Unlocking Fintech For Small Businesses

November 2, 2023


As governments accelerate the digital transformation of their economies, they must ensure that citizens and businesses are comfortable making payments online. “The MENA region has actively embraced digital payments, enabled by a supportive government focus and a strategic push toward digital, or cashless, economies,” according to Fast Company Middle East,  a business media platform.

To give citizens more access to financial services, Egypt has pushed for more use of financial technology (fintech) such as electronic payment systems, mobile payment apps, mobile wallets, and contactless payments.

But it is more than just the end consumer that should be using digital payment channels.  The largest driver of the economy — micro, small and medium sized enterprises (MSMEs) — also need to embrace fintech.

“By providing diverse payment options, businesses can accommodate customer preferences, increase customer satisfaction and ultimately drive business growth,” said Ella Hernandez, senior business development manager at True Payment Services LLC in a blog on LinkedIn.

Jacques Marco, founder and CEO of the digital payments platform Axis, told Daily News Egypt in May, “Small businesses are the backbone of the Egyptian economy, contributing to 80% of Egypt’s GDP.” However, he added, “50% of these [businesses] still don’t have access to banking services and are therefore heavily cash-based, which impacts their ability to manage and grow their business effectively.”

Necessary shift?

Globally, MSMEs started shifting to digital payments during the pandemic when companies began to increase their online presence. The Visa Global Back to Business Study – 2022 SMB Outlook, published in January 2022, found 82% of small and micro businesses surveyed said they plan to accept some form of digital option in 2022 and 73% see accepting new forms of payments as fundamental to their business growth.

Jeni Mundy, Visa’s global head of merchant sales and acquiring, said, “The digital capabilities that small businesses built up during the pandemic – from contactless payments to e-commerce – helped them pivot and survive.”

According to a report by Strive Community, a global initiative of the Mastercard Center for Inclusive Growth, “Globally, the value of merchant payments made via mobile money doubled in 2021, reaching an average of $5.5 billion in monthly transactions, up from an average of $2.8 billion in 2020.”

In a March 2023 op-ed in Forbes, Joe Camberato, CEO and founder of National Business Capital, listed several ways fintech helps “business owners save time, cut costs and improve how they manage their money.”

He noted that leveraging methods of digital payment helps MSMEs better manage their financial operations and enhance customers’ experiences.

In addition to lower costs and improved cash flow management, digital payment systems allow businesses to receive analytics about sales, revenue and customer engagement.

“This information can help businesses improve their marketing strategies, provide a more personalized experience and identify new revenue opportunities,” said Camberato. Fintech services also help businesses expand their customer base by providing “access to global payment networks.”

Perhaps most important, fintech allows MSMEs to meet customer expectations. Consumers have become increasingly willing to use digital payments, especially while purchasing online.

According to Origins Stamp, a software and blockchain experts’ platform, “Digital payments provide a more convenient means of conducting transactions, whether it be for online shopping or day-to-day transactions, reducing the reliance on physical cash and increasing financial literacy.”

Skyrocketing market

Egypt’s fintech market is one of the most promising in the region, a market that is significantly expanding and drawing the attention of investors. “The fintech industry is expected to witness significant growth … due to the government’s extensive efforts, the Central Bank of Egypt, and the private sector,” said Magdy Hassan, CEO of Taly for Digital Payments, in an interview with Al-Ahram.

According to the FinTech Landscape Report 2023, Egypt is home to 177 fintech and fintech-enabled startups and payment service providers (PSPs). The report noted that “innovative startups and PSPs have increased by 5.5 times within the last five years, due to the rising demand for fintech and fintech-enabled solutions in the Egyptian market.”

The dominant sub-sectors are payments and remittances, followed by lending and alternative finance. The Egyptian market also favors B2B, rather than business-to-consumer solutions.

“The digital payments market in Egypt is projected to grow by 14% (2023-2027) resulting in a market volume of $28 billion in 2027,” according to Statista.

The market’s rapid growth has triggered the flow of investments to the sector. According to FinTech Global, a provider of fintech information services, “fintech investment in Egypt reached $259 million in 2022, a 12.6% increase from the previous year.”

Maximizing fintech’s use

The growing fintech landscape worldwide comes with pressure on governments to accelerate efforts to make services available to more people. “The overall financial services industry is enormous and very profitable, yet struggles with innovation and customer experience,” according to the Boston Consulting Group’s report Global Fintech 2023: Reimagining the Future of Finance. “More than half the world’s population remains unbanked or underbanked, and technology continues to unlock new-use cases in leaps and bounds.”

In its efforts to increase the rate of financial inclusion, the Egyptian government has been pushing to maximize the penetration of fintech services and digital infrastructure. In the Ministry of Communications and Information Technology’s Egypt Fintech Landscape Report 2023, 64.8% of adults have access to financial services.

To encourage private companies to embrace e-commerce, the BCG report noted, “the Central Bank of Egypt has eliminated all fees that are incurred by private MSMEs wishing to activate e-commerce services for the first time.”

Given its focused strategies in the pursuit of digital transformation and financial inclusion, Egypt can become a powerhouse for fintech and fintech-enabled startups in the region, said the report.

“Embracing technology and fostering an environment of innovation will be vital for unlocking the full potential of this transformative sector and driving Egypt’s financial future into a new era,” said Sameh Zakaria, deputy branch manager at CIB Egypt in Alexandria, in a June 2023 article on LinkedIn.

Governments in the MENA region, including Egypt, are keen on preparing their populations for digital transformation in various sectors. A report by Amazon titled “Reimagine Payments” said regional governments “are pushing to develop their digital economies, including moving toward a cashless society.”

The report adds that the use of digital payments in the MENA region is expected to double in 2023 compared to 2019.

In Egypt last year, however, cash on delivery still accounted for 57% of online purchases, according to Statista, a data curation website. Reliance on cash accompanied by limited technological awareness constitutes a barrier to the wide adoption of fintech in Egypt.

According to Egypt Fintech Landscape Report 2023, the financial inclusion rate in Egypt among citizens aged 16+ is estimated to be 64.8%.

Driven by technology, younger generations are most likely to use digital payments and fintech services. “Over 60% of customers served are between 20 and 40 years old,” according to the Central Bank of Egypt’s Fintech and Innovation Strategy Report.

Jana Magdy, a sophomore business student who lives in Florida in the United States, “I use digital methods like Apple Pay to pay in grocery stores, restaurants, Uber and gas stations as I find it very convenient, accessible and accepted almost everywhere.”

However, she doesn’t do that in Egypt. Magdy noted she would like to use such methods more frequently in Egypt if there were higher levels of security and a strong verification system to avoid theft and hacks.

Hams Tamer, a graduate of the faculty of Al-Alsun Ain Shams University, agreed, saying she used digital payments like Fawry and Vodafone cash to pay for tuition and other university-related transactions because they are common in Egypt. She notes these methods are more convenient and charge low service fees.

However, Tamer is still skeptical about using digital payments while shopping online. “I prefer to order online and pay in cash, due to the fear of being hacked,” she said.

On the other hand, Salma Nasr El-Din, a graduate of the Faculty of Economics and Political Science Cairo University, said she never uses digital payments. “I would love to depend more on digital payments in the future,” she said, “and I think I would be encouraged to adopt these methods if I receive incentives like getting a certain number of points on every transaction that I make.”

With the right systems and the right strategy, MSMEs could find fintech boosts their business and brand loyalty.