Name
Global FinTech Guide
Country Name
Egypt
SectionTitle
Payment services
Body
FinTechs belonging to this category offer alternative payment services which are supposed to provide a faster and cheaper way for national, European, and international payments for private and business customers by using new technologies.

For example, payment service providers hereby offer solutions to easily integrate several payment services in online shops.

Some FinTechs furthermore provide real cash register systems and online-reservation solutions for restaurants and shops providing their own payment services or making use of the payment services of FinTechs described above.

Introduction

Attitude of the country towards modern payment services

The Central Bank of Egypt (CBE) has contributed to building different components of the National Payment System, opening new horizons in electronic fund transfer (EFT) in Egypt. The importance for moving to EFT lies in enhancing the flow of cash in the economy, hence increasing the GDP. And the importance for CBE to lead such initiatives is to ensure the trust of the users, protect consumers, regulate the market, and ensure competitive market conditions.

Furthermore, the Central Bank of Egypt has decided to launch an initiative to distribute 100,000 free POS machines to encourage online payments, especially in small stores and shops, and has launched many advertising campaigns encouraging electronic payment.

Legal affairs

Obligations and requirements to provide payment services or ancillary services described above

The payment regulations differ depending on the method of payment. In order to increase the orientation of banking services in Egypt towards reliance on technology, CBE published the regulations governing the provision of mobile payment services issued in April 2021. Banks who wish to provide a mobile payment service need to apply for a license in order to provide such services to their agents. The process for obtaining this license includes certain documentations such as the services that shall be provided under the license and a penetration test report. The CBE published the regulations governing the Technical Payment Aggregators & Payment Facilitators aiming to cope with the fast developments taking place in collection, bill payments and the payment for services, in addition to the need for the services of technical payment aggregators and payment facilitators, which can give many merchants and companies access to financial and technical services. These regulations also illustrate the appropriate means of contracting to support the deployment of e-Payment services across alternative delivery channels, which would greatly contribute to the acceptance of the different means of payment instruments by these categories of companies and merchants, and would, in turn, ensure realising safe tangible steps for all stakeholders in the field of e-Payments. 

The regulations indicate that banks wishing to enter into contract with technical payment aggregators and payment facilitators shall apply to obtain CBE’s consent. The application needs to include certain documentation, among them: an application; a list of the delivery channels; detailed workflow to be followed for each delivery channels separately; a plan of the bank; as well as the technical payment aggregators and payment facilitators to enlist sub-merchants, such as, for example without limitation, delivery channels to be used, the number of sub-merchants to be contracted, and the targeted number and value of transactions to be collected; a statement indicating any case of complete or partial non-abidance of technical payment aggregators and payment facilitators by contractual regulations issued by CBE; to pass the necessary tests according to the alternative delivery channels to be used by technical payment aggregators and payment facilitators and to furnish CBE with evidence of passing such tests, the CBE published a regulation governing prepaid cards aiming to achieve financial inclusion and to shift towards a cashless society. In order for everyone to have access to banking services, including the youth and residents of remote places, the objective of using prepaid cards is to provide a means of payment to all classes of the society, which would ultimately expand the base of bank customers and would help achieve financial inclusion. These regulations address the risk management, the supervisory controls over the service, the customers security and the license procedure and indicate that banks wishing to provide payment services using prepaid cards to their customers shall apply for approval to the CBE, while indicating the cards to be issued and their details. 

The CBE published the regulations governing the Issuance & Acceptance of Contactless Payments, which applies to all banks in Egypt as well as branches of foreign banks. The regulations provide minimum requirements for offering contactless payment services in a safe manner. All banks should verify that all necessary measures are taken for the management of risks associated with the provision of such types of banking services. These regulations shall control the issuance and acceptance of contactless payments only, without prejudice to control regulations governing electronic banking transactions previously issued by CBE, as well as the instructions and rules regulating the execution of bank transactions, anti-money laundering and combating financing terrorism issued by CBE, as well as diligence measures issued by the unit concerned with anti-money laundering and combatting financing terrorism. 

The banks wishing to issue or accept contactless payment instruments for their customers shall apply to obtain CBE’s consent, upon satisfying certain requirements. Among them is the list of functions and services the bank wishes to offer; the bank’s scheme for issuance of payment tools or acceptance of contactless payments; conducting the necessary certifications on the cards as well as the POS.

