Kerry Naidoo: Hello, and welcome to the McKinsey Africa podcast with me, Kerry Naidoo. I’m delighted to continue our tradition of bringing you conversations with leading experts and sharing insights that address challenges and showcase significant opportunities managers and leaders on the continent are grappling with. Last year, we began a fascinating series of conversations focused on what one industry expert called the continent’s fintech eruption.
We’ve been speaking with some of Africa’s most prominent fintech leaders about this phenomenon, where it’s headed, and what it will take to build it into the future. And I’m so excited to be interviewing Ashraf Sabry, founder and CEO of Fawry, one of Africa’s oldest and most successful fintechs.
Launched in 2008, Fawry is the largest mobile-money platform in Egypt. It connects more than 35 million users through 166,000 service points across the country and can be used for over 850 services, ranging from utility bills and school tuition to traffic fines and insurance. The company raised $122 million in private equity before going public, listing on the Egyptian Exchange in July 2019. And in 2020, its valuation reached $1 billion, making Fawry Egypt’s first unicorn, or perhaps being proudly African, we should refer to it as Egypt’s first zebracorn. In 2022, Forbes listed Fawry as one of the top 25 fintech companies in the Middle East for its banking and payment technology services. But perhaps the achievement its founder and CEO is most proud of is that Fawry is totally homegrown, with 100 percent of its tech developed by Egyptians. An edited version of the conversation follows.
Welcome to the McKinsey Africa podcast, Ashraf. Would you agree that Fawry is one of your most treasured accolades?
Ashraf Sabry: Absolutely, for two reasons. The first reason is that we scale the platform to international standards, and the second reason is its real competitive advantage helps me prepare for market changes, integrate ecosystems, and be more responsive to different needs, which is completely different from relying on a software you buy or something like that.
Kerry Naidoo: I’m also delighted to welcome back Mayowa Kuyoro to the McKinsey Africa podcast. Mayowa is a partner in McKinsey’s Lagos office where she leads the Financial Services Practice with a focus on banking, fintech, and payments. Mayowa has decades of experience working in private, public, and social sector institutions across the continent. She also leads McKinsey’s work with African start-up companies, especially fintech concerns, and is a highly regarded thought leader on innovation in the space. Hello, and welcome back, Mayowa.
Mayowa Kuyoro: It’s lovely to be here again.
Kerry Naidoo: Let’s kick off at the beginning of the Fawry story. Ashraf, you left a corporate career at Raya Holding, and before that at IBM, to begin a start-up. Why? What did you want to achieve?
Ashraf Sabry: I will tell you the truth. I didn’t leave any place with a specific objective, but I felt that my progress where I was had reached an end, and I had to find a new initiative, and the initiatives were different. When I left IBM, I joined the start-up that turned out to be one of the conglomerates in Egypt; it’s called Raya. I took it public; I took it regional, and then my career ended at Raya as well. So I said, “I cannot feel progress, so I’m going to start another company.” And when I started Fawry, to be honest with you again, the idea evolved because of an experience that happened at Raya. We were actually going to market to raise funds for Raya, and when we went to market, I was always asked a specific question, “Where is the recurring part of your revenue?” Raya was almost a project-based company. So I figured out that investors liked recurring revenue.
When I left Raya, I said, “I’m going to look for recurring revenue.” And then payments came at the core of that. It’s recurring, it’s happening every day, no receivables, no projects under implementation, and no assets. So it’s a different business model that I found interesting as well. What helped me figure out what I wanted to do was actually my experience at Raya, meeting other investors. But it’s not like I was fed up with corporate, so I’m going to go and make a start-up and start this journey. It was not like that. Actually, when Fawry was established, it was an institution. I didn’t establish a start-up and go into Series A and Series B. No, I made a pitch. I went to banks, I went to private equity firms, I went to corporates, I raised funds, and we were well capitalized to start this new initiative. This is how it happened, this is the reason for selecting payments, and this is where we are.
Mayowa Kuyoro: Thanks so much, Ashraf. You talked a lot about recurring revenue and then payments had recurring revenue. Were you always clear on the link between payments and recurring revenues, or did you have a clear objective, and were you sure on how it would pan out?
