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e-KYC 2.0 in Egypt – Enabling the Next Generation Fintech Adoption

Oct 28, 2022

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 eKYC

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.

Unlocking the potential of eKYC

Egypt is a disruption-ready market. Although over 75 million actively use the internet, as of April 2022, about 2/3 rd of the population is underbanked, and a significant portion is still unbanked. Further, in accordance with the Egyptian Money Laundering and Terrorist Financing Combating Unit (EMLCU), the CBE issued guidelines to all banks. It entails banks to draft new simplified procedures to open bank accounts for the self-employed and owners of micro-sized projects to encourage greater inclusion.

Currently, 32 banks offer internet banking facilities, and 28 have obtained a license to render mobile-based banking services to their customers. In this unique landscape, leveraging e-KYC to streamline onboarding will boost financial reliability, stability, and growth. It will also augment market penetration and improve financial inclusion in the country.

With the help of e-KYC, consumers will be able to verify themselves online in minimal steps, including document verification, data extraction, and face verification. They can see their verification status once these steps are completed. This would make the digital onboarding process simpler and secure, thereby helping customers trust financial entities more and making digital transactions easier and more accessible.

On the other hand, it would assist FIs in extending services to a larger community of Egyptians living and working in the country and the Egyptian diaspora living abroad. In addition, e-KYC would help to lower risk and dramatically expand credit products like consumer lending as the process would speed up loan approvals. Even though the validation through e-KYC is still nascent, financial experts believe these approvals are likely to be high-value loans for houses and cars.

Benefits of eKYC

In such a cyberized environment, e-KYC procedures can immensely benefit both financial institutions and customers. Here are some of them:

Simple, Instantaneous, Accessible  

Traditionally, paper-based KYC is a time-consuming process. It can take days or, in some cases, weeks to complete the verification process. On the other hand, e-KYC is a fully automated or digital process that almost eliminates manual intervention. This makes it convenient for individuals and businesses to fill out forms without needing to visit a physical branch or office. Further, as the KYC data is transferred in real-time, it takes just a few minutes to verify and issue when an individual is opting for a banking service or product. Since it can be performed 24/7, 365 days, it increases scalability and makes it more accessible to consumers.

Boosts customer acquisition 

According to a recent report, most Egyptians prefer getting a loan from their friends and family instead of approaching a FI, owing to the extensive time and effort involved in the KYC procedure. E-KYC is one of the optimal solutions to overcome this limitation. The digitized system makes the onboarding process simple and quick and is highly accurate compared to the KYC procedure. As it drastically reduces the waiting time to complete the verification, e-KYC enhances the customer experience from the very first interaction with the bank. Therefore, it serves as a critical factor in attracting new customers and maintaining loyal customer engagement.

Mitigates fraud 

In Egypt, digitalization in the banking sector is in progress. Consequently, banks and non-banking financial companies have to work with the remnants of old legacy systems. However, with steadily growing online transactions, FIs ought to preemptively identify and address systematic digital fraud. The e-KYC system includes technologies such as OCR, facial recognition, liveness detection, and fraud detection to monitor accounts continuously for prohibited transactions or activities. This helps banks detect and eliminate falsified onboarding. 

Improves operational efficiency 

By integrating e-KYC, banks can augment profits, enhance regulatory compliance, and transmute customer experience. As it requires zero to minimal manual intervention, it eliminates the need to hire/train agents for KYC procedures. This helps FIs to devote their personnel to other core business functions. Additionally, e-KYC promotes a cloud-based online system to store customer information, thereby replacing the need for paper and document management. Such practice reduces the cost associated with regular KYC compliance.

Safe and Secure 

First off, e-KYC is a consent-based system that enables an individual to share data only upon his or her own accord and consent. Secondly, it entails fewer human beings reviewing sensitive data. Third, the customer’s account details, transaction data, and other financial information are secure as it is an online process. This protects the individual’s right to privacy and minimizes identity theft, fraud, money laundering, loan scams, etc.

M2P – a leader in KYC services

M2P’s e-KYC suite facilitates businesses to get customer KYC from anywhere in the nation while adhering to all regulatory requirements. It enables financial institutions to control the user data necessary to be captured from the customer, which is collected through the user journeys built into the partner/bank’s digital assets. The customer’s KYC is performed using the bank’s/authorized entity’s KYC APIs, and the outcome of the activity is captured by M2P.  Our e-KYC Gateway facilitates seamless customer onboarding for corporates & to better the service delivery by governments. Further, M2P ensures robust integration between the partner’s/bank’s digital assets and issuing bank’s core banking solution.

Our services do not stop with e-KYC. We are incumbents in rendering extensive e-KYB to lending businesses. Our Bank Statement Analyzer is powered by artificial intelligence and machine learning that processes statement data in real-time. The analyzer runs deep analytics to generate accurate reports that help financial institutions and lending businesses make quick credit assessments and decisions.

We are launching soon in Egypt. If you are interested in partnering with us, write to us at business@m2pfintech.com.

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