Fintech: The Future of Global and Egyptian Finance

Investments in Egypt and How to Create the Right Climate for Them
February 16, 2021

Fintech: The Future of Global and Egyptian Finance

Financial Technology or better known as Fintech is the term used to define the integration of technology into financial services to improve and ease its use for customers. When thinking of Fintech most people’s minds think of the modern paying apps that help them pay for any and everything without swiping a card or using currency, when in fact Fintech has been around for more than half a decade.

The first use of Fintech would be in the creation of credit cards in the 1950s, but it didn’t stop there fintech was an ever growing sector, in the 1960s came the ATMs, in the 1980s we saw the rise bank mainframe computers and more sophisticated data and record keeping systems, in the 1990s the internet and e-commerce models flourished which resulted in the creation of online stock brokerages websites aimed examples like these outline how common fintech has become it is now used daily which shows how much its grown since it first started.         

In the past, fintech was only seen in certain aspects of financial services however nowadays, fintech seems to be available to be used everywhere in everyday tasks this is thanks to the recent upsurge in apps that aid customers with everything starting from paying for their morning coffee to acquiring loans. Mobile payments and wallets are also growing faster than ever and that is due to the ongoing virus which has restricted people to the comfort of their homes, this has indirectly aided in the growth of the fintech industry exponentially.

Ever since people started quarantine in early 2020 they’ve had to rely solely on digital channels to get their required financial services done which has caused a huge boom in the fintech sector therefore, causing experts to estimate that the total transaction value of digital payment to reach 4.8 Trillion US Dollars in 2020 in comparison to 2019’s 4.1 trillion US Dollar in transaction value. Furthermore, all estimates made by experts show that fintech is yet to peak with the estimates predicting an increase at a CAGR (compound annual growth rate) of 12.8% from 2019 to 2023 reaching an expected transaction value of 6.7 trillion US Dollars by 2023. Not only that but the number of fintech users has also spiked in recent years as shown by this study from  Singularity University that estimates that 46% of people use digital channels exclusively for all their financial needs. Fintech startups are also finally gaining immense attention hence, the 24 fintech startups that have reached unicorn status in 2019 (unicorn is a startup that is worth more than 1 billion US Dollars) compared to 2018 where only 5 companies had reached that status further confirming that the age of fintech is now upon us and to further prove that statement here is a statistic of fintech startups that have been created in 2019 and in 2020, 12,500 startups and 21,000 startups respectively.      

Fintech startups usually assist clients in one or more of the following role. Firstly, Lending, fintech companies ease the whole lending process by making it unnecessary for clients to return to banks by making loans directly to consumers in addition to that, fintech companies approve consumer loans swiftly, contrary to banks. Fintech companies also allow clients to transfer payments to each other without the need to return to the bank also unlike the bank who charge exorbitant fees on peer to peer transfer, fintech companies allow the clients to transfer the money without the addition of the fees not only that  but, the companies also transfer the money faster than the banks; moreover they allow clients to perform international money transfer which has attracted a lot of clients since banks charge an 8% interest fee on international money transfers and they’re exceptionally slow. On the other hand, fintech companies are sending money quicker and cheaper according to the financial post the top international transfer money fintech company can send a transfer in 8 seconds.

Another major category in the fintech market is personal finance, before fintech companies people had to go to banks to ask for financial advice and they had to create budgets via spreadsheet or an envelope system alone but, thanks to the fintech startups people can receive financial and budgeting advice from the comfort of their homes thanks to the money apps on the market that provide such information, there are also apps that advice people on retirement and investment plans. Moreover, fintech companies are changing equity financing, fintech companies in the sector of the market it work on connecting accredited investors to vetted up startups while others use the crow funding model to allow anyone to invest startup businesses, this eases fundraising for these companies and as an added bonus virtual fundraising is preferred by investors since everything is done online. Another aspect of the fintech market is consumer banking also known as retail banking, traditional banks charge a substantial fee so fintech companies in that field provide a great alternative for their consumers, they also have an advantage over banks die to the fact that they can reach under-banked consumers, consumers that can’t get a credit card or don’t want one can get prepaid cards from fintech companies.

