By: Dr. Mostafa El Roby
In recent years, Egypt has been witnessing an accelerating digital transformation in the financial sector, driven by the development of the legislative environment, changing consumer behavior, and the growing role of startups in providing innovative solutions for financial services. Financial technology (FinTech) has become one of the main drivers of this transformation, as it provides digital tools that help facilitate transactions, reduce their cost, enhance financial inclusion, and open new investment opportunities for entrepreneurs.
The impact of financial technology is no longer limited to banks or major financial institutions. Startups themselves are increasingly relying on digital payments, electronic collections, cash flow management, digital customer verification, data analytics, and other solutions that enable them to grow and reach broader customer segments more efficiently.
What Is Financial Technology (FinTech)?
Financial technology is defined as the use of modern technologies and digital solutions in providing or developing financial services, such as digital payments and transfers, electronic financing and lending, digital insurance, investment management, and other services that historically relied on traditional models.
Its importance lies in its ability to achieve speed and efficiency and reduce costs, in addition to stimulating trade and facilitating access by individuals and companies to financial services. This trend has been clearly reflected in the Egyptian market, which has become more receptive to electronic wallets, banking applications, and electronic payment and collection platforms, whether in individual or commercial transactions.
However, there is a legal point that must be noted from the outset: using technology in a financial activity does not mean that the activity falls outside the scope of regulation and supervision. There is a difference between a company that provides a technological program to a financial institution and a company that itself provides a regulated financial service to the public. In the latter case, obtaining a license or approval from the competent regulatory authority may be a prerequisite for conducting the activity.
The Legislative Framework for Financial Technology in Egypt
The development witnessed by the sector has not taken place in isolation from legislation. In recent years, the Egyptian legislature and regulatory authorities have worked to build a legal framework that allows innovation while at the same time protecting customers and maintaining the stability of financial markets.
First: Law No. 18 of 2019 Regulating the Use of Non-Cash Payment Methods
Law No. 18 of 2019 Regulating the Use of Non-Cash Payment Methods represented one of the important steps toward reducing reliance on cash transactions. It required certain categories and entities to use non-cash payment methods in the cases specified by law, thereby contributing to expanding the use of electronic payments and advancing the digital economy.
For startups, the importance of this development is not limited to the method of collecting payments. It also extends to establishing a more transparent and traceable financial cycle, which becomes particularly important when preparing accounts, dealing with investors, or expanding the business.
Second: Central Bank and Banking Sector Law No. 194 of 2020
Central Bank and Banking Sector Law No. 194 of 2020 is one of the most important pieces of legislation related to digital financial development in Egypt. It regulates payment systems and services in a more comprehensive manner and provides a supervisory framework that is compatible with the rapid technological development of the banking sector.
In this context, the Central Bank of Egypt plays a pivotal role in regulating innovation related to banking services and payment systems and services. The FinTech Regulatory Sandbox also provides a space for testing certain innovative financial solutions in a defined regulatory environment before introducing them on a wider scale, helping to achieve a balance between innovation, customer protection, and financial stability.
An important opportunity for startups arises here: a technology company is not always required to become a financial institution itself. Its more efficient model may be to develop the technology and then provide or integrate it with a licensed bank or financial institution, within the appropriate legal framework.
Third: Personal Data Protection Law No. 151 of 2020
Many financial technology models rely on collecting, analyzing, and using data in providing services, assessing risks, verifying customers, and customizing financial products. Accordingly, Personal Data Protection Law No. 151 of 2020 established a legal framework for the electronic processing and protection of personal data.
This law is particularly important for FinTech companies because data is not merely a technical resource; it may also be one of the project’s most valuable and sensitive assets at the same time.
Therefore, designing an application or platform should not be limited to the software aspect. From the outset, consideration should be given to the privacy policy, the legal basis for collecting data, the scope of its use, the parties with whom it may be shared, how it will be stored and secured, as well as how requests from data subjects will be handled in accordance with the applicable legal rules.
Fourth: Law No. 5 of 2022 Regulating and Developing the Use of Financial Technology
At the level of non-banking financial activities, Law No. 5 of 2022 on Regulating and Developing the Use of Financial Technology in Non-Banking Financial Activities established a legal framework enabling the Financial Regulatory Authority to regulate the use of technology in activities subject to its supervision.
This includes the use of digital solutions in a number of financing, insurance, investment, and non-banking financial activities, in accordance with the laws governing each activity and the decisions and regulations issued by the Authority.
The real significance of this law for startups is that technology is no longer viewed merely as a supporting tool for financial activity; rather, it has become part of the regulatory structure of the activity itself, with the possibility of imposing specific requirements relating to licensing, digital identity, digital contracts and records, technological infrastructure, and information protection.
Digital Payments… The Fastest Entry Point for Startups
Digital payments are among the fastest-growing and most influential areas of financial technology for businesses. Even a company that does not primarily operate in the financial sector can benefit from electronic payment and collection solutions in developing its business model.
E-commerce businesses, service companies, educational platforms, logistics companies, and various applications can integrate electronic payment methods into their operations, thereby facilitating purchasing and collection, reducing cash transactions, and helping management monitor financial flows more accurately.
However, if a company’s activity goes beyond merely using a licensed payment service and extends to providing payment services or operating a payment system for third parties, the matter moves into a different regulatory scope, and licensing and approval requirements must be examined before launching the service.
Digital Lending and Financing
Digital financing has begun to establish itself as one of the promising areas in the Egyptian market, particularly with the development of data analysis and credit assessment tools. Technology can help licensed entities assess customers more quickly and make use of broader data sources than traditional methods alone, while complying with the relevant legal and regulatory requirements.
