e KYC 2.0 in Egypt Enabling the Next Generation Fintech Adoption M2P Fintech Posted: May 25, 2023 @ 3:19 am

The last 6 years have been the fintech era for Egypt. Its rather traditional financial system has been steadily progressing toward digitalization. Recent reports affirm that the country is turning into the entrepreneurial hotspot for burgeoning fintech startups in North Africa, and its financial services sector is expected to grow at 12% yearly until 2025. The growth can be attributed to the thriving fintech adoption in North Africa, the boost in internet usage in Egypt, and most importantly, the government’s commitment to attaining its Vision 2030.

Financial Digitalization 

In light of the Vision, the Central Bank of Egypt (CBE) designed and developed numerous policies with the prime objective of improving the financial inclusion of the country as well as transforming the nation into the regional hub for fintech innovations. One such approach is digitalization in the financial services industry.

Digitalization is one of the three strategic pillars of Egypt’s Vision 2030, which aligns with the country’s allegiance to the United Nations Sustainable Development Goals (SDGs). The Vision’s framework holistically fosters the transformation of Egypt into a digital or cash-free economy. With over 95 million young, unbanked/underbanked population, Egypt exhibits an extended appetite for digitalization, inclusion, and fintech innovations.

According to Mastercard’s New Payment Index 2022 report, 61% of Egyptian banking customers feel safe using mobile apps to send money to people or make payments to both online and offline merchants. In addition, 42% (i.e., four in ten) are keen to share their financial data to access payment tools/mobile applications that help them manage their finances.

In 2021, Egypt’s digital banking system witnessed an enormous upswing in mobile banking transactions. While the number of digital banking transactions increased by 107%, the value climbed by 159%. The number of internet banking users increased by 30% (y-o-y), and the value of transactions through digital channels increased by 60%.

Further, the number of transactions over mobile wallets surged 108% reaching 212 million transactions, and e-commerce grew by 34% registering 60.3 million transactions. The value of electronic purchases using bank cards increased by 40% and climbed to EGP 23 billion from EGP 14 billion in the fiscal year 2019/2020. Overall, the banking system processed electronic transactions worth EGP 2.8 trillion during the fiscal year (FY) 2020/2021.

Mobile wallets covered a substantial fraction in the digitalization leap. Mobile wallet transactions rose to 268 billion EGP in 2021 from 88 billion EGP in 2020, attaining a 200 % increase. The number of banks providing electronic wallet services grew to 23, increasing the number of electronic wallets from 9 million in 2020 to 26 million in 2021. On the other hand, e-commerce transactions increased from 16 billion EGP to 30 billion EGP.

Furthermore, the volume of government receipts through banking channels has reached more than 662 billion EGP. The volume of annual electronic transactions through electronic points of sale has witnessed a great leap from 110 billion EGP to 170 billion EGP.

Such a mammoth uptick in digital adaption significantly scaled the financial ecosystem, calling for streamlined and robust Know Your Customer (KYC) procedures that are crucial to detect risk factors and avert financial crimes such as identity theft, money laundering, and terrorist financing.

Current KYC regime

Egypt’s KYC regime has the following tiers: Full KYC and Simplified KYC.

To process a full KYC, FIs require

• National ID 

• Customer ID number 

• Date of birth

• Gender 

• Nationality 

• Religion 

• Legal form 

• Full address

• Mobile and/or Telephone number

When simplified KYC was first set up, it required FIs to validate only the National ID. However, when CBE released the second framework for its simplified KYC in 2016, it housed pioneering programs demanding minimum requirements for limited mobile money accounts as an alternative to the standard bank accounts with full KYC requirements. In both cases, bank personnel or a CBE licensed service provider conducts Customer Due Diligence (CDD) at customer premises and completes the KYC procedures.

To perform KYC, companies must obtain and verify customers’ data, including name, address, and date of birth, using government-issued identification cards, passports, utility bills, and mobile bills. Additionally, the customer’s credibility is also validated by verifying their job license and sports club membership/subscription (if any). If a person is found to be a Political Exposed Person (PEP), financial institutions must take extra steps to check out that person.

Rise of e–KYC

The government and the Central Bank of Egypt have been proactive and quick to recognize the importance of a digitized KYC system in enabling frictionless financial digitalization. Subsequently, the underpinning was laid in 2019 when the CBE’s Regulatory Sandbox rolled out the red carpet for its first cohort in “e-KYC.”

The regulatory sandbox allows fintechs to trial their new products, services, technologies, and business models. The sandbox approach encourages innovative fintech products and services, reduces time to market, and cuts the cost involved in developing the products and services. It also enables CBE to understand disruptive fintech products and services before deciding to regulate them and collect evidence that can be used to draft practical guidelines and robust regulations.

After a successful testing phase, the CBE is ramping up to launch a pilot of the electronic Know Your Customer (e-KYC) service to enable citizens to access financial services online without the need to walk into a brick-and-mortar bank. Here’s a quick overview of how the modern e-KYC compares to the current KYC regime.