In a bid to fortify its foreign currency reserves and modernize money transfers, the Central Bank of Egypt (CBE) has announced the launch of the second phase of its remittance digitization project. This ambitious effort aims to enlist 12 Egyptian banks to streamline the inflow of remittances from the country’s sizeable expatriate community. While the initiative indicates the importance of remittances in shoring up Egypt’s fragile economy, it also raises questions about the dominance of established players and the systemic sidelining of local fintechs.
Since its inception, Egypt’s remittance digitization program has focused on providing banking products to beneficiaries, predominantly women, who make up 85% of the 1.5 million recipients. The second phase will introduce incentives to encourage the use of banking and savings products, ranging from accounts and prepaid cards to electronic wallets and foreign currency tools. Additionally, agreements with Gulf-based banks and exchange companies aim to streamline transfers from the Gulf, home to the largest share of Egyptian expatriates.
The stakes are high. In the first ten months of 2024, remittances surged to $23.7 billion, a staggering 45.3% increase from the same period in 2023. September alone witnessed inflows of $2.7 billion, more than double the $1.3 billion recorded a year earlier. The numbers are a testament to the growing Egyptian diaspora — now 14 million strong — and the critical role they play in stabilizing an economy grappling with persistent foreign currency shortages.
Despite such milestones, the government’s attempts to encourage foreign currency inflows through initiatives like the car import exemption scheme have largely flopped. Launched in late 2022, the program aimed to rake in $2.5 billion but managed to scrape together a mere $450 million. It appears that Egyptians abroad are willing to send money, just not in the ways the government envisions.
The remittance market’s growth has been a boon for international giants like Western Union, MoneyGram, and Ria Money Transfer. These players dominate the sector, with Western Union leading the charge as the go-to service — reliable, albeit expensive. New entrants like Wise have found a niche catering to tech-savvy expatriates, but the lion’s share of the market remains firmly in the hands of the old guard.
Regional players have also carved out strongholds. In Saudi Arabia, where a significant number of Egyptian expatriates reside, Bank Al Jazira’s FAWRI Money Transfer has gained traction by partnering with local institutions. However, the recent collapse of UK-based Small World highlighted the market’s vulnerabilities, causing disruptions in some remittance corridors and serving as a stark reminder of the risks tied to heavy reliance on foreign operators.
In an effort to regain some control, the CBE integrated international transfers into Egypt’s national instant payment system, InstaPay, towards the end of 2024. Under the new system, banks will channel transfers directly into Egyptian pound accounts. While this move is likely to enhance accessibility and reduce reliance on international operators, the lack of clarity on transfer fees — left to the discretion of banks — has sparked concerns about affordability.
Amid the remittance bonanza, Egypt’s fintech sector is conspicuously absent. Payments and remittances account for 36% of the fintech ecosystem, according to the CBE’s 2023 FinTech Landscape Report. Yet, local startups have struggled to gain a foothold in the lucrative remittance market. The reasons are as numerous as they are frustrating.
Regulatory hurdles have been a primary roadblock. Stringent currency controls, including limits on foreign currency withdrawals and caps on credit card spending abroad, have stifled innovation. A temporary ban on using Egyptian pound debit cards abroad in late 2023, though later reversed, showcased the regulatory volatility that fintechs must navigate.
Additionally, the government’s focus on preserving foreign currency reserves has created a hostile environment for local players. Measures like restricting corporate payments abroad and capping individual withdrawals have strained liquidity, leaving fintechs struggling to scale.
As Egypt marches forward with its digitization plans, questions loom about the long-term implications for competition and innovation. The government’s focus on streamlining remittances through InstaPay may bolster banks and reduce dependency on foreign players, but it risks leaving local fintechs — and their untapped potential — on the sidelines.
For local fintechs to thrive, policymakers must take deliberate steps to level the playing field. This includes revisiting restrictive currency policies, fostering a regulatory environment conducive to innovation, and incentivizing collaborations between banks and startups. Without these measures, Egypt risks losing out on the transformative potential of its fintech ecosystem.
In the end, while the second phase of remittance digitization may bring some order to the chaos, it remains to be seen whether the initiative will truly democratize the market or merely reinforce the status quo. For now, the big players continue to call the shots, leaving local fintechs on the outside looking in — a familiar story in a country of untapped possibilities.