Sunday, 10 April 2022

What’s Next for fintech? Agriculture, healthcare + a raft of industry-specific regulations and legislation

What’s in store for the fintech space in Egypt: For the past couple of years, fintech startups have been doing well for themselves, with fintech startups leading other sectors in terms of venture capital funding in Egypt in 2020 and 2021. Last year, 32 fintech startups raised over USD 159 mn in investments, up from around USD 37.1 mn in 2020, according to the Central Bank of Egypt’s (CBE’s) Fintech Landscape Report, which we cover in greater detail here and here.

Enterprise hosted a roundtable discussion with major players in the sector to discuss what’s next for fintech. In the first part of our discussion, the entrepreneurs and investors take us through the untapped potential of fintech and which industries in Egypt are most primed for change through fintech.

We highly recommend you listen to Part 1 of our discussion on our website (listen, runtime: 44:59) or on: Apple Podcasts | Omny | Anghami (and later in the day on Google Podcasts and Spotify). Or you can read edited excerpts of our conversation below:

A new fintech law in the offing? We also get rare insights from the central bank on what regulators are working on to help expand and propel Egypt’s fintech sector to the next stage of its development, including a new law to regulate crowdfunding and peer-to-peer lending. Our guests are:

  • Karim Nour, the co-founder of Kashat — the first nano-finance company in MENA providing financial services to the un- and under-banked. Karim is also the non-executive chairman of Tarek Nour Communications Group
  • Omar Saleh, the CEO and co-founder of Khazna. Omar joined us the same day his company announced a blockbuster USD 38 mn Series A round.
  • Aly El Shalakany, a corporate lawyer and longtime angel investor turned venture capitalist who is now the CEO of the Cairo Angels Syndicate Fund.
  • Ashley Lewis is a partner focused on Africa with Accion Venture Lab and has been investing in financial services and social ventures across sub-Saharan Africa and Southeast Asia for over a decade. El Shalakany is an investor in Kashat while Lewis was one of the first investors at Khazna.
  • Dr. Rasha Negm. Rasha is an assistant sub-governor of the CBE where she heads fintech and innovation. Rasha is not a newcomer to fintech. A veteran of the banking industry, she led product strategy for Vodafone Cash before joining the CBE.

How far along is fintech in Egypt? Fintech is slowly becoming part of life around us, but as for how long will it take us to fully embrace fintech? It’s going to take less than a decade, Negm believes. In the last year, Egypt has seen an increase of 20 startups , a 300% increase in funding, and more than double the average ticket size when it comes to fintech and fintech-enabled startups, she explained. The potential is there, but it’s important to establish the foundations of the landscape and a pipeline of early-stage startups to see the sector grow in the coming years, she added.

What’s the next frontier for fintech? Agriculture + healthcare, says Lewis: The concept of embedded finance allows for more intersectionality between different sectors, Lewis told us. Fintech could potentially expand into sectors such as agriculture and healthcare in the coming period, she believes.

For Nour, it’s ins.: It could make ins. products more accessible to average Egyptians by offering them bite-sized products instead of them being “unswallowable packages,” he explained.

Negm sees digitized ROSCA, supply chain and B2B as next: Digitizing anything that is embedded into Egyptian culture will also have a big impact, believes Negm, pointing to the ROSCA (or gam’iya). An important subset to expand into during the current macro environment is supply chain finance and B2B financing, she added.

Ditto El Shalakany: B2B financing “is going to be extremely important to keep pushing the economy forward, believes El Shalakany, especially under the CBE’s policy to promote lending to SMEs.

What is needed to get there? More data: To successfully venture into these sectors, fintech firms will need to incorporate credit scoring based on alternative data, which is what Kashat is focused on at the moment, Nour says.

The CBE is working to build a behavioral credit scoring hub with I-Score, Negm told us. The infrastructure is being set up and will allow the credit bureau to use behavioral scoring to provide financial services such as digital lending to customers, she said.

