Fintech players see new licensing requirements as “big step forward”

INDUSTRY REAX- Fintech players laud new regs for fintech licenses: The Financial Regulatory Authority’s (FRA) newly-issued regulations for obtaining fintech licenses are a major step for the sector and for Egypt’s financial inclusion push, according to several industry players Enterprise spoke with. These regulations have been in the making for around a year, our sources say, and could unlock significant growth in the industry.

REFRESHER- The updated regulations (pdf) to the Fintech Act — which flesh out licensing requirements published in brief last year — introduce clear requirements for fintech providers looking to get licensed by the regulator. Would-be providers need to demonstrate they have the right equipment, access to basic facilities and infrastructure, applications, and databases to support their activities. The changes also introduce better protections against fraudulent transactions and cybersecurity risks, and require providers to prove they would be able to recover from a security breach.

The biggest game changer in the new regs: Opening the door for a fully digitized onboarding process for new clients. “This is a massive achievement for our agenda as an economy when it comes to financial inclusion,” Ahmad Hammouda, CEO of stock-trading app Thndr, told Enterprise. “It’s a great and long-awaited development that the industry has been trying to introduce for years,” Azimut Egypt Asset Management CEO Ahmed Abou El Saad told Enterprise. Requiring “wet signatures” during the onboarding of new clients “makes no sense” with the advent of new technology that can fulfill the same functions of verifying identification and linking a user’s information to the civil registry database, Abou El Saad said.

A digitized process expands accessibility + financial inclusion: Businesses would need to set up more branches to ensure service accessibility across different income segments and geographic location, which would increase costs and encourage businesses to focus more on attracting high net worth individuals, rather than looking at a wider customer base, Hammouda said. “If you live outside of Cairo or Alexandria, your chances of having access to these services are low unless the process is taken online,” he said. An in-person onboarding process adds to business’ operational expenses, “which are typically passed to the end consumer,” Digital Finance Holding CEO Shehab Marzban told Enterprise. “A physical token might be useful for B2B transactions but not for B2C such as consumer finance, BNPL, or nano finance players,” he said.

What do businesses need to do to get their hands on a license? The regulations now require businesses applying for a fintech license to submit a proposed tiering system of requirements for incoming customers depending on their risk profile. “This is actually genius because it allows businesses to address how they will handle clients with different risk levels — somebody with a EGP 100 wallet is very different in terms of risk from someone whose wallet is worth EGP 1 mn,”one industry player said. Financial institutions in general struggled with having one set of requirements regardless of the user’s risk profile, which by default makes it more accessible for larger wallets, Hammouda said.

More stringent regulations — but that’s exactly what’s needed: “These are financial transactions we’re talking about, so it’s a serious matter and the regulator needs to make sure that there’s a high level of security,” Abou El Saad told us. “Yes, the requirements are stringent, but that’s exactly what’s required for this type of activity,” he said, stressing that the tight regulations remain “very feasible” for fintech players.

Azimut is ready to take advantage of the new regulations: The asset manager plans to submit its licensing request to set up the country’s first digital mutual fund platform within the coming few days, Abou El Saad said. “We have everything in place — the tech infrastructure, the business proposal, everything — and were just waiting on the FRA to issue these regulations. We started putting things in motion to apply for the license as of Thursday — basically as soon as the regulations were issued,” he told us.