Ashraf Sabry: It’s a mix of both. I was looking at payment as something that happens all the time, but to make sure that this is really recurring, I had to look into what sort of payment I would start with. And I started with bill payments and mobile top-ups, which are, by nature, something that happens every month and, by nature, are used by all the population—so payment on one hand and the type of payment on the second hand. It became recurring, and then we evolved the payment system to include things that are less recurring but, in the meantime, happen every day as well by different people. It is a mix of both. Payment by nature is something people do every day. What you select in payment would tell you how recurring it is. I think it is a mix between the payment is something that happens and people pay every day. And the second is selecting which businesses you want to enable payment for to achieve the recurring objects.
Mayowa Kuyoro: Very clear, Ashraf. With talk about payments in Africa now and seeing there’s a huge revolution going on, we see that there is increasing smart-performance ownership, declining internet costs, and expanded network coverage. We do think that the stage is set for the next phase of fintech growth. But before we talk about the future and how fintechs can carve out a share of the expanding market, can you tell us a little bit about how you set up your company to become what was really a pioneer in Egypt? It became a role model to other companies, didn’t it?
Ashraf Sabry: We had a very clear vision that, believe it or not, we are working on up till now. Our vision was about connecting organizations and consumers to initiate payments. It was a different form of payment. The classical form of payment was that when you enable payment in the retail store, you enable payment at the shop and on the website. And this was actually the standard payment. But we thought this is not relevant in Egypt, and what we need to do is create an alternate payment system, because this is what people are looking for. So we enabled the banking system to be ready to help their customers pay their bills through banking channels. Our payment was at the ATM, on the mobile-banking app, on the internet banking site, and we enabled unbanked consumers to pay through the nearest kiosk.
When you look at the entire ecosystem, the payment transaction comes at the end of the journey, not at the beginning of the journey. The beginning of the journey is to display the amount due to be paid to the client at their bank or on the street corner at the point of sale or an online application, which means I have to integrate with the service provider. After clients are happy with what they should pay, they would initiate the payment. This idea of sitting between organizations and between customers and their service providers and between service providers and banks actually helped Fawry develop what will happen in the future. Because digital is about integrating enterprises together and making sure you can leverage digital by extending the boundaries of any business, by creating convenience to the consumers, by creating a more efficient payment ecosystem for the enterprise.
Digital is about integrating enterprises together and making sure you can leverage digital by extending the boundaries of any business, by creating convenience to the consumers, by creating a more efficient payment ecosystem for the enterprise.
The idea of extending the businesses through integration with other channels was at the core of everything, and this is how things have evolved and why we are not a Mastercard or a Visa. I used to use a simple example when we started this business, which is when you go to a supermarket, you take two receipts—one receipt for your payment by card and one receipt for what you have paid—which means the payment and the business would never be connected, because when you go back home, if you mix the receipts, you don’t know what receipt is for what items you bought. So the whole idea was how to connect payment to business—couple business information to the payment transaction—which created a whole different ecosystem than the standard payment system.
Mayowa Kuyoro: That’s such a powerful example because I can see exactly what you’re talking about. You go to the supermarket, you have your POS [point-of-sale] receipt, you have your till receipt, and they’re different. I compare that to being in other markets where it’s just one receipt, it’s just one thing that speaks to the transaction. So this idea of convenience and making things easy and connecting different parts of the system really resonates. I think a lot of start-ups are now slowly maturing, and now the question is how do we grow? How do we scale? You’ve talked about having a very clear vision when you started. As you moved through the various stages in the company’s life cycle, what were the other things that you would say were important? And let me give you a few thoughts that I’ve heard from other founders. People have talked a lot about talent; people have talked a lot about corporate governance as you grow; people have talked a lot about being able to scale across different product categories, across different product markets. So what were the other things that you would say are important to you as you developed and became more mature as a company?
Ashraf Sabry: This was another lesson I learned from Raya, and it is actually important too. When I went with Raya to the capital market to raise funds, I was proud that at Raya we’re a holding company, with 18 companies in our corporate org chart. I actually saw very clearly in the eyes of the investors that this is completely not aligned: different lines of businesses, and we’re trying to figure out what we are exactly. This was a lesson I learned by heart. So my growth strategy was always to leverage the strengths I have by adding another part to the ecosystem. When we had the point of sales at kiosks and in retail stores and supermarkets to enable walk-in customers to pay their bills, when we thought about acceptance, which is enabling those costs to accept electronic payments, what does this mean? It means that the cost of customer acquisition is the same, because those are our existing customer bills. We are using the same infrastructure, which is the point of sale where the walk-in bill payment is happening, to offer the client another service, which is accepting electronic payment.
