By Mohamed Emam.
Financial Technology, better known as Fintech, is used to define technology's integration into financial services to improve and ease its use. When thinking of Fintech, most people's minds think of the modern paying apps that help them pay for any and everything without swiping a card or using currency, when in fact, Fintech has been around for more than half a decade. The first use of Fintech would be in the creation of credit cards in the 1950s, but it didn't stop there. Fintech is an ever-growing sector. In the 1960s, ATMs were introduced. In the 1980s, we saw the rise of bank mainframe computers and more sophisticated data and record-keeping systems, and in the 1990s, the internet and e-commerce models flourished. These resulted in the creation of online stock brokerages—examples like these outline how common Fintech has become.
In the past, Fintech was only seen in certain aspects of financial services; however, nowadays, Fintech seems to be available to be used everywhere in everyday tasks.
Thanks to the recent upsurge in apps that aid customers with everything from paying for their morning coffee to acquiring loans. Mobile payments and wallets are also growing faster than ever. That is due to the ongoing virus that has restricted people to the comfort of their homes. This has indirectly aided in the growth of the fintech industry exponentially. Ever since people started quarantine (early 2020), they've had to rely solely on digital channels to get their required financial services done. The result was a massive increase in data processing in the fintech sector. Experts estimated that the digital payment's total transaction value would rise to 4.8 Trillion US Dollars in 2020; in comparison, 2019's knew 4.1 trillion US dollars in transaction value.
Furthermore, all estimates made by experts show that Fintech is yet to peak, with the forecast predicting an increase at a CAGR (compound annual growth rate) of 12.8% from 2019 to 2023, reaching an expected transaction value of 6.7 trillion US Dollars by 2023. Not only that, but the number of fintech users has also spiked in recent years, as shown by this study from Singularity University that estimates that 46% of people use digital channels exclusively for all their financial needs. Fintech startups are also finally gaining immense attention; hence, the 24 fintech startups that have reached unicorn status in 2019 (unicorn is a startup that is worth more than 1 billion US Dollars) compared to 2018 where only five companies had achieved that status. It confirms that the age of Fintech is now upon us. The proof is in the numbers: 12.500 fintech startups in 2019 and 21.000 startups in 2020.
Fintech startups usually assist clients in one or more of the following roles. Firstly, Lending, fintech companies ease the whole lending process by making it unnecessary for clients to return to banks by making loans directly to consumers. In addition to that, fintech companies approve consumer loans swiftly, contrary to banks. Fintech companies also allow clients to transfer payments to each other without returning to the bank. Unlike the bank that charges exorbitant fees on peer to peer transfer, fintech companies can transfer the money without fees. Not only that but, the companies also transfer the money faster than the banks; moreover, they allow clients to perform international money transfers. This option has attracted many clients since banks charge an 8% interest fee on international money transfers, and as mentioned before, they're exceptionally slow. According to the Financial Post, the top money transfer company can send a transfer in 8 seconds. Another vital area in the fintech market is personal finance. Before the fintech era, people had to go to banks to ask for financial advice. They had to make budgets in a spreadsheet or use an envelope system. Thanks to the fintech startups, people can now receive financial and budgeting advice from their homes' comfort via money apps that provide such information. There are also apps that advise people on retirement and investment plans. Moreover, fintech companies are changing equity financing, fintech companies in the market sector work on connecting accredited investors to vetted up startups.
In contrast, others use the crow funding model to allow anyone to invest in startup businesses; this eases fundraising for these companies. As a bonus, virtual fundraising is preferred by investors since everything is done online. Another aspect of the fintech market is consumer banking, also known as retail banking. Traditional banks charge a substantial fee, so fintech companies in that field provide an excellent alternative for their consumers. They also have an advantage over banks because they can reach under-banked consumers, consumers who can't get a credit card or don't want to get prepaid cards from fintech companies. A recent addition to the fintech sector are new startups that focus on insurance. These companies aid consumers that they believe are under-served by regular insurance companies. Compared to traditional insurance companies, these fintech insurance companies are generally more flexible and have much more convenient insurance policies that appeal to clients in all situations.
