Shifting From Leather to Digital Wallets

December 5, 2020


For 15 years, Nasr City resident Ali Rizkallah, 35, has used several banking instruments and made digital transactions at grocery stores and malls. Mohamed Dawoud, 42, who lives on the same street, relies solely on cash transactions.

Dawoud is not alone: 67 percent of Egypt’s population is unbanked, according to the World Bank. In a country where state employees knock on doors to collect cash for gas and electricity bills, the government wants to change that. The Central Bank of Egypt (CBE) has pushed lenders to offer universal access to digital payments, mobile wallets, and other financial services.

Of the many changes to mitigate and manage the COVID-19 pandemic, digital adoption may be the most profound, compressing years of technological transformation into months.

Think of the evolution of fintech as an S-curve, which starts with growth, followed by hyper-growth, then maturity with tipping points between each stage, said Hossam Abou Moussa of Actis, a private equity firm, at a Renaissance Capital virtual event in November.

“Egypt in 2020 is in the initial stage of this tipping point from growth to hyper-growth,” he added.

During the past 10 years, electronic payments have quadrupled as a percentage of consumer spending, according to Abou Moussa. Still, 95 percent of transactions use cash.

“Egypt’s journey to a cashless society is beginning to get very exciting, and the momentum stems from the energy and collaboration of different stakeholders,” says Islam Shawky, co-founder and CEO of the digital payment provider Paymob, told Global Banking and Finance Review in November.

Noha Shaker, the founder of the Egyptian Fintech Association, shares Shawky’s sentiments. “At such high rates of financial exclusion in our region, such collaborative models will serve a good cause while generating new revenue streams for banks and financial institutions, and serving new market segments,” she told The Fintech Times in October.

Busy times in fintech

Many regulatory initiatives and frameworks related to financial inclusion have been put in place in 2020. The CBE issued two regulations in the past six months addressing the constraints of “know your customer (KYC)” documentation. KYC guidelines in financial services require verification of the identity, suitability, and risks of business relationships. For example, visiting a branch office used to be necessary to open a digital wallet. Now, digital onboarding is allowed, according to Shawky.

Another regulation clears the way for doubling the number of card readers. There are currently almost 90,000 digital points of sale (POS) in Egypt that aren’t located in banks. POS is where a customer pays for goods, services, and sales tax. A POS transaction may occur in person or online, with receipts either in print or electronically. The CBE announced it wants to add 100,000 POS devices by the end of the year.

These two significant initiatives are part of a state campaign to move to cashless methods and educate the public.

Statistics from the Federation of Egyptian Banks show the nation’s banks had issued 17.3 million debit cards, 16.2 million prepaid cards, and 3.3 million credit cards by the end of March. The latest data shows there are 88.3 million POS machines, including those in banks, and 13.3 million ATMs nationwide.

Finance Minister Mohamed Maait announced in March that Egypt plans to replace 5 million payment cards used by state employees with Meeza payment cards, which will allow withdrawals from cash machines and payments for government services and online sales, among other transactions.

In July, the Financial Regulatory Authority announced it had completed the first draft of a fintech law. The bill would regulate the use of financial technology to deliver non-bank services, covering such areas as crowdfunding, nano-finance and insurance technology. The authority said it was looking to refine the legislation’s technical aspects with an international agency’s help.

“The new laws that are in place are real enablers for growth,” said Ashraf Sabry, founder and CEO of Fawry, at the virtual fintech panel discussion hosted by Renaissance Capital. The government also issued a law for electronic payments mandating that businesses beyond a certain size must use electronic means to collect money from customers and pay employees and suppliers.

Fawry operates more than 166,000 service points nationwide, serving an estimated customer base of 29 million. The platform performs a total of 3 million transactions a day.

“Current penetration of the services provided by Fawry is very low, which reflects a sizable addressable market that Fawry is very well positioned to capture,” Sabry told Zawya in November. According to Sabry, more than 22 banks are using Fawry’s mobile platform, allowing more than 90,000 merchants to accept electronic payments. Mobile wallet transactions, one of Fawry’s primary services, witnessed “phenomenal growth” during the partial lockdown, recording more than a million downloads between March and June. He expects continued growth in 2021, adding, “What is important right now is how fast regulators adapt.”

How electronic is your wallet?

Consumers are driving growth by increasing their use of cards and mobile wallets. The National Telecom Regulatory Authority announced the number of mobile wallets in Egypt reached about 14.4 million in October, up from 12.3 million in March. According to the agency, Vodafone Egypt accounts for 65 percent of mobile wallets in the country, followed by Orange (23 percent), Etisalat (11 percent), and WE (1 percent).

