Omar Saleh, Mahmoud Nouh, and Monica Brand Engel in Cairo. (Photo Credit: Quona)

Egypt: Fintech’s Next Big Opportunity

By Monica Brand Engel

To say 2021 was a banner year for fintechs in Egypt is an understatement. The $159 million raised across 32 fintech companies last year was nearly a 330% increase over 2020, when $37.1 million was raised across 25 companies.

Source: The Flip Africa

To help break down the drivers of Egypt’s fintech boom, and to explore two fintech models that have gained traction, Quona organized a webinar on March 23 with local and global investors Accion Venture Lab, Algebra Ventures, DisrupTech and Egyptian fintech and fintech-enabled companies Khazna and Capiter (both of which are Quona portfolio companies). Here’s what we covered:

What’s driving increased interest and funding in Egyptian fintech?

Sheer market size and growth: Egypt is the third largest population on the continent and second largest in terms of total GDP, with the fastest growth of any country on the continent in 2021.

Egypt’s young, digitally-savvy population: 75% of Egypt’s population of 110 million is under the age of 40, and over 50% of the population owns a smartphone. That, combined with the fact that 2/3 of Egyptians do not have access to formal financial services, creates a massive market opportunity for digital financial inclusion.

Progressive government and regulatory support: Egypt’s government has prioritized digital transformation across all sectors, passing laws to help facilitate digitization. In addition, Egypt’s regulators — the Central Bank of Egypt (CBE) and the Financial Regulatory Authority (FRA) — have taken a progressive approach that is incentivizing digitization and enabling swift fintech innovation through a number of initiatives, including:

  • Licensing approval from the FRA that gives third parties, including fintechs and fintech-enabled models, the ability to obtain lending and payments licenses, which are creating massive opportunities for embedded finance
  • An instant payment network, i.e. InstaPay, launched recently with the CBE, enabling instant settlement of account-to-account funds transfers, an infrastructure fintechs can leverage
  • Digital KYC infrastructure the CBE will be launching within the next 6 months to facilitate digital onboarding of customers
  • Point of sale subsidization by the CBE, which, over the past two years, increased the amount of point of sale terminals in the country over 8x
  • Increased funding through a CBE-supported, 1.3B EGP (USD 75M) fintech-focused fund that will accelerate the local fintech ecosystem
  • Digital financial literacy education through CBE-driven programs like FinYology, which are building a customer pipeline for digital acceptance that will further expand the market for fintechs and enable customers to engage with fintech products in a meaningful way

The flywheel of recent unicorns and a second generation of founders. Digital payments company Fawry, which launched in 2008 and went public in 2019, was the first fintech company in Africa to go public through an IPO on Africa soil, and was a marked success for the ecosystem. Alumni of other MENA unicorns like SWVL are founding new fintech players — both VCs (like Disruptech) and companies (Telda and Capiter). Serial entrepreneurs and experienced teams are leveraging their experiences to build stronger, more sustainable companies.

COVID-19. Similar to other emerging markets, the global pandemic was a catalyst for digitization in Egypt at a rate never seen before, with 72% of surveyed Egyptians reporting they have become more digital during COVID.

Some of the rising fintech stars of Egypt are playing out fintech themes dominant in other geographies where Quona invests. The webinar focused on two of these trends: B2B e-commerce and superapps.

Capiter and B2B E-Commerce

About B2B E-commerce:

Embedded finance models — which integrate financial services to act as a catalyst for growth for the adjacent core business — are a dominant theme in Quona’s portfolio. For example, we’ve now invested in three B2B e-commerce models — Wasoko in Sub-Saharan Africa, which just raised a $125M Series B led by Tiger Global; Ula in Indonesia, which recently raised a $87M Series B with funding from Bezos Expedition Fund; and Capiter in Egypt, which raised a $33M Series a last year led by Quona and MSA — that have successfully integrated financial services to better serve the small merchants they target.

About Capiter:

Founder: Capiter co-founder and CEO Mahmoud Nouh is a repeat entrepreneur who came from a logistics background before co-founding Egyptian mobility platform SWVL, which last week went public on NASDAQ— the first MENA tech company to be listed on the US exchange.