This is an addition. Then we said we want to go into the merchant-lending business. And then again, cost of customer acquisition is the same. We use the same device to enable the merchant to have a lending account where they can pay their suppliers. What I’m trying to tell you is the idea of scaling and building should always begin with what assets do you have? What competitive advantages do you have when you add a new service? Just going and scaling services and scaling geographies and scaling everything on paper looks nice. It is a multiplier. More offerings mean more revenue; more geographies mean more revenue at risk.
But the reality is you have to make sure that each step is leveraging the assets of the company and whether the assets of the company are giving you a competitive advantage over your competition while giving a new offering—whether this is in cost to customer acquisition, operational cost, or in company experience and the skill set needed to do the job. All of this would put you one step ahead, and it is about being one step ahead. If you don’t see a clear value that differentiates you from the competition [in the eyes of] the client—whether cost, product feature, or whatever it is—then you are going into a fight that might be cost eroding or revenue eroding.
From my perspective, scaling is about knowing where to scale. Scaling is about being well capitalized. Scaling is about you not thinking of the second round of finance—but thinking about how we are going to scale the business. This is important. This is what happened in many places, and we have seen this happening in Egypt in the last year, where the investment community was focused on the next round of finance, not on scaling the business. So they scaled the business not for the sake of the business, but they scaled the business for the sake of the next round of finance.
And then they found that the next round of finance is not there, and they were bankrupt. Others were talking about how we have to have multiple geographies to reduce the risk—standard things they know investors were keen to hear. So they worked on how the investors would finance them in the next round without being sure that the core business can scale profitably with the proper cash flows, with proper abilities to handle growth. It is very important for anybody who wants to scale to understand that scaling is not easy. You have two months, and then you are going to run out of cash, and they’re looking for it. It doesn’t work that way.
It is very important for anybody who wants to scale to understand that scaling is not easy. You have two months, and then you are going to run out of cash, and they’re looking for it. It doesn’t work that way.
Mayowa Kuyoro: I like what you said: scaling is not easy. I tend to talk about the phenomenon you just described as pursuing valuation over value versus creating value and then the valuation should come. Let’s talk a bit about the fact that you started and entered the market, as we’ve seen other contemporaries in other markets do, by building infrastructure specific to your country. And you’ve discussed this; you mentioned it in your last response around focusing on creating a product that works for the market that you’re in. In a very real sense, you’ve actually created an industry that uses the infrastructure you’ve created. So how did you manage to create the ecosystem you’ve just described?
Ashraf Sabry: I was lucky, and I would like to stress the fact that luck is part of all that’s happening. It doesn’t mean that luck is what makes things happen, but it means that you can be fortunate enough to have somebody who is really excellent as part of your team, fortunate enough to have the regulatory framework helping you, or fortunate enough that you are ahead of the regulator.
To answer your question, I had an extremely good architect who joined the company at inception. And what he developed as an architecture is an open system that is loosely covered. What would that mean? It would mean that the architecture of the system allows other systems to integrate easily, allows other platforms. So you can use an ATM to make a payment, you can use a point of sale to make a payment, or you can use a mobile app to make a payment. You can make multiple payments on the same infrastructure; you can take the transactions for lending on the same infrastructure.
The architecture of the technology considers that we should have an open system which is loosely coupled so that when we go to any platform, we can add. We don’t have to rewrite the entire platform again to add the new service. Every other service is added to the system. And now we have a platform where we can even replicate part of it or the whole of it in other markets. We went to Sudan, for example, and Sudan wanted a part of our system.
Because it was open, Sudan took whatever it wanted and left the rest and went to develop its own system. This was at the core of our ability to add new services without interrupting the existing services. And this is important, because when you are providing a service like we are—we are processing almost three or four million transactions a day—you don’t have the luxury of saying, “I’m going to add to the existing system.” You cannot do that because you cannot afford taking the risk. So when you need to add a service, you are afraid. You tell yourself, “It is working like that. Leave it. Don’t touch it.”