Mobile wallet transactions reached 9.9 million in October, compared to 3.9 million in March. The number of transactions between wallets increased to 3.8 million in October, compared to 1.2 million transactions in March. The average value of a transaction was EGP 981.

The number of prepaid mobile phone online recharges (voice service/ internet) using mobile wallets increased 135 percent to 2.7 million in October, compared to 1.1 million in March. Other transactions (including utility bill payments, salary transfers, donations, and online shopping) increased 155 percent to 370,000 in October, compared to 145,000 in March. The average value of these transactions was EGP 180.

The increase in digital payments also is seen in Visa’s “Be Safe” survey. The study found a 78 percent increase in contactless payment users and a 44 percent increase in QR code users. Simultaneously, there has been an 80 percent increase in the number of consumers who shop via the internet and a 20 percent increase in the number who pay online using cards and e-wallets.

Ahmed Gaber, general manager of Visa North Africa, said the survey shows that behavior changes are likely to continue even after the pandemic ends.

Will evolution happen?

“The issue with [digital wallets] in Egypt is low utilization,” said Ayman El Dessouky, CEO of Ebtikar, a financial services holding company specializing in microfinance and electronic payments.

El Dessouky noted at Renaissance Capital’s virtual event that the shift to e-wallets is a two-sided issue: consumers’ willingness to use a mobile money wallet to pay and acceptance by the many retailers and service providers who are accustomed to cash. “This will take a long time to change. I would say we are moving at a high speed, but not at the maximum speed or the desired speed,” he said.

Fawry’s Sabry believes that the more value created from electronic payments, the quicker the acceptance by both businesses and consumers. Any service that can be rendered digitally will be generated over the mobile platform very soon because it is convenient for consumers and valuable for companies, he said.

However, Sabry is unsure that the electronic wallet ecosystem’s evolution will follow similar trends in Kenya or China because of Egypt’s competitive landscape. “The market will be fragmented for some time until it consolidates and develops dominant players,” he said.

Ebtikar’s El Dessouky agrees, saying Egypt is starting with card acceptance, followed by QR acceptance driven by digital wallets. “Those two models are the two vehicles to reduce cash circulation,” he said. “But the question is, how fast will that happen?”

El Dessouky says the increase will become exponential at some point, and several forces will push for the adoption of digital payments by consumers and businesses.

According to Sabry, many sectors that previously refrained from card-based acceptance tools are getting on board with digital payment platforms.

Shawky of PayMob agrees. “Industry players are onboarding tens of thousands of merchants monthly,” he said. “[That should] more than double the existing number of merchants within the coming few months.”

According to Shawky, Egypt has 3 million merchants who could benefit from a POS device or online payment gateway. Plotting a path to reaching the 3 million figure is crucial, he noted. “The private sector must play a role because it is unrealistic to expect the Central Bank to do it alone,” he told Global Banking and Finance. “Implementation needs a comprehensive financial inclusion plan targeting consumers and merchants and the support of the country’s banks.”


Room for more?

In November, Egyptian e-payment startup Raseedy became the first independent company in the country to secure a license to launch a digital wallet. The news came after the startup partnered with Saudi Investment Bank and Mastercard to establish the Meeza-certified wallet, allowing users to transfer and receive money from any digital wallet in Egypt.

“With the government’s push toward financial inclusion and digital transformation, launching our independent wallet now is the prime opportunity for Raseedy,” said Jacques Marco, CEO and co-founder.

Marco founded Raseedy alongside his brother Karl in 2018, and they have developed a network of 14,000 ATMs and 70,000 POS. Raseedy offers several services, all under the umbrella of financial inclusivity. Users can transfer money back and forth, use QR codes for purchases, pay bills, use virtual debit cards and receive remittances. The startup also offers disbursement and collection solutions tailored for payroll and microfinance business partners.

Meanwhile, Paymob — founded by Shawky, Alain El Hajj and Mostafa El Menessy — announced it had raised $3.5 million in investment capital in August.

The startup’s mobile wallet infrastructure processes more than 85 percent of transactions in the Egyptian market, partnering with financial institutions to provide digital wallet services. It also helps underserved merchants with an online gateway or POS terminals to collect payments using various options.

People seem to like the alternative, with Paymob witnessing rapid growth recently. “Expanding our operational capabilities in 2020 has helped us grow our business dramatically on all fronts. We are now servicing a much larger base of clients,” said Shawky. The current climate also has helped Paymob increase its merchant onboarding by 450 percent since the start of the pandemic.

Experts agree that considering the challenges Egypt faced in the past, the vibrant ecosystem in fintech is nothing short of remarkable, given the published numbers. That includes entrepreneurs leading in funding rounds to implementation of the government-led fintech strategy.