Fintech hasn't only been booming in major countries. Take Egypt, a country that has been growing in recent years due to ongoing economic growth and the lack of banks' usage by the Egyptian populous. Multiple studies and expert statements have all concluded that the fintech sector has massive potential in Egypt. Their most significant hurdle to overcome would be the lack of trust Egyptians have in banks and companies alike. When it comes to handling their money, Egyptians live by the statement "Cash is King" hence, why they keep it in their possession rather than opening bank accounts and leaving their money in banks. Therefore the uneducated populous in Egypt so far do no trust fintech startups, as they have to learn that they are different than traditional banks. That could easily be changed if fintech companies strengthen their security by adding new features such as two-factor authentication, biometric authentication. The app could also offer weekly updates and implement real-time monitoring (in case a breach occurs). In addition to that, Fintech companies should start campaigning to educate people. If done correctly, these two things should convince Egyptians to put their trust in fintech companies thus, overcoming the hurdle. Regardless of these suggestions, there already is a large and still growing group of Egyptians who gained confidence as the fintech ecosystem in Egypt has been growing in the past couple of years. Also, several initiatives by the Egyptian Government has helped the fintech sector to grow. For example:
The development of an Egyptian fintech platform,
The conversion of the historic Central bank of Egypt into a fintech hub,
The introduction of regulatory sandboxes for fintech companies to help startups conduct live experiments in a controlled environment.
They've also started the investments, including initiatives such as the EFG-EV fintech accelerator program, founded by big names such as EFG Hermes and Egypt Ventures. Also, several funds have been recently announced to expand the fintech ecosystem in Egypt. The most prominent of them was the 1 Billion LE (Egyptian Pounds) fund started by the Central Bank of Egypt. In addition to all of that, the Egyptian Government has recently released a series of new laws supporting the fintech industry and encouraging people to use fintech services in everyday situations. For example: in court, if you pay via cash, not Visa, you get fined approximately an extra 14% of your bill. Laws similar to that are implemented throughout Egypt. But, it didn't stop there; the Government has also introduced new laws on the 28th of December 2020 that make the usage of Fintech easier and more appealing to other people.
Some of these laws concerned the decrease of the time it takes to complete a transaction between the same bank accounts from 1 day to 2 hours, while transactions between different bank accounts were decreased to 3 hours instead of 3 days. They've also reduced the bank charges on electronic transfers, and finally, e-wallets and debit cards will now be issued free of charge.
While fintech startups were finally gaining the attention they rightly deserved, other major companies have also started to invest in fintech development, and some have even launched their apps. When talking about innovation in this field, they're not only focused on innovating on their own but, they're also looking to cooperate with others in the market to make it a cooperative and competitive market at the same time. All these efforts by the Government and the big corporations have not gone to waste. As recent statistics show, one of the most notable fintech startups in Egypt, an app that uses e-payments, has now gained over 20 million users and processes nearly 2.1 million daily transactions.
Although Fintech in Egypt has taken a massive leap in recent years, the best has yet come. Egypt has only begun its fintech revolution. With the immense potential, the sector has in the country, it is clear that the fintech sector will grow exponentially in the near future.
In conclusion, the fintech sector's growth across the globe is a clear indication of a new age that is now upon us. It is clear now that corporations and countries alike must start innovations, or they'll risk being left behind. Fintech isn't just a trend that'll die down in a couple of years. It is the start of a technological revolution in finance that aims to make every aspect of financial services easier for its clients. It is also clear that this is only the beginning of Fintech's rise to the top. Like every study, research, and statistics that show and predict: Fintech's will grow at an exponential rate; the fintech industry shows no signs of slowing down so, it is safe to say that you're now witnessing history in the making. You're witnessing a technological revolution that will surely change the way we perform financial services forever. Now I ask you if you would instead take part in changing the finance industry as we know it and create a history or watch from the sidelines as history happens before your eyes?
About the Author
Mr. Mohamed Emam is founder and senior partner at Emam & Partners, an independent full service corporate & arbitration law firm based in Egypt since 1980. The firm consists of 5 partners and more than 25 associates.
Mr. Emam, is an expert in Commercial, Corporate, Contracts, Insurance, Employment and Labor Laws. He is the head of Corporate and M&A Department besides that that he is an active member of the Arbitration Department. With over 20 years of experience, MR. Emam has advised a considerable number of local and international clients on doing business in Egypt.
He masters the skill of gaining the trust of clients - a fact proven by the long-standing relationship he has built with his clients who continue working with him after the incorporation of their companies. Established and new clients seek their legal input on the day-to-day issues. Issues such as: addressing labor issues, reviewing various types of contracts, undertaking all corporate work, and more.
Furthermore, he works as legal counsel for major foundations and well known international organizations. More information see: https://emamandpartners.com