Mayowa Kuyoro: Exactly.
Ashraf Sabry: Or it will take you ages until you are sure that when the new service comes, it will not interrupt the old service. This was at the core of scaling easily without disrupting the existing service. It was that our platform architecture was really well designed.
Mayowa Kuyoro: Very good. You’ve come to banks, but I’m going to actually pause that a little bit and talk about something that, again, a lot of people in this space speak about, which is the fact that cash is still king in Africa and is used in around 90 percent of transactions on the continent today. While on the one hand, this means there is a huge potential for fintech revenues to grow, it must be a major influencer in expanding takeoff. Can you talk to us about how you see cash and reducing cash within the economy, especially the Egyptian economy?
Ashraf Sabry: Let us agree that cash is a tough competitor. Cash is the top competitor, because it has many advantages to the payer and the payee that are not available in electronic paying. People sometimes think I’m crazy when I say that I am with cash, against electronic, which is not the truth, I mean not the reality. The whole thing is that the transaction in cash is confirmed. You give the cash, and you take the goods. The electronic transaction is not really as confirmed. It can be subject to dispute, it can be subject to a refund, it can be subject to the money not being settled in the right time frame. Many things come with the electronic transaction. The other thing is that when you go into any country and you have the currency in front of you, anybody would know the currency. So the brand of the currency is very high, known to everybody.
The third thing is that if you want to compete with cash, you have to look into what you really can create with the electronic payment to the main beneficiaries. You have to make sure that the ecosystem is willing to pay. The beneficiary should pay for the cost because sometimes it is amazing. You go to a small merchant, and you tell him electronic payment is good, but you have to pay 1 percent because electronic payment is good. He will ask you why electronic payment is good, and you can tell him because it is safer—you don’t have to carry cash. And then he will tell you, “Why? I’ve been working for 30 years with cash, and it has never been stolen. Can you please tell me how it is dangerous?” And then he can tell you, “I pay my suppliers in cash. What happens when I take your electronic balance in terms of payment? Should I go to the bank and cash it out and then go give it back to the supplier? But I cannot do that, because the banks will give me the money after three days, and the supplier comes every day.”
You have to listen to the real needs and the real problems of the people. What we have done is tied lending to electronic payments. So I’m helping the merchant to grow his business by giving him cheap money. That is based on payment transactions that are used as a collateral. So I have given enough incentive to do that. I’m creating convenience for the customer. I’m creating 100 percent refund guarantees regardless of the situation. We have to understand the real values and address the real concerns.
Everybody will tell you what electronic payments will affect, but the reality is they affect growth in GDP, because they keep the money within the system so that the thing becomes transaction-based, becomes more secure, becomes lower in cost. It can help to grow the entire economy.
Mayowa Kuyoro: Absolutely. I love what you said about thinking through the convenience factor, thinking through who the beneficiary is, and also the example you gave: I’m a supplier, I’m an SME [small and medium-size enterprise], I have to pay my suppliers in cash, but my customers are paying me in electronic payments, and it makes my whole value chain even more difficult. You have to put on something that will make it worth my while to really adopt electronic payments. It’s actually quite profound, and one of the things we’re seeing as we’re assessing companies is a lot of payments companies now beginning to add lending, what I will call the value-added service, to their portfolio in order to solve this problem.
The way payment has grown very quickly, I think this is probably going to be another space where we see a lot of activity over the next few years.
We’ve talked about scaling, we’ve talked about the vision, we’ve talked about convenience, and so on. I would actually like to ask you, what would you say have been perhaps one or two of the biggest challenges you have either faced or are currently facing as you are operating within a market such as ours?
Ashraf Sabry: Initially, the biggest challenge was making people trust that when they pay at a kiosk, they would have the service rendered for a telecom operator. This was a real challenge. Creating trust in our payment ecosystem was of paramount importance, because in the payment business there is no 90 percent success.
Mayowa Kuyoro: It’s binary.