For small and medium-sized enterprises, this development may help facilitate access to financing. However, the provision of financing itself remains a regulated activity that cannot be carried out merely by owning an application or electronic platform. This is one of the most important points that FinTech founders should understand at an early stage.
Crowdfunding and Opportunities for Startups
Crowdfunding is one of the models that uses technology to connect projects with multiple sources of funding through electronic platforms. This model may be particularly important for small and innovative projects seeking additional alternatives to traditional financing.
However, the term “crowdfunding” encompasses different legal models. It may be based on lending, investment, or other financial instruments, and each model has its own nature and regulatory requirements. Therefore, it is not sufficient to simply establish a platform and collect funds from the public. The legal characterization of the activity and the competent regulatory authority must first be determined, and the necessary licenses or approvals must be obtained before conducting the activity.
How Can Startups Benefit from Digital Transformation?
The real opportunity does not lie solely in establishing a FinTech company in the traditional sense. Companies operating in trade, industry, agriculture, transportation, entertainment, and services can also benefit from digital financial transformation.
- Facilitating collections: by integrating digital payment methods into applications, websites, and points of sale.
- Managing cash flows: by using technological solutions that provide faster and more accurate data on revenues and payments.
- Accessing financing: by benefiting from digital products and solutions offered by licensed financial institutions.
- Improving the customer experience: by reducing the time and procedures required to complete a transaction.
- Leveraging data: to understand customer behavior and develop services, subject to compliance with data protection and privacy rules.
- Expanding at a lower cost: as a digital platform can reach a larger number of customers without requiring the same traditional expansion in branches and physical infrastructure.
Legal Challenges Facing FinTech Companies
Practical experience in the market shows that the greatest challenge facing many startups is not merely developing the technological product, but rather determining the legal framework within which they operate.
A company may begin by considering itself a software company, while its business model gradually evolves until some of the services it provides fall within the scope of a regulated financial activity. If this is not identified in a timely manner, the company may face problems when seeking investment, contracting with a financial institution, or expanding commercially.
Among the key issues that should be resolved at an early stage are:
- Choosing the appropriate legal form for the company.
- Determining whether the activity requires a license or regulatory approval.
- Regulating the relationship between founders and investors.
- Protecting software, trademarks, and other intellectual property rights.
- Establishing clear data protection and privacy policies.
- Drafting platform terms of use and service terms and conditions.
- Regulating ownership of software code and technology developed by employees or contractors.
Technology Contracts Are Part of the Company’s Value
Practical experience has shown that companies that are careful to draft clear technology agreements, regulate privacy policies, conclude non-disclosure agreements, and define ownership of intellectual property rights are better prepared to receive investors and expand safely than companies that focus solely on developing the technological product.
These issues become particularly apparent during Legal Due Diligence, which precedes many investment rounds. A product may be commercially successful, but the company’s failure to clearly own the rights to the software or trademark, or the existence of deficiencies in contracts, data, or licensing, may reduce the investment value, delay the transaction, or even lead to its abandonment.
Central Bank or Financial Regulatory Authority?
One of the mistakes some entrepreneurs make is assuming that there is a single regulatory authority for all financial technology activities. In fact, determining the competent authority depends on the nature of the activity itself.
Activities related to the banking sector and payment systems and services primarily fall under the regulatory jurisdiction of the Central Bank of Egypt in accordance with the applicable legislation, while the Financial Regulatory Authority supervises the use of technology in non-banking financial activities subject to its oversight.
Accordingly, the first legal question before launching any FinTech project should be: What activity will we actually provide, rather than what name will we give the application? The legal characterization of the activity is what determines the licensing requirements, the competent regulatory authority, and the applicable obligations.
The Legal Role in the Success of FinTech Companies
In this context, the growing role of specialized law firms in keeping pace with digital transformation becomes evident, not only through providing traditional legal advice, but also by understanding the nature of digital business models, the requirements of regulatory authorities, and modern legislation, and linking them to the project’s growth and financing strategy.
At the Office of Dr. Mostafa El Rouby – Attorneys and Legal Consultants, we have provided legal support to startups operating in technology and digital transformation across various stages of their lifecycle, beginning with incorporation and regulating the relationship between partners, moving through contracts, intellectual property protection, and data protection, and extending to the stages of growth, stability, and expansion.
We view this role as a partnership in development and success, because legal counsel in digital projects should not be limited to addressing problems after they arise. Rather, legal counsel should participate in building the legal model that allows the project to grow with the lowest possible level of risk.
Conclusion: A Promising Future Requires a Sound Legal Foundation
The future of financial technology in Egypt offers broad opportunities for startups, whether for companies that directly provide digital financial solutions or for businesses that use these solutions to develop their operations and improve efficiency.
However, these opportunities are accompanied by obligations that cannot be ignored. Financial innovation operates within an environment subject to regulation, customer protection, and data protection, and what may be sufficient for an ordinary software company may not be adequate for a company that enters the field of providing a regulated financial service.
Therefore, truly benefiting from digital transformation does not begin when the application is launched, but before that: by accurately defining the activity, choosing the appropriate legal entity, identifying the competent regulatory authority, protecting the technology and data, and drafting the contracts governing relationships with customers, partners, and investors.
Accordingly, combining technological innovation and legal compliance becomes the cornerstone for building FinTech companies capable of attracting investment, expanding with confidence, and continuing to operate in a rapidly evolving market such as the Egyptian market.