Description: Capiter is the leading B2B marketplace in Egypt, connecting small merchants with merchants and suppliers. Capiter is also the only B2B e-commerce player in Egypt that:

  • Has a license from the CBE for lending and payments
  • Operates outside of Cairo and in multiple verticals
  • Has vertically integrated operations and is in discussions to expand through MENA

Pain points that B2B e-commerce is addressing in Egypt:

  • Fragmented supply chain, felt by both small merchants and manufacturers. Small merchants in Egypt have to deal with an average of 40–50 manufacturers per week to order and receive their goods, which means extensive coordination, reporting, and travel for the merchants. Sellers and manufacturers (including international FMCGs) reach only a fraction [~ 20%] of the market due to this extensive fragmentation. Capiter solves this pain point for both parties by a) providing a one-stop mobile app for merchants for direct ordering and delivery of goods, and b) by unlocking the underserved market for manufacturers, who were previously unable to reach rural and remote areas in Egypt.
  • Financial inclusion, as SMEs in Egypt face a $80 billion funding gap. Capiter, similarly to many embedded finance models, offers lending to its merchants to address this gap. The company, which was the first non-fintech company to receive a payments license from the CBE, is also rolling out payments through a Buy Now Pay Later (BNPL) product, with the belief that integrating payments is critical to helping merchants understand the value of digital payments and building a complete e-commerce ecosystem that supports digitization across the entire supply chain.
  • Lack of existing logistics infrastructure. According to Nouh, e-commerce includes three pillars: logistics, financing, and payments. Unlike many other markets, Egypt did not have established logistics infrastructure or third party logistics players that Capiter could plug into. So Capiter had to build this on its own, focusing from the beginning on building an automated, tech-enabled logistics platform. Capiter’s logistics strategy has become one of its core differentiators and has enabled the company to scale massively: though Capiter launched after other B2B e-commerce models in Egypt, it is the only one that has successfully moved outside of Cairo, now operating in 12 cities. Watch the webinar or this great overview of Capiter’s logistics and warehousing strategy to learn more.

What’s next for Capiter:

  • Launching payment services within the next few months
  • Leveraging automated logistics infrastructure to expand across the Middle East and Africa

Khazna and Financial SuperApps

About Superapps:

Digital platforms globally are increasingly looking at repackaging themselves as super apps, combining different services or offerings into one app. What we saw initially in Southeast Asia with AliPay, GoJek, and Grab is now happening globally, as companies look to build sticky relationships with customers by layering on additional products or services on top of their core offerings. Quona’s portfolio is full of companies taking a page out of that playbook to broaden their service offering, and Khazna — which just raised a $38M Series A led by Quona — has taken a super app approach from the outset.

About Khazna:

  • Founder: Before starting Khazna, co-founder and CEO Omar Saleh worked in engineering and investing, and also led WorldRemit’s expansion into MENA.
  • Description: Khazna empowers customers with a convenient, user-centric, and transparent financial super app so they have the opportunity to become financially independent.

Pain points that financial superapps are solving in Egypt:

  • Large unbanked population, with over 50% of Egyptians banking informally. This population primarily uses cash, and, when they need to borrow money, go to their employers or friends and family. At the same time, most of this segment actively uses smartphones. Khazna is aiming to bridge that gap, providing a mobile experience to take informal, cash-driven experiences into the formal system. Khazna prides itself on its customer centricity and engagement and, through surveys, has found strong customer satisfaction around convenience, time and money savings, and financial independence.
  • Banking infrastructure challenges. Egypt’s banks have made significant strides in financial inclusion, but typical branch models aren’t scaleable to the masses in emerging markets. Khazna sees this as an opportunity to build customer-centric, transparent experiences for typically underserved consumers. Khazna is acting on this opportunity, partnering with banks to provide infrastructure with the guidance of the CBE.

Khazna’s evolution

Khazna got its start with an Earned Wage Access product, which was driven by market research demonstrating that, in Egypt, employers were frequently providing cash loans to employees. Khazna set out to replace and digitize this process, and has since expanded to gig workers. Khazna has since added offerings such as BNPL — which is now available at over 1,000 merchant stores in Egypt — as well as bill payments and a pre-paid debit card.

Impact of regulatory support

Nclude, the CBE-sponsored fintech fund launched by three Egyptian banks, invested in Khazna’s Series A — marking one of the fund’s first investments. This vote of confidence is not the first tangible support that Khazna has received from regulators — CBE approval of Khazna’s pre-paid Meeza debit card was the first of its kind.

What’s next for Khazna:

  • Doubling down on Egypt to increase Khazna’s user base to 1 million by the end of 2022
  • Product expansion
  • Team growth

Quona is excited to have both Capiter and Khazna in our portfolio, exciting lead investments into Egypt’s dynamic and expanding fintech ecosystem!

The full recording of the webinar about Egypt’s Fintech Opportunity is here.

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Quona Capital is a venture firm specializing in financial technology for inclusion in emerging markets. Learn more at quona.com.

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Quona Capital

Quona Capital

Quona Capital is a venture firm specializing in financial technology for inclusion in emerging markets. Learn more at quona.com.

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