Ashraf Sabry: Trust was the main challenge at the beginning. And now when trust is there and everything is there, there are issues that would worry me that investors probably wouldn’t look at. Investors would look at growth, at profitability, at the margins. But I’m worried about the security of the platform, because if anything happens, it will be a real issue. I’m worried about the uptime of my service, because if you are down for three hours plus, it is a financial loss—a big financial loss—but it is a reputational issue as well. Your reputation is key. I’m worried about making sure that I have and can retain the right talent and the right professional people within the organization. To tell you the truth, those are the main things that worry me. The rest is much easier because those are the things that you tend to ignore while growing, because they are very costly and take a lot of money and are not reflected in the top line; they are all reflected in the middle lines. So the temptation to ignore them is high. But the reality is if you don’t figure out the importance, when things go bad, it is very bad as well.
Those are the things that are really worrying me—my system has to be secured. Our uptime and service availability have to be done; our infrastructure has to be ready for the growth. I can retain the right people who understand the whole thing. I can service millions of customers with a decent customer support and CRM [customer relationship management] system. Those are the invisible things to investors that worry me. They are at the core of my worries.
Mayowa Kuyoro: I like, again, that it’s deeply focused on the invisible things, focused on the middle line, because those are the things that have the ability to make or break your business. Maybe one final parting thought from you. You’ve mentioned talent, and I want to unpack that a little bit, because I’ve seen how you’re proud of the fact that Fawry is primarily Egyptian—all the technology has been built in Egypt. Was that something that was deliberate for you when you were starting out, to say, “I am going to build a homegrown company to solve homegrown problems”? How did you think about ensuring that there was enough local representation and local talent within your organization?
Ashraf Sabry: It was not initially planned. To tell you the truth, it started when I looked internationally for software to accommodate my needs, and I never found it because of this requirement for a nonstandard platform that can integrate entities together. So we started using our own resources to develop, and then in the course of making things happen, I discovered that with the right coaching and the right environment, the talent in Egypt is really good and the value of owning the software is really enabling us to be much more competitive and much more responding. I like that. So I decided that we are going to continue to own the IP [intellectual property], leverage local resources, and discover the potential of people. Sometimes we don’t give people enough opportunity to unleash their potential. They’re good, but nobody is helping them to discover themselves, and I found that my people are real partners to me, and their potential is very high.
Another dimension that was important to me is, I plan to do a good business, but I discovered that they could do it with locals. It’s more competitive. They have a good talent, and they have full potential. So because it is more competitive, and they can deliver, then it makes a lot of sense.
Mayowa Kuyoro: Absolutely. That’s beautiful to hear, Ashraf. The line that I’m taking away from that is give people the opportunity to show their potential. And you talk about values, which is also important to us. At McKinsey, we’re a values-driven organization. So, again, seeing the coherence in your values and how you go about building your business is quite a privilege to hear about. Any final questions or any final thoughts for our listeners before we sign off today?
Ashraf Sabry: Passion. You have to be passionate about it. Passion would make you work 18 hours a day without feeling tired. It’s not a job. It is something different, but you have to love it. You have to be part of the team, and you have to work together. This is what makes the difference: passion, persistence, hard work. It is not only knowledge and talent. It is belonging, it is loving, it is caring. I don’t know what it is exactly, but it is more than knowledge and talent.
This is what makes the difference: passion, persistence, hard work. It is not only knowledge and talent. It is belonging, it is loving, it is caring. I don’t know what it is exactly, but it is more than knowledge and talent.
Kerry Naidoo: There you have it. I think those are some excellent points to bring our discussion to a close. Thank you to our listeners for joining us and tuning into the McKinsey Africa podcast series, and thank you so much, Ashraf and Mayowa. Ashraf, it’s been a pleasure listening to you, your story, and your insights.
Ashraf Sabry: Thank you very much, everybody. It was a pleasure and a very enjoyable podcast.
Kerry Naidoo: Look out for the next podcast in the series on Africa’s fintech industry, out in a few weeks. We’ll be chatting with Interswitch’s Mitchell Elegbe. If you’d like to learn more about African fintech or view some of our recent thought leadership, we encourage you to visit our insights page on McKinsey.com/za. You can also follow us on LinkedIn and on Twitter by searching our handle @McKinseyAfrica. From me, Kerry Naidoo, thank you.