Lastly, a recent addition to the fintech sector are new startups that focus on insurance these companies aid consumers that they believe are under-served by regular insurance companies when compared to regular insurance companies these fintech insurance companies are generally more flexible and have much more convenient insurance policies that appeal to kinds of clients in all situations.    

Fintech hasn’t only been booming in major countries, take Egypt for example a country that has been economically growing in recent years due to ongoing economic growth and the lack of usage of banks by the Egyptian populous, multiple studies and  expert statements have all come to the conclusion, that the fintech sector has huge potential in Egypt. Their biggest hurdle to overcome would be the lack of trust Egyptians have in banks and companies alike when it comes to handling their money, Egyptians live by the statement “Cash is King” hence, why they keep it in their possession rather than creating bank accounts and leaving their money in banks, which is the reason behind why the uneducated populous in Egypt does no trust fintech startups.

But, that could easily be changed if fintech companies strengthen their security, by adding new features such as two-factor authentication, biometric authentication, they could also perform updates weekly on the app and implement real-time monitoring to monitor when and where a breach occurs all these additions to their already exceptional security also in addition to that they should start campaigning to educate people about fintech companies these two things if done correctly together should convince the now educated Egyptians to put their trust in fintech companies thus, overcoming the hurdle. But, regardless of if they improve their security or not it seems that fintech has already gained the trust of majority of Egyptians as the fintech ecosystem in Egypt has been growing in the past couple of years not only that but, the Egyptian government has also taken initiatives to help the fintech sector grow these include the creation of the fintech Egypt platform and the conversion of the historic Central bank of Egypt into a fintech hub and the introduction of regulatory sandboxes for fintech companies to help startups conduct live experiments in a controlled environment.

They’ve also started the investment initiative which includes initiatives such as EFG-EV fintech accelerator program, which was founded by big names such EFG Hermes and Egypt Ventures not only that but several funds have been recently announced in the name of expanding the fintech ecosystem in Egypt, the most prominent of them being the 1 Billion LE (Egyptian Pounds) fund that was started by the Central Bank of Egypt. In addition to all of that that the Egyptian Government has recently released a series of new laws in support of the fintech industry and to encourage people to use fintech services in everyday situations for examples in court if you pay via cash not visa you get fined approximately an extra 14% of your bill, laws similar to that one have been implemented throughout Egypt.

But, it didn’t stop there the government has also introduced new laws on the 28th of December 2020 that make the usage of fintech easier and more appealing to other people, some of these laws were  the decrease of  the time it takes to complete a transaction between accounts of the same bank from 1 day to 2 hours while transactions between different bank accounts were decreased to 3 hours instead of 3 days,  they’ve also reduced the bank charges on electronic transfers, and finally, e-wallets and debit cards will now be issued free of charge from now on. While fintech startups were finally gaining the attention they rightly deserved other major companies have also started to invest in fintech development some have even launched their own apps.

Even so, they’re not just focused on innovating on their own but, they’re also looking to cooperate with others in the market to make it a cooperative and competitive market at the same time. All these efforts by the government and the big corporations has not gone to waste as in a recent statistics it is shown that one of the most notable fintech startups in Egypt, an app that uses e-payments, has now gained over 20 million users and processes nearly 2.1 million transactions daily.

Although fintech in Egypt has taken a huge leap in recent years the best is yet come Egypt has only began its fintech revolution and with the immense potential the sector has in the country it is clear that the fintech sector will grow exponentially in the near future.    

In conclusion, the growth of the fintech sector across the globe is a clear indication of a new age that is now upon us. It is clear now that corporations and countries alike must start innovations or they’ll risk being left behind. Fintech isn’t just a trend that’ll die down in a couple of years it is the start of a technological revolution in finance that aims to make every aspect of financial services easier for its clients, it is also clear that this is only the beginning of fintech’s rise to the top as every study and statistic that have been published predict fintech’s growth at an exponential rate through the next couple of years, the fintech industry shows no signs of slowing down so, it is safe to say that you’re now witnessing history in the making, you’re witnessing a technological revolution that surely will change the way we perform financial services forever so, now I ask you would you rather take part in changing the finance industry as we know it and create history or watch from the sidelines as history happens before your eyes?  

Mohamed Mahmoud Emam
Founding & Managing Partner
Emam & Partners

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