with a percentage of 11%, then the business owners’ platforms sector with a percentage of 10%.
It revealed that the total number of clients of financial technology startups and payment service providers in Egypt reached 99.9 million by the end of 2022. The number of active clients in the last 90 days accounts for 55%, according to the data provided by 143 startups and payment service providers, taking into account that there are 25 startups and payment service providers that do not have customers yet.
Additionally, there are 72 financial technology startups and payment service providers in Egypt, with females accounting for nearly a third of their clients, representing 4.4 million clients out of a total of 15.6 million clients.
CBE explained that the total number of active female customers reached 1.2 million, or 27%, according to data provided by 72 startups in the field of financial technology and payment service providers.
The average activity of female customers is higher than the average activity of their male counterparts. The average participation of active females for each startup reached 55% of total female customers, compared to the participation of of male active clients, which amounted to 47% of its total male clients.
According to CBE, over 60% of clients are within the 20-40 age group, and 36% aged between 31-40.
Venture capital and angel investment
CBE said that venture capital and angel investments accounted for a large percentage of total investments in the field of financial technology in Egypt during the last three years, with an average of 65%. Private equity investments jumped in 2022 to 55% of total investments in the field of financial technology in Egypt.
It pointed out that the total investment of venture capital in the field of financial technology and the sectors feeding it increased significantly during the last three years to a new record of $358.8m in 2022, which is 28.7 times more than it was in 2019.
According to CBE, the average investments in sub-sectors specialized in financial technology amounted to 70% of the total investments during the past three years.
It explained that investment in advanced financing stages began to appear in the financial technology ecosystem in 2020. The investment in pre-seed and seed funding amounted to 72% of the total investments. The investment in series A or higher funding has witnessed a significant jump to 80% of the total investments executed during 2022, as eight huge deals were concluded that year, totalling more than $20m, an increase of 60% compared to 2021.
Obtaining financing
About 124 startups will be seeking financing during the next 12 months.
Startups seeking seed funding represent about 50%, followed by the pre-seed funding by 18%, then the series A funding by 16%, series B funding or higher by 7%. Pre-series A funding represents 6%, according to CBE. It pointed out that the initial investment stages (pre-seed and seed funding) were the most difficult for 55% of startups working in the field of financial technology, which indicates that there is a gap regarding the lack of investors.
CBE also noted that each startup has more than two partnership agreements with banks operating in Egypt or financial institutions, with the aim of empowering them to disseminate their technological solutions in the market.
Recently-conducted surveys have shed light on the most important requirements that startups and payment service providers need to obtain financing. They include networking and business forums with a rate of 77%, as well as international and regional exhibitions with a rate of 65%.
According to what was confirmed by 135 startups within CBE’s research, the low number of financial technology events is one of the main challenges facing startups in the field. The lack of knowledge of startups about active investors in the markets is also another challenge, along with companies’ inability to find official communication methods to reach these investors.
According to CBE, the top challenges that were not addressed by investors included the lack of support necessary for direct access to regulators, making up 54% of the total of the challenges these startups are dealing with. Additionally, the surveys showed that these startups are 50% looking forward to accessing other international markets.
The top challenges that business accelerators and incubators programs must meet were identified, as receiving financing is a problem facing 56% of the total number of startups and payment service providers, while completing direct communication with investors is a problem facing 48% of total of those companies.