Additional comments regarding the legal situation for payment services or what FinTech’s must be aware of in this business area

There are still a range of challenges to the distribution of e-payments despite past successes. The challenges of e-payments vary between challenges related to restrictions, laws, awareness, and culture. This type of restriction needs to increase awareness of the importance of e-payments and change laws that would facilitate e-payments and challenges related to information security and the privacy of individuals and institutions.

Economic conditions

Market size for payment services and biggest payment service providers

Over the past few years, there have been significant changes in the FinTech landscape in Egypt; new Egyptian FinTech companies are on the rise. Egypt is seen as a potential landscape for FinTechs and new Start-ups creation, as well as a magnet for FinTech investments. That being said, Egypt is now among the top 4 active African countries in the FinTech Industry, when it comes to the concentration of FinTech Start-ups as well as total FinTech investments in the continent. On the other hand, Egypt is positioned as the second country in the MENA region in terms of FinTech funding deals and amounts.

Egypt is second ranked in the Mena region in FinTech deals; it holds 23 % of FinTech deals in the Mena Region and 21 % of FinTech funding amounts in Mena countries.

Egypt is among the top four (4) active African countries in the FinTech Industry when it comes to the concentration of FinTech Start-ups in the continent. This can be stemmed from the extensive growth in the FinTech industry over the last seven (7) years, from barely two (2) Start-ups in 2014 to 112 Egyptian FinTech and FinTech-enabled Start-ups by 2021.

Egypt holds a vast market with unbanked populations of almost 50 %, limited technology savviness, 57.3 % mobile internet users as a percentage of the total population, and limited trust in digital financial services. The aforementioned statistics remain barriers to FinTech adoption.
Payments & Remittance represents the most dominant FinTech subsector in the Egyptian market with 34 Start-ups (30 %), followed by Lending & Alternative Finance having 15 Start-ups (13 %), while the rest of FinTech trends are relatively diversified, and thus complements the optimal goal to fulfil the different financial services needs of the Egyptian population.

Around nine (9) million of the Egyptian population are being served by those FinTech and FinTech-enabled Start-ups, as reported by 75 Start-ups, knowing that there are other 26 early-stage Start-ups that don’t have any customers and 11 Start-ups that didn’t report their customers.
One of the biggest payment providers in Egypt is Fawry. Its business results in the field of electronic payments showed a jump in its profits by 90.4 % during the last year. A report by its board of directors on the results of the company's business reported that it had made a net profit of| EGP 145m (approx. USD 8m).

Additional comments regarding the economic situation for payment services or what FinTech’s must be aware of in this business area

The FinTech ecosystem is still emerging. More collaborative initiatives need to be implemented to help grow this landscape in Egypt. All FinTech ecosystem stakeholders need to go hand-in-hand and work collaboratively in deploying more FinTech solutions to fulfil the unmet gap by Egyptians, raising awareness about the importance of FinTech to promote financial inclusion and support the upcoming FinTech generations in terms of required skill sets and funding, to have a win-win situation.

Limited technology savviness, 44 % mobile internet users as a percentage of the total population, low financial literacy (27 %) and limited trust in digital financial services remain barriers to adoption. For this largely untapped customer base to become material, Egypt will have to invest extensively to improve financial literacy and digital savviness. 

Funding is available, but disbursements remain marginal. According to market research, there are major funds representing a total of EGP1.5b. However, disbursements in FinTech remain marginal due to regulatory uncertainty and limited appetite to invest in FinTech Start-ups in the absence of policy enablement. Furthermore, there is a limited number of FinTech Start-ups and Scale-ups in the market. Unleashing this funding potential will require more clarity on the legal environment, improved business certainty and the existence of a larger pipeline of early-stage FinTechs in the local market.

To move forward, there is a need to develop proper curricula combining tech and business to equip Egyptian youth with ‘future-ready’ skills. This is often achieved through partnerships with academia, the private sector, and other hubs to train talent for FinTech related careers.

Authors

Disclaimer

© 2022, Marghany Advocates. All rights reserved by Marghany Advocates as author and the owner of the copyright in this chapter. Marghany Advocates has granted to Multilaw non-exclusive worldwide license to use and include this chapter in this guide and to sublicense Lexis Nexis, a division of RELX Inc. and its affiliates certain rights to use and distribute this guide.

The information in this guide provides a general overview at the time of publication and is not intended to be a comprehensive review of all legal developments nor should it be taken as opinion or legal advice on the matters covered. It is for general information purposes only and readers should take legal advice from a Multilaw member firm.

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