The CBE is expecting to roll out e-KYC next year, Negm told us. This will make it easier for platforms to verify a customer’s identity and relevant information electronically, instead of having to appear physically at a bank branch and fill out paperwork, Negm explained. The implementation takes a bit of time as it needs a lot of backend integrations to verify citizens’ data, but it’s expected to be out next year, she said. The central bank introduced streamlined light KYC regulations that paved the way for banks to use an agent to onboard customers using only each individual’s national ID.

Crowd-funding, peer-to-peer lending will be regulated under new legislation: The CBE is working on a new bill alongside the Financial Regulatory Authority (FRA) that will cover crowd-funding, peer-to-peer lending, and more in one piece of legislation, Negm revealed.

Negm expects the final stage of discussions with the FRA to be completed by the upcoming quarter, but the law will still need to be approved by the House of Representatives. Look for more on this in the coming months and for the bill to become a law in 2023.

Meanwhile, the digital banking license is set to be introduced in 2Q2022, Negm said.  Digital banking will further increase the financial inclusion in the country as more and more people adopt digital financial services, Negm indicated. As Enterprise noted last year, the prospect of digital banks already has interest from major players such as e-Finance and Banque Misr.

And the instant payment network (IPN) is already here: The IPN is a network that links different banks and financial services providers, allowing payments sent between accounts at different banks to be credited and debited instantly.

Background: As Enterprise previously noted, the CBE issued regulations for the IPN back in November, setting transfer limits and procedures for accessing the network, before introducing it to the market in March.

More than just an app: The IPN will create an open banking architecture that banks, payment service providers (PSPs), and fintech companies can integrate with, paving the path for customer-centric apps, Negm explains.

The IPN could be a “game changer” for the fintech sector, believes Saleh. “The IPN provides basic functionality that we’ve been waiting for to reduce reliance on cash,” he said. There are so many use cases across the board, but the underlying infrastructure could completely transform the way we use money, he added.

What more do the fintech players want to see from the CBE? Furthering lines of communication and widening the scope of engagement between regulators and market players, Nour and El Shalany said. That would include more transactions that come by fostering cooperation within the banking sector, Nour believes, pointing to the new USD 85 mn fintech fund which has three state-owned banks involved. Lewis, who noted that the CBE was the regulator that engaged with her the most across the markets she operates in, simply asked that the CBE continue to be open to international investment. Meanwhile, as the global macro climate gets tougher, Saleh believes the CBE needs to keep fintech as a priority for public policy.

NEXT WEEK- Karim, Ashley, Aly, and Omar continue our discussion on what’s next in fintech, this time focusing on the future outlook of investments and growth in the local sector. We discuss expectations for fintech ticket sizes in 2022, the potential for consolidation, and challenges the sector still faces such as finding talent.


CORRECTED ON 12 April 2022-

The CBE’s fintech report noted that Egyptian fintech startups brought in USD 159 mn in VC funding in 2021 and not USD 157 mn as an earlier version of this tory stated. The story was edited to denote background information and context.

Your top stories on future trends for the week:

  • Swvl makes Nasdaq debut: Shares in Cairo-born mass transit app Swvl rose on their Nasdaq debut earlier this month as the company concluded its SPAC merger with Queen’s Gambit Growth Capital.
  • Khazna closes bumper series A round: Egyptian fintech startup Khazna raised USD 38 mn in equity and debt in a series A funding round.
  • Mental health startup O7 Therapy closes seed round: Egyptian online mental health startup O7 Therapy has raised a USD 2.1 mn seed round in what the startup says is the largest seed round for a mental health startup in the Middle East.
  • Shift EV raises USD 9 mn: Electric mobility startup Shift EV has raised USD 9 mn in funding, putting it on the road to transform the EV landscape not just in Egypt, but across emerging markets with home-grown battery technology.
  • New measures to attract VCs: A cooperation agreement signed last week could be a first step toward making it more attractive for VC firms to directly invest in Egypt.
  • Flat6Labs launches new Saudi seed fund: Flat6Labs and the Saudi Venture Capital Company have launched a new seed fund in Saudi Arabia that is expected to back more than 60 early-stage startups over the next three years.

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