As digital-payment options emerge, new entrants are expected to accommodate local preferences for cash.
Global retailers have set their sights on Egypt. Spanish fast-fashion giant Zara, Sweden’s H&M, and UK e-tailer Missguided are among those who have either introduced their brands in Egypt over the past 18 months or announced plans to do so soon. Not to be overlooked, Amazon’s $583 million acquisition of Middle East ecommerce giant Souq.com in 2017 signaled its interest in the region and instantly made Amazon a key player in Egypt.
The rush of new entrants speaks to several factors. Egypt’s geographic location, at the intersection of the Middle East, Africa, and Europe, positions it as a hub for culture and trade. While its ecommerce market remains nascent by global standards - having generated approximately USD 1.5 billion in total sales in 2017 - it is expected to grow by more than two and half times that amount by 2021, according to AMI and Global Growth Markets analysis, published in dLocal’s Egypt “country guide.”
The growth story in Egypt is indeed quite compelling. What can be overlooked, however, is a payments landscape that remains behind the maturation curve compared to other emerging markets. For context, in Turkey, credit cards account for well over half of all online purchases. In Egypt, cash remains king, even for online purchases in which over 60% of all ecommerce sales were completed using cash-payment methods. It’s against this backdrop that global merchants have to be creative to access the Egyptian market and will need to accommodate longstanding local preferences if they expect to grow market share.
Understand the challenges
One of the biggest obstacles is cultural in nature, stemming from the ubiquity of street markets and bazaars in Egypt that have shaped its commerce. The famous Kahn el-Halili market in Cairo, for instance, traces back to the 14th century. This helps explain why locals prioritise trust above all else – an inherent shortcoming for any new entrant in the market.
Egypt’s antiquated information and communications technology (ICT) infrastructure, marked by poor connectivity and inconsistent service, poses another challenge. Over half of Egypt’s population resides outside of the country’s major metropolitan areas, illustrating why fewer than a third of Egyptians are online or own web-enabled smartphones.
The geopolitical environment in Egypt has also been volatile, beginning with the revolution triggered by the Arab Spring in 2011 and followed by a military coup, two years later, that saw President Abdel-Fattah al-Sisi assume control of the office. Given these developments, Egypt has had to contend with rapid inflation, which has tempered foreign direct investment in the country.
Recognise the opportunity
A silver lining, however, is that within Egypt, the inflationary environment provided a catalyst for consumers to explore ecommerce in their search for value amid rising prices. And while both online and smartphone penetration reside below other emerging market economies, favourable demographics should accelerate the transition from offline to online shopping. Over half of the population is under the age of 30.
The government, as it has stabilised, has prioritised initiatives to promote ecommerce and facilitate digital payments. In 2018, for instance, it announced plans to reduce restrictive regulations, encourage the use of digital wallets and increase the number of online resellers, with plans to double the number of businesses online by 2020.
Egypt’s conventional payment practices, however, can still pose hurdles to those who either don’t understand the local customs or fail to navigate the nuance required to accept local payments or handle mass payouts.
Egypt’s “unbanked” population comprises well over half of the country’s total population. This is why cash remains king. A majority of consumers, for instance, still rely on cash-on-delivery (CODs) to complete more than 60% of ecommerce purchases. Other, less popular, methods include cash payments made through brick-and-mortar service locations as well as prepaid cash cards, which have grown in usage in recent years. Even the “banked” population, representing between 10% and 15% of consumers according to AMI and Global Growth Markets analysis, remains very reliant on cash, since banks do not yet permit online payments with debit cards.
In reimagining Egypt’s ecommerce landscape, the private sector will play an important role. For example, banks are offering zero liability fraud protection for digital wallet customers, helping to bridge the “trust” gap. Local electronic payment players, like Fawry, have also taken steps to streamline and simplify the application process, easing the adoption of digital wallets (which are being downloaded at a rate of 250K a month). In other markets, such as India, operators like Amazon have rolled out “slimmer” versions of their apps that use less storage and minimal data to better serve rural areas with spotty networks.
Right now, the state of online marketplaces in Egypt remains in the earlier stages of development and is largely split between traditional retail merchants (representing approximately 60% of ecommerce sales) and travel and tourism (approximately 37%). But even as ecommerce remains nascent, first movers will use this to their advantage.
Nigeria’s Jumia, for instance, prioritises “Made in Egypt” and helps local small- to medium-enterprises (SMEs) market and sell their products. Dubai’s Aramex, a logistics and transportation company, has also sought to empower SMEs by seeding entrepreneurial ecosystems through education and commercial support, recognising that ecommerce growth begets transportation growth.
It just speaks to the opportunity in Egypt to not only access the market, but to help shape it and foster its development for the future.
About Tsipora CohenTsipora Cohen is VP of marketing at dLocal. Previously, Tsipora was global head of marketing at Magic Software, VP of worldwide marketing at Connance, BluePhoenix Solutions and Keyware Technologies, as well as VP, corporate business development, at Nuance. She holds a BA in statistics and psychology from Tel Aviv University and attended Stanford GSB’s Executive Program. Contact Tsipora at tsipora.cohen@dlocal.com.
About dLocal dLocal is an award-winning 360 payments technology platform designed to handle mass online payments in growth markets across Latin America, APAC, Middle East, and Africa. Over 450 global ecommerce retailers, SaaS companies, online travel providers, and marketplaces rely on dLocal to accept and integrate more than 300 locally-relevant payment methods in a single API.
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