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Digital lenders eager to tap into Egypt’s unbanked masses

Locals at Daraw market, Egypt. The biggest challenge facing digital banks could be the 60 percent of Egyptians who say they lack internet access Alamy via Reuters
Locals at Daraw market, Egypt. The biggest challenge facing digital banks could be the 60 percent of Egyptians who say they lack internet access
  • Egypt awards first digital banking licence
  • Up to 45m Egyptians without accounts
  • Poor internet coverage a challenge

Egyptian banking history was made this month when Misr Digital Innovation (MDI) became the first Egyptian company to receive preliminary approval for a digital banking licence. 

MDI, a subsidiary of Banque Misr, will open Onebank – Egypt’s first digital bank – by the first quarter of next year at the latest.

Experts predict many more are likely to follow, as financial companies attempt to win over Egypt’s massive unbanked population. However, competition from traditional lenders and a lack of familiarity with online services will present challenges.

MDI CEO Sherif El Behery tells AGBI that Onebank – branded as ‘onebank’ for marketing purposes – would be “a fully -fledged consumer bank” with all the usual payment, deposit, credit card and loan services, available through a downloadable app. Customers will be able to open a new account in four minutes without ever entering a branch.

Following in the footsteps of Western digital banks such as Monzo and Revolut, Onebank and others could provide new ways for consumers to manage their money in a fast-growing retail banking market where most people are under the age of 25. 

Loosely defined as banks that offer all services online, digital banks have marketed themselves towards young, low-deposit clients, which make up a large proportion of the roughly 45 million Egyptian adults without bank accounts. 

El Behery says that Onebank is particularly targeting the “Gen-Z” market and hopes to attract 700,000 clients in its first year of operations, and two million in the second year.

The path to opening a digital bank was established with a Central Bank of Egypt circular last July that allows for Egyptian joint-stock companies with capital of at least EGP 2 billion ($42.1 million) and subsidiaries of foreign banks with allocated capital of at least $60 million to apply for a licence. 

Shortly after it was released, numerous companies expressed public interest in applying, including National Bank of Egypt, Emirates NBD, QNB and the Chinese firm OPay, which announced it was earmarking $60 million for an Egyptian digital bank.

Mostafa Lotayef, a counsel at Baker McKenzie member firm Helmy, Hamza & Partners, says he has advised multiple clients, mostly foreign investors, who are interested in establishing new ventures.

“In light of the huge consumer base that we have in Egypt,” says Lotayef, “I think that we will see new players in the market”. 

Data from the World Bank’s 2021 Findex survey suggests that the proportion of Egyptians with a bank account has more than doubled in the past decade, although 67 percent of adults remain unbanked. 

In the same period, non-traditional financial companies have also grown. According to the CBE, the proportion of Egyptians with transactional accounts, a broader categorisation that includes Egypt Post accounts, mobile wallets, and prepaid cards as well as bank accounts, leapt from just over 27 percent in 2016 to almost 71 percent.

One of the largest companies providing financial services is Fawry, a digital payments firm with over 50 million monthly users that processed transactions worth $11.2 billion in 2023.

Fawry’s CEO Ashraf Sabry says the company is considering applying for a digital banking licence but that it is “still in the evaluation phase”. 

Banque Misr subsidiary MDI has to persuade clients that online banking is safeAlamy via Reuters
Banque Misr subsidiary MDI has to persuade clients that online banking is safe

The company is in discussions with possible investors for such a venture, but Sabry says he is not convinced it will add significant value to the company’s operations.

“We are already providing saving and lending and payment services,” he says, suggesting that customers would not notice a big change in services on offer. “What is missing for us is mainly deposit services and lending against deposit.”

Sabry also believes that digital banking may have been overhyped. “The reality is that it’s another bank that will compete with incumbent banks,” he says.

In addition to questions around profit sustainability, there are also concerns regarding security and adherence to “know your client” legislation for companies that plan never to meet most of their customers. 

In Egypt, there is also the question of how readily customers will respond to dealing with their bank solely through a mobile application. 

Yasmeen Qotbi, a senior associate at the Al Tamimi & Company, believes that many Egyptians “prefer dealing with on-the-ground or physical banks” and that they “may not love” the idea of never meeting with a company representative.

Unfamiliarity with mobile and internet banking may prove more of a barrier in Egypt than in other markets. The 2021 Findex survey in which 67 percent of respondents said they had no bank account also found that 60 percent lacked internet access.

El Behery says that persuading clients that the technology is safe and simple to use is among Onebank’s biggest challenges. 

“We are conducting ongoing awareness and educational campaigns to inform the market about the benefits of digital banking in general and Onebank in particular,” he says.

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